- ---------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
- ---------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO
BE A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH SEPARATE
ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING INSURANCE
COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN SEPARATE
PORTFOLIOS (EACH, A "SERIES"), ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE
AVAILABLE FOR INVESTMENT THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES
OFFERED BY CERTAIN PARTICIPATING INSURANCE COMPANIES. A PURCHASER OF A VA
CONTRACT OR VLI POLICY SHOULD REFER TO THE PROSPECTUS FOR HIS OR HER
CONTRACT OR POLICY FOR INFORMATION AS TO WHICH PORTFOLIOS OF THE FUND ARE
AVAILABLE FOR INVESTMENT THROUGH THE CONTRACT OR POLICY. A GENERAL
DESCRIPTION OF EACH SERIES IS SET FORTH ON THE FOLLOWING PAGE.
THE DREYFUS CORPORATION SERVES AS THE FUND'S INVESTMENT ADVISER.
(CONTINUED ON NEXT PAGE)
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND
THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN A SERIES THROUGH A VA
CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS
OTHER THAN MONEY MARKET FUNDS WILL FLUCTUATE FROM TIME TO TIME.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE Page
<S> <C> <C> <C>
CONDENSED FINANCIAL INFORMATION............... 3 HOW TO REDEEM SHARES.......................... 26
PERFORMANCE INFORMATION....................... 7 DIVIDENDS, DISTRIBUTIONS AND TAXES............ 26
DESCRIPTION OF THE FUND....................... 9 GENERAL INFORMATION........................... 28
MANAGEMENT OF THE FUND........................ 21 APPENDIX...................................... 29
HOW TO BUY SHARES............................. 25
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES OR CONTRACTS.
- ---------------------------------------------------------------------------
(Continued from cover page)
The MONEY MARKET PORTFOLIO'S goal is to provide as high a level of
current income as is consistent with the preservation of capital and the
maintenance of liquidity. This Series invests in short-term money market
instruments. AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
The CAPITAL APPRECIATION PORTFOLIO'S primary goal is to provide
long-term capital growth consistent with the preservation of capital; current
income is a secondary goal. This Series invests primarily in the common
stocks of domestic and foreign issuers.
The GROWTH AND INCOME PORTFOLIO'S goal is to provide long-term
capital growth, current income and growth of income, consistent with
reasonable investment risk. This Series invests primarily in equity
securities, debt securities and money market instruments of domestic and
foreign issuers.
The MANAGED ASSETS PORTFOLIO'S goal is to maximize total return,
consisting of capital appreciation and current income. This Series follows an
asset allocation strategy by investing in equity securities, debt securities
and money market instruments of domestic and foreign issuers.
The SMALL CAP PORTFOLIO'S goal is to maximize capital appreciation.
This Series invests primarily in common stocks of domestic and foreign
issuers. This Series will be particularly alert to companies that The Dreyfus
Corporation considers to be emerging smaller-sized companies which are
believed to be characterized by new or innovative products, services or
processes which should enhance prospects for growth in future earnings.
The SMALL COMPANY STOCK PORTFOLIO'S goal is to provide investment
results that are greater than the total return performance of publicly-traded
common stocks in the aggregate, as represented by the Russell 2500trademark
Index. This Series invests primarily in a portfolio of equity securities of
small- to medium-sized domestic issuers, while attempting to maintain
volatility and diversification similar to that of the Russell 2500trademark
Index.
The DISCIPLINED STOCK PORTFOLIO'S goal is to provide investment
results that are greater than the total return performance of publicly-traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. This Series will use quantitative statistical
modeling techniques to construct a portfolio in an attempt to achieve its
investment objective, without assuming undue risk relative to the broad stock
market.
The INTERNATIONAL VALUE PORTFOLIO'S goal is long-term capital growth.
This Series invests primarily in a portfolio of publicly-traded equity
securities of foreign issuers which would be characterized as "value"
companies according to criteria established by the Series' investment
advisers.
The INTERNATIONAL EQUITY PORTFOLIO'S goal is to maximize capital
growth. This Series invests primarily in the equity securities of foreign
issuers located throughout the world.
The QUALITY BOND PORTFOLIO'S goal is to provide the maximum amount of
current income to the extent consistent with the preservation of capital and
the maintenance of liquidity. This Series invests principally in debt
obligations of corporations, the U.S. Government and its agencies and
instrumentalities, and major banking institutions.
The ZERO COUPON 2000 PORTFOLIO'S goal is to provide as high an
investment return as is consistent with the preservation of capital. This
Series invests primarily in debt obligations of the U.S. Treasury that have
been stripped of their unmatured interest coupons, interest coupons that have
been stripped from debt obligations issued by the U.S. Treasury, receipts and
certificates for such stripped debt obligations, and stripped coupons and
zero coupon securities issued by domestic corporations, which will mature on
or about December 31, 2000.
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request. No financial information is available for the International Value
Portfolio, Small Company Stock Portfolio and Disciplined Stock Portfolio,
which had not commenced operations as of the date of this Prospectus.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for the Series and periods
indicated. This information has been derived from the Series' financial
statements. The total investment return information set forth below does not
reflect certain expenses charged the separate accounts or related insurance
policies by the Participating Insurance Companies, the inclusion of which
would reduce the Series' total investment return for each period indicated.
<TABLE>
MONEY MARKET PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ----- ----- ------
INVESTMENT OPERATIONS;
Investment income-net............................................ .024 .058 .041 .032 .043 .055
DISTRIBUTIONS;
Dividends from investment income-net............................. (.024) (.058) (.041) (.032) (.043) (.055)
Net asset value, end of year..................................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ===== =====
TOTAL INVESTMENT RETURN............................................ 7.27%(2) 5.99% 4.14% 3.29% 4.37% 5.66%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .03%(2) -- -- -- -- .62%
Ratio of net investment income to
average net assets............................................... 7.18%(2) 5.78% 4.10% 3.23% 4.62% 5.51%
Decrease reflected in above
expense ratios due to undertakings
by The Dreyfus Corporation....................................... 30.51%(2) 3.94% 4.25% 2.81% .88% .03%
Net assets, end of year (000's omitted).......................... $ 741 $1,619 $ 790 $ 7,651 $34,728 $45,249
- -------------
(1)From August 31, 1990 (commencement of operations) to December 31, 1990.
(2)Annualized.
</TABLE>
Page 3
<TABLE>
CAPITAL APPRECIATION PORTFOLIO
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
PER SHARE DATA: 1993(1) 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of year................................................. $12.50 $13.27 $13.44
------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net.............................................................. .08 .23 .23
Net realized and unrealized gain
on investments..................................................................... .76 .17 4.27
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................................... .84 .40 4.50
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net............................................... (.07) (.23) (.23)
------ ------ ------
Net asset value, end of year....................................................... $13.27 $13.44 $17.71
======= ====== ======
TOTAL INVESTMENT RETURN.............................................................. 6.74%(2) 3.04% 33.52%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................................ .28%(2) .25% .85%
Ratio of net investment income to
average net assets................................................................. 1.89%(2) 2.99% 2.08%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation............................................ 3.67%(2) .86% .02%
Portfolio Turnover Rate............................................................ .01%(2) .12% 2.81%
Net assets, end of year (000's omitted)............................................ $ 3,770 $16,118 $46,930
(1) From April 5, 1993 (commencement of operations) to December 31, 1993.
(2) Not annualized.
</TABLE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1994(1) 1995
------ ------
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year....................................................... $12.50 $11.98
------ ------
INVESTMENT OPERATIONS:
Investment income-net.................................................................... .28 .28
Net realized and unrealized gain (loss)
on investments........................................................................... (.43) 7.07
------ ------
TOTAL FROM INVESTMENT OPERATIONS......................................................... (.15) 7.35
------ ------
DISTRIBUTIONS:
Dividends from investment income-net..................................................... (.28) (.27)
Dividends from net realized gain on investments.......................................... (.09) (.73)
------ ------
TOTAL DISTRIBUTIONS...................................................................... (.37) (1.00)
------ ------
Net asset value, end of year............................................................. $11.98 $18.33
====== ======
TOTAL INVESTMENT RETURN.................................................................... (1.22%)(2) 61.89%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................................................. .22%(2) .92%
Ratio of net investment income to
average net assets....................................................................... 2.25%(2) 2.21%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation.................................................. 1.28%(2) .03%
Portfolio Turnover Rate.................................................................. 237.09%(2) 255.42%
Net assets, end of year (000's omitted).................................................. $1,040 $71,161
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
</TABLE>
Page 4
<TABLE>
MANAGED ASSETS PORTFOLIO
-------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
-------- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................... $10.00 $10.11 $10.76 $10.14 $12.92 $12.37
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net............................................ .08 .41 .22 .20 .35 .51
Net realized and unrealized gain
(loss) on investments............................................ .11 .66 (.11) 2.71 (.56) (.54)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................. .19 1.07 .11 2.91 (.21) (.03)
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net............................. (.08) (.42) (.31) (.13) (.32) (.64)
Dividends in excess of investment income-net..................... -- -- -- -- (.02) --
Dividends from net realized
gain on investments.............................................. -- -- (.42) -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.............................................. (.08) (.42) (.73) (.13) (.34) (.64)
------ ------ ------ ------ ------ ------
Net asset value, end of year..................................... $10.11 $10.76 $10.14 $12.92 $12.37 $11.70
======= ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN............................................ 1.85%(2) 10.60% 1.07% 28.59% (1.56%) (.26%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .34%(2) 1.00% .97% .27% .25% .94%
Ratio of net investment income to
average net assets............................................... 2.11%(2) 4.46% 1.88% 1.87% 3.54% 3.56%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation....................... 8.82%(2) 2.83% 1.70% 2.25% .88% --
Portfolio Turnover Rate.......................................... -- 91.97% 118.78% 99.08% 25.96% 53.88%
Net assets, end of year (000's omitted).......................... $ 716 $2,179 $1,865 $7,957 $30,510 $25,272
- -----------------------
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Not annualized.
</TABLE>
<TABLE>
SMALL CAP PORTFOLIO
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................... $10.00 $10.21 $20.60 $22.71 $34.45 $36.52
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net............................................ .21(2) .14(2) .18(2) .14 .17 .16
Net realized and unrealized gain on investments.................. -- 15.85(2) 13.10(2) 14.93 2.50 10.54
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................. .21(2) 15.99(2) 13.28(2) 15.07 2.67 10.70
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net............................. -- (.15) (.15) (.14) (.16) (.18)
Dividends in excess of investment income-net..................... -- -- -- (.01) -- --
Dividends from net realized
gain on investments.............................................. -- (5.45) (11.02) (3.18) (.33) (.91)
Dividends in excess of net realized gain
on investments................................................... -- -- -- -- (.11) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.............................................. -- (5.60) (11.17) (3.33) (.60) (1.09)
------ ------ ------ ------ ------ ------
Net asset value, end of year..................................... $10.21 $20.60 $22.71 $34.45 $36.52 46.13
====== ====== ====== ====== ===== ======
TOTAL INVESTMENT RETURN............................................ 2.10%(3) 159.73% 71.28% 68.31% 7.75% 29.38%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .34%(3) 1.16% .94% .25% .55% .83%
Ratio of net investment income to average net assets............. 2.10%(3) .77% .76% .89% 1.18% .54%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation....................... 84.84%(3) 3.64% 2.29% 1.79% .52% --
Portfolio Turnover Rate.......................................... -- 388.70% 358.27% 244.59% 106.00% 99.02%
Net assets, end of year (000's omitted).......................... $36 $1,554 $ 2,679 $18,337 $173,215 $543,281
Page 5
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Based on average shares outstanding.
(3) Not annualized.
</TABLE>
<TABLE>
INTERNATIONAL EQUITY PORTFOLIO
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1994(1) 1995
------ ------
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................................... $12.50 $12.02
------ ------
INVESTMENT OPERATIONS:
Investment income-net................................................................. .15 .15
Net realized and unrealized gain (loss)
on investments........................................................................ (.40) .74
------ ------
TOTAL FROM INVESTMENT OPERATIONS...................................................... (.25) .89
------ ------
DISTRIBUTIONS;
Dividends from investment income-net.................................................. (.14) (.08)
Dividends in excess of investment income-net.......................................... (.09) (.01)
------ ------
TOTAL DISTRIBUTIONS................................................................... (.23) (.09)
------ ------
Net asset value, end of year.......................................................... $12.02 $12.82
======= ======
TOTAL INVESTMENT RETURN................................................................. (2.00%)(2) 7.39%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................................... .23%(2) 1.59%
Ratio of net investment income to
average net assets.................................................................... 1.11%(2) 1.13%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation............................................... 1.70%(2) .45%
Portfolio Turnover Rate............................................................... 16.75%(2) 70.22%
Net assets, end of year (000's omitted)............................................... $1,089 $7,672
- --------------
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
</TABLE>
<TABLE>
QUALITY BOND PORTFOLIO
------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.00 $10.01 $10.67 $10.94 $11.81 $10.53
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net....................................... .23 .70 .92 .76 .73 .68
Net realized and unrealized gain (loss) on investments...... .01 .66 .30 .88 (1.27) 1.42
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS............................ .24 1.36 1.22 1.64 (.54) 2.10
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net........................ (.23) (.70) (.92) (.76) (.73) (.69)
Dividends from net realized
gain on investments......................................... -- -- (.03) (.01) (.01) (.13)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS......................................... (.23) (.70) (.95) (.77) (.74) (.82)
------ ------ ------ ------ ------ ------
Net asset value, end of year................................ $10.01 $10.67 $10.94 $11.81 $10.53 $11.81
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN....................................... 7.12%(2) 14.12% 12.09% 15.33% (4.59%) 20.42%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................... .15%(2) -- -- -- -- .81%
Ratio of net investment income
to average net assets....................................... 7.20%(2) 7.52% 8.54% 6.51% 7.03% 6.13%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation.................. 137.05%(2) 13.13% 5.33% 3.51% 1.20% .04%
Portfolio Turnover Rate..................................... -- -- 9.39% 110.62% 64.80% 263.53%
Net assets, end of year (000's omitted)..................... $59 $410 $405 $4,706 $13,244 $37,447
- -------------------
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
Page 6
<TABLE>
ZERO COUPON 2000 PORTFOLIO
-------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.00 $10.45 $11.64 $11.77 $12.57 $11.39
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net....................................... .22 .76 .83 .79 .69 .69
Net realized and unrealized gain (loss) on investments...... .45 1.25 .15 .96 (1.18) 1.31
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS............................ .67 2.01 .98 1.75 (.49) 2.00
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net........................ (.22) (.76) (.84) (.78) (.68) (.69)
Dividends from net realized
gain on investments......................................... -- (.06) (.01) (.17) (.01) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS......................................... (.22) (.82) (.85) (.95) (.69) (.69)
------ ------ ------ ------ ------ ------
Net asset value, end of year................................ $10.45 $11.64 $11.77 $12.57 $11.39 $12.70
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN....................................... 20.09%(2) 20.09% 8.87% 15.19% (3.91% 17.95%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................... .70%(2) .72% .64% -- -- .68%
Ratio of net investment income to
average net assets.......................................... 8.03%(2) 7.41% 7.15% 6.21% 6.04% 5.73%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation.................. 81.13%(2) 5.04% 2.28% 2.43% 1.05% .03%
Portfolio Turnover Rate..................................... -- 42.82% 3.08% 106.35% -- 49.43%
Net assets, end of year (000's omitted)..................... $ 155 $ 1,296 $ 1,362 $ 5,696 $10,913 $22,291
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2)Annualized.
</TABLE>
Further information about each such Series' 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.
PERFORMANCE INFORMATION
MONEY MARKET PORTFOLIO -- From time to time, the Series will advertise its
yield and effective yield. It can be expected that these yields will
fluctuate substantially. Both yield figures are based on historical earnings
and are not intended to indicate future performance. The yield of the Series
refers to the income generated by an investment in the Series over a
seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but, when annualized, the income earned by an
investment in the Series is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of
this assumed reinvestment.
CAPITAL APPRECIATION, DISCIPLINED STOCK, GROWTH AND INCOME, INTERNATIONAL
EQUITY, INTERNATIONAL VALUE, MANAGED ASSETS, SMALL CAP AND SMALL COMPANY
STOCK PORTFOLIOS -- The Series may calculate performance on an average annual
total return or total return basis. Average annual total return is calculated
pursuant to a standardized formula which assumes that an investment in the
Series 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 Series' performance will include the
Series' 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
Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the
Page 7
income and principal changes for a specified period and dividing by the net
asset value per share at the beginning of the period. Advertisements may
include the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
QUALITY BOND AND ZERO COUPON 2000 PORTFOLIOS -- For purposes of advertising,
performance may be calculated on several bases, including current yield,
average annual total return and/or total return.
Current yield refers to the Series' annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period.
Average annual total return and total return for these Series will be
calculated as described above.
In addition, the Zero Coupon 2000 Portfolio will calculate on each
business day its anticipated growth rate, which is the annualized rate of
growth investors may expect from the time they purchase a share until the
Series' target date. The anticipated growth rate cannot be guaranteed, as it
involves certain assumptions about variable factors such as reinvestment of
dividends and distributions, the Series' expense ratio and its portfolio
composition. The rate will vary from day-to-day due to changes in interest
rates and other market factors affecting the value of such Series' investments.
Furthermore, differences in the price changes of securities with different
maturities can affect investment return, as can the skill of the investment
adviser in managing the Series. Under certain circumstances, shareholder
redemptions also could affect the anticipated growth rate. See "Description
of the Fund_Investment Considerations and Risks_Special Considerations
Relating to Stripped Securities."
APPLICABLE TO ALL SERIES -- Performance will vary from time to time and past
results are not necessarily representative of future results. Investors
should remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. Performance information, such as that described above,
may not provide a basis for comparison with other investments or other
investment companies using a different method of calculating performance.
Performance information of any Series should not be compared with other funds
that offer their shares directly to the public since the figures provided do
not reflect charges imposed by Participating Insurance Companies under their
VA contracts or VLI policies. The effective yield and total return for a
Series should be distinguished from the rate of return of a corresponding
sub-account or investment division of a separate account of a Participating
Insurance Company, which rate will reflect the deduction of additional
charges, including mortality and expense risk charges, and will therefore be
lower. Variable annuity contract holders and variable life insurance policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' yield or performance information may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Comparative performance information may be
used from time to time in advertising a Series' shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund ReportRegistration
Mark, Money Magazine, Bank Rate Monitortrademark, N. Palm Beach, Fla. 33408,
Standard & Poor's 500 Composite Stock Price Index, Standard & Poor's MidCap
400 Index, Russell 2500trademark Index, Morgan Stanley Capital International
World Index, the Dow Jones Industrial Average, Morningstar, Inc., Value Line
Mutual Fund Survey and other industry publications.
Page 8
DESCRIPTION OF THE FUND
GENERAL -- The Fund is intended to be a funding vehicle for VA contracts and
VLI policies to be offered by the separate accounts of Participating
Insurance Companies. The VA contracts and the VLI policies are described in
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of a Series'
assets which could adversely affect such Series' net asset value per share.
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES -- Each Series has a different
investment objective which it pursues through separate investment policies,
as described herein. The differences in objectives and policies among the
Series determine the types of portfolio securities in which each Series invest
s, and can be expected to affect the degree of risk to which each Series is
subject and each Series' yield or return. Each Series' investment objective
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of such
Series' outstanding voting shares. There can be no assurance that a Series'
investment objective will be achieved. The types of portfolio securities in
which each Series may invest are described in greater detail below and under
"Appendix_Certain Portfolio Securities."
MONEY MARKET PORTFOLIO
The Money Market Portfolio is a diversified portfolio, the goal of
which is to provide as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. The Series
invests in U.S. dollar denominated short-term money market instruments,
including securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, certificates of deposit, time deposits,
bankers' acceptances and other short-term obligations issued by domestic
banks, foreign branches or foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, repurchase agreements, and
high quality domestic and foreign commercial paper and other short-term
corporate and bank obligations, including those with floating and variable
rates of interest, issued by domestic and foreign corporations. The Series
will invest in U.S. dollar denominated obligations issued or guaranteed by
one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supranational
entities. The Series currently does not intend to invest more than 20% of its
assets in foreign securities. Securities in which the Series will invest may
not earn as high a level of current income as long-term or lower quality
securities which generally have less liquidity, greater market risk and more
fluctuation in market value. In addition, the Series may engage in lending
portfolio securities and may enter into reverse repurchase agreements. See
"Appendix_Investment Techniques." During normal market conditions, at least
25% of the Series' assets will be invested in bank obligations. See
"Investment Considerations and Risks."
The Money Market Portfolio seeks to maintain a net asset value of
$1.00 per share for purchases and redemptions. To do so, the Series uses the
amortized cost method of valuing its securities pursuant to Rule 2a-7 under
the 1940 Act, certain requirements of which are summarized below. In
accordance with Rule 2a-7, the Series will maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 13 months or less and invest only in U.S. dol-
Page 9
lar denominated securities determined in accordance with procedures
established by the Fund's Board to present minimal credit risks and which are
rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (or one
rating organization if the instrument was rated by only one such organization)
or, if unrated, are of comparable quality as determined in accordance with
procedures established by the Fund's Board. The nationally recognized
statistical rating organizations currently rating instruments of the type the
Money Market Portfolio may purchase are Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("Duff"), Fitch
Investors Service, L.P. ("Fitch"), IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc. and their rating criteria are described in the "Appendix" to
the Statement of Additional Information. For further information regarding
the amortized cost method of valuing securities, see "Determination of Net
Asset Value" in the Statement of Additional Information. There can be no
assurance that the Money Market Portfolio will be able to maintain a stable
net asset value of $1.00 per share.
CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio is a diversified portfolio, the
primary goal of which is to provide long-term capital growth consistent with
the preservation of capital; current income is a secondary goal. During
periods which Fayez Sarofim & Co. ("Sarofim"), the Series' sub-investment
adviser, determines to be of market strength, the Series acts aggressively to
increase shareholders' capital by investing principally in common stocks of
domestic and foreign issuers, common stocks with warrants attached and debt
securities of foreign governments. The Series will seek investment
opportunities generally in large capitalization companies (those with market
capitalizations exceeding $500 million) which Sarofim believes have the
potential to experience above average and predictable earnings growth. Market
capitalization of a company's stock is its market price per share times the
number of shares outstanding. The Series will be alert to those foreign and
domestic issuers, which it considers undervalued by the stock market in terms
of current earnings, assets or growth prospects. These companies will include
those that management believes have new or innovative products, services or
processes which can enhance prospects for growth in future earnings. Other
than in periods of anticipated market weakness, the Series will invest at
least 80% of its net assets in common stocks. In periods of market weakness,
the Series may adopt a temporary defensive posture to preserve shareholders'
capital by investing the Series' assets in money market instruments of the
type in which the Money Market Portfolio invests ("Money Market
Instruments"). When market conditions warrant, all of the Series' assets may
be so invested.
The Series may invest up to 10% of the value of its assets in
securities of foreign governments and foreign companies which are not
publicly-traded in the United States. By investing in foreign securities, the
Series seeks to further its objective of capital growth. See "Investment
Considerations and Risks_Foreign Securities" below.
In addition, the Series may engage in lending portfolio securities
and foreign currency transactions. See "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio is a non-diversified portfolio, the
goal of which is long-term capital growth, current income and growth of
income, consistent with reasonable investment risk. The Series invests in
equity securities, debt securities and Money Market Instruments of domestic
and foreign issuers. The proportion of the Series' assets invested in each
type of security will vary from time to time in accordance with The Dreyfus
Corporation's assessment of economic conditions and investment opportunities.
The equity securities in which the Series may invest consist of
common stocks, preferred stocks and securities convertible into common
stocks, including those in the form of American, European and
Page 10
Continental
Depositary Receipts, as well as warrants to purchase such securities. The
Series will be particularly alert to companies which offer opportunities for
capital appreciation and growth of earnings, while paying current dividends.
The debt securities in which the Series may invest include bonds,
debentures, notes, mortgage-related securities and municipal obligations.
Debt securities (other than convertible debt securities) purchased by the
Series must be rated at least Baa by Moody's or at least BBB by S&P, Fitch or
Duff or, if unrated, deemed to be of comparable quality by The Dreyfus
Corporation. Debt securities rated Baa by Moody's or BBB by S&P, Fitch or
Duff are considered investment grade obligations which lack outstanding
investment characteristics and have speculative characteristics as well. The
Series may invest up to 35% of the value of its net assets in convertible
debt securities rated not lower than Caa by Moody's or CCC by S&P, Fitch or
Duff, or, if unrated, deemed to be of comparable quality by The Dreyfus
Corporation. Debt securities rated Caa by Moody's and CCC by S&P, Fitch and
Duff are considered to have predominantly speculative characteristics with
respect to capacity to pay interest and repay principal and are considered to
be of poor standing. See "Investment Considerations and Risks_Lower Rated
Securities" below.
While the Series does not intend to limit the amount of its assets
invested in Money Market Instruments, except to the extent believed necessary
to achieve its investment objective, it does not expect under normal market
conditions to have a substantial portion of its assets invested in Money
Market Instruments. However, when The Dreyfus Corporation determines that
adverse market conditions exist, the Series may adopt a temporary defensive
posture and invest its entire portfolio in Money Market Instruments. The
Series also may invest in Money Market Instruments in anticipation of
investing cash positions.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions,
leveraging, lending portfolio securities and short-selling. See also
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
MANAGED ASSETS PORTFOLIO
The Managed Assets Portfolio is a diversified portfolio, the goal of
which is to maximize total return, consisting of capital appreciation and
current income. The Series follows an asset allocation strategy by investing
in equity securities, debt securities and Money Market Instruments of
domestic and foreign issuers. The Series will not be managed as a balanced
portfolio and is not required to maintain a portion of its investments in
each of the Series' permitted investment categories at all times. The asset
classes, market sectors, securities and portfolio strategies selected will be
those that The Dreyfus Corporation and Comstock Partners, Inc. ("Comstock"),
the Series' sub-investment adviser, believe prudent and offer the greatest
potential for achieving the Series' investment objective. The asset
allocation mix selected will be a primary determinant of the Series'
investment performance.
The equity securities in which the Series may invest include common
stocks, preferred stocks, convertible securities and warrants. The debt
securities in which the Series may invest include bonds, debentures and
notes. The Series may invest up to 60% of the value of its total assets in
the securities of foreign issuers, including those issued in the form of
American Depositary Receipts and European Depositary Receipts. The Series may
invest up to 20% of the value of its total net assets in securities of
issuers principally located in any one foreign country, except that the
Series may invest up to 35% of the value of its total net assets in
securities of issuers located in any one of the following foreign countries:
Australia, Canada, France, Japan, the United Kingdom or Germany. The Series
may invest in the securities of companies whose principal activities are in,
or governments of, emerging markets. See "Investment Considerations and
Risks_Foreign Securities" below.
Page 11
The Series generally seeks to invest in equity securities determined
to offer above average potential for total return. In making this
determination, factors including price-earnings ratios, cash flow and the
relationship of asset value to market value of the securities will be taken
into account. The Series will be alert to companies engaged in restructuring
efforts, such as mergers, acquisitions and divestitures of less profitable
units.
The Series generally seeks to invest in debt securities where the
yield and potential for capital appreciation of the security are considered
sufficiently attractive in light of the risks of ownership of the security.
In determining whether the Series should invest in particular debt
securities, the factors considered may include: the price, coupon and yield
to maturity; 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.
Ratings, if any, assigned to the securities by Moody's or S&P or other
recognized rating agencies also will be considered. The judgment of The
Dreyfus Corporation and Comstock as to credit quality of a debt security may
differ, however, from that suggested by the ratings published by a rating
service. The Series is not subject to any limit on the percentage of its
assets that may be invested in securities having a certain rating. Low-rated
and unrated securities have special risks relating to the ability of the
Series to receive timely, or perhaps ultimate, payment of principal and
interest. Such securities are considered to have speculative characteristics
and to be of poor quality; some obligations in which the Series may invest
may be in default. See "Investment Considerations and Risks_Lower Rated
Securities" below. The Series also may invest in Stripped Treasury Securities
(as defined below).
The Managed Assets Portfolio may invest up to 100% of its assets in
Money Market Instruments, but at no time will the Series' investments in bank
obligations, including time deposits, exceed 25% of its assets.
To the extent permitted under the 1940 Act, the Series may invest in
securities issued by closed-end investment companies which principally invest
in securities of foreign issuers. The Series 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.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions,
lending portfolio securities and short-selling. See also "Investment
Considerations and Risks" and "Appendix_Investment Techniques" below and
"Investment Objectives and Management Policies_Management Policies" in the
Statement of Additional Information.
SMALL CAP PORTFOLIO
The Small Cap Portfolio is a diversified portfolio, the goal of which
is to maximize capital appreciation. The Series seeks out companies that The
Dreyfus Corporation believes have the potential for significant growth.
During periods The Dreyfus Corporation judges to be of market strength, the
Series will act aggressively to increase shareholders' capital by investing
principally in common stocks (some of which may be dividend paying) of
domestic and foreign issuers. Under normal market conditions, the Series will
invest at least 65% of its total assets in companies, both domestic and
foreign, with market capitalizations of less than $750 million at the time
of purchase, which the Series believes to be characterized by new or
innovative products or services which should enhance prospects for growth in
future earnings. The Series also will make investments based on prospective
economic or political changes. Further, the Series will invest in special
situations such as corporate restructurings, mergers or acquisitions, thereby
seeking out undervalued securities. In periods of market weakness, the Series
may adopt a temporary defensive posture to preserve shareholders' capital
by investing the Series' assets in Money
Page 12
Market Instruments. When the Series has adopted a temporary defensive
posture, the entire portfolio may be so invested.
The Series may invest up to 25% of the value of its assets in the
common stocks of foreign companies which are not publicly-traded in the
United States. The Series currently does not intend to invest more than 20%
of its assets in foreign securities. See "Investment Considerations and
Risks_Foreign Securities" below.
The Series also may invest in debt securities rated as low as the
lowest rating assigned by Moody's or S&P, and in unrated debt securities,
which have special risks. See "Investment Considerations and
Risks_Fixed-Income Securities" and "_Lower Rated Securities" below.
In addition, the Series may engage in various investment techniques,
such as lending portfolio securities, foreign currency transactions and, to a
limited extent, short-selling. See "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
SMALL COMPANY STOCK PORTFOLIO
The Small Company Stock Portfolio is a diversified portfolio, the
goal of which is to provide investment results that are greater than the
total return performance of publicly-traded common stocks in the aggregate,
as represented by the Russell 2500trademark Index.* The Russell 2500trademark
Index is composed of common stocks issued by small- and medium-sized
companies, typically with market capitalizations between $100 million and
$1.5 billion. The Series invests primarily in a portfolio of equity
securities of small- to medium-sized domestic issuers, while attempting to
maintain volatility and diversification similar to that of the Russell
2500trademark Index. The Series will invest in the securities of such issuers
that are considered by The Dreyfus Corporation and Laurel Capital Advisors,
the Series' sub-investment adviser, to offer above-average growth potential.
The Series also may invest in initial public offerings of stock when The
Dreyfus Corporation and Laurel Capital Advisors determine that such offerings
provide above-average short-term appreciation opportunities. The equity
securities in which the Series invests consist of common stocks, preferred
stocks and securities convertible into common stocks, including those in the
form of American Depositary Receipts. The Series also may invest up to 20% of
its assets in foreign securities. See "Investment Considerations and
Risks_Foreign Securities" below.
While seeking desirable investments, the Series may invest in Money
Market Instruments. Under normal market conditions, the Series does not
expect to have a substantial portion of its assets invested in Money Market
Instruments. However, when The Dreyfus Corporation and Laurel Capital
Advisors determine that adverse market conditions exist, the Series may adopt
a temporary defensive posture and invest all of its assets in Money Market
Instruments.
In an effort to increase returns, the Series may engage in various
investment techniques, such as lending portfolio securities, foreign currency
transactions, and options and futures transactions, and may enter into
reverse repurchase agreements. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
DISCIPLINED STOCK PORTFOLIO
The Disciplined Stock Portfolio is a diversified portfolio, the goal
of which is to provide investment results that are greater than the total
return performance of publicly-traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index ("S&P
500 Index").**
- -------------------
* Russell 2500trademark is a trademark of Frank Russell Company. The Series
is not sponsored, endorsed, sold or promoted by Frank Russell Company.
**"S&PRegistration Mark" and "Standard & Poor's 500 Composite Stock Price
Index" are trademarks of The McGraw-Hill Companies, Inc. The Series is not
sponsored, endorsed, sold or promoted by S&P or The McGraw-Hill Companies,
Inc.
Page 13
The S&P 500 Index is composed of 500 common stocks, most of
which are listed on the New York Stock Exchange, chosen to reflect the
industries of the U.S. economy. The Series uses quantitative statistical
modeling techniques to identify equity securities which emphasize certain
attributes expected to produce in the aggregate total return greater than
that of the S&P 500 Index. This investment process utilizes disciplined
control of fund risk and a process of rigorous security selection. The Series
is not an index fund and its investments are not limited to securities of
issuers in the S&P 500 Index.
Individual security selection is the foundation of the Series'
investment approach. Consistency of returns which exceed those of the S&P 500
Index and stability of the Series' asset value relative to the S&P 500 Index
are primary goals of the investment process. Information from diverse sources
is collected and used to construct valuation models which are combined to
form a comprehensive computerized valuation ranking system identifying common
stocks which appear to be over or under valued. These models include measures
of actual and estimated earnings changes and relative value based on dividend
discount calculations, book values to stock price ratios, earnings to stock
price ratios and return on equity ratios. The computerized ranking system
incorporates information from the most recent time period available to the
system and categorizes individual securities within each industry according
to relative attractiveness. The Dreyfus Corporation and Laurel Capital
Advisors, the Series' sub-investment adviser, then use the data provided by
the model to construct a portfolio in an attempt to achieve the Series'
investment objective, while attempting to maintain risk characteristics
similar to those of the S&P 500 Index.
Under normal circumstances, at least 65% of the Series' total assets
will be invested in equity securities, consisting of common stocks, preferred
stocks and securities convertible into common stocks, including those in the
form of American Depositary Receipts. While seeking desirable investments,
the Series may invest in Money Market Instruments. Under normal market
conditions, the Fund does not expect to have a substantial portion of its
assets invested in Money Market Instruments. However, when The Dreyfus
Corporation and Laurel Capital Advisors determine that adverse market
conditions exist, the Series may adopt a temporary defensive posture and
invest all of its assets in Money Market Instruments.
In an effort to increase returns, the Series may engage in various
investment techniques, such as options and futures transactions. See also
"Investment Considerations and Risks" and "Appendix--Investment Techniques"
below and "Investment Objectives and Management Policies--Management
Policies" in the Statement of Additional Information.
INTERNATIONAL VALUE PORTFOLIO
The International Value Portfolio is a diversified portfolio, the
goal of which is long-term capital growth. The Series anticipates that at
least 65% of the value of its total assets (except when maintaining a
temporary defensive position) will be invested in equity securities
principally of foreign issuers which would be characterized as "value"
companies according to criteria established by The Dreyfus Corporation and
The Boston Company Asset Management, Inc. ("TBC Asset Management"), the
Series' sub-investment adviser. Under normal market conditions, the Series
expects that substantially all of its assets will be invested in securities
of foreign issuers. While there are no prescribed limits on geographic asset
distribution outside the United States, the Series ordinarily will seek to
invest its assets in not less than three foreign countries. The Series'
securities selections generally will be made without regard to an issuer's
market capitalization. Equity securities consist of common stocks, convertible
securities and preferred stocks.
To manage the Series, The Dreyfus Corporation and TBC Asset
Management classify issuers as "growth" or "value" companies. In general, the
Series' advisers believe that companies with relatively low price to book
ratios, low price to earnings ratios or higher than average dividend payments
in relation to price should be classified as value companies. Alternatively,
companies which have above average
Page 14
earnings or sales growth and retention of earnings and command higher price
to earnings ratios fit the more classic growth description.
The Series may invest, to a limited extent, in debt securities issued
by foreign governments and securities issued by closed-end investment
companies. While seeking desirable investments, the Series may invest in
Money Market Instruments. Under normal market conditions, the Series does not
expect to have a substantial portion of its assets invested in Money Market
Instruments. However, when The Dreyfus Corporation and TBC Asset Management
determine that adverse market conditions exist, the Series may adopt a
temporary defensive posture and invest all of its assets in Money Market
Instruments.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions and
lending portfolio securities. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio is a non-diversified portfolio,
the goal of which is capital growth. It is a fundamental policy of the Series
that at least 65% of the value of its total assets (except when maintaining a
temporary defensive position) will be invested in equity securities of
foreign issuers. Equity securities consist of common stocks, convertible
securities and preferred stocks. The Series also may invest in debt
securities of foreign issuers that management believes, based on market
conditions, the financial condition of the issuer, general economic conditions
and other relevant factors, offer opportunities for capital growth. Under
normal market conditions, it is expected that substantially all of the Series'
assets will be invested in securities of foreign issuers. While there are no
prescribed limits on geographic asset distribution outside the United States,
the Series ordinarily will seek to invest its assets in no fewer than three
foreign countries. The Series may invest up to 5% of its assets in securities
of companies that have been in continuous operation for fewer than three
years.
The debt securities in which the Series may invest must be rated at
least Baa by Moody's or at least BBB by S&P, Fitch or Duff or, if unrated,
deemed to be of comparable quality by The Dreyfus Corporation. Debt
securities rated Baa by Moody's or BBB by S&P, Fitch or Duff are considered
investment grade obligations which lack outstanding investment
characteristics and have speculative characteristics as well. See "Investment
Considerations and Risks_Fixed-Income Securities" below.
While seeking desirable equity investments, the Series may invest in
Money Market Instruments.
Under normal market conditions, the Series does not expect to have a
substantial portion of its assets invested in Money Market Instruments.
However, when The Dreyfus Corporation determines that adverse market
conditions exist, the Series may adopt a temporary defensive posture
and invest all of its assets in Money Market Instruments.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions and
lending portfolio securities. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
QUALITY BOND PORTFOLIO
The Quality Bond Portfolio is a diversified portfolio, the goal of
which is to provide the maximum amount of current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The Series invests principally in debt obligations of corporations, the U.S.
Government and its agencies and instrumentalities, and major U.S. banking
institutions. At least 80% of the value of the Series' net assets will
consist of obligations of corporations which, at the time of purchase by the
Series, are rated at least A by Moody's or S&P, or determined to be of
comparable quality by The Dreyfus Corporation, and of securities issued or
guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities. The Series also may invest in mortgage-related
securities, municipal
Page 15
obligations and zero coupon securities as described herein. At least 65% of
the value of the Series' net assets (except when maintaining a temporary
defensive position) will be invested in bonds, debentures and other debt
instruments.
Up to 20% of the Series' assets may consist of high grade commercial
paper of U.S. issuers, certificates of deposit, time deposits and bankers'
acceptances, and corporate bonds which are rated in any category lower than A
by both Moody's and S&P. When deemed necessary for temporary defensive
purposes or in connection with loans of portfolio securities, the Series'
investment in high grade commercial paper, certificates of deposit, time
deposits and bankers' acceptances may exceed 20% of its assets, although the
Series currently does not intend to invest more than 5% of its assets in any
one of these types of instruments. Under no circumstances will the Series
invest more than 20% of its assets in corporate bonds which are rated lower
than A, but in no case lower than B, by both Moody's and S&P or are unrated.
In addition, the Series will invest no more than 5% of its assets in bonds
rated Ba or B by Moody's and BB or B by S&P. The Series may invest up to 10%
of its assets in securities of foreign issuers. See "Investment
Considerations and Risks -- Foreign Securities" below.
In addition, the Series may engage in lending portfolio securities.
See also "Investment Considerations and Risks" and "Appendix_Investment
Techniques_Lending Portfolio Securities" below and "Investment Objectives and
Management Policies" in the Statement of Additional Information.
ZERO COUPON 2000 PORTFOLIO
The Zero Coupon 2000 Portfolio is a diversified portfolio, the goal
of which is to provide as high an investment return as is consistent with the
preservation of capital. The Zero Coupon 2000 Portfolio invests in a
portfolio consisting primarily (but currently not anticipated to be in excess
of 55% of the Series' assets) of debt obligations issued by the U.S. Treasury
that have been stripped of their unmatured interest coupons, interest coupons
that have been stripped from debt obligations issued by the U.S. Treasury,
and receipts and certificates for stripped debt obligations and stripped
coupons, including U.S. Government trust certificates (collectively,
"Stripped Treasury Securities"). See "Appendix_Certain Portfolio
Securities_Stripped Treasury Securities." The Series also may purchase other
zero coupon securities issued by the U.S. Government and its agencies and
instrumentalities, by a variety of tax exempt issuers such as state and local
governments and their agencies and instrumentalities and by "mixed-ownership
government corporations" (collectively, "Stripped Government Securities"). In
addition, the Series may purchase zero coupon securities issued by domestic
corporations which consist of corporate debt obligations without interest
coupons, and, if available, interest coupons that have been stripped from
corporate debt obligations, and receipts and certificates for such stripped
debt obligations and stripped coupons (collectively, "Stripped Corporate
Securities"). Stripped Corporate Securities held by the Series will be rated
at least Baa by Moody's or BBB by S&P. In addition, the Series may purchase
stripped Eurodollar obligations, which are debt securities denominated in
U.S. dollars that are issued by foreign issuers, often guaranteed
subsidiaries of domestic corporations. The Series may invest up to 25% of its
assets in securities of foreign issuers. At the present time, the Series does
not intend to invest more than 20% of its assets in securities of foreign
issuers. See "Investment Considerations and Risks -- Foreign Securities." To
the extent that a liquid secondary market is not available for Stripped
Treasury Securities, Stripped Government Securities, Stripped Corporate
Securities or stripped Eurodollar obligations, the Series will invest no more
than 15% of its net assets in such securities and in other securities that
are illiquid. For a further discussion concerning stripped securities,
including stripped Eurodollar obligations, see "Investment Considerations and
Risks_Special Considerations Relating to Stripped Securities" below.
Stripped Treasury Securities, Stripped Government Securities,
Stripped Corporate Securities and stripped Eurodollar obligations are
referred to collectively herein as "Stripped Securities." The Zero Coupon
2000 Portfolio is so designated because at least 65% of the value of the
Series' assets will consist of portfolio securities which will mature on or
about December 31, 2000.
Page 16
In addition to investing at least 65% of its net assets in Stripped
Securities, the Series will purchase interest-bearing U.S. Government
securities and other Money Market Instruments held for the purpose of
providing income with which to pay the expenses of the Series and to provide
funds with which to meet redemption requests.
There can be no assurance that the Series' objective can be met if
Series shares are redeemed prior to maturity of the underlying Stripped
Securities because market prices of the Stripped Securities before maturity
will vary with changes in interest rates. Stripped Securities, including
stripped Eurodollar obligations, do not make any periodic payments of
interest prior to maturity and the stripping of the interest coupons causes
the Stripped Securities to be offered at a substantial (or "deep") discount
from their face amounts. The market value of Stripped Securities, and
therefore of the shares of the Series, will fluctuate with changes in
interest rates and other factors and may be subject to greater fluctuations
in response to changing interest rates than would a fund consisting of debt
obligations of comparable maturities that pay interest currently. The amount
of fluctuation increases with a longer period to maturity.
On December 31, 2000, the maturity date for the Zero Coupon 2000
Portfolio, the portfolio will be liquidated. Some of the Series' portfolio
securities may mature up to several months earlier than the planned maturity
date of the Series. Attempts will be made to match the maturity dates of the
portfolio assets with the Series' maturity date as closely as possible, but
securities may be purchased with earlier maturities where additional revenue
for the Series may be achieved by such purchases. Prior to December 31, 2000,
shareholders will be informed of the liquidation of the Series and will be
offered the opportunity to exchange their investment upon maturity for
another Series of the Fund. In the event the Zero Coupon 2000 Portfolio has
not received instructions from shareholders as to the disposition of funds
upon maturity of the Series, such funds will be invested automatically in the
Money Market Portfolio.
In addition, the Series may engage, to a limited extent, in various
investment techniques, such as options and futures transactions and lending
portfolio securities. See also "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- Since each Series will pursue different types of investments, the
risks of investing will vary depending on the Series selected for investment.
Before selecting a Series in which to invest, the investor should assess the
risks associated with the types of investments made by the Series. The net
asset value per share of each Series, other than the Money Market Portfolio,
should be expected to fluctuate. Investors should consider each Series as a
supplement to an overall investment program and should invest only if they
are willing to undertake the risks involved. See "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information for a further discussion of certain risks.
EQUITY SECURITIES -- (Capital Appreciation, Disciplined Stock, Growth and
Income, International Equity, International Value, Managed Assets, Small Cap
and Small Company Stock Portfolios) Equity securities fluctuate in value,
often based on factors unrelated to the value of the issuer of the
securities, and such fluctuations can be pronounced. Changes in the value of
the Series' investments will result in changes in the value of its shares and
thus the Series' total return to investors.
The securities of the smaller companies in which the Series may
invest may be subject to more abrupt or erratic market movements than larger,
more established companies, because these securities typically are traded in
lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FIXED-INCOME SECURITIES -- (All Series) Even though interest-bearing
securities are investments which promise a stable stream of income, the
prices of such securities generally are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Certain secu-
Page 17
rities that may be purchased by a Series, such as those with interest rates
that fluctuate directly or indirectly based on multiples of a stated index,
are designed to be highly sensitive to changes in interest rates and can
subject the holders thereof to extreme reductions of yield and possibly loss
of principal.
The values of fixed-income securities also may be affected by changes
in the credit rating or financial condition of the issuer. Certain securities
purchased by the Managed Assets, Growth and Income, International Equity and
Quality Bond Portfolios, such as those rated Baa or lower by Moody's and BBB
or lower by S&P, Fitch and Duff, may be subject to such risk with respect to
the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed-income securities. Once the rating of a
portfolio security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security. See
"Appendix_Certain Portfolio Securities_Ratings" below and "Appendix" in the
Statement of Additional Information.
SPECIAL CONSIDERATIONS RELATING TO STRIPPED SECURITIES -- (Zero Coupon 2000
Portfolio and, to a limited extent, all other Series) A Stripped Security is
a debt obligation that does not entitle the holder to any periodic payments
of interest prior to maturity and therefore is issued and traded at a
discount from its face amount. The discount from face value at which Stripped
Securities are purchased varies depending on the time remaining until
maturity, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. Because the discount from face value
is known at the time of investment, investors holding Stripped Securities
until maturity know the total amount of their investment return at the time
of investment. In contrast, a portion of the total realized return from
conventional interest-paying obligations comes from the reinvestment of
periodic interest. Since the rate to be earned on these reinvestments may be
higher or lower than the rate quoted on the interest-paying obligations at
the time of the original purchase, the investment's total return is uncertain
even for investors holding the securities to their maturity. This uncertainty
is commonly referred to as reinvestment risk and can have a significant
impact on total realized investment return. With Stripped Securities, however,
there are no cash distributions to reinvest, so investors bear no reinvestment
risk if they hold the Stripped Securities to maturity.
Stripped Securities can be sold prior to their due date in the
secondary market at their then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing levels of interest
rates and the perceived credit quality of the issuer, which may be more or
less than the securities' value. The market prices of Stripped Securities are
generally more volatile than the market prices of securities that pay
interest periodically and, accordingly, are likely to respond to a greater
degree to changes in interest rates than do other debt obligations having
similar maturities and credit quality characteristics. As a result, the net
asset value of shares of the Zero Coupon 2000 Portfolio may fluctuate over a
greater range than shares of other mutual funds that invest in obligations of
the U.S. Government or corporations having similar maturities but that make
current distributions of interest.
As an open-end investment company, the Zero Coupon 2000 Portfolio
will be issuing new shares and will be required to redeem its shares upon the
request of any shareholder at the net asset value next determined after
receipt of the request. However, because of the price volatility of Stripped
Securities prior to maturity, a shareholder who redeems shares may realize an
amount that is less or greater than the entire amount initially invested.
Accordingly, the Zero Coupon 2000 Portfolio may not be appropriate for
investors that expect to have a current need for income from the investment
or wish to liquidate their investment prior to December 31, 2000.
Each year the Zero Coupon 2000 Portfolio will be required to accrue
an increasing amount of income on its Stripped Securities. To maintain its
tax status as a regulated investment company and to avoid imposition of
excise taxes, however, the Zero Coupon 2000 Portfolio and any other Series
that invests in Stripped Securities will be required to distribute dividends
equal to substantially all of its net
Page 18
investment income, including the accrued income, derived from its Stripped
Securities for which it receives no payments in cash prior to their maturity.
The Series cannot assure that it will be able to achieve a certain
level of return due to the possible necessity of having to sell certain
Stripped Securities to pay expenses or dividends or to meet redemptions at
times and at prices that might be disadvantageous, or, alternatively, to
invest assets received from new purchases at prevailing interest rates, which
would expose the Series to reinvestment risk. In addition, no assurance can
be given as to the liquidity of the market for certain of these securities.
Determination as to the liquidity of such securities will be made in
accordance with guidelines established by the Fund's Board. In accordance
with such guidelines, the Series' adviser will monitor the Series'
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
LOWER RATED SECURITIES--(Growth and Income, Managed Assets, Quality Bond and,
to a limited extent, Small Cap Portfolios) Each of these Series may invest a
portion of its assets in higher yielding (and, therefore, higher risk) debt
securities (convertible debt securities with respect to the Growth and Income
Portfolio) such as those rated Ba by Moody's or BB by S&P, Fitch or Duff, or
as low as those rated B by Moody's, S&P, Fitch or Duff in the case of the
Quality Bond Portfolio, or as low as those rated Caa by Moody's or CCC by
S&P, Fitch or Duff in the case of the Growth and Income Portfolio, or as low
as the lowest rating assigned by Moody's, S&P, Fitch or Duff in the case of
the Managed Assets and Small Cap Portfolios (commonly known as junk bonds).
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. The retail secondary market for these securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Series to sell certain securities or could result
in lower prices than those used in calculating the Series' net asset value.
See "Appendix -- Certain Portfolio Securities -- Ratings."
FOREIGN SECURITIES -- (All Series) Foreign securities markets generally are
not as developed or efficient as those in the United States. Securities of
some foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible: adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The percentage of a Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
Page 19
FOREIGN CURRENCY TRANSACTIONS -- (Capital Appreciation, Growth and Income,
International Equity, International Value, Managed Assets, Small Cap and
Small Company Stock Portfolios) Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
USE OF DERIVATIVES -- (Disciplined Stock, Growth and Income, International
Value, International Equity, Managed Assets, Small Company Stock and Zero
Coupon 2000 Portfolios) These Series may invest in derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Series may use include options
and futures and, in the case of the Growth and Income Portfolio,
mortgage-related securities. While Derivatives can be used effectively in
furtherance of the Series' investment objective, under certain market
conditions, they can increase the volatility of the Series' net asset value,
can decrease the liquidity of the Series' portfolio and make more difficult
the accurate pricing of the Series' portfolio. See "Appendix_Investment
Techniques_Use of Derivatives" below, and "Investment Objectives and
Management Policies_Management Policies_Derivatives" in the Statement of
Additional Information.
BANK SECURITIES -- (Money Market Portfolio) To the extent the Money Market
Portfolio's investments are concentrated in the banking industry, the Series
will have correspondingly greater exposure to the risk factors which are
characteristic of such investments. Sustained increases in interest rates can
adversely affect the availability or liquidity and cost of capital funds for
a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. In addition, the valu
e of and the investment return on the Money Market Portfolio's shares could
be affected by economic or regulatory developments in or related to the
banking industry, and competition within the banking industry as well as with
other types of financial institutions. The Money Market Portfolio, however,
will seek to minimize its exposure to such risks by investing only in debt
securities which are determined to be of high quality.
MUNICIPAL LEASE/PURCHASE OBLIGATIONS -- (Growth and Income and Quality Bond
Portfolios) Certain municipal lease/purchase obligations in which the Series
may invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, The Dreyfus Corporation will
consider, on an ongoing basis, a number of factors including the likelihood
that the issuing municipality will discontinue appropriating funding for the
leased property.
PORTFOLIO TURNOVER -- (All Series) No Series will consider portfolio turnover
to be a limiting factor in making investment decisions. Under normal market
conditions, the portfolio turnover rates are anticipated to exceed 100% for
the Managed Assets and Small Cap Portfolios, to be less than 100% for the
Capital Appreciation Portfolio and to be less than 150% for the Growth and
Income, Quality Bond, Zero Coupon 2000, Disciplined Stock, Small Company
Stock, International Value and International Equity Portfolios. Higher
portfolio turnover rates are likely to result in comparatively greater
brokerage commissions and transaction costs. In addition, short-term gains
realized from portfolio transactions are taxable to shareholders as ordinary
income. The Money Market Portfolio may have a high portfolio
Page 20
turnover, but that should not adversely affect the Series since it usually
does not pay brokerage commissions when it purchases short-term debt
obligations.
NON-DIVERSIFIED PORTFOLIOS -- (Growth and Income and International Equity
Portfolios) The Growth and Income and International Equity Portfolios are
classified as "non-diversified" investment companies, which means that the
proportion of such Series' assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment
company is required by the 1940 Act generally, with respect to 75% of its
total assets, to invest not more than 5% of such assets in the securities of
a single issuer. Since a relatively high percentage of each of these Series'
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry, the Series' portfolio may be more
sensitive to changes in the market value of a single issuer or industry.
However, to meet Federal tax requirements, at the close of each quarter
neither of these Series may have more than 25% of its total assets invested
in any one issuer and, with respect to 50% of total assets, more than 5% of
its total assets invested in any one issuer. These limitations do not apply
to U.S. Government securities.
STATE INSURANCE REGULATION -- (All Series) The Fund is intended to be a
funding vehicle for VA contracts and VLI policies to be offered by
Participating Insurance Companies and will seek to be offered in as many
jurisdictions as possible. Certain states have regulations concerning
concentration of investments, purchase and sale of futures contracts and short
sales of securities, among other techniques. If applied to the Fund, each
Series may be limited in its ability to engage in such techniques and to
manage its portfolio with the flexibility provided herein. It is the Fund's
intention that each Series operate in material compliance with current
insurance laws and regulations, as applied, in each jurisdiction in which the
Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- (All Series) Investment
decisions for each Series are made independently from those of the other
Series and investment companies managed by The Dreyfus Corporation (and,
where applicable, the Series' sub-investment adviser). However, if such other
Series or investment companies desire to invest in, or dispose of, the same
securities as the Series, available investments or opportunities for sales
will be allocated equitably to each. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by a
Series or the price paid or received by a Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts 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 provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31,
Page 21
1995, Mellon, through various subsidiaries, provided non-investment services,
such as custodial or administration services, for more than $786 billion in
assets including approximately $60 billion in mutual fund assets.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more Series and/or to
purchasers of VA contracts or VLI policies.
The primary portfolio managers of the Series are as follows:
CAPITAL APPRECIATION PORTFOLIO -- Fayez Sarofim. He has been the Series'
primary portfolio manager since the Series commenced operations and has been
employed by Sarofim since 1958.
GROWTH AND INCOME PORTFOLIO -- Richard Hoey. He has been the Series' primary
portfolio manager since the Series commenced operations and has been employed
by The Dreyfus Corporation since April 1991.
MANAGED ASSETS PORTFOLIO -- Investment decisions are made by the Investment
Policy Committee of Comstock, and no person is primarily responsible for
making recommendations to that committee.
SMALL CAP PORTFOLIO -- Thomas A. Frank. He has been the Series' primary
portfolio manager since the Series commenced operations and has been employed
by The Dreyfus Corporation since 1985.
SMALL COMPANY STOCK PORTFOLIO -- James Wadsworth. He has been the Series'
primary portfolio manager since the Series' inception and has been Chief
Investment Officer for Laurel Capital Advisors since October 1990. Mr.
Wadsworth also is a First Vice President of Mellon, where he has been
employed since 1977.
DISCIPLINED STOCK PORTFOLIO -- Bert Mullins. He has been the Series' primary
portfolio manager since the Series' inception and has been employed by Laurel
Capital Advisors since October 1990. Mr. Mullins also is a Vice President,
Portfolio Manager and Senior Security Analyst for Mellon, where he has been
employed since 1966.
INTERNATIONAL VALUE PORTFOLIO -- Sandor Cseh. He has been the Series' primary
portfolio manager since the Series' inception and has been employed by TBC
Asset Management or its predecessor since October 1994. Prior to joining TBC
Asset Management, Mr. Cseh was President of Cseh International & Associates
Inc., the international money management division of Cashman, Farrell &
Association, and was a securities analyst with several banks.
INTERNATIONAL EQUITY PORTFOLIO -- Ronald Chapman. He has been the Series'
primary portfolio manager since April 1996 and has been employed by The
Dreyfus Corporation since January 1996. Prior thereto, Mr. Chapman served for
ten years as Vice President of the Global Strategy and Management Group for
Northern Trust Company.
QUALITY BOND PORTFOLIO -- Garitt Kono. He has been the Series' primary
portfolio manager since the Series commenced operations and has been employed
by The Dreyfus Corporation since September 1992. Prior to joining The Dreyfus
Corporation, Mr. Kono was Vice President--Fixed Income at The First Boston
Corporation.
ZERO COUPON 2000 PORTFOLIO -- Garitt Kono. He has been the Series' primary
portfolio manager since the Series commenced operations.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .75
of 1% of the value of the Disciplined Stock Portfolio's average daily net
assets; .375 of 1% of the value of the Managed Assets Portfolio's average
Page 22
daily net assets; .75 of 1% of the value of the Growth and Income Portfolio's
average daily net assets; 1% of the value of the International Value
Portfolio's average daily net assets; .75 of 1% of the value of the
International Equity Portfolio's average daily net assets; .50 of 1% of the
value of the Money Market Portfolio's average daily net assets; .75 of 1% of
the value of the Small Company Stock Portfolio's average daily net assets;
.65 of 1% of the value of the Quality Bond Portfolio's average daily net
assets; .75 of 1% of the value of the Small Cap Portfolio's average daily net
assets; and .45 of 1% of the value of the Zero Coupon 2000 Portfolio's
average daily net assets. Under the terms of the Investment Advisory
Agreement with respect to the Capital Appreciation Portfolio, the Fund has
agreed to pay The Dreyfus Corporation an annual fee, payable monthly, as set
forth below:
<TABLE>
ANNUAL FEE AS A
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS OF THE CAPITAL
TOTAL ASSETS APPRECIATION PORTFOLIO
----------- ----------------------------
<S> <C> <C>
0 to $150 million.............................. .55 of 1%
$150 million to $300 million................... .50 of 1%
$300 million or more........................... .375 of 1%
</TABLE>
For the fiscal year ended December 31, 1995, the Fund paid The Dreyfus
Corporation a monthly advisory fee at the following effective annual rates,
pursuant to undertakings in effect: .72 of 1% of the value of the Growth and
Income Portfolio's average daily net assets; .30 of 1% of the value of the
International Equity Portfolio's average daily net assets; .47 of 1% of the
value of the Money Market Portfolio's average daily net assets; .61 of 1% of
the value of the Quality Bond Portfolio's average daily net assets; .42 of 1%
of the value of the Zero Coupon 2000 Portfolio's average daily net assets;
and .53 of 1% of the value of the Capital Appreciation Portfolio's average
daily net assets. With respect to each other operational Series, the Fund
paid The Dreyfus Corporation an advisory fee at the annual rate set forth in
the preceding paragraph.
SUB-INVESTMENT ADVISERS -- With respect to the Managed Assets Portfolio,
Comstock Partners, a registered investment adviser located at 10 Exchange
Place, Jersey City, New Jersey 07302, serves as the Series' sub-investment
adviser. Comstock Partners was formed in 1986 and, as of February 29, 1996,
managed approximately $700 million in assets for other mutual funds and
several discretionary accounts. Comstock Partners, subject to the supervision
and approval of The Dreyfus Corporation, provides investment advisory
assistance and the day-to-day management of the Managed Assets 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
in accordance with Massachusetts law. For the fiscal year ended December 31,
1995, the Fund paid Comstock Partners a monthly sub-investment advisory fee
at the annual rate of .375 of 1% of the value of the Managed Assets
Portfolio's average daily net assets.
With respect to the Capital Appreciation Portfolio, Sarofim, a
registered investment adviser located at Two Houston Center, Suite 2907,
Houston, Texas 77010, serves as the Series' sub-investment adviser. Sarofim
was formed in 1958 and, as of February 29, 1996, provided investment advisory
services to discretionary accounts having aggregate assets of approximately
$28 billion. Sarofim, subject to the supervision and approval of The Dreyfus
Corporation, provides investment advisory assistance and the day-to-day
management of the Capital Appreciation Portfolio, as well as investment
research and statistical information, under a Sub-Investment Advisory
Agreement with the Fund, subject to the overall authority of the Fund's Board
in accordance with Massachusetts law. Under the terms of the Sub-Investment
Advisory Agreement with respect to the Capital Appreciation Portfolio, the
Fund has agreed to pay Sarofim an annual fee, payable monthly, as set forth
below:
Page 23
<TABLE>
ANNUAL FEE AS A
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS OF THE CAPITAL
TOTAL ASSETS APPRECIATION PORTFOLIO
----------- ----------------------------
<S> <C> <C>
0 to $150 million................................. .20 of 1%
$150 million to $300 million...................... .25 of 1%
$300 million or more.............................. .375 of 1%
</TABLE>
For the fiscal year ended December 31, 1995, the Fund paid Sarofim a monthly
sub-investment advisory fee at the annual rate of .20 of 1% of the value of
the Capital Appreciation Portfolio's average daily net assets.
With respect to the Disciplined Stock and Small Company Stock
Portfolios, The Dreyfus Corporation has engaged Laurel Capital Advisors,
located at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, to serve
as each Series' sub-investment adviser. Laurel Capital Advisors, a registered
investment adviser formed in 1990, is an indirect wholly-owned subsidiary of
Mellon and, thus, an affiliate of The Dreyfus Corporation. As of February 29,
1996, Laurel Capital Advisors managed approximately $4 billion in assets.
Laurel Capital Advisors, subject to the supervision and approval of The
Dreyfus Corporation, provides investment advisory assistance and the
day-to-day management of each of the Disciplined Stock and Small Company
Stock Portfolio's investments, as well as investment research and statistical
information, under a Sub-Investment Advisory Agreement with The Dreyfus
Corporation, subject to the overall authority of the Fund's Board in
accordance with Massachusetts law. Under the terms of the Sub-Investment
Advisory Agreement with respect to each of the Disciplined Stock and Small
Company Stock Portfolios, The Dreyfus Corporation has agreed to pay Laurel
Capital Advisors an annual fee, payable monthly, as set forth below:
<TABLE>
ANNUAL FEE AS A
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS OF
TOTAL ASSETS EACH SUCH SERIES
----------- ----------------------------
<S> <C> <C>
0 to $100 million................................. .25 of 1%
$100 million to $1 billion........................ .20 of 1%
$1 billion to $1.5 billion........................ .15 of 1%
$1.5 billion or more.............................. .10 of 1%
</TABLE>
With respect to the International Value Portfolio, The Dreyfus
Corporation has engaged TBC Asset Management, located at
One Boston Place, Boston, Massachusetts 02108, to serve as the Series'
sub-investment adviser. TBC Asset Management, a registered investment adviser
formed in 1970, is an indirect wholly-owned subsidiary of Mellon and, thus,
an affiliate of The Dreyfus Corporation. As of February 29, 1996, TBC Asset
Management managed approximately $15 billion in assets and serves as the
investment adviser of five other investment companies. TBC Asset Management,
subject to the supervision and approval of The Dreyfus Corporation, provides
investment advisory assistance and the day-to-day management of the
International Value Portfolio's investments, as well as investment research
and statistical information, under a Sub-Investment Advisory Agreement with
The Dreyfus Corporation, subject to the overall authority of the Fund's Board
in accordance with Massachusetts law. Under the terms of the Sub-Investment
Advisory Agreement with respect to the International Value Portfolio, The
Dreyfus Corporation has agreed to pay TBC Asset Management a monthly fee at
the annual rate of .50 of 1% of the value of the International Value
Portfolio's average daily net assets.
With respect to the International Equity Portfolio, from May 4, 1994
to March 31, 1996, The Dreyfus Corporation engaged M&G Investment Management
Limited ("M&G"), a registered invest-
Page 24
ment adviser located at Three Quays Tower Hill, London EC3R 6BQ, England, to
serve as the Series' sub-investment adviser. For the fiscal year ended
December 31, 1995, The Dreyfus Corporation paid M&G a monthly sub-investment
advisory fee at the annual rate of .30 of 1% of the value of the International
Equity Portfolio's average daily net assets.
EXPENSES -- All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by The Dreyfus
Corporation or a sub-investment adviser. The expenses borne by the Fund
include: organizational costs, taxes, interest, loan commitment fees,
interest and distributions paid on securities sold short, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
The Dreyfus Corporation or any sub-investment adviser or their affiliates,
Securities and Exchange Commission fees, state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of independent pricing services, costs of
maintaining the Fund's existence, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders, costs
of shareholders' reports and meetings, and any extraordinary expenses.
Expenses attributable to a particular Series are charged against the assets
of that Series; other expenses of the Fund are allocated among the Series on
the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each Series.
The advisory fees of the Managed Assets, Capital Appreciation,
Disciplined Stock, Growth and Income, International Equity, International
Value, Small Cap and Small Company Stock Portfolios are higher than those
paid by most other investment companies. From time to time, The Dreyfus
Corporation (and, with respect to the Managed Assets Portfolio, Comstock
Partners and, with respect to the Capital Appreciation Portfolio, Sarofim)
may waive receipt of its fees and/or voluntarily assume certain expenses of a
Series, which would have the effect of lowering the overall expense ratio of
that Series and increasing yield to investors. The Fund will not pay The
Dreyfus Corporation (or, with respect to the Managed Assets Portfolio,
Comstock or, with respect to the Capital Appreciation Portfolio, Sarofim) at
a later time for any amounts it may waive nor will the Fund reimburse The
Dreyfus Corporation (or, with respect to the Managed Assets Portfolio,
Comstock or, with respect to the Capital Appreciation Portfolio, Sarofim) for
any amounts it may assume.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
02940-9671.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the applicable Series
Page 25
determined on such business day if the orders are received by the Fund in
proper form and in accordance with applicable requirements on the next
business day and Federal Funds (monies of member banks within the Federal
Reserve System which are held on deposit at a Federal Reserve Bank) in the
net amount of such orders are received by the Fund on the next business day
in accordance with applicable requirements. It is each Participating Insurance
Company's responsibility to properly transmit purchase orders and Federal
Funds in accordance with applicable requirements. VA contract holders and
VLI policy holders should refer to the prospectus for their contracts or
policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures will be valued 15 minutes after the close of
trading on the floor of the New York Stock Exchange. Net asset value per
share is computed by dividing the value of the net assets of each Series
(i.e., the value of its assets less liabilities) by the total number of
shares outstanding. The Zero Coupon 2000 and Quality Bond Portfolios'
investments are valued each business day by an independent pricing service
approved by the Fund's Board and are valued at fair value as determined by
the pricing service. The pricing service's procedures are reviewed under the
general supervision of the Fund's Board. The Money Market Portfolio uses the
amortized cost method of valuing its investments. The Disciplined Stock,
Managed Assets, Capital Appreciation, International Equity, International
Value, Growth and Income, Small Cap and Small Company Stock Portfolios'
investments are valued based on market value, or where market quotations are
not readily available, based on fair value as determined in good faith by the
Fund's Board. For further information regarding the methods employed in
valuing each Series' investments, see "Determination of Net Asset Value" in
the Statement of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the applicable Series determined on such business day if
the requests are received by the Fund in proper form and in accordance with
applicable requirements on the next business day. It is each Participating
Insurance Company's responsibility to properly transmit redemption requests
in accordance with applicable requirements. VA contract holders and VLI
policy holders should consult their Participating Insurance Company in this
regard. The value of the shares redeemed may be more or less than their
original cost, depending on the Series' then-current net asset value. No
charges are imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO -- Declares dividends from net investment income on
each day that the Fund determines its net asset value. Dividends usually are
paid on the last calendar day of each month. The earnings for Saturdays,
Sundays and holidays are declared as dividends on the next business day.
ZERO COUPON 2000 AND QUALITY BOND PORTFOLIOS -- Declare and pay dividends
from net investment income monthly.
Page 26
GROWTH AND INCOME PORTFOLIO -- Declares and pays dividends from net
investment income quarterly.
CAPITAL APPRECIATION, DISCIPLINED STOCK, INTERNATIONAL EQUITY, INTERNATIONAL
VALUE, MANAGED ASSETS, SMALL CAP AND SMALL COMPANY STOCK PORTFOLIOS --
Declare and pay dividends from net investment income annually.
APPLICABLE TO ALL SERIES -- Under the Internal Revenue Code of 1986, as
amended (the "Code"), each Series of the Fund is treated as a separate entity
for purposes of qualification and taxation as a regulated investment company.
Each Series will make distributions from net realized securities gains, if
any, once a year, but may make distributions on a more frequent basis to
comply with the distribution requirements of the Code, in all events in a
manner consistent with the provisions of the 1940 Act. No Series will make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. Dividends are
automatically reinvested in additional shares at net asset value unless
payment in cash is elected. Shares begin earning dividends on the day the
purchase order is effective. If all shares in an account are redeemed at any
time, all dividends to which the shareholder is entitled will be paid along
with the proceeds of the redemption. An omnibus accountholder may indicate in
a partial redemption request that a portion of any accrued dividends to which
such account is entitled belongs to an underlying accountholder who has
redeemed all shares in his or her account, and such portion of the accrued
dividends will be paid to the accountholder along with the proceeds of the
redemption. All expenses are accrued daily and deducted before declaration of
dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net re
alized long-term securities gains generally are taxable as long-term capital
gains whether received in cash or reinvested in additional shares. Since the
Fund's shareholders are the Participating Insurance Companies and their
separate accounts, no discussion is included herein as to the Federal income
tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If a Series satisfies certain conditions, a segregated asset account owning
shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. Each Series intends to satisfy the requisite conditions so that the
shares of the Series owned by a segregated asset account of a Participating
Insurance Company will be treated as multiple investments.
Management of the Fund believes that each Series (other than the
Disciplined Stock, International Value and Small Company Stock Portfolios
which had not commenced operations) has qualified for the fiscal year ended
December 31, 1995 as a "regulated investment company" under the Code. Each
Series intends to continue to so qualify if such qualification is in the best
interests of its shareholders. It is expected that each of the Disciplined
Stock, International Value and Small Company Stock Portfolios will qualify as
a "regulated investment company" under the Code so long as such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Series of any liability for Federal income
taxes to the extent its earnings are distributed in accordance with
applicable provisions of the Code. The Series may be subject to a
non-deductible 4% excise tax, measured
Page 27
with respect to certain undistributed amounts of investment income and capital
gains. Participating Insurance Companies should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio.
To date, the Board has authorized the creation of eleven Series of
shares. All consideration received by the Fund for shares of one of the
Series, and all assets in which such consideration is invested, will belong
to that Series (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one Series would be treated separately from those of the
other Series. The Fund has the ability to create, from time to time, new
series without shareholder approval.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Fund intends to conduct its operations in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Fund. As described under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more Series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 28
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- (Capital Appreciation, Growth and Income,
Managed Assets, Small Company Stock, International Equity and International
Value Portfolios) Foreign currency transactions may be entered into for a
variety of purposes, including: to fix in U.S. dollars, between trade and
settlement date, the value of a security the Series has agreed to buy or
sell; to hedge the U.S. dollar value of securities the Series already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's (and, where applicable, the Series'
sub-investment adviser's) ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
SHORT-SELLING -- (Growth and Income and, to a limited extent, Managed Assets
and Small Cap Portfolios) In these transactions, the Series sells a security
it does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Series must borrow the security to
make delivery to the buyer. The Series is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Series, which would result in a loss or
gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Series' net assets. The Series 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 Series' net
assets. The Series may not make a short sale which results in the Series
having sold short in the aggregate more than 5% of the outstanding securities
of any class of an issuer.
The Growth and Income Portfolio also may make, and the Managed Assets
and Small Cap Portfolios only may make, short sales "against the box," in
which the Series enters into a short sale of a security it owns in order to
hedge an unrealized gain on the security. At no time will more than 15% of
the value of the Series' net assets be in deposits on short sales against the
box.
BORROWING MONEY -- (All Series) Each Series is permitted to borrow to the
extent permitted under the 1940 Act, which permits an investment company to
borrow in an amount up to 331/3% of the value of its total assets. Each
Series, other than the Growth and Income Portfolio, currently intends to
borrow money only for temporary or emergency (not leveraging) purposes, in an
amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Series' total assets, the Series will not make
any additional investments. In addition, the Money Market and Small Company
Stock Portfolios may borrow for investment purposes on a secured basis
through entering into reverse repurchase agreements as described below.
LEVERAGE -- (Growth and Income and, to a limited extent, Money Market and
Small Company Stock Portfolios) Leveraging exaggerates the effect on net
asset value of any increase or decrease in the market value of the Series'
portfolio. Money borrowed for leveraging will be limited to 331/3% of the
value of the Series' total assets. These borrowings will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased.
Page 29
The Series may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the
Series of an underlying debt instrument in return for cash proceeds based on
a percentage of the value of the security. The Series retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Series repurchases the security at principal plus accrued
interest. Except for these transactions, the Growth and Income Portfolio's
borrowings generally will be unsecured.
USE OF DERIVATIVES -- (Disciplined Stock, Growth and Income, International
Equity, International Value, Managed Assets, Small Company Stock and Zero
Coupon 2000 Portfolios) The Series may invest in the types of Derivatives
enumerated under "Description of the Fund -- Investment Considerations and
Risks -- Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objectives and Management
Policies -- Management Policies -- Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Series to increase or decrease
the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Series can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Series' performance.
If the Series invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Series' return
or result in a loss. The Series also could experience losses if it were
unable to liquidate its position because of an illiquid secondary market.
The market for many Derivatives is, or suddenly can become, illiquid. Changes
in liquidity may result in significant, rapid and unpredictable changes in
the prices for Derivatives.
Although neither the Fund nor any Series will be a commodity pool,
Derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Series can invest in certain
Derivatives. The Series may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Series may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options
with respect to such contracts, other than for bona fide hedging purposes,
exceed 5% of the liquidation value of the Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts and
options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation.
The Series may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Series may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Series will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- (All Series) Each Series may lend securities
from its portfolio to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. The Series
continues to be entitled to payments in amounts equal to the interest,
dividends or other distributions payable on the loaned securities which
affords the Series an opportunity to earn interest on the amount of the loan
and on the loaned securities' collateral. Loans of portfolio securities may
not exceed 331/3% (20% with respect to the Managed Assets and Zero Coupon
2000 Portfolios and 10% with respect to the Capital Appreciation, Small Cap
and Quality Bond Portfolios) of the value of
Page 30
the Series' total assets and the Series will receive collateral consisting of
cash, U.S. Government securities or irrevocable letters of credit which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Such loans are terminable by the
Series at any time upon specified notice. The Series might experience risk of
loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Series.
FORWARD COMMITMENTS -- (All Series) Each Series may purchase securities on a
forward commitment or when-issued basis, which means that delivery and
payment take place a number of days after the date of the commitment to
purchase. The payment obligation and the interest rate receivable on a
forward commitment or when-issued security are fixed when the Series enters
into the commitment, but the Series does not make payment until it receives
delivery from the counterparty. The Series will commit to purchase such
securities only with the intention of actually acquiring the securities, but
the Series may sell these securities before the settlement date if it is
deemed advisable. A segregated account of the Series 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 amount of the commitments will
be established and maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- (Capital Appreciation, Disciplined Stock, Growth
and Income, International Equity, International Value, Managed Assets, Small
Cap and Small Company Stock Portfolios) Convertible securities may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have characteristics similar to both
fixed-income and equity securities. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
WARRANTS -- (Capital Appreciation, Growth and Income, International Equity,
International Value, Managed Assets, Small Cap and Small Company Stock
Portfolios) A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. The Series may
invest up to 5% (2% in the case of the Managed Assets, Capital Appreciation
and Small Cap Portfolios) of its net assets in warrants, except that this
limitation does not apply to warrants purchased by the Series that are sold
in units with, or attached to, other securities. Included in such amount, but
not exceed 2% of the value of the Series' net assets, may be warrants which
are not listed on the New York or American Stock Exchange.
MORTGAGE-RELATED SECURITIES -- (Growth and Income Portfolio) Mortgage-related
securities are a form of Derivative collateralized by pools of mortgages. The
mortgage-related securities which may be purchased include those with fixed,
floating and variable interest rates, those with interest rates that change
based on multiples of changes in interest rates and those with interest rates
that change inversely to changes in interest rates, as well as stripped
mortgage-backed securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mortgage-backed security will have one class
receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value
of the security, which may fluctuate, is not secured. If a mortgage-related
security is purchased at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting from
changes in interest rates or prepayments on the underlying mortgage
collateral. As with other interest-bearing securities, the prices of certain
of these
Page 31
securities are inversely affected by changes in interest rates.
However, although the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Series. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, the Series may
fail to fully recoup its initial investment even if the securities are rated
in the highest rating category by a nationally recognized statistical rating
organization. For further discussion concerning the investment considerations
involved, see "Description of the Fund_Investment Considerations and
Risks_Fixed-Income Securities" and "Illiquid Securities" below.
MUNICIPAL OBLIGATIONS -- (Growth and Income and Quality Bond Portfolios)
Municipal obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities. Municipal obligations bear fixed, floating or
variable rates of interest. Certain municipal obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related municipal obligations and
purchased and sold separately. The Series also may acquire call options on
specific municipal obligations. The Series generally would purchase these
call options to protect the Series from the issuer of the related municipal
obligation redeeming, or other holder of the call option from calling away,
the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Series investments. Dividends
received by shareholders on Series shares which are attributable to interest
income received by the Series from municipal obligations generally will be
subject to Federal income tax. The Series will invest in municipal
obligations, the ratings of which correspond with the ratings of other
permissible Series investments. The Series currently intends to invest no
more than 25% of its assets in municipal obligations. However, this
percentage may be varied from time to time without shareholder approval.
DEPOSITARY RECEIPTS -- (Disciplined Stock, Growth and Income, International
Equity, International Value, Managed Assets and Small Company Stock
Portfolios) The Series may invest in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and other forms of depositary receipts. These securities
may not necessarily be denominated in the same currency as the securities
into which they may be converted. ADRs are receipts typically issued by a
United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued
in Europe typically by non-United States banks and trust companies that
evidence ownership of either foreign or domestic securities. Generally, ADRs
in registered form are designed for use in the United States securities
markets and EDRs and CDRs in bearer form are designed for use in Europe.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- (All
Series) Each Series may invest in obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation (and, if
applicable, the Series' sub-investment adviser) to be of comparable quality
to the other obligations in which the Series may invest. Supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Examples
include the International
Page 32
Bank for Reconstruction and Development (the World Bank), the European Coal
and Steel Community, the Asian Development Bank and the InterAmerican
Development Bank.
MONEY MARKET INSTRUMENTS -- (All Series) Each Series may invest in the
following types of Money Market Instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund -- Investment Considerations
and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies
having an outstanding unsecured debt issue currently rated at least A3 by
Moody's or A- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation (and, if applicable, the Series' sub-investment adviser)
to be of comparable quality to those rated obligations which may be purchased
by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with
Page 33
remaining maturities of 13 months or less. If the participation interest is
unrated, or has been given a rating below that which is permissible for
purchase by the Series, the participation interest will be backed by an
irrevocable letter of credit or guarantee of a bank, or the payment
obligation otherwise will be collateralized by U.S. Government securities,
or, in the case of unrated participation interests, The Dreyfus Corporation
must have determined that the instrument is of comparable quality to those
instruments in which the Series may invest.
INVESTMENT COMPANIES -- (Managed Assets and Small Company Stock Portfolios)
The Series may invest in securities issued by investment companies. Under the
1940 Act, the Series' investment in such securities, subject to certain
exceptions, currently is limited to (i) 3% of the total voting stock of any
one investment company, (ii) 5% of the Series' total assets with respect to
any one investment company and (iii) 10% of the Series' total assets in the
aggregate. Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses.
STRIPPED TREASURY SECURITIES -- (Zero Coupon 2000 Portfolio and, to a limited
extent, all other Series) Stripped Treasury Securities are U.S. Treasury
securities that have been stripped of their unmatured interest coupons (which
typically provide for interest payments semi-annually), interest coupons that
have been stripped from such U.S. Treasury securities, and receipts and
certificates for such stripped debt obligations and stripped coupons.
Stripped bonds and stripped coupons are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment on the security and does not receive any rights to
periodic interest payments on the security.
Stripped Treasury Securities will include one or more of the
following types of securities: (a) U.S. Treasury debt obligations originally
issued as bearer coupon bonds which have been stripped of their unmatured
interest coupons, (b) coupons which have been stripped from U.S. Treasury
bonds, either of which may be held through the Federal Reserve Bank's book
entry system called "Separate Trading of Registered Interest and Principal of
Securities" ("STRIPS") or "Coupon Under Book-Entry Safekeeping" ("CUBES"),
and (c) receipts or certificates for stripped U.S. Treasury debt obligations
evidencing ownership of future interest or principal payments on U.S.
Treasury notes or bonds which are direct obligations of the United States.
The receipts or certificates must be issued in registered form by a major
bank which acts as custodian and nominal holder of the underlying stripped
U.S. Treasury obligation (which may be held by it either in physical or in
book-entry form). See "Investment Objectives and Management
Policies_Portfolio Securities" in the Statement of Additional Information.
STRIPPED CORPORATE SECURITIES -- (Growth and Income, International Equity,
Managed Assets, Quality Bond and Zero Coupon 2000 Portfolios) Stripped
Corporate Securities consist of corporate debt obligations issued by domestic
corporations without interest coupons, and, if available, interest coupons
that have been stripped from corporate debt obligations, and receipts and
certificates for such stripped debt obligations and stripped coupons.
Stripped Corporate Securities purchased by the Managed Assets, Growth and
Income, International Equity or Quality Bond Portfolios will bear ratings
comparable to non-stripped corporate obligations that may be purchased by
such Series. Stripped Corporate Securities purchased by the Zero
Coupon 2000 Portfolio will be rated at least Baa by Moody's or BBB by S&P.
With respect to other features of Stripped Corporate Securities, such as
sales at deep discounts, see "Stripped Treasury Securities" above and
"Description of the Fund_Investment Considerations and Risks_Special
Considerations Relating to Stripped Securities."
ILLIQUID SECURITIES -- (All Series) Each Series may invest up to 15% (10%
with respect to the Money Market Portfolio) 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 Series' 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
Page 34
days after notice, and certain privately negotiated, non-exchange traded
options and securities used to cover such options. As to these securities,
the Series is subject to a risk that should the Series desire to sell them
when a ready buyer is not available at a price the Series deems
representative of their value, the value of the Series' net assets could be
adversely affected.
RATINGS -- (Growth and Income, Managed Assets, Small Cap and Quality Bond
Portfolios) Obligations rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P, Fitch and Duff are investment grade and regarded as having adequate
capacity to pay interest and repay principal; however, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. Securities rated
Ba by Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Securities rated Caa by Moody's or CCC by S&P, Fitch or Duff are of poor
standing and may be in default or there may be present elements of danger
with respect to principal or interest. Such securities, though high yielding,
are characterized by great risk. See "Appendix" in the Statement of
Additional Information for a general description of securities ratings.
The ratings of Moody's, S&P, Fitch or Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. The Series' ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 35
DREYFUS
VARIABLE
INVESTMENT
FUND
(LION LOGO)
PROSPECTUS
COPYRIGHT LOGO 1996, DREYFUS SERVICE CORPORATION
VIFP050196
- ---------------------------------------------------------------------------
(LION LOGO)
DREYFUS VARIABLE INVESTMENT FUND
PROSPECTUS MAY 1, 1996
- ---------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO
BE A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH SEPARATE
ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING INSURANCE
COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN SEPARATE
PORTFOLIOS (EACH, A "SERIES"), ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE
AVAILABLE FOR INVESTMENT THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES
OFFERED BY CERTAIN PARTICIPATING INSURANCE COMPANIES. A PURCHASER OF A VA
CONTRACT OR VLI POLICY SHOULD REFER TO THE PROSPECTUS FOR HIS OR HER
CONTRACT OR POLICY FOR INFORMATION AS TO WHICH PORTFOLIOS OF THE FUND ARE
AVAILABLE FOR INVESTMENT THROUGH THE CONTRACT OR POLICY. A GENERAL
DESCRIPTION OF EACH SERIES IS SET FORTH ON THE FOLLOWING PAGE.
THE DREYFUS CORPORATION SERVES AS THE FUND'S INVESTMENT ADVISER.
(CONTINUED ON NEXT PAGE)
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND
THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN A SERIES THROUGH A VA
CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS
OTHER THAN MONEY MARKET FUNDS WILL FLUCTUATE FROM TIME TO TIME.
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
CONDENSED FINANCIAL INFORMATION............... 3
PERFORMANCE INFORMATION....................... 7
DESCRIPTION OF THE FUND....................... 8
MANAGEMENT OF THE FUND........................ 17
HOW TO BUY SHARES............................. 20
HOW TO REDEEM SHARES.......................... 20
DIVIDENDS, DISTRIBUTIONS AND TAXES............ 20
GENERAL INFORMATION........................... 21
APPENDIX...................................... 23
- ---------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES OR CONTRACTS.
- ---------------------------------------------------------------------------
(Continued from cover page)
The MONEY MARKET PORTFOLIO'S goal is to provide as high a level of
current income as is consistent with the preservation of capital and the
maintenance of liquidity. This Series invests in short-term money market
instruments. AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
The CAPITAL APPRECIATION PORTFOLIO'S primary goal is to provide
long-term capital growth consistent with the preservation of capital; current
income is a secondary goal. This Series invests primarily in the common
stocks of domestic and foreign issuers.
The GROWTH AND INCOME PORTFOLIO'S goal is to provide long-term
capital growth, current income and growth of income, consistent with
reasonable investment risk. This Series invests primarily in equity
securities, debt securities and money market instruments of domestic and
foreign issuers.
The MANAGED ASSETS PORTFOLIO'S goal is to maximize total return,
consisting of capital appreciation and current income. This Series follows an
asset allocation strategy by investing in equity securities, debt securities
and money market instruments of domestic and foreign issuers.
The SMALL CAP PORTFOLIO'S goal is to maximize capital appreciation.
This Series invests primarily in common stocks of domestic and foreign
issuers. This Series will be particularly alert to companies that The Dreyfus
Corporation considers to be emerging smaller-sized companies which are
believed to be characterized by new or innovative products, services or
processes which should enhance prospects for growth in future earnings.
The SMALL COMPANY STOCK PORTFOLIO'S goal is to provide investment
results that are greater than the total return performance of publicly-traded
common stocks in the aggregate, as represented by the Russell 2500trademark
Index. This Series invests primarily in a portfolio of equity securities of
small- to medium-sized domestic issuers, while attempting to maintain
volatility and diversification similar to that of the Russell 2500trademark
Index.
The DISCIPLINED STOCK PORTFOLIO'S goal is to provide investment
results that are greater than the total return performance of publicly-traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. This Series will use quantitative statistical
modeling techniques to construct a portfolio in an attempt to achieve its
investment objective, without assuming undue risk relative to the broad stock
market.
The INTERNATIONAL VALUE PORTFOLIO'S goal is long-term capital growth.
This Series invests primarily in a portfolio of publicly-traded equity
securities of foreign issuers which would be characterized as "value"
companies according to criteria established by the Series' investment
advisers.
The INTERNATIONAL EQUITY PORTFOLIO'S goal is to maximize capital
growth. This Series invests primarily in the equity securities of foreign
issuers located throughout the world.
The QUALITY BOND PORTFOLIO'S goal is to provide the maximum amount of
current income to the extent consistent with the preservation of capital and
the maintenance of liquidity. This Series invests principally in debt
obligations of corporations, the U.S. Government and its agencies and
instrumentalities, and major banking institutions.
The ZERO COUPON 2000 PORTFOLIO'S goal is to provide as high an
investment return as is consistent with the preservation of capital. This
Series invests primarily in debt obligations of the U.S. Treasury that have
been stripped of their unmatured interest coupons, interest coupons that have
been stripped from debt obligations issued by the U.S. Treasury, receipts and
certificates for such stripped debt obligations, and stripped coupons and
zero coupon securities issued by domestic corporations, which will mature on
or about December 31, 2000.
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request. No financial information is available for the International Value
Portfolio, Small Company Stock Portfolio and Disciplined Stock Portfolio,
which had not commenced operations as of the date of this Prospectus.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for the Series and periods
indicated. This information has been derived from the Series' financial
statements. The total investment return information set forth below does not
reflect certain expenses charged the separate accounts or related insurance
policies by the Participating Insurance Companies, the inclusion of which
would reduce the Series' total investment return for each period indicated.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ----- ----- ------
INVESTMENT OPERATIONS;
Investment income-net............................................ .024 .058 .041 .032 .043 .055
DISTRIBUTIONS;
Dividends from investment income-net............................. (.024) (.058) (.041) (.032) (.043) (.055)
Net asset value, end of year..................................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ===== =====
TOTAL INVESTMENT RETURN............................................ 7.27%(2) 5.99% 4.14% 3.29% 4.37% 5.66%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .03%(2) -- -- -- -- .62%
Ratio of net investment income to
average net assets............................................... 7.18%(2) 5.78% 4.10% 3.23% 4.62% 5.51%
Decrease reflected in above
expense ratios due to undertakings
by The Dreyfus Corporation....................................... 30.51%(2) 3.94% 4.25% 2.81% .88% .03%
Net assets, end of year (000's omitted).......................... $ 741 $1,619 $ 790 $ 7,651 $34,728 $45,249
- -------------
(1)From August 31, 1990 (commencement of operations) to December 31, 1990.
(2)Annualized.
</TABLE>
Page 3
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
PER SHARE DATA: 1993(1) 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of year................................................. $12.50 $13.27 $13.44
------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net.............................................................. .08 .23 .23
Net realized and unrealized gain
on investments..................................................................... .76 .17 4.27
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................................... .84 .40 4.50
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net............................................... (.07) (.23) (.23)
------ ------ ------
Net asset value, end of year....................................................... $13.27 $13.44 $17.71
======= ====== ======
TOTAL INVESTMENT RETURN.............................................................. 6.74%(2) 3.04% 33.52%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................................ .28%(2) .25% .85%
Ratio of net investment income to
average net assets................................................................. 1.89%(2) 2.99% 2.08%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation............................................ 3.67%(2) .86% .02%
Portfolio Turnover Rate............................................................ .01%(2) .12% 2.81%
Net assets, end of year (000's omitted)............................................ $ 3,770 $16,118 $46,930
(1) From April 5, 1993 (commencement of operations) to December 31, 1993.
(2) Not annualized.
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1994(1) 1995
------ ------
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year....................................................... $12.50 $11.98
------ ------
INVESTMENT OPERATIONS:
Investment income-net.................................................................... .28 .28
Net realized and unrealized gain (loss)
on investments........................................................................... (.43) 7.07
------ ------
TOTAL FROM INVESTMENT OPERATIONS......................................................... (.15) 7.35
------ ------
DISTRIBUTIONS:
Dividends from investment income-net..................................................... (.28) (.27)
Dividends from net realized gain on investments.......................................... (.09) (.73)
------ ------
TOTAL DISTRIBUTIONS...................................................................... (.37) (1.00)
------ ------
Net asset value, end of year............................................................. $11.98 $18.33
====== ======
TOTAL INVESTMENT RETURN.................................................................... (1.22%)(2) 61.89%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................................................. .22%(2) .92%
Ratio of net investment income to
average net assets....................................................................... 2.25%(2) 2.21%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation.................................................. 1.28%(2) .03%
Portfolio Turnover Rate.................................................................. 237.09%(2) 255.42%
Net assets, end of year (000's omitted).................................................. $1,040 $71,161
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
</TABLE>
Page 4
<TABLE>
<CAPTION>
MANAGED ASSETS PORTFOLIO
-------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
-------- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................... $10.00 $10.11 $10.76 $10.14 $12.92 $12.37
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net............................................ .08 .41 .22 .20 .35 .51
Net realized and unrealized gain
(loss) on investments............................................ .11 .66 (.11) 2.71 (.56) (.54)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................. .19 1.07 .11 2.91 (.21) (.03)
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net............................. (.08) (.42) (.31) (.13) (.32) (.64)
Dividends in excess of investment income-net..................... -- -- -- -- (.02) --
Dividends from net realized
gain on investments.............................................. -- -- (.42) -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.............................................. (.08) (.42) (.73) (.13) (.34) (.64)
------ ------ ------ ------ ------ ------
Net asset value, end of year..................................... $10.11 $10.76 $10.14 $12.92 $12.37 $11.70
======= ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN............................................ 1.85%(2) 10.60% 1.07% 28.59% (1.56%) (.26%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .34%(2) 1.00% .97% .27% .25% .94%
Ratio of net investment income to
average net assets............................................... 2.11%(2) 4.46% 1.88% 1.87% 3.54% 3.56%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation....................... 8.82%(2) 2.83% 1.70% 2.25% .88% --
Portfolio Turnover Rate.......................................... -- 91.97% 118.78% 99.08% 25.96% 53.88%
Net assets, end of year (000's omitted).......................... $ 716 $2,179 $1,865 $7,957 $30,510 $25,272
- -----------------------
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Not annualized.
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP PORTFOLIO
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................... $10.00 $10.21 $20.60 $22.71 $34.45 $36.52
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net............................................ .21(2) .14(2) .18(2) .14 .17 .16
Net realized and unrealized gain on investments.................. -- 15.85(2) 13.10(2) 14.93 2.50 10.54
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................. .21(2) 15.99(2) 13.28(2) 15.07 2.67 10.70
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net............................. -- (.15) (.15) (.14) (.16) (.18)
Dividends in excess of investment income-net..................... -- -- -- (.01) -- --
Dividends from net realized
gain on investments.............................................. -- (5.45) (11.02) (3.18) (.33) (.91)
Dividends in excess of net realized gain
on investments................................................... -- -- -- -- (.11) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.............................................. -- (5.60) (11.17) (3.33) (.60) (1.09)
------ ------ ------ ------ ------ ------
Net asset value, end of year..................................... $10.21 $20.60 $22.71 $34.45 $36.52 46.13
====== ====== ====== ====== ===== ======
TOTAL INVESTMENT RETURN............................................ 2.10%(3) 159.73% 71.28% 68.31% 7.75% 29.38%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .34%(3) 1.16% .94% .25% .55% .83%
Ratio of net investment income to average net assets............. 2.10%(3) .77% .76% .89% 1.18% .54%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation....................... 84.84%(3) 3.64% 2.29% 1.79% .52% --
Portfolio Turnover Rate.......................................... -- 388.70% 358.27% 244.59% 106.00% 99.02%
Net assets, end of year (000's omitted).......................... $36 $1,554 $ 2,679 $18,337 $173,215 $543,281
Page 5
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Based on average shares outstanding.
(3) Not annualized.
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1994(1) 1995
------ ------
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................................... $12.50 $12.02
------ ------
INVESTMENT OPERATIONS:
Investment income-net................................................................. .15 .15
Net realized and unrealized gain (loss)
on investments........................................................................ (.40) .74
------ ------
TOTAL FROM INVESTMENT OPERATIONS...................................................... (.25) .89
------ ------
DISTRIBUTIONS;
Dividends from investment income-net.................................................. (.14) (.08)
Dividends in excess of investment income-net.......................................... (.09) (.01)
------ ------
TOTAL DISTRIBUTIONS................................................................... (.23) (.09)
------ ------
Net asset value, end of year.......................................................... $12.02 $12.82
======= ======
TOTAL INVESTMENT RETURN................................................................. (2.00%)(2) 7.39%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................................... .23%(2) 1.59%
Ratio of net investment income to
average net assets.................................................................... 1.11%(2) 1.13%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation............................................... 1.70%(2) .45%
Portfolio Turnover Rate............................................................... 16.75%(2) 70.22%
Net assets, end of year (000's omitted)............................................... $1,089 $7,672
- --------------
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
</TABLE>
<TABLE>
<CAPTION>
QUALITY BOND PORTFOLIO
------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.00 $10.01 $10.67 $10.94 $11.81 $10.53
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net....................................... .23 .70 .92 .76 .73 .68
Net realized and unrealized gain (loss) on investments...... .01 .66 .30 .88 (1.27) 1.42
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS............................ .24 1.36 1.22 1.64 (.54) 2.10
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net........................ (.23) (.70) (.92) (.76) (.73) (.69)
Dividends from net realized
gain on investments......................................... -- -- (.03) (.01) (.01) (.13)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS......................................... (.23) (.70) (.95) (.77) (.74) (.82)
------ ------ ------ ------ ------ ------
Net asset value, end of year................................ $10.01 $10.67 $10.94 $11.81 $10.53 $11.81
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN....................................... 7.12%(2) 14.12% 12.09% 15.33% (4.59%) 20.42%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................... .15%(2) -- -- -- -- .81%
Ratio of net investment income
to average net assets....................................... 7.20%(2) 7.52% 8.54% 6.51% 7.03% 6.13%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation.................. 137.05%(2) 13.13% 5.33% 3.51% 1.20% .04%
Portfolio Turnover Rate..................................... -- -- 9.39% 110.62% 64.80% 263.53%
Net assets, end of year (000's omitted)..................... $59 $410 $405 $4,706 $13,244 $37,447
- -------------------
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
Page 6
<TABLE>
<CAPTION>
ZERO COUPON 2000 PORTFOLIO
-------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.00 $10.45 $11.64 $11.77 $12.57 $11.39
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net....................................... .22 .76 .83 .79 .69 .69
Net realized and unrealized gain (loss) on investments...... .45 1.25 .15 .96 (1.18) 1.31
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS............................ .67 2.01 .98 1.75 (.49) 2.00
------ ------ ------ ------ ------ ------
DISTRIBUTIONS;
Dividends from investment income-net........................ (.22) (.76) (.84) (.78) (.68) (.69)
Dividends from net realized
gain on investments......................................... -- (.06) (.01) (.17) (.01) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS......................................... (.22) (.82) (.85) (.95) (.69) (.69)
------ ------ ------ ------ ------ ------
Net asset value, end of year................................ $10.45 $11.64 $11.77 $12.57 $11.39 $12.70
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN....................................... 20.09%(2) 20.09% 8.87% 15.19% (3.91% 17.95%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................... .70%(2) .72% .64% -- -- .68%
Ratio of net investment income to
average net assets.......................................... 8.03%(2) 7.41% 7.15% 6.21% 6.04% 5.73%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation.................. 81.13%(2) 5.04% 2.28% 2.43% 1.05% .03%
Portfolio Turnover Rate..................................... -- 42.82% 3.08% 106.35% -- 49.43%
Net assets, end of year (000's omitted)..................... $ 155 $ 1,296 $ 1,362 $ 5,696 $10,913 $22,291
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2)Annualized.
</TABLE>
Further information about each such Series' 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.
PERFORMANCE INFORMATION
MONEY MARKET PORTFOLIO -- From time to time, the Series will advertise its
yield and effective yield. It can be expected that these yields will
fluctuate substantially. Both yield figures are based on historical earnings
and are not intended to indicate future performance. The yield of the Series
refers to the income generated by an investment in the Series over a
seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but, when annualized, the income earned by an
investment in the Series is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of
this assumed reinvestment.
CAPITAL APPRECIATION, DISCIPLINED STOCK, GROWTH AND INCOME, INTERNATIONAL
EQUITY, INTERNATIONAL VALUE, MANAGED ASSETS, SMALL CAP AND SMALL COMPANY
STOCK PORTFOLIOS -- The Series may calculate performance on an average annual
total return or total return basis. Average annual total return is calculated
pursuant to a standardized formula which assumes that an investment in the
Series 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 Series' performance will include the
Series' 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
Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
QUALITY BOND AND ZERO COUPON 2000 PORTFOLIOS -- For purposes of advertising,
performance may be calculated on several bases, including current yield,
average annual total return and/or total return.
Current yield refers to the Series' annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period.
Average annual total return and total return for these Series will be
calculated as described above.
In addition, the Zero Coupon 2000 Portfolio will calculate on each
business day its anticipated growth rate, which is the annualized rate of
growth investors may expect from the time they purchase a share until the
Series' target date. The anticipated growth
Page 7
rate cannot be guaranteed, as it involves certain assumptions about variable
factors such as reinvestment of dividends and distributions, the Series'
expense ratio and its portfolio composition. The rate will vary from
day-to-day due to changes in interest rates and other market factors affecting
the value of such Series' investments. Furthermore, differences in the price
changes of securities with different maturities can affect investment return,
as can the skill of the investment adviser in managing the Series. Under
certain circumstances, shareholder redemptions also could affect the
anticipated growth rate. See "Description of the Fund_Investment
Considerations and Risks_Special Considerations Relating to Stripped
Securities."
APPLICABLE TO ALL SERIES -- Performance will vary from time to time and past
results are not necessarily representative of future results. Investors
should remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. Performance information, such as that described above,
may not provide a basis for comparison with other investments or other
investment companies using a different method of calculating performance.
Performance information of any Series should not be compared with other funds
that offer their shares directly to the public since the figures provided do
not reflect charges imposed by Participating Insurance Companies under their
VA contracts or VLI policies. The effective yield and total return for a
Series should be distinguished from the rate of return of a corresponding
sub-account or investment division of a separate account of a Participating
Insurance Company, which rate will reflect the deduction of additional
charges, including mortality and expense risk charges, and will therefore be
lower. Variable annuity contract holders and variable life insurance policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' yield or performance information may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Comparative performance information may be
used from time to time in advertising a Series' shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund ReportRegistration
Mark, Money Magazine, Bank Rate Monitortrademark, N. Palm Beach, Fla. 33408,
Standard & Poor's 500 Composite Stock Price Index, Standard & Poor's MidCap
400 Index, Russell 2500trademark Index, Morgan Stanley Capital International
World Index, the Dow Jones Industrial Average, Morningstar, Inc., Value Line
Mutual Fund Survey and other industry publications.
DESCRIPTION OF THE FUND
GENERAL -- The Fund is intended to be a funding vehicle for VA contracts and
VLI policies to be offered by the separate accounts of Participating
Insurance Companies. The VA contracts and the VLI policies are described in
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of a Series'
assets which could adversely affect such Series' net asset value per share.
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES -- Each Series has a different
investment objective which it pursues through separate investment policies,
as described herein. The differences in objectives and policies among the
Series determine the types of portfolio securities in which each Series invest
s, and can be expected to affect the degree of risk to which each Series is
subject and each Series' yield or return. Each Series' investment objective
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of such
Series' outstanding voting shares. There can be no assurance that a Series'
investment objective will be achieved. The types of portfolio securities in
which each Series may invest are described in greater detail below and under
"Appendix_Certain Portfolio Securities."
MONEY MARKET PORTFOLIO
The Money Market Portfolio is a diversified portfolio, the goal of
which is to provide as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. The Series
invests in U.S. dollar denominated short-term money market instruments,
including securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, certificates of deposit, time deposits,
bankers' acceptances and other short-term obligations issued by domestic
banks, foreign branches or foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, repurchase agreements, and
high quality domestic and foreign commercial paper and other short-term
corporate and bank obligations, including those with floating and variable
rates of interest, issued by domestic and foreign corporations. The Series
will invest in U.S. dollar denominated obligations issued or guaranteed by
one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supranational
entities. The Series currently does not intend to invest more than 20% of its
assets in foreign securities. Securities in which the Series will invest may
not earn as high a level of current income as long-term or lower quality
securities which generally have less liquidity, greater market risk and more
fluctuation in market value. In addition, the Series may engage in lending
portfolio securities and may enter into reverse repurchase agreements. See
"Appendix_Investment Techniques." During
Page 8
normal market conditions, at least 25% of the Series' assets will be invested
in bank obligations. See "Investment Considerations and Risks."
The Money Market Portfolio seeks to maintain a net asset value of
$1.00 per share for purchases and redemptions. To do so, the Series uses the
amortized cost method of valuing its securities pursuant to Rule 2a-7 under
the 1940 Act, certain requirements of which are summarized below. In
accordance with Rule 2a-7, the Series will maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 13 months or less and invest only in U.S. dollar
denominated securities determined in accordance with procedures established
by the Fund's Board to present minimal credit risks and which are rated in
one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or,
if unrated, are of comparable quality as determined in accordance with
procedures established by the Fund's Board. The nationally recognized
statistical rating organizations currently rating instruments of the type the
Money Market Portfolio may purchase are Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("Duff"), Fitch
Investors Service, L.P. ("Fitch"), IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc. and their rating criteria are described in the "Appendix" to
the Statement of Additional Information. For further information regarding
the amortized cost method of valuing securities, see "Determination of Net
Asset Value" in the Statement of Additional Information. There can be no
assurance that the Money Market Portfolio will be able to maintain a stable ne
t asset value of $1.00 per share.
CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio is a diversified portfolio, the
primary goal of which is to provide long-term capital growth consistent with
the preservation of capital; current income is a secondary goal. During
periods which Fayez Sarofim & Co. ("Sarofim"), the Series' sub-investment
adviser, determines to be of market strength, the Series acts aggressively to
increase shareholders' capital by investing principally in common stocks of
domestic and foreign issuers, common stocks with warrants attached and debt
securities of foreign governments. The Series will seek investment
opportunities generally in large capitalization companies (those with market
capitalizations exceeding $500 million) which Sarofim believes have the
potential to experience above average and predictable earnings growth. Market
capitalization of a company's stock is its market price per share times the
number of shares outstanding. The Series will be alert to those foreign and
domestic issuers, which it considers undervalued by the stock market in terms
of current earnings, assets or growth prospects. These companies will include
those that management believes have new or innovative products, services or
processes which can enhance prospects for growth in future earnings. Other
than in periods of anticipated market weakness, the Series will invest at
least 80% of its net assets in common stocks. In periods of market weakness,
the Series may adopt a temporary defensive posture to preserve shareholders'
capital by investing the Series' assets in money market instruments of the
type in which the Money Market Portfolio invests ("Money Market
Instruments"). When market conditions warrant, all of the Series' assets may
be so invested.
The Series may invest up to 10% of the value of its assets in
securities of foreign governments and foreign companies which are not
publicly-traded in the United States. By investing in foreign securities, the
Series seeks to further its objective of capital growth. See "Investment
Considerations and Risks_Foreign Securities" below.
In addition, the Series may engage in lending portfolio securities
and foreign currency transactions. See "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio is a non-diversified portfolio, the
goal of which is long-term capital growth, current income and growth of
income, consistent with reasonable investment risk. The Series invests in
equity securities, debt securities and Money Market Instruments of domestic
and foreign issuers. The proportion of the Series' assets invested in each
type of security will vary from time to time in accordance with The Dreyfus
Corporation's assessment of economic conditions and investment opportunities.
The equity securities in which the Series may invest consist of
common stocks, preferred stocks and securities convertible into common
stocks, including those in the form of American, European and Continental
Depositary Receipts, as well as warrants to purchase such securities. The
Series will be particularly alert to companies which offer opportunities for
capital appreciation and growth of earnings, while paying current dividends.
The debt securities in which the Series may invest include bonds,
debentures, notes, mortgage-related securities and municipal obligations.
Debt securities (other than convertible debt securities) purchased by the
Series must be rated at least Baa by Moody's or at least BBB by S&P, Fitch or
Duff or, if unrated, deemed to be of comparable quality by The Dreyfus
Corporation. Debt securities rated Baa by Moody's or BBB by S&P, Fitch or
Duff are considered investment grade obligations which lack outstanding
investment characteristics and have speculative characteristics as well. The
Series may invest up to 35% of the value of its net assets in convertible
debt securities rated not lower than Caa by Moody's or CCC by S&P, Fitch or
Duff, or, if unrated, deemed to be of comparable quality by The Dreyfus
Corporation. Debt securities rated Caa by Moody's and CCC by S&P, Fitch and
Duff are considered to have predominantly speculative characteristics with
respect to capacity to
Page 9
pay interest and repay principal and are considered to be of poor standing.
See "Investment Considerations and Risks_Lower Rated Securities" below.
While the Series does not intend to limit the amount of its assets
invested in Money Market Instruments, except to the extent believed necessary
to achieve its investment objective, it does not expect under normal market
conditions to have a substantial portion of its assets invested in Money
Market Instruments. However, when The Dreyfus Corporation determines that
adverse market conditions exist, the Series may adopt a temporary defensive
posture and invest its entire portfolio in Money Market Instruments. The
Series also may invest in Money Market Instruments in anticipation of
investing cash positions.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions,
leveraging, lending portfolio securities and short-selling. See also
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
MANAGED ASSETS PORTFOLIO
The Managed Assets Portfolio is a diversified portfolio, the goal of
which is to maximize total return, consisting of capital appreciation and
current income. The Series follows an asset allocation strategy by investing
in equity securities, debt securities and Money Market Instruments of
domestic and foreign issuers. The Series will not be managed as a balanced
portfolio and is not required to maintain a portion of its investments in
each of the Series' permitted investment categories at all times. The asset
classes, market sectors, securities and portfolio strategies selected will be
those that The Dreyfus Corporation and Comstock Partners, Inc. ("Comstock"),
the Series' sub-investment adviser, believe prudent and offer the greatest
potential for achieving the Series' investment objective. The asset
allocation mix selected will be a primary determinant of the Series'
investment performance.
The equity securities in which the Series may invest include common
stocks, preferred stocks, convertible securities and warrants. The debt
securities in which the Series may invest include bonds, debentures and
notes. The Series may invest up to 60% of the value of its total assets in
the securities of foreign issuers, including those issued in the form of
American Depositary Receipts and European Depositary Receipts. The Series may
invest up to 20% of the value of its total net assets in securities of
issuers principally located in any one foreign country, except that the
Series may invest up to 35% of the value of its total net assets in
securities of issuers located in any one of the following foreign countries:
Australia, Canada, France, Japan, the United Kingdom or Germany. The Series
may invest in the securities of companies whose principal activities are in,
or governments of, emerging markets. See "Investment Considerations and
Risks_Foreign Securities" below.
The Series generally seeks to invest in equity securities determined
to offer above average potential for total return. In making this
determination, factors including price-earnings ratios, cash flow and the
relationship of asset value to market value of the securities will be taken
into account. The Series will be alert to companies engaged in restructuring
efforts, such as mergers, acquisitions and divestitures of less profitable
units.
The Series generally seeks to invest in debt securities where the
yield and potential for capital appreciation of the security are considered
sufficiently attractive in light of the risks of ownership of the security.
In determining whether the Series should invest in particular debt
securities, the factors considered may include: the price, coupon and yield
to maturity; 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.
Ratings, if any, assigned to the securities by Moody's or S&P or other
recognized rating agencies also will be considered. The judgment of The
Dreyfus Corporation and Comstock as to credit quality of a debt security may
differ, however, from that suggested by the ratings published by a rating
service. The Series is not subject to any limit on the percentage of its
assets that may be invested in securities having a certain rating. Low-rated
and unrated securities have special risks relating to the ability of the
Series to receive timely, or perhaps ultimate, payment of principal and
interest. Such securities are considered to have speculative characteristics
and to be of poor quality; some obligations in which the Series may invest
may be in default. See "Investment Considerations and Risks_Lower Rated
Securities" below. The Series also may invest in Stripped Treasury Securities
(as defined below).
The Managed Assets Portfolio may invest up to 100% of its assets in
Money Market Instruments, but at no time will the Series' investments in bank
obligations, including time deposits, exceed 25% of its assets.
To the extent permitted under the 1940 Act, the Series may invest in
securities issued by closed-end investment companies which principally invest
in securities of foreign issuers. The Series 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.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions,
lending portfolio securities and short-selling. See also "Investment
Considerations and Risks" and "Appendix_Investment Techniques" below and
"Investment Objectives and Management Policies_Management Policies" in the
Statement of Additional Information.
SMALL CAP PORTFOLIO
The Small Cap Portfolio is a diversified portfolio, the goal of which
is to maximize capital appreciation. The Series seeks out companies that The
Dreyfus Corporation believes have the potential for significant growth.
During periods The Dreyfus
Page 10
Corporation judges to be of market strength, the Series will act aggressively
to increase shareholders' capital by investing principally in common stocks
(some of which may be dividend paying) of domestic and foreign issuers. Under
normal market conditions, the Series will invest at least 65% of its total
assets in companies, both domestic and foreign, with market capitalizations
of less than $750 million at the time of purchase, which the Series believes
to be characterized by new or innovative products or services which should
enhance prospects for growth in future earnings. The Series also will make
investments based on prospective economic or political changes. Further, the
Series will invest in special situations such as corporate restructurings,
mergers or acquisitions, thereby seeking out undervalued securities. In
periods of market weakness, the Series may adopt a temporary defensive
posture to preserve shareholders' capital by investing the Series' assets in
Money Market Instruments. When the Series has adopted a temporary defensive
posture, the entire portfolio may be so invested.
The Series may invest up to 25% of the value of its assets in the
common stocks of foreign companies which are not publicly-traded in the
United States. The Series currently does not intend to invest more than 20%
of its assets in foreign securities. See "Investment Considerations and
Risks_Foreign Securities" below.
The Series also may invest in debt securities rated as low as the
lowest rating assigned by Moody's or S&P, and in unrated debt securities,
which have special risks. See "Investment Considerations and
Risks_Fixed-Income Securities" and "_Lower Rated Securities" below.
In addition, the Series may engage in various investment techniques,
such as lending portfolio securities, foreign currency transactions and, to a
limited extent, short-selling. See "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
SMALL COMPANY STOCK PORTFOLIO
The Small Company Stock Portfolio is a diversified portfolio, the
goal of which is to provide investment results that are greater than the
total return performance of publicly-traded common stocks in the aggregate,
as represented by the Russell 2500trademark Index.* The Russell 2500trademark
Index is composed of common stocks issued by small- and medium-sized
companies, typically with market capitalizations between $100 million and
$1.5 billion. The Series invests primarily in a portfolio of equity
securities of small- to medium-sized domestic issuers, while attempting to
maintain volatility and diversification similar to that of the Russell
2500trademark Index. The Series will invest in the securities of such issuers
that are considered by The Dreyfus Corporation and Laurel Capital Advisors,
the Series' sub-investment adviser, to offer above-average growth potential.
The Series also may invest in initial public offerings of stock when The
Dreyfus Corporation and Laurel Capital Advisors determine that such offerings
provide above-average short-term appreciation opportunities. The equity
securities in which the Series invests consist of common stocks, preferred
stocks and securities convertible into common stocks, including those in the
form of American Depositary Receipts. The Series also may invest up to 20% of
its assets in foreign securities. See "Investment Considerations and
Risks_Foreign Securities" below.
While seeking desirable investments, the Series may invest in Money
Market Instruments. Under normal market conditions, the Series does not
expect to have a substantial portion of its assets invested in Money Market
Instruments. However, when The Dreyfus Corporation and Laurel Capital
Advisors determine that adverse market conditions exist, the Series may adopt
a temporary defensive posture and invest all of its assets in Money Market
Instruments.
In an effort to increase returns, the Series may engage in various
investment techniques, such as lending portfolio securities, foreign currency
transactions, and options and futures transactions, and may enter into
reverse repurchase agreements. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
DISCIPLINED STOCK PORTFOLIO
The Disciplined Stock Portfolio is a diversified portfolio, the goal
of which is to provide investment results that are greater than the total
return performance of publicly-traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index ("S&P
500 Index").** The S&P 500 Index is composed of 500 common stocks, most of
which are listed on the New York Stock Exchange, chosen to reflect the
industries of the U.S. economy. The Series uses quantitative statistical
modeling techniques to identify equity securities which emphasize certain
attributes expected to produce in the aggregate total return greater than
that of the S&P 500 Index. This investment process utilizes disciplined
control of fund risk and a process of rigorous security selection. The Series
is not an index fund and its investments are not limited to securities of
issuers in the S&P 500 Index.
Individual security selection is the foundation of the Series'
investment approach. Consistency of returns which exceed those of the S&P 500
Index and stability of the Series' asset value relative to the S&P 500 Index
are primary goals of the investment process. Information from diverse sources
is collected and used to construct valuation models which are combined to
form a comprehensive computerized valuation ranking system identifying common
stocks which appear to be over
- -------------------
* Russell 2500trademark is a trademark of Frank Russell Company. The Series
is not sponsored, endorsed, sold or promoted by Frank Russell Company.
**"S&PRegistration Mark" and "Standard & Poor's 500 Composite Stock Price
Index" are trademarks of The McGraw-Hill Companies, Inc. The Series is not
sponsored, endorsed, sold or promoted by S&P or The McGraw-Hill Companies,
Inc.
Page 11
or under valued. These models include measures of actual and estimated
earnings changes and relative value based on dividend discount calculations,
book values to stock price ratios, earnings to stock price ratios and return
on equity ratios. The computerized ranking system incorporates information
from the most recent time period available to the system and categorizes
individual securities within each industry according to relative
attractiveness. The Dreyfus Corporation and Laurel Capital
Advisors, the Series' sub-investment adviser, then use the data provided by
the model to construct a portfolio in an attempt to achieve the Series'
investment objective, while attempting to maintain risk characteristics
similar to those of the S&P 500 Index.
Under normal circumstances, at least 65% of the Series' total assets
will be invested in equity securities, consisting of common stocks, preferred
stocks and securities convertible into common stocks, including those in the
form of American Depositary Receipts. While seeking desirable investments,
the Series may invest in Money Market Instruments. Under normal market
conditions, the Fund does not expect to have a substantial portion of its
assets invested in Money Market Instruments. However, when The Dreyfus
Corporation and Laurel Capital Advisors determine that adverse market
conditions exist, the Series may adopt a temporary defensive posture and
invest all of its assets in Money Market Instruments.
In an effort to increase returns, the Series may engage in various
investment techniques, such as options and futures transactions. See also
"Investment Considerations and Risks" and "Appendix--Investment Techniques"
below and "Investment Objectives and Management Policies--Management
Policies" in the Statement of Additional Information.
INTERNATIONAL VALUE PORTFOLIO
The International Value Portfolio is a diversified portfolio, the
goal of which is long-term capital growth. The Series anticipates that at
least 65% of the value of its total assets (except when maintaining a
temporary defensive position) will be invested in equity securities
principally of foreign issuers which would be characterized as "value"
companies according to criteria established by The Dreyfus Corporation and
The Boston Company Asset Management, Inc. ("TBC Asset Management"), the
Series' sub-investment adviser. Under normal market conditions, the Series
expects that substantially all of its assets will be invested in securities
of foreign issuers. While there are no prescribed limits on geographic asset
distribution outside the United States, the Series ordinarily will seek to
invest its assets in not less than three foreign countries. The Series'
securities selections generally will be made without regard to an issuer's
market capitalization. Equity securities consist of common stocks, convertible
securities and preferred stocks.
To manage the Series, The Dreyfus Corporation and TBC Asset
Management classify issuers as "growth" or "value" companies. In general, the
Series' advisers believe that companies with relatively low price to book
ratios, low price to earnings ratios or higher than average dividend payments
in relation to price should be classified as value companies. Alternatively,
companies which have above average earnings or sales growth and retention of
earnings and command higher price to earnings ratios fit the more classic
growth description.
The Series may invest, to a limited extent, in debt securities issued
by foreign governments and securities issued by closed-end investment
companies. While seeking desirable investments, the Series may invest in
Money Market Instruments. Under normal market conditions, the Series does not
expect to have a substantial portion of its assets invested in Money Market
Instruments. However, when The Dreyfus Corporation and TBC Asset Management
determine that adverse market conditions exist, the Series may adopt a
temporary defensive posture and invest all of its assets in Money Market
Instruments.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions and
lending portfolio securities. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio is a non-diversified portfolio,
the goal of which is capital growth. It is a fundamental policy of the Series
that at least 65% of the value of its total assets (except when maintaining a
temporary defensive position) will be invested in equity securities of
foreign issuers. Equity securities consist of common stocks, convertible
securities and preferred stocks. The Series also may invest in debt
securities of foreign issuers that management believes, based on market condit
ions, the financial condition of the issuer, general economic conditions and
other relevant factors, offer opportunities for capital growth. Under normal
market conditions, it is expected that substantially all of the Series'
assets will be invested in securities of foreign issuers. While there are no
prescribed limits on geographic asset distribution outside the United States,
the Series ordinarily will seek to invest its assets in no fewer than three
foreign countries. The Series may invest up to 5% of its assets in securities
of companies that have been in continuous operation for fewer than three
years.
The debt securities in which the Series may invest must be rated at
least Baa by Moody's or at least BBB by S&P, Fitch or Duff or, if unrated,
deemed to be of comparable quality by The Dreyfus Corporation. Debt
securities rated Baa by Moody's or BBB by S&P, Fitch or Duff are considered
investment grade obligations which lack outstanding investment
characteristics and have speculative characteristics as well. See "Investment
Considerations and Risks_Fixed-Income Securities" below.
While seeking desirable equity investments, the Series may invest in
Money Market Instruments.
Page 12
Under normal market conditions, the Series does not expect to have a
substantial portion of its assets invested in Money Market Instruments.
However, when The Dreyfus Corporation determines that adverse market
conditions exist, the Series may adopt a temporary defensive posture
and invest all of its assets in Money Market Instruments.
In addition, the Series may engage in various investment techniques,
such as foreign currency transactions, options and futures transactions and
lending portfolio securities. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
QUALITY BOND PORTFOLIO
The Quality Bond Portfolio is a diversified portfolio, the goal of
which is to provide the maximum amount of current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The Series invests principally in debt obligations of corporations, the U.S.
Government and its agencies and instrumentalities, and major U.S. banking
institutions. At least 80% of the value of the Series' net assets will
consist of obligations of corporations which, at the time of purchase by the
Series, are rated at least A by Moody's or S&P, or determined to be of
comparable quality by The Dreyfus Corporation, and of securities issued or
guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities. The Series also may invest in mortgage-related
securities, municipal obligations and zero coupon securities as described
herein. At least 65% of the value of the Series' net assets (except when
maintaining a temporary defensive position) will be invested in bonds,
debentures and other debt instruments.
Up to 20% of the Series' assets may consist of high grade commercial
paper of U.S. issuers, certificates of deposit, time deposits and bankers'
acceptances, and corporate bonds which are rated in any category lower than A
by both Moody's and S&P. When deemed necessary for temporary defensive
purposes or in connection with loans of portfolio securities, the Series'
investment in high grade commercial paper, certificates of deposit, time
deposits and bankers' acceptances may exceed 20% of its assets, although the
Series currently does not intend to invest more than 5% of its assets in any
one of these types of instruments. Under no circumstances will the Series
invest more than 20% of its assets in corporate bonds which are rated lower
than A, but in no case lower than B, by both Moody's and S&P or are unrated.
In addition, the Series will invest no more than 5% of its assets in bonds
rated Ba or B by Moody's and BB or B by S&P. The Series may invest up to 10%
of its assets in securities of foreign issuers. See "Investment
Considerations and Risks -- Foreign Securities" below.
In addition, the Series may engage in lending portfolio securities.
See also "Investment Considerations and Risks" and "Appendix_Investment
Techniques_Lending Portfolio Securities" below and "Investment Objectives and
Management Policies" in the Statement of Additional Information.
ZERO COUPON 2000 PORTFOLIO
The Zero Coupon 2000 Portfolio is a diversified portfolio, the goal
of which is to provide as high an investment return as is consistent with the
preservation of capital. The Zero Coupon 2000 Portfolio invests in a
portfolio consisting primarily (but currently not anticipated to be in excess
of 55% of the Series' assets) of debt obligations issued by the U.S. Treasury
that have been stripped of their unmatured interest coupons, interest coupons
that have been stripped from debt obligations issued by the U.S. Treasury,
and receipts and certificates for stripped debt obligations and stripped
coupons, including U.S. Government trust certificates (collectively,
"Stripped Treasury Securities"). See "Appendix_Certain Portfolio
Securities_Stripped Treasury Securities." The Series also may purchase other
zero coupon securities issued by the U.S. Government and its agencies and
instrumentalities, by a variety of tax exempt issuers such as state and local
governments and their agencies and instrumentalities and by "mixed-ownership
government corporations" (collectively, "Stripped Government Securities"). In
addition, the Series may purchase zero coupon securities issued by domestic
corporations which consist of corporate debt obligations without interest
coupons, and, if available, interest coupons that have been stripped from
corporate debt obligations, and receipts and certificates for such stripped
debt obligations and stripped coupons (collectively, "Stripped Corporate
Securities"). Stripped Corporate Securities held by the Series will be rated
at least Baa by Moody's or BBB by S&P. In addition, the Series may purchase
stripped Eurodollar obligations, which are debt securities denominated in
U.S. dollars that are issued by foreign issuers, often guaranteed
subsidiaries of domestic corporations. The Series may invest up to 25% of its
assets in securities of foreign issuers. At the present time, the Series does
not intend to invest more than 20% of its assets in securities of foreign
issuers. See "Investment Considerations and Risks -- Foreign Securities." To
the extent that a liquid secondary market is not available for Stripped
Treasury Securities, Stripped Government Securities, Stripped Corporate
Securities or stripped Eurodollar obligations, the Series will invest no more
than 15% of its net assets in such securities and in other securities that
are illiquid. For a further discussion concerning stripped securities,
including stripped Eurodollar obligations, see "Investment Considerations and
Risks_Special Considerations Relating to Stripped Securities" below.
Stripped Treasury Securities, Stripped Government Securities,
Stripped Corporate Securities and stripped Eurodollar obligations are
referred to collectively herein as "Stripped Securities." The Zero Coupon
2000 Portfolio is so designated because at least 65% of the value of the
Series' assets will consist of portfolio securities which will mature on or
about December 31, 2000.
In addition to investing at least 65% of its net assets in Stripped
Securities, the Series will purchase interest-bearing U.S. Government
securities and other Money Market Instruments held for the purpose of
providing income with which to pay the expenses of the Series and to provide
funds with which to meet redemption requests.
Page 13
There can be no assurance that the Series' objective can be met if
Series shares are redeemed prior to maturity of the underlying Stripped
Securities because market prices of the Stripped Securities before maturity
will vary with changes in interest rates. Stripped Securities, including
stripped Eurodollar obligations, do not make any periodic payments of
interest prior to maturity and the stripping of the interest coupons causes
the Stripped Securities to be offered at a substantial (or "deep") discount
from their face amounts. The market value of Stripped Securities, and
therefore of the shares of the Series, will fluctuate with changes in
interest rates and other factors and may be subject to greater fluctuations
in response to changing interest rates than would a fund consisting of debt
obligations of comparable maturities that pay interest currently. The amount
of fluctuation increases with a longer period to maturity.
On December 31, 2000, the maturity date for the Zero Coupon 2000
Portfolio, the portfolio will be liquidated. Some of the Series' portfolio
securities may mature up to several months earlier than the planned maturity
date of the Series. Attempts will be made to match the maturity dates of the
portfolio assets with the Series' maturity date as closely as possible, but
securities may be purchased with earlier maturities where additional revenue
for the Series may be achieved by such purchases. Prior to December 31, 2000,
shareholders will be informed of the liquidation of the Series and will be
offered the opportunity to exchange their investment upon maturity for
another Series of the Fund. In the event the Zero Coupon 2000 Portfolio has
not received instructions from shareholders as to the disposition of funds
upon maturity of the Series, such funds will be invested automatically in the
Money Market Portfolio.
In addition, the Series may engage, to a limited extent, in various
investment techniques, such as options and futures transactions and lending
portfolio securities. See also "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- Since each Series will pursue different types of investments, the
risks of investing will vary depending on the Series selected for investment.
Before selecting a Series in which to invest, the investor should assess the
risks associated with the types of investments made by the Series. The net
asset value per share of each Series, other than the Money Market Portfolio,
should be expected to fluctuate. Investors should consider each Series as a
supplement to an overall investment program and should invest only if they
are willing to undertake the risks involved. See "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information for a further discussion of certain risks.
EQUITY SECURITIES -- (Capital Appreciation, Disciplined Stock, Growth and
Income, International Equity, International Value, Managed Assets, Small Cap
and Small Company Stock Portfolios) Equity securities fluctuate in value,
often based on factors unrelated to the value of the issuer of the
securities, and such fluctuations can be pronounced. Changes in the value of
the Series' investments will result in changes in the value of its shares and
thus the Series' total return to investors.
The securities of the smaller companies in which the Series may
invest may be subject to more abrupt or erratic market movements than larger,
more established companies, because these securities typically are traded in
lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FIXED-INCOME SECURITIES -- (All Series) Even though interest-bearing
securities are investments which promise a stable stream of income, the
prices of such securities generally are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Certain securities that may be purchased by a Series, such as
those with interest rates that fluctuate directly or indirectly based on
multiples of a stated index, are designed to be highly sensitive to changes
in interest rates and can subject the holders thereof to extreme reductions
of yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes
in the credit rating or financial condition of the issuer. Certain securities
purchased by the Managed Assets, Growth and Income, International Equity and
Quality Bond Portfolios, such as those rated Baa or lower by Moody's and BBB
or lower by S&P, Fitch and Duff, may be subject to such risk with respect to
the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed-income securities. Once the rating of a
portfolio security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security. See
"Appendix_Certain Portfolio Securities_Ratings" below and "Appendix" in the
Statement of Additional Information.
SPECIAL CONSIDERATIONS RELATING TO STRIPPED SECURITIES -- (Zero Coupon 2000
Portfolio and, to a limited extent, all other Series) A Stripped Security is
a debt obligation that does not entitle the holder to any periodic payments
of interest prior to maturity and therefore is issued and traded at a
discount from its face amount. The discount from face value at which Stripped
Securities are purchased varies depending on the time remaining until
maturity, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. Because the discount from face value
is known at the time of investment, investors holding Stripped Securities
until maturity know the total amount of their investment return at the time
of investment. In contrast, a portion of the total realized return from
conventional interest-paying obligations comes from the reinvestment of
periodic interest. Since the rate to be earned on these reinvestments may be
higher or lower than the rate quoted on the interest-paying obligations at
the time of the original purchase, the investment's total return is uncertain
even for investors holding the securities to their maturity. This uncertainty
is commonly referred to as reinvestment risk and can have
Page 14
a significant impact on total realized investment return. With Stripped
Securities, however, there are no cash distributions to reinvest, so
investors bear no reinvestment risk if they hold the Stripped Securities to
maturity.
Stripped Securities can be sold prior to their due date in the
secondary market at their then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing levels of interest
rates and the perceived credit quality of the issuer, which may be more or
less than the securities' value. The market prices of Stripped Securities are
generally more volatile than the market prices of securities that pay
interest periodically and, accordingly, are likely to respond to a greater
degree to changes in interest rates than do other debt obligations having
similar maturities and credit quality characteristics. As a result, the net
asset value of shares of the Zero Coupon 2000 Portfolio may fluctuate over a
greater range than shares of other mutual funds that invest in obligations of
the U.S. Government or corporations having similar maturities but that make
current distributions of interest.
As an open-end investment company, the Zero Coupon 2000 Portfolio
will be issuing new shares and will be required to redeem its shares upon the
request of any shareholder at the net asset value next determined after
receipt of the request. However, because of the price volatility of Stripped
Securities prior to maturity, a shareholder who redeems shares may realize an
amount that is less or greater than the entire amount initially invested.
Accordingly, the Zero Coupon 2000 Portfolio may not be appropriate for
investors that expect to have a current need for income from the investment
or wish to liquidate their investment prior to December 31, 2000.
Each year the Zero Coupon 2000 Portfolio will be required to accrue
an increasing amount of income on its Stripped Securities. To maintain its
tax status as a regulated investment company and to avoid imposition of
excise taxes, however, the Zero Coupon 2000 Portfolio and any other Series
that invests in Stripped Securities will be required to distribute dividends
equal to substantially all of its net investment income, including the
accrued income, derived from its Stripped Securities for which it receives no
payments in cash prior to their maturity.
The Series cannot assure that it will be able to achieve a certain
level of return due to the possible necessity of having to sell certain
Stripped Securities to pay expenses or dividends or to meet redemptions at
times and at prices that might be disadvantageous, or, alternatively, to
invest assets received from new purchases at prevailing interest rates, which
would expose the Series to reinvestment risk. In addition, no assurance can
be given as to the liquidity of the market for certain of these securities.
Determination as to the liquidity of such securities will be made in
accordance with guidelines established by the Fund's Board. In accordance
with such guidelines, the Series' adviser will monitor the Series'
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
LOWER RATED SECURITIES--(Growth and Income, Managed Assets, Quality Bond and,
to a limited extent, Small Cap Portfolios) Each of these Series may invest a
portion of its assets in higher yielding (and, therefore, higher risk) debt
securities (convertible debt securities with respect to the Growth and Income
Portfolio) such as those rated Ba by Moody's or BB by S&P, Fitch or Duff, or
as low as those rated B by Moody's, S&P, Fitch or Duff in the case of the
Quality Bond Portfolio, or as low as those rated Caa by Moody's or CCC by
S&P, Fitch or Duff in the case of the Growth and Income Portfolio, or as low
as the lowest rating assigned by Moody's, S&P, Fitch or Duff in the case of
the Managed Assets and Small Cap Portfolios (commonly known as junk bonds).
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. The retail secondary market for these securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Series to sell certain securities or could result
in lower prices than those used in calculating the Series' net asset value.
See "Appendix -- Certain Portfolio Securities -- Ratings."
FOREIGN SECURITIES -- (All Series) Foreign securities markets generally are
not as developed or efficient as those in the United States. Securities of
some foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible: adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
Page 15
The percentage of a Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
FOREIGN CURRENCY TRANSACTIONS -- (Capital Appreciation, Growth and Income,
International Equity, International Value, Managed Assets, Small Cap and
Small Company Stock Portfolios) Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
USE OF DERIVATIVES -- (Disciplined Stock, Growth and Income, International
Value, International Equity, Managed Assets, Small Company Stock and Zero
Coupon 2000 Portfolios) These Series may invest in derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Series may use include options
and futures and, in the case of the Growth and Income Portfolio,
mortgage-related securities. While Derivatives can be used effectively in
furtherance of the Series' investment objective, under certain market
conditions, they can increase the volatility of the Series' net asset value,
can decrease the liquidity of the Series' portfolio and make more difficult
the accurate pricing of the Series' portfolio. See "Appendix_Investment
Techniques_Use of Derivatives" below, and "Investment Objectives and
Management Policies_Management Policies_Derivatives" in the Statement of
Additional Information.
BANK SECURITIES -- (Money Market Portfolio) To the extent the Money Market
Portfolio's investments are concentrated in the banking industry, the Series
will have correspondingly greater exposure to the risk factors which are
characteristic of such investments. Sustained increases in interest rates can
adversely affect the availability or liquidity and cost of capital funds for
a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. In addition, the valu
e of and the investment return on the Money Market Portfolio's shares could
be affected by economic or regulatory developments in or related to the
banking industry, and competition within the banking industry as well as with
other types of financial institutions. The Money Market Portfolio, however,
will seek to minimize its exposure to such risks by investing only in debt
securities which are determined to be of high quality.
MUNICIPAL LEASE/PURCHASE OBLIGATIONS -- (Growth and Income and Quality Bond
Portfolios) Certain municipal lease/purchase obligations in which the Series
may invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, The Dreyfus Corporation will
consider, on an ongoing basis, a number of factors including the likelihood
that the issuing municipality will discontinue appropriating funding for the
leased property.
PORTFOLIO TURNOVER -- (All Series) No Series will consider portfolio turnover
to be a limiting factor in making investment decisions. Under normal market
conditions, the portfolio turnover rates are anticipated to exceed 100% for
the Managed Assets and Small Cap Portfolios, to be less than 100% for the
Capital Appreciation Portfolio and to be less than 150% for the Growth and
Income, Quality Bond, Zero Coupon 2000, Disciplined Stock, Small Company
Stock, International Value and International Equity Portfolios. Higher
portfolio turnover rates are likely to result in comparatively greater
brokerage commissions and transaction costs. In addition, short-term gains
realized from portfolio transactions are taxable to shareholders as ordinary
income. The Money Market Portfolio may have a high portfolio turnover, but
that should not adversely affect the Series since it usually does not pay
brokerage commissions when it purchases short-term debt obligations.
NON-DIVERSIFIED PORTFOLIOS -- (Growth and Income and International Equity
Portfolios) The Growth and Income and International Equity Portfolios are
classified as "non-diversified" investment companies, which means that the
proportion of such Series' assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment
company is required by the 1940 Act generally, with respect to 75% of its
total assets, to invest not more than 5% of such assets in the securities of
a single issuer. Since a relatively high percentage of each of these Series'
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry, the Series' portfolio may be more
sensitive to changes in the market value of a single issuer or industry.
However, to meet Federal tax requirements, at the close of each quarter
neither of these Series may have more than 25% of its total assets invested
in any one issuer and, with respect to 50% of total assets, more than 5% of
its total assets invested in any one issuer. These limitations do not apply
to U.S. Government securities.
STATE INSURANCE REGULATION -- (All Series) The Fund is intended to be a
funding vehicle for VA contracts and VLI policies to be offered by
Participating Insurance Companies and will seek to be offered in as many
jurisdictions as possible. Certain states have regulations concerning concentr
ation of investments, purchase and sale of futures contracts and short sales
of securities, among other techniques. If applied to the Fund, each Series
may be limited in its ability to engage in such techniques and to manage its
portfolio with the flexibility provided herein. It is the Fund's intention
that each Series operate in material compliance with current insurance laws
and regulations, as applied, in each jurisdiction in which the Series is
offered.
Page 16
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- (All Series) Investment
decisions for each Series are made independently from those of the other
Series and investment companies managed by The Dreyfus Corporation (and,
where applicable, the Series' sub-investment adviser). However, if such other
Series or investment companies desire to invest in, or dispose of, the same
securities as the Series, available investments or opportunities for sales
will be allocated equitably to each. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by a
Series or the price paid or received by a Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts 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 provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more Series and/or to
purchasers of VA contracts or VLI policies.
The primary portfolio managers of the Series are as follows:
CAPITAL APPRECIATION PORTFOLIO -- Fayez Sarofim. He has been the Series'
primary portfolio manager since the Series commenced operations and has been
employed by Sarofim since 1958.
GROWTH AND INCOME PORTFOLIO -- Richard Hoey. He has been the Series' primary
portfolio manager since the Series commenced operations and has been employed
by The Dreyfus Corporation since April 1991.
MANAGED ASSETS PORTFOLIO -- Investment decisions are made by the Investment
Policy Committee of Comstock, and no person is primarily responsible for
making recommendations to that committee.
SMALL CAP PORTFOLIO -- Thomas A. Frank. He has been the Series' primary
portfolio manager since the Series commenced operations and has been employed
by The Dreyfus Corporation since 1985.
SMALL COMPANY STOCK PORTFOLIO -- James Wadsworth. He has been the Series'
primary portfolio manager since the Series' inception and has been Chief
Investment Officer for Laurel Capital Advisors since October 1990. Mr.
Wadsworth also is a First Vice President of Mellon, where he has been
employed since 1977.
DISCIPLINED STOCK PORTFOLIO -- Bert Mullins. He has been the Series' primary
portfolio manager since the Series' inception and has been employed by Laurel
Capital Advisors since October 1990. Mr. Mullins also is a Vice President,
Portfolio Manager and Senior Security Analyst for Mellon, where he has been
employed since 1966.
INTERNATIONAL VALUE PORTFOLIO -- Sandor Cseh. He has been the Series' primary
portfolio manager since the Series' inception and has been employed by TBC
Asset Management or its predecessor since October 1994. Prior to joining TBC
Asset Management, Mr. Cseh was President of Cseh International & Associates
Inc., the international money management division of Cashman, Farrell &
Association, and was a securities analyst with several banks.
INTERNATIONAL EQUITY PORTFOLIO -- Ronald Chapman. He has been the Series'
primary portfolio manager since April 1996 and has been employed by The
Dreyfus Corporation since January 1996. Prior thereto, Mr. Chapman served for
ten years as Vice President of the Global Strategy and Management Group for
Northern Trust Company.
QUALITY BOND PORTFOLIO -- Garitt Kono. He has been the Series' primary
portfolio manager since the Series commenced operations and has been employed
by The Dreyfus Corporation since September 1992. Prior to joining The Dreyfus
Corporation, Mr. Kono was Vice President--Fixed Income at The First Boston
Corporation.
Page 17
ZERO COUPON 2000 PORTFOLIO -- Garitt Kono. He has been the Series' primary
portfolio manager since the Series commenced operations.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .75
of 1% of the value of the Disciplined Stock Portfolio's average daily net
assets; .375 of 1% of the value of the Managed Assets Portfolio's average
daily net assets; .75 of 1% of the value of the Growth and Income Portfolio's
average daily net assets; 1% of the value of the International Value
Portfolio's average daily net assets; .75 of 1% of the value of the
International Equity Portfolio's average daily net assets; .50 of 1% of the
value of the Money Market Portfolio's average daily net assets; .75 of 1% of
the value of the Small Company Stock Portfolio's average daily net assets;
.65 of 1% of the value of the Quality Bond Portfolio's average daily net
assets; .75 of 1% of the value of the Small Cap Portfolio's average daily net
assets; and .45 of 1% of the value of the Zero Coupon 2000 Portfolio's
average daily net assets. Under the terms of the Investment Advisory
Agreement with respect to the Capital Appreciation Portfolio, the Fund has
agreed to pay The Dreyfus Corporation an annual fee, payable monthly, as set
forth below:
<TABLE>
<CAPTION>
ANNUAL FEE AS A
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS OF THE CAPITAL
TOTAL ASSETS APPRECIATION PORTFOLIO
----------- ----------------------------
<S> <C> <C>
0 to $150 million.............................. .55 of 1%
$150 million to $300 million................... .50 of 1%
$300 million or more........................... .375 of 1%
</TABLE>
For the fiscal year ended December 31, 1995, the Fund paid The Dreyfus
Corporation a monthly advisory fee at the following effective annual rates,
pursuant to undertakings in effect: .72 of 1% of the value of the Growth and
Income Portfolio's average daily net assets; .30 of 1% of the value of the
International Equity Portfolio's average daily net assets; .47 of 1% of the
value of the Money Market Portfolio's average daily net assets; .61 of 1% of
the value of the Quality Bond Portfolio's average daily net assets; .42 of 1%
of the value of the Zero Coupon 2000 Portfolio's average daily net assets;
and .53 of 1% of the value of the Capital Appreciation Portfolio's average
daily net assets. With respect to each other operational Series, the Fund
paid The Dreyfus Corporation an advisory fee at the annual rate set forth in
the preceding paragraph.
SUB-INVESTMENT ADVISERS -- With respect to the Managed Assets Portfolio,
Comstock Partners, a registered investment adviser located at 10 Exchange
Place, Jersey City, New Jersey 07302, serves as the Series' sub-investment
adviser. Comstock Partners was formed in 1986 and, as of February 29, 1996,
managed approximately $700 million in assets for other mutual funds and
several discretionary accounts. Comstock Partners, subject to the supervision
and approval of The Dreyfus Corporation, provides investment advisory
assistance and the day-to-day management of the Managed Assets 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
in accordance with Massachusetts law. For the fiscal year ended December 31,
1995, the Fund paid Comstock Partners a monthly sub-investment advisory fee
at the annual rate of .375 of 1% of the value of the Managed Assets
Portfolio's average daily net assets.
With respect to the Capital Appreciation Portfolio, Sarofim, a
registered investment adviser located at Two Houston Center, Suite 2907,
Houston, Texas 77010, serves as the Series' sub-investment adviser. Sarofim
was formed in 1958 and, as of February 29, 1996, provided investment advisory
services to discretionary accounts having aggregate assets of approximately
$28 billion. Sarofim, subject to the supervision and approval of The Dreyfus
Corporation, provides investment advisory assistance and the day-to-day
management of the Capital Appreciation Portfolio, as well as investment
research and statistical information, under a Sub-Investment Advisory
Agreement with the Fund, subject to the overall authority of the Fund's Board
in accordance with Massachusetts law. Under the terms of the Sub-Investment
Advisory Agreement with respect to the Capital Appreciation Portfolio, the
Fund has agreed to pay Sarofim an annual fee, payable monthly, as set forth
below:
<TABLE>
<CAPTION>
ANNUAL FEE AS A
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS OF THE CAPITAL
TOTAL ASSETS APPRECIATION PORTFOLIO
----------- ----------------------------
<S> <C> <C>
0 to $150 million................................. .20 of 1%
$150 million to $300 million...................... .25 of 1%
$300 million or more.............................. .375 of 1%
</TABLE>
For the fiscal year ended December 31, 1995, the Fund paid Sarofim a monthly
sub-investment advisory fee at the annual rate of .20 of 1% of the value of
the Capital Appreciation Portfolio's average daily net assets.
With respect to the Disciplined Stock and Small Company Stock
Portfolios, The Dreyfus Corporation has engaged Laurel Capital Advisors,
located at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, to serve
as each Series' sub-investment adviser. Laurel Capital Advisors, a registered
investment adviser formed in 1990, is an indirect wholly-owned subsidiary of
Page 18
Mellon and, thus, an affiliate of The Dreyfus Corporation. As of February 29,
1996, Laurel Capital Advisors managed approximately $4 billion in assets.
Laurel Capital Advisors, subject to the supervision and approval of The
Dreyfus Corporation, provides investment advisory assistance and the
day-to-day management of each of the Disciplined Stock and Small Company
Stock Portfolio's investments, as well as investment research and statistical
information, under a Sub-Investment Advisory Agreement with The Dreyfus
Corporation, subject to the overall authority of the Fund's Board in
accordance with Massachusetts law. Under the terms of the Sub-Investment
Advisory Agreement with respect to each of the Disciplined Stock and Small
Company Stock Portfolios, The Dreyfus Corporation has agreed to pay Laurel
Capital Advisors an annual fee, payable monthly, as set forth below:
<TABLE>
<CAPTION>
ANNUAL FEE AS A
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS OF
TOTAL ASSETS EACH SUCH SERIES
----------- ----------------------------
<S> <C> <C>
0 to $100 million................................. .25 of 1%
$100 million to $1 billion........................ .20 of 1%
$1 billion to $1.5 billion........................ .15 of 1%
$1.5 billion or more.............................. .10 of 1%
</TABLE>
With respect to the International Value Portfolio, The Dreyfus
Corporation has engaged TBC Asset Management, located at
One Boston Place, Boston, Massachusetts 02108, to serve as the Series'
sub-investment adviser. TBC Asset Management, a registered investment adviser
formed in 1970, is an indirect wholly-owned subsidiary of Mellon and, thus,
an affiliate of The Dreyfus Corporation. As of February 29, 1996, TBC Asset
Management managed approximately $15 billion in assets and serves as the
investment adviser of five other investment companies. TBC Asset Management,
subject to the supervision and approval of The Dreyfus Corporation, provides
investment advisory assistance and the day-to-day management of the
International Value Portfolio's investments, as well as investment research
and statistical information, under a Sub-Investment Advisory Agreement with
The Dreyfus Corporation, subject to the overall authority of the Fund's Board
in accordance with Massachusetts law. Under the terms of the Sub-Investment
Advisory Agreement with respect to the International Value Portfolio, The
Dreyfus Corporation has agreed to pay TBC Asset Management a monthly fee at
the annual rate of .50 of 1% of the value of the International Value
Portfolio's average daily net assets.
With respect to the International Equity Portfolio, from May 4, 1994
to March 31, 1996, The Dreyfus Corporation engaged M&G Investment Management
Limited ("M&G"), a registered investment adviser located at Three Quays Tower
Hill, London EC3R 6BQ, England, to serve as the Series' sub-investment
adviser. For the fiscal year ended December 31, 1995, The Dreyfus Corporation
paid M&G a monthly sub-investment advisory fee at the annual rate of .30 of
1% of the value of the International Equity Portfolio's average daily net
assets.
EXPENSES -- All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by The Dreyfus
Corporation or a sub-investment adviser. The expenses borne by the Fund
include: organizational costs, taxes, interest, loan commitment fees,
interest and distributions paid on securities sold short, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
The Dreyfus Corporation or any sub-investment adviser or their affiliates,
Securities and Exchange Commission fees, state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of independent pricing services, costs of
maintaining the Fund's existence, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders, costs
of shareholders' reports and meetings, and any extraordinary expenses.
Expenses attributable to a particular Series are charged against the assets
of that Series; other expenses of the Fund are allocated among the Series on
the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each Series.
The advisory fees of the Managed Assets, Capital Appreciation,
Disciplined Stock, Growth and Income, International Equity, International
Value, Small Cap and Small Company Stock Portfolios are higher than those
paid by most other investment companies. From time to time, The Dreyfus
Corporation (and, with respect to the Managed Assets Portfolio, Comstock
Partners and, with respect to the Capital Appreciation Portfolio, Sarofim)
may waive receipt of its fees and/or voluntarily assume certain expenses of a
Series, which would have the effect of lowering the overall expense ratio of
that Series and increasing yield to investors. The Fund will not pay The
Dreyfus Corporation (or, with respect to the Managed Assets Portfolio,
Comstock or, with respect to the Capital Appreciation Portfolio, Sarofim) at
a later time for any amounts it may waive nor will the Fund reimburse The
Dreyfus Corporation (or, with respect to the Managed Assets Portfolio,
Comstock or, with respect to the Capital Appreciation Portfolio, Sarofim) for
any amounts it may assume.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
02940-9671.
Page 19
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the applicable Series determined on such business day if the orders are
received by the Fund in proper form and in accordance with applicable
requirements on the next business day and Federal Funds (monies of member
banks within the Federal Reserve System which are held on deposit at a
Federal Reserve Bank) in the net amount of such orders are received by the
Fund on the next business day in accordance with applicable requirements. It
is each Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures will be valued 15 minutes after the close of
trading on the floor of the New York Stock Exchange. Net asset value per
share is computed by dividing the value of the net assets of each Series
(i.e., the value of its assets less liabilities) by the total number of
shares outstanding. The Zero Coupon 2000 and Quality Bond Portfolios'
investments are valued each business day by an independent pricing service
approved by the Fund's Board and are valued at fair value as determined by
the pricing service. The pricing service's procedures are reviewed under the
general supervision of the Fund's Board. The Money Market Portfolio uses the
amortized cost method of valuing its investments. The Disciplined Stock,
Managed Assets, Capital Appreciation, International Equity, International
Value, Growth and Income, Small Cap and Small Company Stock Portfolios'
investments are valued based on market value, or where market quotations are
not readily available, based on fair value as determined in good faith by the
Fund's Board. For further information regarding the methods employed in
valuing each Series' investments, see "Determination of Net Asset Value" in
the Statement of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the applicable Series determined on such business day if
the requests are received by the Fund in proper form and in accordance with
applicable requirements on the next business day. It is each Participating
Insurance Company's responsibility to properly transmit redemption requests
in accordance with applicable requirements. VA contract holders and VLI
policy holders should consult their Participating Insurance Company in this
regard. The value of the shares redeemed may be more or less than their
original cost, depending on the Series' then-current net asset value. No
charges are imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO -- Declares dividends from net investment income on
each day that the Fund determines its net asset value. Dividends usually are
paid on the last calendar day of each month. The earnings for Saturdays,
Sundays and holidays are declared as dividends on the next business day.
ZERO COUPON 2000 AND QUALITY BOND PORTFOLIOS -- Declare and pay dividends
from net investment income monthly.
GROWTH AND INCOME PORTFOLIO -- Declares and pays dividends from net
investment income quarterly.
CAPITAL APPRECIATION, DISCIPLINED STOCK, INTERNATIONAL EQUITY, INTERNATIONAL
VALUE, MANAGED ASSETS, SMALL CAP AND SMALL COMPANY STOCK PORTFOLIOS --
Declare and pay dividends from net investment income annually.
Page 20
APPLICABLE TO ALL SERIES -- Under the Internal Revenue Code of 1986, as
amended (the "Code"), each Series of the Fund is treated as a separate entity
for purposes of qualification and taxation as a regulated investment company.
Each Series will make distributions from net realized securities gains, if
any, once a year, but may make distributions on a more frequent basis to
comply with the distribution requirements of the Code, in all events in a
manner consistent with the provisions of the 1940 Act. No Series will make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. Dividends are
automatically reinvested in additional shares at net asset value unless
payment in cash is elected. Shares begin earning dividends on the day the
purchase order is effective. If all shares in an account are redeemed at any
time, all dividends to which the shareholder is entitled will be paid along
with the proceeds of the redemption. An omnibus accountholder may indicate in
a partial redemption request that a portion of any accrued dividends to which
such account is entitled belongs to an underlying accountholder who has
redeemed all shares in his or her account, and such portion of the accrued
dividends will be paid to the accountholder along with the proceeds of the
redemption. All expenses are accrued daily and deducted before declaration of
dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net re
alized long-term securities gains generally are taxable as long-term capital
gains whether received in cash or reinvested in additional shares. Since the
Fund's shareholders are the Participating Insurance Companies and their
separate accounts, no discussion is included herein as to the Federal income
tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If a Series satisfies certain conditions, a segregated asset account owning
shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. Each Series intends to satisfy the requisite conditions so that the
shares of the Series owned by a segregated asset account of a Participating
Insurance Company will be treated as multiple investments.
Management of the Fund believes that each Series (other than the
Disciplined Stock, International Value and Small Company Stock Portfolios
which had not commenced operations) has qualified for the fiscal year ended
December 31, 1995 as a "regulated investment company" under the Code. Each
Series intends to continue to so qualify if such qualification is in the best
interests of its shareholders. It is expected that each of the Disciplined
Stock, International Value and Small Company Stock Portfolios will qualify as
a "regulated investment company" under the Code so long as such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Series of any liability for Federal income
taxes to the extent its earnings are distributed in accordance with
applicable provisions of the Code. The Series may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains. Participating Insurance
Companies should consult their tax advisers regarding specific questions as
to Federal, state or local taxes.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio.
To date, the Board has authorized the creation of eleven Series of
shares. All consideration received by the Fund for shares of one of the
Series, and all assets in which such consideration is invested, will belong
to that Series (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one Series would be treated separately from those of the
other Series. The Fund has the ability to create, from time to time, new
series without shareholder approval.
Page 21
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Fund intends to conduct its operations in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Fund. As described under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more Series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 22
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- (Capital Appreciation, Growth and Income,
Managed Assets, Small Company Stock, International Equity and International
Value Portfolios) Foreign currency transactions may be entered into for a
variety of purposes, including: to fix in U.S. dollars, between trade and
settlement date, the value of a security the Series has agreed to buy or
sell; to hedge the U.S. dollar value of securities the Series already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's (and, where applicable, the Series'
sub-investment adviser's) ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
SHORT-SELLING -- (Growth and Income and, to a limited extent, Managed Assets
and Small Cap Portfolios) In these transactions, the Series sells a security
it does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Series must borrow the security to
make delivery to the buyer. The Series is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Series, which would result in a loss or
gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Series' net assets. The Series 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 Series' net
assets. The Series may not make a short sale which results in the Series
having sold short in the aggregate more than 5% of the outstanding securities
of any class of an issuer.
The Growth and Income Portfolio also may make, and the Managed Assets
and Small Cap Portfolios only may make, short sales "against the box," in
which the Series enters into a short sale of a security it owns in order to
hedge an unrealized gain on the security. At no time will more than 15% of
the value of the Series' net assets be in deposits on short sales against the
box.
BORROWING MONEY -- (All Series) Each Series is permitted to borrow to the
extent permitted under the 1940 Act, which permits an investment company to
borrow in an amount up to 331/3% of the value of its total assets. Each
Series, other than the Growth and Income Portfolio, currently intends to
borrow money only for temporary or emergency (not leveraging) purposes, in an
amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Series' total assets, the Series will not make
any additional investments. In addition, the Money Market and Small Company
Stock Portfolios may borrow for investment purposes on a secured basis
through entering into reverse repurchase agreements as described below.
LEVERAGE -- (Growth and Income and, to a limited extent, Money Market and
Small Company Stock Portfolios) Leveraging exaggerates the effect on net
asset value of any increase or decrease in the market value of the Series'
portfolio. Money borrowed for leveraging will be limited to 331/3% of the
value of the Series' total assets. These borrowings will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased.
The Series may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the
Series of an underlying debt instrument in return for cash proceeds based on
a percentage of the value of the security. The Series retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Series repurchases the security at principal plus accrued
interest. Except for these transactions, the Growth and Income Portfolio's
borrowings generally will be unsecured.
USE OF DERIVATIVES -- (Disciplined Stock, Growth and Income, International
Equity, International Value, Managed Assets, Small Company Stock and Zero
Coupon 2000 Portfolios) The Series may invest in the types of Derivatives
enumerated under "Description of the Fund -- Investment Considerations and
Risks -- Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objectives and Management
Policies -- Management Policies -- Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Series to increase or decrease
the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Series can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Series' performance.
If the Series invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Series' return
or result in a loss. The Series also could experience losses if it were
unable to liquidate its position
Page 23
because of an illiquid secondary market. The market for many Derivatives is,
or suddenly can become, illiquid. Changes in liquidity may result in
significant, rapid and unpredictable changes in the prices for Derivatives.
Although neither the Fund nor any Series will be a commodity pool,
Derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Series can invest in certain
Derivatives. The Series may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Series may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options
with respect to such contracts, other than for bona fide hedging purposes,
exceed 5% of the liquidation value of the Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts and
options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation.
The Series may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Series may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Series will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- (All Series) Each Series may lend securities
from its portfolio to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. The Series
continues to be entitled to payments in amounts equal to the interest,
dividends or other distributions payable on the loaned securities which
affords the Series an opportunity to earn interest on the amount of the loan
and on the loaned securities' collateral. Loans of portfolio securities may
not exceed 331/3% (20% with respect to the Managed Assets and Zero Coupon
2000 Portfolios and 10% with respect to the Capital Appreciation, Small Cap
and Quality Bond Portfolios) of the value of the Series' total assets and the
Series will receive collateral consisting of cash, U.S. Government securities
or irrevocable letters of credit which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. Such loans are terminable by the Series at any time upon specified
notice. The Series might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Series.
FORWARD COMMITMENTS -- (All Series) Each Series may purchase securities on a
forward commitment or when-issued basis, which means that delivery and
payment take place a number of days after the date of the commitment to
purchase. The payment obligation and the interest rate receivable on a
forward commitment or when-issued security are fixed when the Series enters
into the commitment, but the Series does not make payment until it receives
delivery from the counterparty. The Series will commit to purchase such
securities only with the intention of actually acquiring the securities, but
the Series may sell these securities before the settlement date if it is
deemed advisable. A segregated account of the Series 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 amount of the commitments will
be established and maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- (Capital Appreciation, Disciplined Stock, Growth
and Income, International Equity, International Value, Managed Assets, Small
Cap and Small Company Stock Portfolios) Convertible securities may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have characteristics similar to both
fixed-income and equity securities. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
WARRANTS -- (Capital Appreciation, Growth and Income, International Equity,
International Value, Managed Assets, Small Cap and Small Company Stock
Portfolios) A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. The Series may
invest up to 5% (2% in the case of the Managed Assets, Capital Appreciation
and Small Cap Portfolios) of its net assets in warrants, except that this
limitation does not apply to warrants purchased by the Series that are sold
in units with, or attached to, other securities. Included in such amount, but
not exceed 2% of the value of the Series' net assets, may be warrants which
are not listed on the New York or American Stock Exchange.
MORTGAGE-RELATED SECURITIES -- (Growth and Income Portfolio) Mortgage-related
securities are a form of Derivative collateralized by pools of mortgages. The
mortgage-related securities which may be purchased include those with fixed,
floating and variable interest rates, those with interest rates that change
based on multiples of changes in interest rates and those with interest rates
that change inversely to changes in interest rates, as well as stripped
mortgage-backed securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mortgage-backed security will have one class
receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. Although certain mortgage-related securities are
guaranteed by
Page 24
a third party or otherwise similarly secured, the market value of the
security, which may fluctuate, is not secured. If a mortgage-related
security is purchased at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting from
changes in interest rates or prepayments on the underlying mortgage
collateral. As with other interest-bearing securities, the prices of certain
of these securities are inversely affected by changes in interest rates.
However, although the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Series. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, the Series may
fail to fully recoup its initial investment even if the securities are rated
in the highest rating category by a nationally recognized statistical rating
organization. For further discussion concerning the investment considerations
involved, see "Description of the Fund_Investment Considerations and
Risks_Fixed-Income Securities" and "Illiquid Securities" below.
MUNICIPAL OBLIGATIONS -- (Growth and Income and Quality Bond Portfolios)
Municipal obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities. Municipal obligations bear fixed, floating or
variable rates of interest. Certain municipal obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related municipal obligations and
purchased and sold separately. The Series also may acquire call options on
specific municipal obligations. The Series generally would purchase these
call options to protect the Series from the issuer of the related municipal
obligation redeeming, or other holder of the call option from calling away,
the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Series investments. Dividends
received by shareholders on Series shares which are attributable to interest
income received by the Series from municipal obligations generally will be
subject to Federal income tax. The Series will invest in municipal
obligations, the ratings of which correspond with the ratings of other
permissible Series investments. The Series currently intends to invest no
more than 25% of its assets in municipal obligations. However, this
percentage may be varied from time to time without shareholder approval.
DEPOSITARY RECEIPTS -- (Disciplined Stock, Growth and Income, International
Equity, International Value, Managed Assets and Small Company Stock
Portfolios) The Series may invest in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and other forms of depositary receipts. These securities
may not necessarily be denominated in the same currency as the securities
into which they may be converted. ADRs are receipts typically issued by a
United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued
in Europe typically by non-United States banks and trust companies that
evidence ownership of either foreign or domestic securities. Generally, ADRs
in registered form are designed for use in the United States securities
markets and EDRs and CDRs in bearer form are designed for use in Europe.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- (All
Series) Each Series may invest in obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation (and, if
applicable, the Series' sub-investment adviser) to be of comparable quality
to the other obligations in which the Series may invest. Supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the World
Bank), the European Coal and Steel Community, the Asian Development Bank and
the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS -- (All Series) Each Series may invest in the
following types of Money Market Instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
secu-
Page 25
rity. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund -- Investment Considerations
and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies
having an outstanding unsecured debt issue currently rated at least A3 by
Moody's or A- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation (and, if applicable, the Series' sub-investment adviser)
to be of comparable quality to those rated obligations which may be purchased
by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
INVESTMENT COMPANIES -- (Managed Assets and Small Company Stock Portfolios)
The Series may invest in securities issued by investment companies. Under the
1940 Act, the Series' investment in such securities, subject to certain
exceptions, currently is limited to (i) 3% of the total voting stock of any
one investment company, (ii) 5% of the Series' total assets with respect to
any one investment company and (iii) 10% of the Series' total assets in the
aggregate. Investments in the securities of other investment companies may inv
olve duplication of advisory fees and certain other expenses.
STRIPPED TREASURY SECURITIES -- (Zero Coupon 2000 Portfolio and, to a limited
extent, all other Series) Stripped Treasury Securities are U.S. Treasury
securities that have been stripped of their unmatured interest coupons (which
typically provide for interest payments semi-annually), interest coupons that
have been stripped from such U.S. Treasury securities, and receipts and
certificates for such stripped debt obligations and stripped coupons.
Stripped bonds and stripped coupons are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment on the security and does not receive any rights to
periodic interest payments on the security.
Stripped Treasury Securities will include one or more of the
following types of securities: (a) U.S. Treasury debt obligations originally
issued as bearer coupon bonds which have been stripped of their unmatured
interest coupons, (b) coupons which have been stripped from U.S. Treasury
bonds, either of which may be held through the Federal Reserve Bank's book
entry system called "Separate Trading of Registered Interest and Principal of
Securities" ("STRIPS") or "Coupon Under Book-Entry Safekeeping" ("CUBES"),
and (c) receipts or certificates for stripped U.S. Treasury debt obligations
evidencing ownership of future interest or principal payments on U.S.
Treasury notes or bonds which are direct obligations of the United States.
The receipts or certificates must be issued in registered form by a major
bank which acts as custodian and nominal holder of the underlying stripped
U.S. Treasury obligation (which may be held by it either in physical or in
book-entry form). See "Investment Objectives and Management
Policies_Portfolio Securities" in the Statement of Additional Information.
STRIPPED CORPORATE SECURITIES -- (Growth and Income, International Equity,
Managed Assets, Quality Bond and Zero Coupon 2000 Portfolios) Stripped
Corporate Securities consist of corporate debt obligations issued by domestic
corporations without interest coupons, and, if available, interest coupons
that have been stripped from corporate debt obligations, and receipts and
certificates for such stripped debt obligations and stripped coupons.
Stripped Corporate Securities purchased by the Managed Assets, Growth and
Income, International Equity or Quality Bond Portfolios will bear ratings
comparable to non-stripped corporate obligations that may be purchased by
such Series. Stripped Corporate Securities purchased by the Zero
Page 26
Coupon 2000 Portfolio will be rated at least Baa by Moody's or BBB by S&P.
With respect to other features of Stripped Corporate Securities, such as
sales at deep discounts, see "Stripped Treasury Securities" above and
"Description of the Fund_Investment Considerations and Risks_Special
Considerations Relating to Stripped Securities."
ILLIQUID SECURITIES -- (All Series) Each Series may invest up to 15% (10%
with respect to the Money Market Portfolio) 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 Series' investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, repurchase agreements providing for settlement in more than seven
days after notice, and certain privately negotiated, non-exchange traded
options and securities used to cover such options. As to these securities,
the Series is subject to a risk that should the Series desire to sell them
when a ready buyer is not available at a price the Series deems
representative of their value, the value of the Series' net assets could be
adversely affected.
RATINGS -- (Growth and Income, Managed Assets, Small Cap and Quality Bond
Portfolios) Obligations rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P, Fitch and Duff are investment grade and regarded as having adequate
capacity to pay interest and repay principal; however, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. Securities rated
Ba by Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Securities rated Caa by Moody's or CCC by S&P, Fitch or Duff are of poor
standing and may be in default or there may be present elements of danger
with respect to principal or interest. Such securities, though high yielding,
are characterized by great risk. See "Appendix" in the Statement of
Additional Information for a general description of securities ratings.
The ratings of Moody's, S&P, Fitch or Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. The Series' ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 27
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PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO BE
A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH SEPARATE
ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING INSURANCE
COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN SEPARATE
PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE FOR INVESTMENT
THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY CERTAIN PARTICIPATING
INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR VLI POLICY SHOULD REFER
TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY FOR INFORMATION AS TO
WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR INVESTMENT THROUGH THE
CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S GROWTH AND INCOME
PORTFOLIO (THE "SERIES"). THE SERIES' GOAL IS TO PROVIDE LONG-TERM CAPITAL
GROWTH, CURRENT INCOME AND GROWTH OF INCOME, CONSISTENT WITH REASONABLE
INVESTMENT RISK. THE SERIES INVESTS PRIMARILY IN EQUITY SECURITIES, DEBT
SECURITIES AND MONEY MARKET INSTRUMENTS OF DOMESTIC AND FOREIGN ISSUERS.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VA CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- --------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING ALL TYPES OF VARIABLE LIFE INSURANCE POLICIES AND VARIABLE
ANNUITY CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR
SUCH POLICIES OR CONTRACTS.
- --------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Description of the Fund and Series................ 3
Management of the Fund............................ 6
How to Buy Shares................................. 7
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 8
Performance Information........................... 9
General Information............................... 10
Appendix.......................................... 12
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for the period indicated. This
information has been derived from the Series' financial statements. The total
investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for the period indicated.
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994(1) 1995
------------ ---------
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................... $12.50 $11.98
------------ ---------
INVESTMENT OPERATIONS:
Investment income-net.................................................. .28 .28
Net realized and unrealized gain (loss)
on investments......................................................... (.43) 7.07
------------ ---------
TOTAL FROM INVESTMENT OPERATIONS....................................... (.15) 7.35
------------ ---------
DISTRIBUTIONS:
Dividends from investment income-net................................... (.28) (.27)
Dividends from net realized gain on investments........................ (.09) (.73)
------------ ---------
TOTAL DISTRIBUTIONS.................................................... (.37) (1.00)
------------ ---------
Net asset value, end of period......................................... $11.98 $18.33
============ =========
TOTAL INVESTMENT RETURN (1.22%)(2) 61.89%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................ .22%(2) .92%
Ratio of net investment income to
average net assets..................................................... 2.25%(2) 2.21%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation................................ 1.28%((2) .03%
Portfolio Turnover Rate................................................ 237.09%(2) 255.42%
Net assets, end of period (000's omitted).............................. $1,040 $71,161
- --------------
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irrecon-
Page 3
cilable conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVE
The Series is a non-diversified portfolio, the investment objective
of which is long-term capital growth, current income and growth of income,
consistent with reasonable investment risk. The Series' investment objective
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Series' outstanding voting shares. There can be no assurance that the Series'
investment objective will be achieved.
MANAGEMENT POLICIES
The Series invests in equity securities, debt securities and money
market instruments of domestic and foreign issuers. The proportion of the
Series' assets invested in each type of security will vary from time to time
in accordance with The Dreyfus Corporation's assessment of economic
conditions and investment opportunities.
The equity securities in which the Series may invest consist of
common stocks, preferred stocks and securities convertible into common
stocks, including those in the form of American, European and Continental
Depositary Receipts, as well as warrants to purchase such securities. The
Series will be particularly alert to companies which offer opportunities for
capital appreciation and growth of earnings, while paying current dividends.
The debt securities in which the Series may invest include bonds,
debentures, notes, mortgage-related securities and municipal obligations. The
debt securities (other than convertible debt securities) purchased by the
Series must be rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or at least BBB by Standard & Poor's Ratings Group, a division of
The McGraw-Hill Companies, Inc. ("S&P"), Fitch Investors Service, L.P.
("Fitch")or Duff & Phelps Credit Rating Co. ("Duff") or, if unrated, deemed
to be of comparable quality by The Dreyfus Corporation. Debt securities rated
Baa by Moody's or BBB by S&P, Fitch or Duff are considered investment grade
obligations which lack outstanding investment characteristics and may have
speculative characteristics as well. The Series may invest up to 35% of the
value of its net assets in convertible debt securities rated not lower than
Caa by Moody's or CCC by S&P, Fitch and Duff, or, if unrated, deemed to be of
comparable quality by The Dreyfus Corporation. Debt securities rated Caa by
Moody's and CCC by S&P's, Fitch and Duff are considered to have predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal and are considered to be of poor standing. See "Investment
Considerations and Risks_Lower Rated Securities" below.
The Series may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under
"Appendix--Certain Portfolio Securities--Money Market Instruments." While the
Series does not intend to limit the amount of its assets invested in money
market instruments, except to the extent believed necessary to achieve its
investment objective, it does not expect under normal market conditions to
have a substantial portion of its assets invested in money market
instruments. However, when The Dreyfus Corporation determines that adverse
market conditions exist, the Series may adopt a temporary defensive posture
and invest its entire portfolio in money market instruments. The Series also
may invest in money market instruments in anticipation of investing cash
positions.
The Series' annual portfolio turnover rate is not expected to exceed
150%. Higher portfolio turnover rates usually generate additional brokerage
commissions and expenses and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. In addition, the
Series may engage in investment techniques, such as leveraging, lending
portfolio securities and short-selling, foreign currency transactions,
options and futures transactions. See also "Investment Considerations and
Risks" and "Appendix -- Investment Techniques" below and "Investment
Objectives and Management Policies -- Management Policies"in the Statement of
Additional Information.
Page 4
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share of the Series should be expected to
fluctuate. Investors should consider the Series as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
EQUITY SECURITIES -- Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of the Series'
investments will result in changes in the value of its shares and thus the
Series' total return to investors.
The securities of the smaller companies in which the Series may
invest may be subject to more abrupt or erratic market movements than larger,
more established companies, because these securities typically are traded in
lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FIXED-INCOME SECURITIES -- Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. Certain
securities that may be purchased by the Series, such as those with interest
rates that fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in interest rates and
can subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuer. Certain
debt securities purchased by the Series, such as those rated Baa or lower by
Moody's and BBB or lower by S&P, Fitch and Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Once the rating
of a portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security. See "Appendix -- Certain Portfolio Securities -- Ratings" below and
"Appendix" in the Statement of Additional Information.
LOWER RATED SECURITIES -- The Series may invest up to 35% of its assets in
higher yielding (and, therefore, higher risk) convertible debt securities,
such as those rated Ba by Moody's or BB by S&P, Fitch or Duff, or as low as
those rated Caa by Moody's or CCC by S&P, Fitch or Duff (commonly known as
junk bonds). 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. The retail secondary market for these securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Series to sell certain securities or could result
in lower prices than those used in calculating the Series' net asset value.
See "Appendix -- Certain Portfolio Securities -- Ratings."
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible: adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series 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.
Page 5
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.
FOREIGN CURRENCY TRANSACTIONS -- Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
USE OF DERIVATIVES -- The Series may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives the Series may use include options and futures and
mortgage-related securities. While Derivatives can be used effectively in
furtherance of the Series' investment objective, under certain market
conditions, they can increase the volatility of the Series' net asset value,
can decrease the liquidity of the Series' portfolio and make more difficult
the accurate pricing of the Series' portfolio. See "Appendix_Investment
Techniques_Use of Derivatives" below, and "Investment Objectives and
Management Policies_Management Policies_Derivatives" in the Statement of
Additional Information.
NON-DIVERSIFIED STATUS -- The classification of the Series as a
"non-diversified" investment company means that the proportion of the Series'
assets that may be invested in the securities of a single issuer is not
limited by the 1940 Act. A "diversified" investment company is required by
the 1940 Act generally, with respect to 75% of its total assets, to invest
not more than 5% of such assets in the securities of a single issuer. Since a
relatively high percentage of the Series' assets may be invested in the
securities of a limited number of issuers, some of which may be within the
same industry, the Series' portfolio may be more sensitive to changes in the
market value of a single issuer or industry. However, to meet Federal tax
requirements, at the close of each quarter the Series may not have more than
25% of its total assets invested in any one issuer and, with respect to 50%
of total assets, not more than 5% of its total assets invested in any one
issuer. These limitations do not apply to U.S. Government securities.
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation. However, if such
other series or investment companies desire to invest in, or dispose of, the
same securities as the Series, 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
Series or the price paid or received by the Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
Page 6
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The Series' primary portfolio manager is Richard Hoey. He
has held that position since May 1994 and has been employed by The Dreyfus
Corporation since April 1991. The Fund's other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus
Corporation also provides research services for the Series and for other
funds advised by The Dreyfus Corporation through a professional staff of
portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .75
of 1% of the value of the Series' average daily net assets. For the fiscal
year ended December 31, 1995, the Fund paid The Dreyfus Corporation a monthly
advisory fee at the effective annual rate of .72 of 1% of the value of the
Series' average daily net assets. The advisory fee payable to The Dreyfus
Corporation is higher than that paid by most other investment companies. From
time to time, The Dreyfus Corporation may waive receipt of its fees and/or
voluntarily assume certain expenses of the Series, which would have the
effect of lowering the expense ratio of the Series and increasing yield to
investors. The Fund will not pay The Dreyfus Corporation at a later time for
any amounts which may be waived, nor will the Fund reimburse The Dreyfus
Corporation for any amounts which may be assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating
Page 7
Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures 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 is computed by dividing the value of the net assets of the Series
(i.e., the value of its assets less liabilities) by the total number of
Series shares outstanding. The Series' investments are valued based on market
value, or where market quotations are not readily available, based on fair
value as determined in good faith by the Fund's Board. For further
information regarding the methods employed in valuing the Series'
investments, see "Determination of Net Asset Value" in the Fund's Statement
of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
quarterly. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), in all events in a manner consistent
with the provisions of the 1940 Act. The Series will not make distributions
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. Dividends are automatically reinvested in
additional shares at net asset value unless payment in cash is elected.
Shares begin earning dividends on the day the purchase order is effective. If
all shares in an
Page 8
account are redeemed at any time, all dividends to which the shareholder is
entitled will be paid along with the proceeds of the redemption. An omnibus
accountholder may indicate in a partial redemption request that a portion of
any accrued dividends to which such account is entitled belongs to an
underlying accountholder who has redeemed all shares in his or her account,
and such portion of the accrued dividends will be paid to the accountholder
along with the proceeds of the redemption. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in certain cash or reinvested in additional shares. Distributions
from net realized long-term securities gains generally are taxable as
long-term capital gains whether received in cash or reinvested in additional
shares. Since the Fund's shareholders are the Participating Insurance
Companies and their separate accounts, no discussion is included herein as to
the Federal income tax consequences to VA contract holders and VLI policy
holders. For information concerning the Federal income tax consequences to
such holders, see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995 as a "regulated investment company" under
the Code. The Series intends to continue to so qualify if such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Series of any liability for Federal Income
taxes to the extent that its earnings are distributed in accordance with
applicable provisions of the Code. The Series may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains.
Participating Insurance Companies should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the
basis of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
Page 9
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance. Companies under their VA contracts or VLI
policies. The effective yield and total return of the Series should be
distinguished from the rate of return of a corresponding sub-account or
investment division of a separate account of a Participating Insurance
Company, which rate will reflect the deduction of additional charges,
including mortality and expense risk charges, and will therefore be lower. VA
contract holders and VLI policy holders should consult the prospectus for
their contract or policy.
Calculations of the Series' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund." Comparative performance information may be used
from time to time in advertising the Series' shares, including data from
Lipper Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price
Index, Standard & Poor's MidCap 400 Index, the Dow Jones Industrial Average,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
instances in which the Fund itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Fund
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As described under "Management of the Fund" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Growth and Income
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto.
Page 10
The income attributable to, and the expenses of, one series are treated
separately from those of the other series. The Fund has the ability to create,
from time to time, new series without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 11
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Series has agreed to
buy or sell; to hedge the U.S. dollar value of securities the Series already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar.
SHORT-SELLING -- In these transactions, the Series sells a security it does
not own in anticipation of a decline in the market value of the security. To
complete the transaction, the Series must borrow the security to make
delivery to the buyer. The Series is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Series, which would result in a loss or
gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Series' net assets. The Series 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 Series' net
assets. The Series may not make a short sale which results in the Series
having sold short in the aggregate more than 5% of the outstanding securities
of any class of an issuer.
The Series may make short sales "against the box," in which the
Series enters into a short sale of a security it owns in order to hedge an
unrealized gain on the security. At no time will more than 15% of the value
of the Series' net assets be in deposits on short sales against the box.
LEVERAGE -- Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of the Series' portfolio. Money
borrowed for leveraging will be limited to 331/3% of the value of the Series'
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
The Series may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the
Series of an underlying debt instrument in return for cash proceeds based on
a percentage of the value of the security. The Series retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Series repurchases the security at principal plus accrued
interest. Except for these transactions, the Series' borrowings generally
will be unsecured.
USE OF DERIVATIVES -- The Series may invest in the types of Derivatives
enumerated under "Description of the Fund and Series -- Investment
Considerations and Risks -- Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies -- Management Policies -- Derivatives" in
the Statement of Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Series to increase or decrease
the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Series can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Series' performance.
Page 12
If the Series invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Series' return
or result in a loss. The Series also could experience losses if it were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither the Fund nor the Series will be a commodity pool,
Derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Series can invest in certain
Derivatives. The Series may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Series may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options
with respect to such contracts, other than for bona fide hedging purposes,
exceed 5% of the liquidation value of the Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts and
options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation.
The Series may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Series may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Series will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331/3%
of the value of the Series' total assets and the Series will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Such
loans are terminable by the Series at any time upon specified notice. The
Series might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- Convertible securities 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. 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 13
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. The Series may
invest up to 5% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Series that are sold in units
with, or attached to, other securities. Included in such amount, but not to
exceed 2% of the value of the Series' net assets, may be warrants which are
not listed on the New York or American Stock Exchange.
MORTGAGE-RELATED SECURITIES -- Mortgage-related securities are a form of
Derivative collateralized by pools of mortgages. The mortgage-related
securities which may be purchased include those with fixed, floating and
variable interest rates, those with interest rates that change based on
multiples of changes in interest rates and those with interest rates that
change inversely to changes in interest rates, as well as stripped
mortgage-backed securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mortgage-backed security will have one class
receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value
of the security, which may fluctuate, is not secured. If a mortgage-related
security is purchased at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting
from changes in interest rates or prepayments on the underlying mortgage
collateral. As with other interest-bearing securities, the prices of certain
of these securities are inversely affected by changes in interest rates.
However, although the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Series. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, the Series may
fail to fully recoup its initial investment even if the securities are rated
in the highest rating category by a nationally recognized statistical rating
organization. For further discussion concerning the investment considerations
involved, see "Description of the Fund and Series _Investment Considerations
and Risks_Fixed-Income Securities" and "Illiquid Securities" below.
MUNICIPAL OBLIGATIONS -- Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed,
floating or variable rates of interest. Certain municipal obligations are
subject to redemption at a date earlier than their stated maturity pursuant
to call options, which may be separated from the related municipal
obligations and purchased and sold separately. The Series also may acquire
call options on specific municipal obligations. The Series generally would
purchase these call options to protect the Series from the issuer of the
related municipal obligation redeeming, or other holder of the call option
from calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Series investments. Dividends
received by shareholders on Series shares which are attributable to interest
income received by the Series from municipal obligations generally will be
subject to Federal income tax. The Series will invest in municipal
obligations, the ratings of which correspond with the ratings of other
permissible Series investments. The Series currently intends to invest no
more than 25% of its assets in municipal obligations. However, this
percentage may be varied from time to time without shareholder approval.
DEPOSITARY RECEIPTS -- The Series may invest in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and other forms of depositary
Page 14
receipts. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"),
are receipts issued in Europe typically by non-United States banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in the United States
securities markets and EDRs and CDRs in bearer form are designed for use in
Europe.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Series may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTs--The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series -- Investment
Considerations and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer then seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. Other short-term bank
obligations may include uninsured, direct obligations bearing fixed, floating
or variable interest rates.
Page 15
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies
having an outstanding unsecured debt issue currently rated at least A3 by
Moody's or A- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation to be of comparable quality to those rated obligations
which may be purchased by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
ZERO COUPON -- The Series may invest in zero coupon U.S. Treasury securities,
which are Treasury Notes and Bonds that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. Zero
coupon securities also are issued by corporations and 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 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.
ILLIQUID SECURITIES -- The Series 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 Series' investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Series is subject to a risk that should
the Series desire to sell them when a ready buyer is not available at a price
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
RATINGS -- Obligations rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P, Fitch and Duff are investment grade and regarded as having adequate
capacity to pay interest and repay principal; however, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. Securities rated
Ba by Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Securities rated Caa by Moody's or CCC by S&P, Fitch or Duff are of poor
standing and may be in default or there may be present elements of danger
with respect to principal or interest. Such securities, though high yielding,
are characterized by great risk. See "Appendix" in the Statement of
Additional Information for a general description of securities ratings.
The ratings of Moody's, S&P, Fitch or Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evalu-
Page 16
ating the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. The Series' ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 17
DREYFUS
Variable
Investment
Fund
Growth and Income
Portfolio
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
108p050196
- -------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
INTERNATIONAL EQUITY PORTFOLIO
- -------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO BE
A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH SEPARATE
ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING INSURANCE
COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN SEPARATE
PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE FOR INVESTMENT
THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY CERTAIN PARTICIPATING
INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR VLIPOLICY SHOULD REFER
TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY FOR INFORMATION AS TO
WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR INVESTMENT THROUGH THE
CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S INTERNATIONAL EQUITY
PORTFOLIO (THE "SERIES"). THE SERIES' GOAL IS TO MAXIMIZE CAPITAL GROWTH. THE
SERIES INVESTS PRIMARILY IN THE EQUITY SECURITIES OF FOREIGN ISSUERS LOCATED
THROUGHOUT THE WORLD.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VA CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -------------------------------------------------------------------------
THE 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.
- -------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES OR CONTRACTS.
- -------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Description of the Fund and Series................ 3
Management of the Fund............................ 6
How to Buy Shares................................. 7
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 8
Performance Information........................... 9
General Information............................... 10
Appendix.......................................... 11
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for each period indicated.
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------
PER SHARE DATA: 1994(1) 1995
------- -------
<S> <C> <C>
Net asset value, beginning of period............................. $12.50 $12.02
------- -------
INVESTMENT OPERATIONS:
Investment income-net............................................ .15 .15
Net realized and unrealized gain (loss)
on investments................................................... (.40) .74
------- -------
TOTAL FROM INVESTMENT OPERATIONS................................. (.25) .89
------- -------
DISTRIBUTIONS:
Dividends from investment income-net............................. (.14) (.08)
Dividends from net realized gain on investments.................. (.09) (.01)
------- -------
TOTAL DISTRIBUTIONS.............................................. (.23) (.09)
------- -------
Net asset value, end of period................................... $12.02 $12.82
------- -------
TOTAL INVESTMENT RETURN............................................ (2.00%)(2) 7.39%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets.......................... .23%(2) 1.59%
Ratio of net investment income to
average net assets............................................... 1.11%(2) 1.13%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation.......................... 1.70%(2) .45%
Portfolio Turnover Rate.......................................... 16.75%(2) 70.22%
Net assets, end of period (000's omitted)........................ $1,089 $7,672
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Page 3
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
series.
INVESTMENT OBJECTIVE
The Series is a non-diversified portfolio, the investment objective
of which is to maximize capital growth. The Series' investment objective
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Series' outstanding voting shares. There can be no assurance that the Series'
investment objective will be achieved.
MANAGEMENT POLICIES
It is a fundamental policy of the Series that at least 65% of the
value of its total assets (except when maintaining a temporary defensive
position) will be invested in equity securities of foreign issuers. Equity
securities consist of common stocks, convertible securities and preferred
stocks. The Series also may invest in debt securities of foreign issuers that
management believes, based on market conditions, the financial condition of
the issuer, general economic conditions and other relevant factors, offer
opportunities for capital growth. Under normal market conditions, it is
expected that substantially all of the Series' assets will be invested in
securities of foreign issuers. While there are no prescribed limits on
geographic asset distribution outside the United States, the Series
ordinarily will seek to invest its assets in no fewer than three foreign
countries. The Series may invest up to 5% of its assets in securities of
companies that have been in continuous operation for fewer than three years.
The debt securities in which the Series may invest must be rated at
least Baa by Moody's Investors Service, Inc. ("Moody's") or at least BBB by
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies,
Inc. ("S&P"), Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit
Rating Co. ("Duff") or, if unrated, deemed to be of comparable quality by The
Dreyfus Corporation. Debt securities rated Baa by Moody's or BBB by S&P,
Fitch or Duff are considered investment grade obligations which lack
outstanding investment characteristics and have speculative characteristics
as well. See "Investment Considerations and Risk_Fixed-Income Securities"
below.
While seeking desirable equity investments, the Series may invest in
money market instruments consisting of U.S. Government securities,
certificates of deposit, time deposits, bankers' acceptances, short-term
investment grade corporate bonds and other short-term debt instruments, and
repurchase agreements, as set forth under "Appendix--Certain Portfolio
Securities--Money Market Instruments." Under normal market conditions, the
Series does not expect to have a substantial portion of its assets invested
in money market instruments. However, when The Dreyfus Corporation determines
that adverse market conditions exist, the Series may adopt a temporary
defensive posture and invest all of its assets in money market instruments.
The Series' annual portfolio turnover rate is not expected to exceed
150%. Higher portfolio turnover rates usually generate additional brokerage
commissions and expenses and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. In addition, the
Series may engage in various investment techniques, such as foreign currency
transactions, options and futures transactions and lending portfolio
securities. See also "Investment Considerations and Risks" and "Appendix_Inves
tment Techniques" below and "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share of the Series should be expected to
fluctuate. Investors should consider the Series as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
EQUITY SECURITIES --Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of the Series' portfolio
securities will result in changes in the value of the Series' shares and thus
the Series' return to investors.
Page 4
The securities of the smaller companies in which the Series may
invest may be subject to more abrupt or erratic market movements than larger,
more established companies, because these securities typically are traded in
lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
FOREIGN CURRENCY TRANSACTIONS -- 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 of U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
FIXED-INCOME SECURITIES -- Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. Certain
securities that may be purchased by the Series, such as those with interest
rates that fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in interest rates and
can subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuing
entities. Certain debt securities purchased by the Series, such as those
rated Baa by Moody's and BBB by S&P, Fitch and Duff, may be subject to such
risk with respect to the issuing entity and to greater market fluctuations
than certain lower yielding, higher rated fixed-income securities. Once the
rating of a portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security. See "Appendix--Certain Portfolio Securities--Ratings" below and
"Appendix" in the Statement of Additional Information.
USE OF DERIVATIVES -- The Series may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives the Series may use include options and futures. While
Derivatives can be used effectively in furtherance of the Series' investment
objective, under certain market conditions, they can increase the volatility
of the Series' net asset value, can decrease the liquidity of the Series' port
folio and make more difficult the accurate pricing of the Series' portfolio.
See "Appendix_Investment Techniques_Use of
Page 5
Derivatives" below, and "Investment Objectives and Management
Policies_Management Policies_Derivatives" in the Statement of Additional
Information.
NON-DIVERSIFIED STATUS -- The classification of the Series as a
"non-diversified" investment company, which means that the proportion of the
Series' assets that may be invested in the securities of a single issuer is
not limited by the 1940 Act. A "diversified" investment company is required
by the 1940 Act generally, with respect to 75% of its total assets, to invest
not more than 5% of such assets in the securities of a single issuer. Since
a relatively high percentage of the Series' assets may be invested in the
securities of a limited number of issuers, some of which may be within the
same industry, the Series' portfolio may be more sensitive to changes in the
market value of a single issuer or industry. However, to meet Federal tax
requirements, at the close of each quarter the Series may not have more than
25% of its total assets invested in any one issuer and, with respect to 50%
of total assets, not more than 5% of its total assets invested in any one
issuer. These limitations do not apply to U.S. Government securities.
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation. However, if such
other series or investment companies desire to invest in, or dispose of, the
same securities as the Series, 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
Series or the price paid or received by the Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The Series' primary portfolio manager is Ronald Chapman.
He has held that position since April 1996 and has been employed by The
Dreyfus Corporation since January 1996. Prior thereto, Mr. Chapman served for
ten years as Vice President of the Global Strategy and Management Group for
Northern Trust Company. The Series' other portfolio managers are identified
in the Statement of Additional Information. The Dreyfus Corporation also
provides research services for the Series and for other funds advised by The
Dreyfus Corporation through a professional staff of portfolio managers and
securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, pro-
Page 6
vided non-investment services, such as custodial or administration services,
for more than $786 billion in assets including approximately $60 billion in
mutual fund assets.
Under the terms of the Investment Advisory Agreement, the Series has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .75
of 1% of the value of the Series' average daily net assets. For the fiscal
year ended December 31, 1995, the Series paid The Dreyfus Corporation a
monthly advisory fee at the effective annual rate of .30 of 1% of the value
of the Series' average daily net assets. The advisory fee payable to The
Dreyfus Corporation is higher than that paid by most other investment
companies. From time to time, The Dreyfus Corporation may waive receipt of
its fees and/or voluntarily assume certain expenses of the Series, which
would have the effect of lowering the expense ratio of the Series and
increasing yield to investors. The Fund will not pay The Dreyfus Corporation
at a later time for any amounts which may be waived, nor will the Fund
reimburse The Dreyfus Corporation for any amounts which may be assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the
Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures 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 is computed by dividing the value of the net assets of the Series
(i.e., the value of its assets
Page 7
less liabilities) by the total number of Series shares outstanding. The
Series' investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in
good faith by the Fund's Board. For further information regarding the methods
employed in valuing the Series' investments, see "Determination of Net Asset
Value" in the Statement of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
annually. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), in all events in a manner consistent
with the provisions of the 1940 Act. The Series will not make distributions
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. Dividends are automatically reinvested in
additional shares at net asset value unless payment in cash is elected.
Shares begin earning dividends on the day the purchase order is effective. If
all shares in an account are redeemed at any time, all dividends to which the
shareholder is entitled will be paid along with the proceeds of the
redemption. An omnibus accountholder may indicate in a partial redemption
request that a portion of any accrued dividends to which such account is
entitled belongs to an underlying accountholder who has redeemed all shares
in his or her account, and such portion of the accrued dividends will be paid
to the accountholder along with the proceeds of the redemption. All expenses
are accrued daily and deducted before declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends derived from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains generally are taxable as long-term
capital gains whether received in cash or reinvested in additional shares.
Since the Fund's shareholders are the Participating Insurance Companies and
their separate accounts, no discussion is included herein as to the Federal
income tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in
Page 8
order for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995 as a "regulated investment company" under
the Code. The Series intends to continue to so qualify if such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Series of any liability for Federal income
taxes to the extent its earnings are distributed in accordance with
applicable provisions of the Code. The Series may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains.
Participating Insurance Companies should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the
basis of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance Companies under their VA contracts or VLI
policies. The Series' total return should be distinguished from the rate of
return of a corresponding sub-account or investment division of a separate
account of a Participating Insurance Company, which rate will reflect the
deduction of additional charges, including mortality and expense risk
charges, and will therefore be lower. VA contract holders and VLI policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund." Comparative performance information may be used
from time to time in advertising or marketing the Series' shares, including
data from Lipper Analytical Services, Inc., Money Magazine, Standard & Poor's
500 Composite Stock Price Index, Standard & Poor's MidCap 400 Index, Morgan
Stanley Capital International World Index, the Dow Jones Industrial Average,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
Page 9
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
instances in which the Fund itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Fund
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As described under "Management of the Fund" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the International
Equity Portfolio are being offered. Other portfolios are sold pursuant to
other offering documents.
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The income attributable to, and
the expenses of, one series are treated separately from those of the other
series. The Fund has the ability to create, from time to time, new series
without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling
516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more Series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 10
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Series has agreed to
buy or sell; to hedge the U.S. dollar value of securities the Series already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar.
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. In
addition, while borrowings exceed 5% of the Series' total assets, the Series
will not make any additional investments.
USE OF DERIVATIVES -- The Series may invest in the types of Derivatives
enumerated under "Description of the Fund and Series -- Investment
Considerations and Risks -- Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies -- Management Policies -- Derivatives" in
the Statement of Additional Information. Derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a
small investment in Derivatives could have a large potential impact on the
Series' performance.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Series to increase or decrease
the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Series can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Series' performance.
If the Series invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Series' return
or result in a loss. The Series also could experience losses if it were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither the Fund nor the Series will be a commodity pool,
Derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Series can invest in certain
Derivatives. The Series may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Series may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options
with respect to such contracts, other than for bona fide hedging purposes,
exceed 5% of the liquidation value of the Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts and
options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation.
The Series may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Series may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
Page 11
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Series will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331\3%
of the value of the Series' total assets and the Series will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Such
loans are terminable by the Series at any time upon specified notice. The
Series might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible
securities.
WARRANTS -- 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. The Series may
invest up to 5% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Series that are sold in units
with, or attached to, other securities. Included in such amount, but not to
exceed 2% of the value of the Series' net assets, may be warrants which are
not listed on the New York or American Stock Exchange.
DEPOSITARY RECEIPTS --The Series may invest in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and other forms of depositary receipts. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe typically by non-United States banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in the United States
securities markets and EDRs and CDRs in bearer form are designed for use in
Europe.
Page 12
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Series may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTs--The Series may invest in the following types of
money market instruments:
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may invest in certificates of deposit,
time deposits, bankers' acceptances, and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series -- Investment
Considerations and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies
having an outstanding unsecured debt issue currently rated at least A3 by
Moody's or A- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation to be of comparable quality to those rated obligations
which may be purchased by the Series.
Page 13
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
ZERO COUPON SECURITIES -- The Series may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and 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 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.
ILLIQUID SECURITIES-- The Series 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 Series' investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Series is subject to a risk that should
the Series desire to sell them when a ready buyer is not available at a price
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
RATINGS -- The ratings of Moody's, S&P, Fitch or Duff represent their
opinions as to the quality of the obligations which they undertake to rate.
Ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of such obligations. Although these ratings
may be an initial criterion for selection of portfolio investments, The
Dreyfus Corporation also will evaluate these securities and the ability of
the issuers of such securities to pay interest and principal. The Series'
ability to achieve its investment objective may be more dependent on The
Dreyfus Corporation's credit analysis than might be the case for a fund that
invested in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 14
[This Page Intentionally Left Blank]
Page 15
DREYFUS
Variable
Investment
Fund
International Equity
Portfolio
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
109p050196
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
CAPITAL APPRECIATION PORTFOLIO
- -------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO BE
A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH SEPARATE
ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING INSURANCE
COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN SEPARATE
PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE FOR INVESTMENT
THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY CERTAIN PARTICIPATING
INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR VLI POLICY SHOULD REFER
TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY FOR INFORMATION AS TO
WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR INVESTMENT THROUGH THE
CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S CAPITAL APPRECIATION
PORTFOLIO (THE "SERIES"). THE SERIES' PRIMARY GOAL IS TO PROVIDE LONG-TERM
CAPITAL GROWTH CONSISTENT WITH THE PRESERVATION OF CAPITAL; CURRENT INCOME IS
A SECONDARY GOAL. THE SERIES INVESTS PRIMARILY IN THE COMMON STOCKS OF
DOMESTIC AND FOREIGN ISSUERS.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER, AND
FAYEZ SAROFIM & CO. SERVES AS THE SERIES' SUB-INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VA CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING ALL TYPES OF VARIABLE LIFE INSURANCE POLICIES AND VARIABLE
ANNUITY CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR
SUCH POLICIES OR CONTRACTS.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Description of the Fund and Series................ 3
Management of the Fund............................ 6
How to Buy Shares................................. 8
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 9
Performance Information........................... 9
General Information............................... 10
Appendix.......................................... 12
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for each period indicated.
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993(1) 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year............................... $12.50 $13.27 $13.44
--------- --------- ---------
INVESTMENT OPERATIONS:
Investment income--net .......................................... .08 .23 .23
Net realized and unrealized gain on investments.................. .76 .17 4.27
--------- --------- ---------
Total from Investment Operations................................. .84 .40 4.50
--------- --------- ---------
DISTRIBUTIONS:
Dividends from investment income-net............................. (.07) (.23) (.23)
--------- --------- ---------
Net asset value, end of year..................................... $13.27 $13.44 $17.71
========= ========= =========
TOTAL INVESTMENT RETURN............................................ 6.74%(2) 3.04% 33.52%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets ......................... .28%(2) .25% .85%
Ratio of net investment income to average net assets ............ 1.89%(2) 2.99% 2.08%
Decrease reflected in above expense ratio due to
undertakings by The Dreyfus Corporation.......................... 3.67%(2) .86% .02%
Portfolio Turnover Rate.......................................... .01%(2) .12% 2.81%
Net Assets, end of year (000's omitted).......................... $3,770 $16,118 $46,930
(1) From April 5, 1993 (commencement of operations) to December 31, 1993
(2) Not annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Page 3
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVES
The Series is a diversified portfolio, the primary investment
objective of which is to provide long-term capital growth consistent with the
preservation of capital; current income is a secondary investment objective.
The Series' investment objectives cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Series' outstanding voting shares. There can
be no assurance that the Series' investment objectives will be achieved.
MANAGEMENT POLICIES
During periods which Fayez Sarofim & Co. ("Sarofim"), the Series'
sub-investment adviser, determines to be of market strength, the Series acts
aggressively to increase shareholders' capital by investing principally in
common stocks of domestic and foreign issuers, common stocks with warrants
attached and debt securities of foreign governments. The Series will seek
investment opportunities generally in large capitalization companies (those
with market capitalizations exceeding $500 million) which Sarofim believes
have the potential to experience above average and predictable earnings
growth. Market capitalization of a company's stock is its market price per
share times the number of shares outstanding. The Series will be alert to
those foreign and domestic issuers, which it considers undervalued by the
stock market in terms of current earnings, assets or growth prospects. These
companies will include those that management believes have new or innovative
products, services or processes which can enhance prospects for growth in
future earnings. Other than in periods of anticipated market weakness, the
Series will invest at least 80% of its net assets in common stocks.
The Series may invest up to 10% of the value of its assets in
securities of foreign governments and foreign companies which are not
publicly traded in the United States. By investing in foreign securities, the
Series seeks to further its objective of capital growth. See "Investment
Considerations and Risks_ Foreign Securities" below.
While seeking desirable investments, the Fund may invest in money
market instruments consisting of U.S. Government securities, certificates of
deposit, time deposits, bankers' acceptances, short-term investment grade
corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth under "Appendix_Certain Portfolio Securities_Money
Market Instruments." Under normal market conditions, the Fund does not expect
to have a substantial portion of its assets invested in money market
instruments. However, when Sarofim determines that adverse market conditions
exist, the Fund may adopt a temporary defensive posture and invest all of its
assets in money market instruments.
The Series' annual portfolio turnover rate is not expected to exceed
200%. In addition, the Series may engage in lending portfolio securities and
foreign currency transactions. See "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share of the Series should be expected to
fluctuate. Investors should consider the Series as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
EQUITY SECURITIES -- Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and that
fluctuations can be pronounced. Changes in the value of the
Page 4
Series' portfolio securities will result in changes in the value of the
Series' shares and thus the Series' yield and total return to investors.
FIXED-INCOME SECURITIES -- Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations.
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The percentage of the Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
FOREIGN CURRENCY TRANSACTIONS -- 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 the intervention of U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation and Sarofim. However,
if such other series or investment companies desire to invest in, or dispose
of, the same securities as the Series, 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 Series or the price paid or received by the Series.
Page 5
MANAGEMENT OF THE FUND
INVESTMENT ADVISERS -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts 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 provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
Sarofim, a registered investment adviser located at Two Houston
Center, Suite 2907, Houston, Texas 77010, serves as the Series'
sub-investment adviser. Sarofim was formed in 1958 and, as of February 29,
1996, provided investment advisory services to discretionary accounts having
aggregate assets of approximately $28 billion. Sarofim, subject to the
supervision and approval of The Dreyfus Corporation, provides investment
advisory assistance and the day-to-day management of the Series, as well as
investment research and statistical information, under a Sub-Investment
Advisory Agreement with the Fund, subject to the overall authority of the
Fund's Board in accordance with Massachusetts law.
The primary portfolio manager of the Series is Fayez Sarofim of
Sarofim. He has held that position since the commencement of operations of
the Series and has been employed by Sarofim since 1958. The Dreyfus
Corporation and Sarofim also provide research services for the Series and for
other funds advised by The Dreyfus Corporation or Sarofim, respectively,
through a professional staff of portfolio managers and securities analysts.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation an annual fee, payable monthly, as set
forth below:
<TABLE>
Annual Fee as a
Percentage of
Average Daily Net
Total Assets Assets of the Series
---------------- -------------------------------------
<S> <C> <C>
0 to $150 million................................... .55 of 1%
$150 million to $300 million........................ .50 of 1%
$300 million or more................................ .375 of 1%
</TABLE>
For the fiscal year ended December 31, 1995, the Fund paid The Dreyfus
Corporation a monthly investment advisory fee at the effective annual rate of
.53 of 1% of the value of the Series' average daily net assets.
Page 6
Under the terms of the Sub-Investment Advisory Agreement, the Fund
has agreed to pay Sarofim an annual fee, payable monthly, as set forth below:
<TABLE>
Annual Fee as a
Percentage of
Average Daily Net
Total Assets Assets of the Series
--------------- -------------------------------------
<S> <C> <C>
0 to $150 million................................... .20 of 1%
$150 million to $300 million........................ .25 of 1%
$300 million or more................................ .375 of 1%
</TABLE>
For the fiscal year ended December 31, 1995, the Fund paid Sarofim a
monthly sub-investment advisory fee at the annual rate of .20 of 1% of the
value of the Series' average daily net assets.
The aggregate advisory fee payable to The Dreyfus Corporation and
Sarofim is higher than that paid by most other investment companies. From
time to time, The Dreyfus Corporation and Sarofim may waive receipt of their
fees and/or voluntarily assume certain expenses of the Series, which would
have the effect of lowering the expense ratio of the Series and increasing
yield to investors. The Fund will not pay The Dreyfus Corporation or Sarofim
at a later time for any amounts which may be waived, nor will the Fund
reimburse The Dreyfus Corporation or Sarofim for any amounts which may be
assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation and Sarofim seek to obtain the best execution of orders at the
most favorable net price. Subject to this determination, The Dreyfus
Corporation and Sarofim may consider, among other things, the receipt of
research services and/or the sale of shares of other funds managed, advised
or administered by The Dreyfus Corporation as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund. See "Portfolio
Transactions" in the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts,
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of
Page 7
such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. Net asset value per share is computed by
dividing the value of the net assets of the Series (i.e., the value of its
assets less liabilities) by the total number of Series shares outstanding.
The Series' investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in
good faith by the Fund's Board. For further information regarding the methods
employed in valuing the Series' investments, see "Determination of Net Asset
Value" in the Statement of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
annually. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Code, in all events
in a manner consistent with the provisions of the 1940 Act. The Series will
not make distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. Dividends are
automatically reinvested in additional shares at net asset value unless
payment in cash is elected. Shares begin earning dividends on the day the
purchase order is effective. If all shares in an account are redeemed at any
time, all dividends to which the shareholder is entitled will be paid along
with the proceeds of the redemption. An omnibus accountholder may indicate in
a partial redemption request that a portion of any accrued dividends to which
such account is entitled belongs to an underlying accountholder who has
redeemed all shares in his or her account, and such portion of the accrued
dividends will be paid to the accountholder along with the proceeds of the
redemption. All expenses are accrued daily and deducted before declaration of
dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends derived from net investment income
(including discount recognized as ordinary income, if any),
Page 8
together with distributions of 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, generally are taxable as ordinary income
whether received in cash or reinvested in additional shares. Distributions
from net realized long-term securities gains generally are taxable as long-
term capital gains whether received in cash or reinvested in additional
shares. Since the Fund's shareholders are the Participating Insurance
Companies and their separate accounts, no discussion is included herein as to
the Federal income tax consequences to VA contract holders and VLI policy
holders. For information concerning the Federal income tax consequences to
such holders, see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995, as a "regulated investment company"
under the Code. The Series intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Qualification as
a regulated investment company relieves the Series of any liability for
federal income taxes to the extent that its earnings are distributed in
accordance with applicable provision of the Code. The Series may be subject
to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of investment income and capital gains.
Participating Insurance Companies should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the
basis of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating perfor-
Page 9
mance. Performance information of the Series should not be compared with other
funds that offer their shares directly to the public since the figures
provided do not reflect charges imposed by Participating Insurance Companies
under their VA contracts or VLI policies. The Series' total return should be
distinguished from the rate of return of a corresponding sub-account or invest-
ment division of a separate account of a Participating Insurance Company,
which rate will reflect the deduction of additional charges, including
mortality and expense risk charges, and will therefore be lower. VA contract
holders and VLI policy holders should consult the prospectus for their
contract or policy.
Calculations of the Series' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund." Comparative performance information may be used
from time to time in advertising the Series' shares, including data from
Lipper Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price
Index, Standard & Poor's MidCap 400 Index, the Dow Jones Industrial Average,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
instances in which the Fund itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Fund
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As described under "Management of the Fund" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Capital
Appreciation Portfolio are being offered. Other portfolios are sold pursuant
to other offering documents.
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
sub-
Page 10
ject to the liabilities related thereto. The income attributable to, and
the expenses of, one series are treated separately from those of the other
series. The Fund has the ability to create, from time to time, new series
without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 11
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Series has agreed to
buy or sell; to hedge the U.S. dollar value of securities the Series already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's and Sarofim's ability to predict accurately the
future exchange rates between foreign currencies and the U.S. dollar.
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of the Series' total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Series' total assets, the Series will
not make any additional investments.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 10% of
the value of the Series' total assets and the Series will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Series at any time upon specified notice. The Series might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations,
Page 13
enjoy seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
WARRANTS -- 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. The Series may
invest up to 2% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Series that are sold in units
with, or attached to, other securities. Included in such amount may be
warrants which are not listed on the New York or American Stock Exchange.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation and Sarofim
to be of comparable quality to the other obligations in which the Series may
invest. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS -- The Series may invest in the following types of
Money Market Instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
Repurchase Agreements. In a repurchase agreements, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreements, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series -- Investment
Considerations and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Page 13
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's Investors Service, Inc. ("Moody's"), A-1 by Standard & Poor's Rating
Group ("S&P"), F-1 by Fitch Investors Service, L.P. ("Fitch") or Duff-1 by
Duff & Phelps Credit Rating Co. ("Duff"), (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation and Sarofim to be of comparable quality to those rated
obligations which may be purchased by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
ILLIQUID SECURITIES -- Each Series 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 Series' 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, and repurchase agreements providing for
settlement in more than seven days after notice. As to these securities, the
Series is subject to a risk that should the Series desire to sell them when a
ready buyer is not available at a price the Series deems representative of
their value, the value of the Series' net assets could be adversely affected.
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 14
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Page 15
DREYFUS
Variable
Investment
Fund
Capital Appreciation
Portfolio
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
VIFp050196
Page 16
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PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
MONEY MARKET PORTFOLIO
- ----------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO BE
A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH THE
SEPARATE ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING
INSURANCE COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN
SEPARATE PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE FOR
INVESTMENT THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY CERTAIN
PARTICIPATING INSURANCE COMPANIES. A PURCHASER OF A VACONTRACT OR VLI POLICY
SHOULD REFER TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY FOR
INFORMATION AS TO WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR INVESTMENT
THROUGH THE CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S MONEY MARKET PORTFOLIO
(THE "SERIES"). THE SERIES' GOAL IS TO PROVIDE AS HIGH A LEVEL OF CURRENT
INCOME AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND THE MAINTENANCE
OF LIQUIDITY. THE SERIES INVESTS IN SHORT-TERM MONEY MARKET INSTRUMENTS. AN
INVESTMENT IN THE SERIES IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VA CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
- ----------------------------------------------------------------------------
THE 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.
- ----------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES OR CONTRACTS.
- ----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Yield Information................................. 3
Description of the Fund and Series................ 4
Management of the Fund............................ 6
How to Buy Shares................................. 7
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 8
General Information............................... 9
Appendix.......................................... 11
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusions of which would reduce the
Series' total investment return for each period indicated.
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income-net............... .024 .058 .041 .032 .043 .055
DISTRIBUTIONS:
Dividends from investment income-net (.024) (.058) (.041) (.032) (.043) (.055)
------- ------- ------- ------- ------- -------
Net asset value, end of year........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ======= ====== ====== ====== ======
TOTAL INVESTMENT RETURN................. 7.27%(2) 5.99% 4.14% 3.29% 4.37% 5.66%
Ratios/Supplemental Data:
Ratio of expenses to average net assets .03%(2) -_ -_ -_ -_ .62%
Ratio of net investment income to
average net assets............. 7.18%(2) 5.78% 4.10% 3.23% 4.62% 5.1%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation... 30.51%(2) 3.94% 4.25% 2.81% .88% 0.3%
Net assets, end of year (000's omitted)... $741 $1,619 $790 $7,651 $34,728 $45,249
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
YIELD INFORMATION
From time to time, the Series will advertise its yield and effective
yield. It can be expected that these yields will fluctuate substantially.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The yield of the Series refers to the income
generated by an investment in the Series over a seven-day period (which
period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly, but, when annualized, the income earned by an investment in the
Series is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public
Page 3
since the figures provided do not reflect charges imposed by Participating
Insurance Companies under their VA contracts or VLI policies. The Series'
effective yield should be distinguished from the rate of return of a
corresponding sub-account or investment division of a separate account of a
Participating Insurance Company, which rate will reflect the
deduction of additional charges, including mortality and expense risk
charges, and will therefore be lower. VA contract holders and VLI policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' yield or performance information may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Comparative performance information may be used
from time to time in advertising the Series' shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund ReportRegistration
Mark, Money Magazine, Bank Rate Monitortrademark, N. Palm Beach, Fla. 33408,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and
VLI policies to be offered by the separate accounts of Participating
Insurance Companies. The VA contracts and the VLI policies are described in
the separate prospectuses issued by the Participating Insurance Companies
over which the Fund assumes no responsibility. The Fund currently does not
foresee any disadvantages to the holders of VA contracts and VLI policies
arising from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order
to identify any material conflicts which may arise and to determine what
action, if any, should be taken in response thereto. Resolution of an
irreconcilable conflict might result in the withdrawal of a substantial
amount of the Series' assets which could adversely affect the Series' net
asset value per share.
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVE
The Series is a diversified portfolio, the investment objective of
which is to provide as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. The Series'
investment objective cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Series' outstanding voting shares. There can be no
assurance that the Series' investment objective will be achieved.
MANAGEMENT POLICIES
The Series seeks to achieve its investment objective by investing
in U.S. dollar denominated short-term money market instruments, including
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by domestic banks,
foreign branches or foreign subsidiaries of domestic banks, and domestic and
foreign branches of foreign banks, repurchase agreements, and high quality
domestic and foreign commercial paper and other short term corporate and bank
obligations, including those with floating and variable rates of interest,
issued by domestic and foreign corporations. The Series will invest in U.S.
dollar denominated obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supranational entities. The
Series currently does not intend to invest more than 20% of its assets in
foreign securities. Securities in which the Series will invest may not earn
as high a level of current income
Page 4
as long-term or lower quality securities, which generally have less liquidity,
greater market risk and more fluctuation in market value. In addition, the
Series may engage in lending portfolio securities and may enter into reverse
repurchase agreements. See "Appendix_Investment Techniques." During normal
market conditions, at least 25% of the Series' assets will be invested in
bank obligations. See "Investment Considerations and Risks."
The Series seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Series uses the amortized cost
method of valuing its securities pursuant to Rule 2a-7 under the 1940 Act,
certain requirements of which are summarized below. In accordance with Rule
2a-7, the Series will maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase only instruments having remaining maturities of
13 months or less and invest only in U.S. dollar denominated securities
determined in accordance with procedures established by the Fund's Board to
present minimal credit risks and which are rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations (or one rating organization if the
instrument was rated by only one such organization) or, if unrated, are of
comparable quality as determined in accordance with procedures established by
the Fund's Board. The nationally recognized statistical rating organizations
currently rating instruments of the type the Series may purchase are Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc. ("S&P"), Duff & Phelps Credit Rati
ng Co. ("Duff"), Fitch Investors Service, L.P. ("Fitch"), IBCA Limited and
IBCA Inc. and Thomson BankWatch, Inc. and their rating criteria are described
in the "Appendix" to the Statement of Additional Information. For further
information regarding the amortized cost method of valuing securities, see
"Determination of Net Asset Value" in the Statement of Additional
Information. There can be no assurance that the Series will be able to
maintain a stable net asset value of $1.00 per share.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- .The Series attempts to increase yields by trading to take
advantage of short-term market variations. This policy is expected to result
in high portfolio turnover but should not adversely affect the Series since
the Series usually does not pay brokerage commissions when it purchases
short-term debt obligations. The value of the portfolio securities held by
the Series will vary inversely to changes in prevailing interest rates. Thus,
if interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its purchase cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security was purchased at face
value and held to maturity, no gain or loss would be realized.
BANK SECURITIES -- To the extent the Series' investments are concentrated in
the banking industry, the Series will have correspondingly greater exposure
to the risk factors which are characteristic of such investments. Sustained
increases in interest rates can adversely affect the availability or
liquidity and cost of capital funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. In addition, the value of and the investment return on the
Series' shares could be affected by economic or regulatory developments in or
related to the banking industry, and competition within the banking industry
as well as with other types of financial institutions. The Series, however,
will seek to minimize its exposure to such risks by investing only in debt
securities which are determined to be of high quality.
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Page 5
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
The percentage of the Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation. However, if such
other series or investment companies desire to invest in, or dispose of, the
same securities as the Series, 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
Series or the price paid or received by the Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the Fund's investment
adviser. The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of February 29, 1996, The Dreyfus Corporation managed or
administered approximately $85 billion in assets for more than 1.7 million
investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The Dreyfus Corporation also provides research services
for the Series and for other funds advised by The Dreyfus Corporation through
a professional staff of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .50
of 1% of the value of the Series' average daily net
Page 6
assets. For the fiscal year ended December 31, 1995, the Fund paid The Dreyfus
Corporation a monthly advisory fee at the effective annual rate of .47 of 1%
of the value of the Series' average daily net assets. From time to time, The
Dreyfus Corporation may waive receipt of its fees and/or voluntarily assume
certain expenses of the Series, which would have the effect of lowering the
expense ratio of the Series and increasing yield to investors. The Fund will
not pay The Dreyfus Corporation at a later time for any amounts which may be
waived, nor will the Fund reimburse The Dreyfus Corporation for any amounts
which may be assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the
Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more Series and/or to
purchasers to VA contracts of VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. Net asset value per share is computed by
dividing the value of the net assets of the Series (i.e., the value of its
assets less liabilities) by the total number of Series shares outstanding.
The Series uses the amortized cost method of valuing its investments. See
"Determination of Net Asset Value" in the Statement of Additional Information.
Page 7
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares dividends from net investment income on each day
that the Fund determines its net asset value. Dividends usually are paid on
the last calendar day of each month. The earnings for Saturdays, Sundays and
holidays are declared as dividends on the next business day. The Series will
make distributions from net realized securities gains, if any, once a year,
but may make distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), in all events in a manner consistent with the provisions of the
1940 Act. The Series will not make distributions from net realized securities
gains unless capital loss carryovers, if any, have been utilized or have
expired. Dividends are automatically reinvested in additional shares at net
asset value unless payment in cash is elected. Shares begin earning dividends
on the day the purchase order is effective. If all shares in an account are
redeemed at any time, all dividends to which the shareholder is entitled will
be paid along with the proceeds of the redemption. An omnibus accountholder
may indicate in a partial redemption request that a portion of any accrued
dividends to which such account is entitled belongs to an underlying
accountholder who has redeemed all shares in his or her account, and such
portion of the accrued dividends will be paid to the accountholder along with
the proceeds of the redemption. All expenses are accrued daily and deducted
before declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends derived from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains of the Series generally are taxable as
long-term capital gains whether received in cash or reinvested in additional
shares. Since the Fund's shareholders are the Participating Insurance
Companies and their separate accounts, no discussion is included herein as to
the Federal income tax consequences to VA contract holders and VLI policy
holders. For information concerning the Federal income tax consequences to
such holders, see the prospectus for such contract or policy.
Page 8
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy the requisite conditions so that the
shares of the Series owned by a segregated asset account of a Participating
Insurance Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995, as a "regulated investment company"
under the Code. The Series intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Qualification as
a regulated investment company relieves the Series of any liability for
Federal income taxes to the extent its earnings are distributed in accordance
with applicable provisions of the Code. The Series may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains. Participating Insurance
Companies should consult their tax advisers regarding specific questions as
to Federal, state or local taxes.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
instances in which the Fund itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Fund
intends to conduct its operations of the Fund in such a way so as to avoid,
as far as possible, ultimate liability of the shareholders for liabilities of
the Fund. As described under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Money Market
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
Page 9
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The income attributable to, and
the expenses of, one series are treated separately from those of the other
series. The Fund has the ability to create, from time to time, new series
without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 10
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Series' total assets, the Series will not make
any additional investments. In addition, the Series may borrow for investment
purposes on a secured basis through entering into reverse repurchase
agreements as described below.
REVERSE REPURCHASE AGREEMENTS -- The Series may enter into reverse repurchase
agreements with banks, brokers or dealers. This form of borrowing involves
the transfer by the Series of an underlying debt instrument in return for
cash proceeds based on a percentage of the value of the security. The Series
retains the right to receive interest and principal payments on the security.
At an agreed upon future date, the Series repurchases the security at
principal plus accrued interest. As a result of these transactions, the
Series is exposed to greater potential fluctuations in the value of its
assets and its net asset value per share. These borrowings will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331/3%
of the value of the Series' total assets and the Series will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Such
loans are terminable by the Series at any time upon specified notice. The
Series might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
U.S. GOVERNMENT SECURITIES -- Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by tahe right of the issuer to borrow from the U.S.
Treasury; others by discretionary authority of the U.S. Government to pur-
Page 11
chase certain obligations of the agency or instrumentality; and others
only by the credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies and
instrumentalities, no assurance can be given that it will always do so since
it is not so obligated by law.
REPURCHASE AGREEMENTS -- In a repurchase agreement, the Series buys, and the
seller agrees to repurchase, a security at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS -- The Series may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Series may be subject to a
dditional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Description of the Fund and Series-- Investment Considerations
and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. The other short-term bank
obligations may include uninsured, direct obligations bearing fixed, floating
or variable interest rates.
COMMERCIAL PAPER -- Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will comply with Rule 2a-7.
PARTICIPATION INTERESTS -- The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Series may invest.
Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development
Page 12
and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank. The percentage
of the Series' assets invested in securities issued by foreign governments
will vary depending on the relative yields of such securities, the economic
and financial markets of the countries in which the investments are made and
the interest rate climate of such countries.
ILLIQUID SECURITIES -- The Series may invest up to 10% 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 Series' 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, and repurchase agreements providing for
settlement in more than seven days after notice. As to these securities, the
Series is subject to a risk that should the Series desire to sell them when a
ready buyer is not available at a price the Series deems representative of
their value, the value of the Series' net assets could be adversely affected.
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 13
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Page 14
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Page 15
DREYFUS
Variable
Investment
Fund
Money Market Portfolio
Prospectus
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
117p050196
- -----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
MANAGED ASSETS PORTFOLIO
- -----------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO BE
A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH SEPARATE
ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING INSURANCE
COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN SEPARATE
PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE FOR INVESTMENT
THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY CERTAIN PARTICIPATING
INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR VLIPOLICY SHOULD REFER
TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY FOR INFORMATION AS TO
WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR INVESTMENT THROUGH THE
CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S MANAGED ASSETS PORTFOLIO
(THE "SERIES"). THE SERIES' GOAL IS TO MAXIMIZE TOTAL RETURN, CONSISTING OF
CAPITAL APPRECIATION AND CURRENT INCOME. THE SERIES FOLLOWS AN ASSET
ALLOCATION STRATEGY BY INVESTING IN EQUITY SECURITIES, DEBT SECURITIES AND
MONEY MARKET INSTRUMENTS OF DOMESTIC AND FOREIGN ISSUERS.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER, AND
COMSTOCK PARTNERS, INC. SERVES AS THE SERIES' SUB-INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VACONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -----------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING ALL TYPES OF VARIABLE LIFE INSURANCE POLICIES AND VARIABLE
ANNUITY CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR
SUCH POLICIES OR CONTRACTS.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Description of the Fund and Series................ 3
Management of the Fund............................ 7
How to Buy Shares................................. 8
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 9
Performance Information........................... 10
General Information............................... 10
Appendix.......................................... 12
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for each period indicated.
<TABLE>
Year Ended DECEMBER 31,
------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
-------- ------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $10.00 $10.11 $10.76 $10.14 $12.92 $12.37
-------- ------ ------ ------- ------ -------
INVESTMENT OPERATIONS:
Investment income-net .............. .08 .41 .22 .20 .35 .51
Net realized and unrealized gain (loss)
on investments.................... .11 .66 (.11) 2.71 (.56) (.54)
-------- ------ ------ ------- ------ -------
TOTAL FROM INVESTMENT OPERATIONS .19 1.07 .11 2.91 (.21) (.03)
-------- ------ ------ ------- ------ -------
DISTRIBUTIONS:
Dividends from investment income-net... (.08) (.42) (.31) (.13) (.32) (.64)
Dividends in excess of investment income-net... -_ -_ -_ -_ (.02) --
Dividends from net realized gain on investments... -_ -_ (.42) -_ -- --
-------- ------ ------ ------- ------ -------
TOTAL DISTRIBUTIONS........... (.08) (.42) (.73) .13 (.34) (.64)
-------- ------ ------ ------- ------ -------
Net asset value, end of year........ $10.11 $10.76 $10.14 $12.92 $12.37 $11.70
======= ======= ====== ====== ====== ======
TOTAL INVESTMENT RETURN................. 1.85%(2) 10.60% 1.07% 28.59% (1.56%) .26%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets... .34%(2) 1.00% .97% .27% .25% .94%
Ratio of net investment income to
average net assets................ 2.11%(2) 4.46% 1.88% 1.87% 3.54% 3.56%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation... 8.82%(2) 2.83% 1.70% 2.25% .88% --
Portfolio Turnover Rate............. -_ 91.97% 118.78% 99.08% 25.96% 53.88%
Net assets, end of year (000's omitted)...... $ 716 $2,179 $1,865 $7,957 $30,510 $25,272
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Not annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Page 3
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVE
The Series' is a diversified portfolio, the investment objective of
which is to maximize total return, consisting of capital appreciation and
current income. The Series' investment objective cannot be changed without
approval by the holders of a majority (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) of the Series' outstanding voting
shares. There can be no assurance that the Series' investment objective will
be achieved.
MANAGEMENT POLICIES
The Series follows an asset allocation strategy by investing in
equity securities, debt securities and money market instruments of domestic
and foreign issuers. The Series will not be managed as a balanced portfolio
and is not required to maintain a portion of its investments in each of the
Series' permitted investment categories at all times. The asset classes,
market sectors, securities and portfolio strategies selected will be those
that The Dreyfus Corporation and Comstock Partners, Inc. ("Comstock"), the
Series' sub-investment adviser, believe prudent and offer the greatest
potential for achieving the Series' investment objective. The asset
allocation mix selected will be a primary determinant of the Series'
investment performance.
The equity securities in which the Series may invest include common
stocks, preferred stocks, convertible securities and warrants. The debt
securities in which the Series may invest include bonds, debentures and
notes. The Series may invest up to 60% of the value of its total assets in
the securities of foreign issuers, including those issued in the form of
American Depositary Receipts and European Depositary Receipts. The Series'
may invest up to 20% of the value of its total net assets in securities of
issuers principally located in any one foreign country, except that the
Series may invest up to 35% of the value of its total net assets in
securities of issuers located in any one of the following foreign countries:
Australia, Canada, France, Japan, the United Kingdom or Germany. The Series
may invest in the securities of companies whose principal activities are in,
or governments of, emerging markets. See "Investment Considerations and Risks
- -- Foreign Securities" below.
The Series generally seeks to invest in securities determined to
offer above average potential for total return. In making this determination,
factors including price-earnings ratios, cash flow and the relationship of
asset value to market value of the securities will be taken into account. The
Series will be alert to companies engaged in restructuring efforts, such as
mergers, acquisitions and divestitures of less profitable units.
The Series generally seeks to invest in debt securities where the
yield and potential for capital appreciation of the security are considered
sufficiently attractive in light of the risks of ownership of the security.
In determining whether the Series should invest in particular debt
securities, the factors considered include: the price, coupon and yield to
maturity; 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.
Ratings, if any, assigned to the securities by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P"), or other recognized rating agencies also
will be considered. The judgment of The Dreyfus Corporation and Comstock as
to credit quality of a debt security may differ, however, from that suggested
by the ratings published by a rating service. The Series is not subject to
any limit on the percentage of its assets that may be invested in securities
having a certain rating. Low-rated and unrated securities have special risks
relating to the ability of the Series to receive timely, or perhaps ultimate,
payment of principal and interest. Such securities are considered to have
speculative characteristics and to be of poor quality; some obligations in
which the Series may invest may be in default. See "Investment Considerations
and Risks_Lower Rated Securities" below. The Series also may invest in zero
coupon securities (as described below).
The Series may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and
Page 4
other short-term debt instruments, and repurchase agreements, as set forth
under "Appendix -- Certain Portfolio Securities -- Money Market Instruments."
The Series may invest up to 100% of its assets in money market instruments,
but at no time will the Series' investments in bank obligations, including
time deposits, exceed 25% of its assets.
To the extent permitted under the 1940 Act, the Series may invest in
securities issued by closed-end investment companies which principally invest
in securities of foreign issuers. The Series 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 Series' annual portfolio turnover rate may exceed 100%. Higher
portfolio turnover rates usually generate additional brokerage commissions
and expenses and the short-term gains realized from these transactions are
taxable to shareholders as ordinary income. In addition, the Series may
engage in various investment techniques, such as foreign currency
transactions, options and futures transactions, lending portfolio securities
and short-selling. See also "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share of the Series should be expected to
fluctuate. Investors should consider the Series as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
EQUITY SECURITIES --Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of the Series'
investments will result in changes in the value of the Series' shares and
thus the Series' total return to investors.
The securities of the smaller companies in which the Series may
invest may be subject to more abrupt or erratic market movements than larger,
more established companies, because these securities typically are traded in
lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FIXED-INCOME SECURITIES -- 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. Certain
securities that may be purchased by the Series, such as those with interest
rates that fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in interest rates and
can subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuing
entities. Certain debt securities purchased by the Series, such as those
rated Baa or lower by Moody's and BBB or lower by S&P, may be subject to such
risk with respect to the issuing entity and to greater market fluctuations
than certain lower yielding, higher rated fixed-income securities. Once the
rating of a portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security. See "Appendix_Certain Portfolio Securities_Ratings" below and
"Appendix" in the Statement of Additional Information.
LOWER RATED SECURITIES -- The Series may invest up to 35% of its assets in
higher yielding (and, therefore, higher risk) debt 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 (commonly known as junk bonds). 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. The retail secondary market
for these securities may be less liquid than that of higher rated securities;
adverse conditions could make it difficult at times for the Series to sell
certain securities or could result in lower prices than those used in
calculating the
Page 5
Series' net asset value. See "Appendix_Certain Portfolio Securities_ Ratings."
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The percentage of the Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
FOREIGN CURRENCY TRANSACTIONS -- 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 of U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
USE OF DERIVATIVES -- The Series may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives the Series may use include options and futures. While
Derivatives can be used effectively in furtherance of the Series' investment
objective, under certain market conditions, they can increase the volatility
of the Series' net asset value, can decrease the liquidity of the Series'
portfolio and make more difficult the accurate pricing of the Series'
portfolio. See "Appendix_Investment Techniques_Use of Derivatives" below, and
"Investment Objectives and Management Policies_Management
Policies_Derivatives" in the Statement of Additional Information.
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation and Comstock.
However, if such other series or investment companies desire to invest in, or
Page 6
dispose of, the same securities as the Series, 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 Series or the price paid or received by the Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISERS -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A,. which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts 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 provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
Comstock, a registered investment adviser located at 10 Exchange
Place, Jersey City, New Jersey 07302, serves as the Series' sub-investment
adviser. Comstock was formed in 1986 and, as of February 29, 1996, managed
approximately $700 million in assets for other mutual funds and several
discretionary accounts. Comstock subject to the supervision and approval of
The Dreyfus Corporation, provides investment advisory assistance and the
day-to-day management of the Series, 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 in accordance with Massachusetts
law.
Investment decisions for the Series are made by the Investment Policy
Committee of Comstock Partners, Inc., and no person is primarily responsible
for making recommendations to that committee. The Dreyfus Corporation and
Comstock Partners also provide research services for the Series as well as
for other funds advised by The Dreyfus Corporation or Comstock Partners,
respectively, through a professional staff of portfolio managers and security
analysts.
For the fiscal year ended December 31, 1995, the Fund paid The
Dreyfus Corporation a monthly investment advisory fee at the annual rate of
.375 of 1% of the value of the Series' average daily net assets. For the
fiscal year ended December 31, 1995, the Fund paid Comstock a monthly
sub-investment advisory fee at the annual rate of .375 of 1% of the value of
the Series' average daily net assets. The aggregate advisory fee payable to
The Dreyfus Corporation and Comstock is higher than that paid by most other
investment companies. From time to time, The Dreyfus Corporation and Comstock
may waive receipt of their fees and/or voluntarily assume certain expenses of
the Series, which would have the effect of lowering the expense ratio of the
Series and increasing yield to investors. The Fund will not pay The Dreyfus
Corporation or Comstock at a later time for any amounts which may be waived,
nor will the Fund reimburse The Dreyfus Corporation or Comstock for any
amounts which may be assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of
Page 7
other funds managed, advised or administered by The Dreyfus Corporation as
factors in the selection of broker-dealers to execute portfolio transactions
for the Fund. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures 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 is computed by dividing the value of the net assets of the Series
(i.e., the value of its assets less liabilities) by the total number of
Series shares outstanding. The Series' investments are valued based on market
value, or where market quotations are not readily available, based on fair
value as determined in good faith by the Fund's Board. For further
information regarding the methods employed in valuing the Series'
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to prop-
page 8
erly transmit redemption requests in accordance with applicable requirements.
VA contract holders and VLI policy holders should consult their Participating
Insurance Company in this regard. The value of the shares redeemed may be more
or less than their original cost, depending on the Series' then-current net
asset value. No charges are imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
annually. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), in all events in a manner consistent
with the provisions of the 1940 Act. The Series will not make distributions
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. Dividends are automatically reinvested in
additional shares at net asset value unless payment in cash is elected.
Shares begin earning dividends on the day the purchase order is effective. If
all shares in an account are redeemed at any time, all dividends to which the
shareholder is entitled will be paid along with the proceeds of the
redemption. An omnibus accountholder may indicate in a partial redemption
request that a portion of any accrued dividends to which such account is
entitled belongs to an underlying accountholder who has redeemed all shares
in his or her account, and such portion of the accrued dividends will be paid
to the accountholder along with the proceeds of the redemption. All expenses
are accrued daily and deducted before declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains generally are taxable as long-term capital
gains whether received in cash or reinvested in additional shares. Since the
Fund's shareholders are the Participating Insurance Companies and their
separate accounts, no discussion is included herein as to the Federal income
tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995, as a "regulated investment company"
under the Code. The Series intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Qualification as
a regulated investment company relieves the Series of any liability for
Federal income taxes to the extent that its earnings are distributed
Page 9
in accordance with applicable provisions of the Code. The Series may be
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of investment income and capital gains.
Participating Insurance Companies should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the
basis of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance Companies under their VA contracts or VLI
policies. The Series' total return should be distinguished from the rate of
return of a corresponding sub-account or investment division of a separate
account of a Participating Insurance Company, which rate will reflect the
deduction of additional charges, including mortality and expense risk
charges, and will therefore be lower. VA contract holders and VLI policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund."
Comparative performance information may be used from time to time in
advertising the Series' shares, including data from Lipper Analytical
Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Standard &
Poor's MidCap 400 Index, the Dow Jones Industrial Average, Morningstar, Inc.,
Value Line Mutual Fund Survey and other industry publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Page 10
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Fund intends to conduct its operations in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Fund. As discussed under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Managed Assets
Portfolio are being offered. Othe portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The income attributable to, and
the expenses of, one series are treated separately from those of the other
series. The Fund has the ability to create, from time to time, new series
without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling
516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more Series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 11
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Series has agreed to
buy or sell; to hedge the U.S. dollar value of securities the Series already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's and Comstock's ability to predict accurately
future exchange rates between foreign currencies and the U.S. dollar.
SHORT-SELLING -- The Series may make short sales "against the box," in which
the Series enters into a short sale of a security it owns in order to hedge
an unrealized gain on the security. At no time will more than 15% of the
value of the Series' net assets be in deposits on short sales against the
box.
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. In
addition, while borrowings exceed 5% of the Series' total assets, the Series
will not make any additional investments.
USE OF DERIVATIVES -- The Series may invest in the types of Derivatives
enumerated under "Description of the Fund and Series -- Investment
Considerations and Risks -- Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies -- Management Policies -- Derivatives" in
the Statement of Additional Information. Derivatives can be volatile and
involve various types and degrees of risk, depending upon the characteristics
of the particular Derivative and the portfolio as a whole. Derivatives permit
the Series to increase or decrease the level of risk, or change the character
of the risk, to which its portfolio is exposed in much the same way as the
Series can increase or decrease the level of risk, or change the character of
the risk, of its portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Series' performance.
If the Series invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Series' return
or result in a loss. The Series also could experience losses if it were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither the Fund nor the Series will be a commodity pool,
Derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Series can invest in certain
Derivatives. The Series may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Series may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options
with respect to such contracts, other than for bona fide hedging purposes,
exceed 5% of the liquidation value of the Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts and
options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation.
The Series may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Series may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission,
Page 12
the Series will set aside permissible liquid assets in a segregated account
to cover its obligations relating to its transactions in Derivatives. To
maintain this required cover, the Series may have to sell portfolio
securities at disadvantageous prices or times since it may not be possible to
liquidate a Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 20% of
the value of the Series' total assets and the Series will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Series at any time upon specified notice. The Series might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
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. The Series may
invest up to 2% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Series that are sold in units
with, or attached to, other securities. Included in such amount may be
warrants which are not listed on the New York or American Stock Exchange.
DEPOSITARY RECEIPTS --The Series may invest in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and other forms of depositary receipts. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe typically by non-United States banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in the United States
securities markets and EDRs and CDRs in bearer form are designed for use in
Europe.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation and Comstock
to be of comparable quality to the other obligations in which the Series may
invest. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international bank-
Page 13
ing institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
MONEY MARKET INSTRUMENTs--The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series -- Investment
Considerations and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. The other short-term bank obligations may
include uninsured, direct obligations bearing fixed, floating or variable
interest rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch Investors Service, Inc. ("Fitch") or Duff-1
by Duff & Phelps Credit Rating Co. ("Duff"), (b) issued by companies having
an outstanding unsecured debt issue currently rated at least A3 by Moody's or
A- by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation and Comstock to be of comparable quality to those rated
obligations which may be purchased by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests,
Page 14
The Dreyfus Corporation must have determined that the instrument is of
comparable quality to those instruments in which the Series may invest.
INVESTMENT COMPANIES -- The Series may invest in securities issued by
investment companies. Under the 1940 Act, the Series' investment in such
securities, subject to certain exceptions, currently is limited to (i) 3% of
the total voting stock of any one investment company, (ii) 5% of the Series'
total assets with respect to any one investment company and (iii) 10% of the
Series' total assets in the aggregate. Investments in the securities of other
investment companies may involve duplication of advisory fees and certain
other expenses.
ZERO COUPON SECURITIES -- The Series may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and 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 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.
ILLIQUID SECURITIES -- The Series 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 Series' investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Series is subject to a risk that should
the Series desire to sell them when a ready buyer is not available at a price
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
RATINGS -- Obligations rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are investment grade and regarded as having adequate capacity to pay
interest and repay principal; however, adverse changes in economic conditions
and circumstances are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. Securities rated Ba by Moody's are
judged to have speculative elements; their future cannot be considered as
well assured and often the protection of interest and principal payments may
be very moderate. Securities rated BB by S&P 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 payments. Securities rated Caa by Moody's
or CCC by S&P are of poor standing and may be in default or there may be
present elements of danger with respect to principal or interest. Such
securities, though high yielding, are characterized by great risk. See
"Appendix" in the Statement of Additional Information for a general
description of securities ratings.
The ratings of Moody's or S&P represent their opinions as to the
quality of the obligations which they undertake to rate. Ratings are relative
and subjective and, although ratings may be useful in evaluating the safety
of interest and principal payments, they do not evaluate the market value
risk of such obligations. Although these ratings may be an initial criterion
for selection of portfolio investments, The Dreyfus Corporation and Comstock
also will evaluate these securities and the ability of the issuers of such
securities to pay interest and principal. The Series' ability to achieve its
investment objective may be more dependent on The Dreyfus Corporation's and
Comstock's credit analysis than might be the case for a fund that invested in
higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 15
DREYFUS
Variable
Investment
Fund
Managed Assets
Portfolio
Prospectus
(LION LOGO
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
118P050196
- --------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
ZERO COUPON 2000 PORTFOLIO
- --------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS INTENDED TO BE
A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED THROUGH THE
SEPARATE ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE "PARTICIPATING
INSURANCE COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN ELEVEN
SEPARATE PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE FOR
INVESTMENT WITH RESPECT TO CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY
CERTAIN PARTICIPATING INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR A
VLI POLICY SHOULD REFER TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY
FOR INFORMATION AS TO WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR
INVESTMENT THROUGH THE CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S ZERO COUPON 2000
PORTFOLIO (THE "SERIES"). THE SERIES' GOAL IS TO PROVIDE AS HIGH AN
INVESTMENT RETURN AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE
SERIES INVESTS PRIMARILY IN DEBT OBLIGATIONS OF THE U.S. TREASURY THAT HAVE
BEEN STRIPPED OF THEIR UNMATURED INTEREST COUPONS, INTEREST COUPONS THAT HAVE
BEEN STRIPPED FROM DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY, RECEIPTS AND
CERTIFICATES FOR SUCH STRIPPED DEBT OBLIGATIONS, AND STRIPPED COUPONS AND
ZERO COUPON SECURITIES ISSUED BY DOMESTIC CORPORATIONS. THE SERIES' ASSETS
WILL CONSIST PRIMARILY OF PORTFOLIO SECURITIES WHICH WILL MATURE ON OR ABOUT
DECEMBER 31, 2000.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VA CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- --------------------------------------------------------------------------
THE 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.
- --------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES AND CONTRACTS.
- --------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Description of the Fund and Series................ 3
Management of the Fund............................ 7
How to Buy Shares................................. 8
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 9
Performance Information........................... 9
General Information............................... 10
Appendix.......................................... 12
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for each period indicated.
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
-------- ------ ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $10.00 $10.45 $11.64 $11.77 $12.57 $11.39
------- ------- ------- ------- -------- ------
INVESTMENT OPERATIONS:
Investment income-net............... .22 .76 .83 .79 .69 .69
Net realized and unrealized gain (loss)
on investments.................... .45 1.25 .15 .96 (1.18) 1.31
------- ------- ------- ------- -------- ------
TOTAL FROM INVESTMENT OPERATIONS.. .67 2.01 .98 1.75 (.49) 2.00
------- ------- ------- ------- -------- ------
DISTRIBUTIONS:
Dividends from investment income-net... (.22) (.76) (.84) (.78) (.68) (.69)
Dividends from net realized gain on investments.. -- (.06) (.01) (.17) (.01) --
------- ------- ------- ------- -------- ------
TOTAL DISTRIBUTIONS............... (.22) (.82) (.85) (.95) (.69) (.69)
------- ------- ------- ------- -------- ------
Net asset value, end of year........ $10.45 $11.64 $11.77 $12.57 $11.39 $12.70
====== ======= ======= ======= ======== =======
TOTAL INVESTMENT RETURN................. 20.09%(2) 20.09% 8.87% 15.19% (3.91%) 17.95%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets... .70%(2) .72% .64% -- -- .68%
Ratio of net investment income to
average net assets................ 8.03%(2) 7.41% 7.15% 6.21% 6.04% 5.73%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation... 81.13%(2) 5.04% 2.28% 2.43% 1.05% .03%
Portfolio Turnover Rate............. -- 42.82% 3.08% 106.35% -- 49.43%
Net assets, end of year (000's omitted)... $155 $ 1,296 $1,362 $ 5,696 $10,913 $22,291
- ------------
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2)Annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Page 3
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVE
The Series is a diversified portfolio, the investment objective of
which is to provide as high an investment return as is consistent with the
preservation of capital. The Series' investment objective cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Series' outstanding
voting shares. There can be no assurance that the Series' investment
objective will be achieved.
MANAGEMENT POLICIES
The Series invests in a portfolio consisting primarily (but currently
not anticipated to be in excess of 55% of the Series' assets) of debt
obligations issued by the U.S. Treasury that have been stripped of their
unmatured interest coupons, interest coupons that have been stripped from
debt obligations issued by the U.S. Treasury, and receipts and certificates
for stripped debt obligations and stripped coupons, including U.S. Government
trust certificates (collectively, "Stripped Treasury Securities"). See
"Appendix_Certain Portfolio Securities_Stripped Treasury Securities." The
Series also may purchase other zero coupon securities issued by the U.S.
Government and its agencies and instrumentalities, by a variety of tax exempt
issuers such as state and local governments and their agencies and
instrumentalities and by "mixed-ownership government corporations"
(collectively, "Stripped Government Securities"). In addition, the Series may
purchase zero coupon securities issued by domestic corporations which consist
of corporate debt obligations without interest coupons, and, if available,
interest coupons that have been stripped from corporate debt obligations, and
receipts and certificates for such stripped debt obligations and stripped
coupons (collectively, "Stripped Corporate Securities"). Stripped Corporate
Securities held by the Series will be rated at least Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc. ("S&P"). In addition, the Series
may purchase stripped Eurodollar obligations, which are debt securities
denominated in U.S. dollars that are issued by foreign issuers, often
guaranteed subsidiaries of domestic corporations. The Series may invest up to
25% of its assets in securities of foreign issuers. At the present time, the
Series does not intend to invest more than 20% of its assets in securities of
foreign issuers. See "Investment Considerations and Risks_Foreign
Securities." To the extent that a liquid secondary market is not available
for Stripped Treasury Securities, Stripped Government Securities, Stripped
Corporate Securities or stripped Eurodollar obligations, the Series will
invest no more than 15% of its net assets in such securities and in other
securities that are illiquid. For a further discussion concerning Stripped
Securities, including stripped Eurodollar obligations, see "Investment
Considerations and Risks -- Special Considerations Relating to Stripped
Securities" below.
Stripped Treasury Securities, Stripped Government Securities,
Stripped Corporate Securities and stripped Eurodollar obligations are
referred to collectively herein as "Stripped Securities." The Zero Coupon
2000 Portfolio is so designated because at least 65% of the value of its
assets will consist of portfolio securities which will mature on or about
December 31, 2000.
In addition to investing at least 65% of its net assets in Stripped
Securities, the Series also will purchase interest-bearing U.S. Government
securities and other money market instruments held for the purpose of
providing income with which to pay the expenses of the Series and to provide
funds with which to meet redemption requests.
There can be no assurance that the Series' objective can be met if
Series shares are redeemed prior to maturity of the underlying Stripped
Securities because market prices of the Stripped Securities before maturity
will vary with changes in interest rates. Stripped Securities, including
stripped Eurodollar obligations, do not make any periodic payments of
interest prior to maturity and the stripping of the interest coupons causes
the Stripped Securities to be offered at a substantial (or "deep") discount
from their face amounts. The market value of Stripped Securities, and
therefore of the shares of the Series, will fluctuate with changes in
interest rates
Page 4
and other factors and may be subject to greater fluctuations
in response to changing interest rates than would a fund consisting of debt
obligations of comparable maturities that pay interest currently. The amount
of fluctuation increases with a longer period to maturity.
On December 31, 2000, the maturity date for the Series, the portfolio
will be liquidated. Some of the Series' portfolio securities may mature up to
several months earlier than the planned maturity date of the Series. Attempts
will be made to match the maturity dates of the portfolio assets with the
Series' maturity date as closely as possible, but securities may be purchased
with earlier maturities where additional revenue for the Series may be
achieved by such purchases. Prior to December 31, 2000, shareholders will be
informed of the liquidation of the Series and will be offered the opportunity
to exchange their investment upon maturity for another Series of the Fund. In
the event the Series has not received instructions from shareholders as to
the disposition of funds upon maturity of the Series, such funds will be
invested automatically in the Fund's Money Market Portfolio.
The Series' annual portfolio turnover rate is not expected to
exceed 150%. Higher portfolio turnover rates usually generate additional
brokerage commissions and expenses and the short-term gains realized from
these transactions are taxable to shareholders as ordinary income. In
addition, the Series may engage, to a limited extent, in various investment
techniques, such as options and futures transactions and lending portfolio
securities. See also "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives
and Management Policies _Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share should be expected to fluctuate.
Investors should consider the Series as a supplement to an overall investment
program and should invest only if they are willing to undertake the risks
involved. See "Investment Objectives and Management Policies_Management
Policies" in the Statement of Additional Information for a further discussion
of certain risks.
SPECIAL CONSIDERATIONS RELATING TO STRIPPED SECURITIES -- A Stripped Security
is a debt obligation that does not entitle the holder to any periodic
payments of interest prior to maturity and therefore is issued and traded at
a discount from its face amount. The discount from face value at which
Stripped Securities are purchased varies depending on the time remaining
until maturity, prevailing interest rates, the liquidity of the security and
the perceived credit quality of the issuer. Because the discount from face
value is known at the time of investment, investors holding Stripped
Securities until maturity know the total amount of their investment return at
the time of investment. In contrast, a portion of the total realized return
from conventional interest-paying obligations comes from the reinvestment of
periodic interest. Since the rate to be earned on these reinvestments may be
higher or lower than the rate quoted on the interest-paying obligations at
the time of the original purchase, the investment's total return is uncertain
even for investors holding the securities to their maturity. This uncertainty
is commonly referred to as reinvestment risk and can have a significant
impact on total realized investment return. With Stripped Securities,
however, there are no cash distributions to reinvest, so investors bear no
reinvestment risk if they hold the Stripped Securities to maturity.
Stripped Securities can be sold prior to their due date in the
secondary market at their then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing levels of interest
rates and the perceived credit quality of the issuer, which may be more or
less than the securities' value. The market prices of Stripped Securities are
generally more volatile than the market prices of securities that pay
interest periodically and, accordingly, are likely to respond to a greater
degree to changes in interest rates than do other debt obligations having
similar maturities and credit quality characteristics. As a result, the net
asset value of shares of the Series may fluctuate over a greater range than
shares of other mutual funds that invest in obligations of the U.S.
Government or corporations having similar maturities but that make current
distributions of interest.
As an open-end investment company, the Series will be issuing new
shares and will be required to redeem its shares upon the request of any
shareholder at the net asset value next determined after receipt of the
request. However, because of the price volatility of Stripped Securities
prior to maturity, a shareholder who
Page 5
redeems shares may realize an amount that is less or greater than the entire
amount initially invested. Accordingly, the Series may not be appropriate for
investors that expect to have a current need for income from the investment
or wish to liquidate their investment prior to December 31, 2000.
Each year the Series will be required to accrue an increasing amount
of income on its Stripped Securities. To maintain its tax status as a
regulated investment company and to avoid imposition of excise taxes,
however, the Series will be required to distribute dividends equal to
substantially all of its net investment income, including the accrued income
derived from its Stripped Securities for which it receives no payments in
cash prior to their maturity.
The Series cannot assure that it will be able to achieve a certain
level of return due to the possible necessity of having to sell certain
Stripped Securities to pay expenses or dividends or to meet redemptions at
times and at prices that might be disadvantageous, or, alternatively, to
invest assets received from new purchases at prevailing interest rates, which
would expose the Series to reinvestment risk. In addition, no assurance can
be given as to the liquidity of the market for certain of these securities.
Determination as to the liquidity of such securities will be made in
accordance with guidelines established by the Fund's Board. In accordance
with such guidelines, The Dreyfus Corporation will monitor the Series'
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
FIXED-INCOME SECURITIES -- Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
the Series, such as those rated Baa by Moody's and BBB by S&P, may be subject
to such risk with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income
securities. Once the rating of a portfolio security has been changed, the
Fund will consider all circumstances deemed relevant in determining whether
to continue to hold the security. See "Appendix_Certain Portfolio
Securities_Ratings" below and "Appendix" in the Statement of Additional
Information.
USE OF DERIVATIVES -- The Series may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives the Series may use include options and futures. While
Derivatives can be used effectively in furtherance of the Series' investment
objective, under certain market conditions, they can increase the volatility
of the Series' net asset value, can decrease the liquidity of the Series'
portfolio and make more difficult the accurate pricing of the Series'
portfolio. See "Appendix_Investment Techniques_Use of Derivatives" below, and
"Investment Objectives and Management Policies_Management
Policies_Derivatives" in the Statement of Additional Information.
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS--Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation. However, if such
other series or investment companies desire to invest in, or dispose of, the
same securities as the Series, 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
Series or the price paid or received by the Series.
Page 6
MANAGEMENT OF THE FUND
INVESTMENT ADVISER--The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the Fund's investment
adviser. The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of February 29, 1996, The Dreyfus Corporation managed or
administered approximately $85 billion in assets for more than 1.7 million
investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The Series' primary portfolio manager is Garitt Kono. He
has held that position since the Series commenced operations and has been
employed by The Dreyfus Corporation since September 1992. For more than five
years prior to joining The Dreyfus Corporation, Mr. Kono was Vice President
- -- Fixed Income at The First Boston Corporation. The Fund's other portfolio
managers are identified in the Statement of Additional Information. The
Dreyfus Corporation also provides research services for the Series and for
other funds advised by The Dreyfus Corporation through a professional staff
of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets,
including approximately $60 billion in mutual fund assets.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .45
of 1% of the value of the Series' average daily net assets. For the fiscal
year ended December 31, 1995, the Fund paid The Dreyfus Corporation an
advisory fee at the effective annual rate of .42 of 1% of the Series' average
daily net assets. From time to time, The Dreyfus Corporation may waive
receipt of its fee and/or voluntarily assume certain expenses of the Series,
which would have the effect of lowering the expense ratio of the Series and
increasing yield to investors. The Fund will not pay The Dreyfus Corporation
at a later time for any amounts which may be waived, nor will the Fund
reimburse The Dreyfus Corporation for any amounts which may be assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR _- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's
Page 7
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 SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures 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 is computed by dividing the value of the net assets of the Series
(i.e., the value of its assets less liabilities) by the total number of
Series shares outstanding. The Series' investments are valued each business
day by an independent pricing service approved by the Fund's Board and are
valued at fair value as determined by the pricing service. The pricing
service's procedures are reviewed under the general supervision of the Fund's
Board. For further information regarding the methods employed in valuing the
Series' investments, see "Determination of Net Asset Value" in the Statement
of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
Page 8
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
monthly. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the the Internal
Revenue Code of 1986, as amended (the "Code"), in all events in a manner
consistent with the provisions of the 1940 Act. The Series will not make
distributions from net realized securities gains unless capital loss carryover
s, if any, have been utilized or have expired. Dividends are automatically
reinvested in additional shares at net asset value unless payment in cash is
elected. Shares begin earning dividends on the day the purchase order is
effective. If all shares in an account are redeemed at any time, all
dividends to which the shareholder is entitled will be paid along with the
proceeds of the redemption. An omnibus accountholder may indicate in a
partial redemption request that a portion of any accrued dividends to which
such account is entitled belongs to an underlying accountholder who has
redeemed all shares in his or her account, and such portion of the accrued
dividends will be paid to the accountholder along with the proceeds of the
redemption. All expenses are accrued daily and deducted before declaration of
dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains generally are taxable as long-term capital
gains whether received in cash or reinvested in additional shares. Since the
Fund's shareholders are the Participating Insurance Companies and their
separate accounts, no discussion is included herein as to the Federal income
tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995 as a "regulated investment company" under
the Code. The Series intends to continue to so qualify if such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Series of any liability for Federal income
taxes to the extent its earnings are distributed in accordance with
applicable provisions of the Code. The Series may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains. Participating Insurance
Companies should consult their tax advisers regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Series' annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accor-
Page 9
dance with regulatory requirements, is compounded by assuming that it is
reinvested at a constant rate over a six-month period. An identical result is
then assumed to have occurred during a second six-month period which, when
added to the result for the first six months, provides an "annualized" yield
for an entire one-year period.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
In addition, the Series will calculate on each business day its
anticipated growth rate, which is the annualized rate of growth investors may
expect from the time they purchase a share until the Series' target date. The
anticipated growth rate cannot be guaranteed, as it involves certain
assumptions about variable factors such as reinvestment of dividends and
distributions, the Series' expense ratio and portfolio composition. The rate
will vary from day-to-day due to changes in interest rates and other market
factors affecting the value of the Series' investments. Furthermore,
differences in the price changes of securities with different maturities can
affect investment return, as can the skill of the investment adviser in
managing the Series. Under certain circumstances, shareholder redemptions
also could affect the anticipated growth rate. See "Description of the Fund
and Series -- Investment Considerations and Risks -- Special Considerations
Relating to Stripped Securities."
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance Companies under their VA contracts or VLI
policies. The Series' effective yield and total return should be
distinguished from the rate of return of a corresponding sub-account or
investment division of a separate account of a Participating Insurance
Company, which rate will reflect the deduction of additional charges,
including mortality and expense risk charges, and will therefore be lower. VA
contract holders and VLI policy holders should consult the prospectus for
their contract or policy.
Calculations of the Series' yield or performance information may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Comparative performance information may be used
from time to time in advertising the Series' shares, including data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry
publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Page 10
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Fund intends to conduct its operations in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Fund. As described under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Zero Coupon 2000
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The income attributable to, and
the expenses of, one series are treated separately from those of the other
series. The Fund has the ability to create, from time to time, new series
without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 11
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of the Series' total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Series' total assets, the Series will
not make any additional investments.
USE OF DERIVATIVES -- The Series may invest in the types of Derivatives
enumerated under "Description of the Fund and Series -- Investment
Considerations and Risks -- Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies -- Management Policies -- Derivatives" in
the Statement of Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Series to increase or decrease
the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Series can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Series' performance.
If the Series invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Series' return
or result in a loss. The Series also could experience losses if it were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither the Fund nor the Series will be a commodity pool,
Derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Series can invest in certain
Derivatives. The Series may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Series may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options
with respect to such contracts, other than for bona fide hedging purposes,
exceed 5% of the liquidation value of the Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts and
options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation.
The Series may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Series may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Series will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 20% of
the value of the Series' total assets and the Series 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 mar-
Page 12
ket value of the loaned securities. Such loans are terminable by the Series
at any time upon specified notice. The Series might experience risk of loss if
the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
STRIPPED TREASURY SECURITIES -- Stripped Treasury Securities are U.S.
Treasury securities that have been stripped of their unmatured interest
coupons (which typically provide for interest payments semi-annually),
interest coupons that have been stripped from such U.S. Treasury securities,
and receipts and certificates for such stripped debt obligations and stripped
coupons.
Stripped bonds and stripped coupons are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment on the security and does not receive any rights to
periodic interest payments on the security.
Stripped Treasury Securities will include one or more of the
following types of securities: (a) U.S. Treasury debt obligations originally
issued as bearer coupon bonds which have been stripped of their unmatured
interest coupons, (b) coupons which have been stripped from U.S. Treasury
bonds, either of which may be held through the Federal Reserve Bank's book
entry system called "Separate Trading of Registered Interest and Principal of
Securities" ("STRIPS") or "Coupon Under Book-Entry Safekeeping" ("CUBES"),
and (c) receipts or certificates for stripped U.S. Treasury debt obligations
evidencing ownership of future interest or principal payments on U.S.
Treasury notes or bonds which are direct obligations of the United States.
The receipts or certificates must be issued in registered form by a major
bank which acts as custodian and nominal holder of the underlying stripped
U.S. Treasury obligation (which may be held by it either in physical or in
book-entry form). See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information.
STRIPPED CORPORATE SECURITIES -- Stripped Corporate Securities consist of
corporate debt obligations issued by domestic corporations without interest
coupons, and, if available, interest coupons that have been stripped from
corporate debt obligations, and receipts and certificates for such stripped
debt obligations and stripped coupons. Stripped Corporate Securities
purchased by the Series will be rated at least Baa by Moody's or BBB by
S&P's. With respect to other features of Stripped Corporate Securities, such
as sales at deep discounts, see "Stripped Treasury Securities" above and
"Description of the Fund and Series _ Investment Considerations and Risks --
Special Considerations Relating to Stripped Securities."
MONEY MARKET INSTRUMENTs -- The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government
Page 13
provides financial support to such U.S. Government-sponsored agencies and
instrumentalities, no assurance can be given that it will always do so since
it is not so obligated by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances, and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Series may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. Other short-term bank
obligations may include uninsured, direct obligations bearing fixed, floating
or variable interest rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch Investors Service, L.P. ("Fitch") or Duff-1
by Duff & Phelps Credit Rating Co. ("Duff"), (b) issued by companies having
an outstanding unsecured debt issue currently rated at least A3 by Moody's or
A- by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation to be of comparable quality to those rated obligations which may
be purchased by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
ILLIQUID SECURITIES-- The Series 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 Series' investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Series is subject to a risk that should
the Series desire to sell them when a ready buyer is not available at a price
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
Page 14
RATINGS -- Obligations rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are investment grade and regarded as having adequate capacity to pay
interest and repay principal; however, adverse changes in economic conditions
and circumstances are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. See "Appendix" in the Statement of
Additional Information for a general description of securities ratings.
The ratings of Moody's an S&P represent their opinions as to the
quality of the obligations which they undertake to rate. Ratings are relative
and subjective and, although ratings may be useful in evaluating the safety
of interest and principal payments, they do not evaluate the market value
risk of such obligations. Although these ratings may be an initial criterion
for selection of portfolio investments, The Dreyfus Corporation also will
evaluate these securities and the ability of the issuers of such securities
to pay interest and principal. The Series' ability to achieve its investment
objective may be more dependent on The Dreyfus Corporation's credit analysis
than might be the case for a fund that invested in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 15
DREYFUS
Variable
Investment
Fund
Zero Coupon 2000
Portfolio
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
119p050196
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
QUALITY BOND PORTFOLIO
- -------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS
INTENDED TO BE A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA
CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED
THROUGH SEPARATE ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE
"PARTICIPATING INSURANCE COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN
ELEVEN SEPARATE PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE
FOR INVESTMENT THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY
CERTAIN PARTICIPATING INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR
VLIPOLICY SHOULD REFER TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY
FOR INFORMATION AS TO WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR
INVESTMENT THROUGH THE CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S QUALITY BOND PORTFOLIO
(THE "SERIES"). THE SERIES' GOAL IS TO PROVIDE THE MAXIMUM AMOUNT OF CURRENT
INCOME TO THE EXTENT CONSISTENT WITH THE PRESERVATION OF CAPITAL AND THE
MAINTENANCE OF LIQUIDITY. THE SERIES INVESTS PRINCIPALLY IN DEBT OBLIGATIONS
OF CORPORATIONS, THE U.S. GOVERNMENT AND ITS AGENCIES AND INSTRUMENTALITIES,
AND MAJOR BANKING INSTITUTIONS.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VACONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING ALL TYPES OF VARIABLE LIFE INSURANCE POLICIES AND VARIABLE
ANNUITY CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR
SUCH POLICIES OR CONTRACTS.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information................................. 3
Description of the Fund and Series.............................. 3
Management of the Fund.......................................... 6
How to Buy Shares............................................... 7
How to Redeem Shares............................................ 8
Dividends, Distributions and Taxes.............................. 8
Performance Information......................................... 9
General Information............................................. 10
Appendix........................................................ 12
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series total investment return for each period indicated.
<TABLE>
Year Ended DECEMBER 31,
--------------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $10.00 $10.01 $10.67 $10.94 $11.81 $10.53
--------- -------- -------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net .............. .23 .70 .92 .76 .73 .68
Net realized and unrealized gain on investments .01 .66 .30 .88 (1.27) 1.42
--------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS.. .24 1.36 1.22 1.64 .54 2.10
--------- -------- -------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income-net (.23) (.70) (.92) (.76) (.73) (.69)
Dividends from net realized gain on investments ._ ._ (.03) (.01) (.01) (.13)
--------- -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS............... (.23) (.70) (.95) (.77) (.74) (.82)
--------- -------- -------- -------- -------- --------
Net asset value, end of year........ $10.01 $10.67 $10.94 $11.81 $10.53 $11.81
-------------- -------------- --------------
-------------- -------------- --------------
TOTAL INVESTMENT RETURN................. 7.12%(2) 14.12% 12.09% 15.33% (4.59%) 20.42%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .15%(2) ._ ._ ._ ._ .81%
Ratio of net investment income to average net assets 7.20%(2) 7.52% 8.54% 6.51% 7.03% 6.13%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation 137.05%(2) 13.13% 5.33% 3.51% 1.20% .04%
Portfolio Turnover Rate............. ._ ._ 9.39% 110.62% 64.80% 263.53%
Net assets, end of year (000's omitted) $59 $410 $405 $4,706 $13,244 $37,447
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcilable
conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Page 3
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
series.
INVESTMENT OBJECTIVE
The Series is a diversified portfolio, the investment objective of
which is to provide the maximum amount of current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The Series' investment objective cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Series' outstanding voting shares. There can
be no assurance that the Series' investment objective will be achieved.
MANAGEMENT POLICIES
The Series invests principally in debt obligations of corporations,
the U.S. Government and its agencies and instrumentalities, and major U.S.
banking institutions. At least 80% of the value of the Series' net assets
will consist of obligations of corporations which, at the time of purchase by
the Series, are rated at least A by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. ("S&P"), or determined to be of comparable quality by The
Dreyfus Corporation, and of securities issued or guaranteed as to principal
and interest by the U.S. Government or its agencies or instrumentalities. The
Series also may invest in mortgage-related securities, municipal obligations
and zero coupon securities as described herein. At least 65% of the value of
the Series' net assets (except when maintaining a temporary defensive
position) will be invested in bonds, debentures and other debt instruments.
Up to 20% of the Series' assets may consist of high grade commercial
paper of U.S. issuers, certificates of deposit, time deposits and bankers'
acceptances, and corporate bonds which are rated in any category lower than A
by both Moody's and S&P. When deemed necessary for temporary defensive
purposes or in connection with loans of portfolio securities, the Series'
investment in high grade commercial paper, certificates of deposit, time
deposits and bankers' acceptances may exceed 20% of its assets, although the
Series currently does not intend to invest more than 5% of its assets in any
one of these types of instruments. Under no circumstances will the Series
invest more than 20% of its assets in corporate bonds which are rated lower
than A, but in no case lower than B, by both Moody's and S&P. In addition,
the Series will invest no more than 5% of its assets in bonds rated Ba or B
by Moody's and BB or B by S&P. The Series may invest up to 10% of its assets
in securities of foreign issuers. See "Investment Considerations and
Risks_Foreign Securities" below.
The Series' annual portfolio turnover rate is not expected to exceed
150%. Higher portfolio turnover rates usually generate additional brokerage
commissions and expenses and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. In addition, the
Series may engage in lending portfolio securities. See also
"Appendix_Investment Techniques_Lending Portfolio Securities" below and
"Investment Objectives and Management Policies" in the Statement of
Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share of the Series should be expected to
fluctuate. Investors should consider each Series as a supplement to an
overall investment program and should invest only if they are willing to
undertake the risks involved. See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
FIXED-INCOME SECURITIES -- Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in inter-
Page 4
est rates and, therefore, are subject to the risk of market price fluctuations.
Certain securities that may be purchased by the Series, such as those with
interest rates that fluctuate directly or indirectly based on multiples of a
stated index, are designed to be highly sensitive to changes in interest rates
and can subject the holders thereof to extreme reductions of yield and
possibly loss of principal. The values of fixed- income securities also may be
affected by changes in the credit rating or financial condition of the
issuer. Certain securities purchased by the Series such as those rated Baa or
lower by Moody's and BBB or lower by S&P, may be subject to such risk with
respect to the issuing entity and to greater market fluctuations than certain
lower yielding, higher rated fixed-income securities. Once the rating of a
portfolio security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security. See
"Appendix_Certain Portfolio Securities_Ratings" below and "Appendix" in the
Statement of Additional Information.
LOWER RATED SECURITIES -- The Series may invest up to 5% of its assets in
higher yielding (and, therefore, higher risk) debt securities such as those
rated Ba by Moody's or BB by S&P, or as low as those rated B by Moody's or
S&P (commonly known as junk bonds). 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. The retail secondary market
for these securities may be less liquid than that of higher rated securities;
adverse conditions could make it difficult at times for the Series to sell
certain securities or could result in lower prices than those used in
calculating the Series' net asset value. See "Appendix_Certain Portfolio
Securities_ Ratings."
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The percentage of the Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
MUNICIPAL LEASE/PURCHASE OBLIGATIONS -- Certain municipal lease/purchase
obligations in which the Series may invest may contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease/purchase obligations are
secured by the leased property, disposition of the leased property in the
event of foreclosure might prove difficult. In evaluating the credit quality
of a municipal lease/purchase obligation that is unrated, The Dreyfus
Corporation will
Page 5
consider, on a ongoing basis, a number of factors including
the likelihood that the issuing municipality will discontinue appropriating
funding for the leased property.
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other Series and
investment companies managed by The Dreyfus Corporation. However, if such
other Series or investment companies desire to invest in, or dispose of, the
same securities as the Series, 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
Series or the price paid or received by the Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The Series' primary portfolio manager is Garitt Kono. He
has held that position since June 1994 and has been employed by The Dreyfus
Corporation since September 1, 1992. For more than five years prior to
joining The Dreyfus Corporation, Mr. Kono was Vice President-Fixed Income at
The First Boston Corporation. The Fund's other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus
Corporation also provides research services for the Series and for other
funds advised by The Dreyfus Corporation through a professional staff of
portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of .65
of 1% of the value of the Series' average daily net assets. For the fiscal
year ended December 31, 1995, the Fund paid The Dreyfus Corporation a monthly
advisory fee at the effective annual rate of .61 of 1% of the value of the
Series' average daily net assets.
Page 6
From time to time, The Dreyfus Corporation may waive receipt of its fees
and/or voluntarily assume certain expenses of the Series, which would have
the effect of lowering the expense ratio of the Series and increasing yield
to investors. The Fund will not pay The Dreyfus Corporation at a later time
for any amounts which may be waived, nor will the Fund reimburse The Dreyfus
Corporation for any amounts which may be assumed.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the State
ment of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. Net asset value per share is computed by
dividing the value of the net assets of the Series (i.e., the value of its
assets less liabilities) by the total number of Series shares outstanding.
The Series' investments are valued each business day by an independent
pricing service approved by the Fund's Board and are valued at fair value as
determined by the pricing service. The pricing service's procedures are
reviewed under the general supervision of the Fund's Board. For further
information regarding the methods employed in valuing the Series'
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
Page 7
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
monthly. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), in all events in a manner consistent
with the provisions of the 1940 Act. The Series will not make distributions
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. Dividends are automatically reinvested in
additional shares at net asset value unless payment in cash is elected.
Shares begin earning dividends on the day the purchase order is effective. If
all shares in an account are redeemed at any time, all dividends to which the
shareholder is entitled will be paid along with the proceeds of the
redemption. An omnibus accountholder may indicate in a partial redemption
request that a portion of any accrued dividends to which such account is
entitled belongs to an underlying accountholder who has redeemed all shares
in his or her account, and such portion of the accrued dividends will be paid
to the accountholder along with the proceeds of the redemption. All expenses
are accrued daily and deducted before declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends derived from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of 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, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains generally are taxable as long-term
capital gains whether received in cash or reinvested in additional shares.
Since the Fund's shareholders are the Participating Insurance Companies and
their separate accounts, no discussion is included herein as to the Federal
income tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section
Page 8
817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995 as a "regulated investment company" under
the Code. The Series intends to continue to so qualify if such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Series of any liability for Federal income
taxes to the extent that its earnings are distributed in accordance with
applicable provisions of the Code. The Fund may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains. Participating Insurance
Companies should consult their tax advisers regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Series' annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Series 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance Companies under
Page 9
their VA contracts or VLI policies. The Series' effective yield and total
return should be distinguished from the rate of return of a corresponding
sub-account or investment division of a separate account of a Participating
Insurance Company, which rate will reflect the deduction of additional charges,
including mortality and expense risk charges, and will therefore be lower. VA
contract holders and VLI policy holders should consult the prospectus for
their contract or policy.
Calculations of the Series' yield or performance information may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Comparative performance information may be used
from time to time in advertising the Series' shares, including data from
Lipper Analytical Services, Inc., Money Magazine, Standard & Poor's 500
Composite Stock Price Index, Standard & Poor's MidCap 400 Index, the Dow
Jones Industrial Average, Morningstar, Inc., Value Line Mutual Fund Survey
and other industry publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
The Fund is a "series fund", which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Quality Bond
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of eleven Series of
shares. All consideration received by the Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The income attributable to, and
the expenses of, one series are treated separately from those of the other
series. The Fund has the ability to create from time to time, new series
without shareholder approval.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
instances in which the Fund itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Fund
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As described under "Management of the Fund" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Trustees.
Page 10
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 11
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Series' total assets, the Series will not make
any additional investments.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 10% of
the value of the Series' total assets and the Series will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Series at any time upon specified notice. The Series might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
MUNICIPAL OBLIGATIONS -- Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed,
floating or variable rates of interest. Certain municipal obligations are
subject to redemption at a date earlier than their stated maturity pursuant
to call options, which may be separated from the related municipal
obligations and purchased and sold separately. The Series also may acquire
call options on specific municipal obligations. The Series generally would
purchase these call options to protect the Series from the issuer of the
related municipal obligation redeeming, or other holder of the call option
from calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Series investments. Dividends
received by shareholders on Series shares which are attributable to interest
income received by the Series from municipal obligations generally will be
subject to Federal income tax. The Series will invest in municipal
obligations, the ratings of which correspond with the ratings of other
permissible Series investments. The Series currently intends to invest no
Page 12
more than 25% of its assets in municipal obligations. However, this
percentage may be varied from time to time without shareholder approval.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Series may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS -- The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series -- Investment
Considerations and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of
Page 13
direct obligations which, at the time of their purchase, are (a) rated not
lower than Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch Investors Service,
L.P. ("Fitch") or Duff-1 by Duff & Phelps Credit Rating Co. ("Duff"), (b)
issued by companies having an outstanding unsecured debt issue currently
rated at least A3 by Moody's or A- by S&P, Fitch or Duff, or (c) if unrated,
determined by The Dreyfus Corporation to be of comparable quality to those
rated obligations which may be purchased by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
ZERO COUPON SECURITIES -- The Series may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and 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 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.
ILLIQUID SECURITIES -- The Series 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 Series' 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, and repurchase agreements providing for
settlement in more than seven days after notice. As to these securities, the
Series is subject to a risk that should the Series desire to sell them when a
ready buyer is not available at a price the Series deems representative of
their value, the value of the Series' net assets could be adversely affected.
RATINGS -- Obligations rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are investment grade and regarded as having adequate capacity to pay
interest and repay principal; however, adverse changes in economic conditions
and circumstances are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. See "Appendix" in the Statement of
Additional Information for a general description of securities ratings. The
ratings of Moody's or S&P represent their opinions as to the quality of the
obligations which they undertake to rate. Ratings are relative and subjective
and, although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Although these ratings may be an initial criterion for selection
of portfolio investments, The
Page 14
Dreyfus Corporation also will evaluate these securities and the ability of
the issuers of such securities to pay interest and principal. The Series'
ability to achieve its investment objective may be more dependent on The
Dreyfus Corporation's credit analysis than might be the case for a fund
that invested in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 15
DREYFUS
Variable
Investment
Fund
Quality Bond
Portfolio
Prospectus
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
120p050196
Page 16
- -----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1996
DREYFUS VARIABLE INVESTMENT FUND
SMALL CAP PORTFOLIO
- -----------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
DIVERSIFIED MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND, THAT IS
INTENDED TO BE A FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA
CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OFFERED
THROUGH SEPARATE ACCOUNTS OF VARIOUS LIFE INSURANCE COMPANIES (THE
"PARTICIPATING INSURANCE COMPANIES"). THE FUND PERMITS INVESTORS TO INVEST IN
ELEVEN SEPARATE PORTFOLIOS, ALTHOUGH CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE
FOR INVESTMENT THROUGH CERTAIN VA CONTRACTS OR VLI POLICIES OFFERED BY
CERTAIN PARTICIPATING INSURANCE COMPANIES. A PURCHASER OF A VA CONTRACT OR
VLI POLICY SHOULD REFER TO THE PROSPECTUS FOR HIS OR HER CONTRACT OR POLICY
FOR INFORMATION AS TO WHICH PORTFOLIOS OF THE FUND ARE AVAILABLE FOR
INVESTMENT THROUGH THE CONTRACT OR POLICY.
THIS PROSPECTUS RELATES SOLELY TO THE FUND'S SMALL CAP PORTFOLIO (THE
"SERIES"). THE SERIES' GOAL IS TO MAXIMIZE CAPITAL APPRECIATION. THE SERIES
INVESTS PRINCIPALLY IN COMMON STOCKS OF DOMESTIC AND FOREIGN ISSUERS. THE
SERIES WILL BE PARTICULARLY ALERT TO COMPANIES THAT THE DREYFUS CORPORATION
CONSIDERS TO BE EMERGING SMALLER-SIZED COMPANIES WHICH ARE BELIEVED TO BE
CHARACTERIZED BY NEW OR INNOVATIVE PRODUCTS, SERVICES OR PROCESSES WHICH
SHOULD ENHANCE PROSPECTS FOR GROWTH IN FUTURE EARNINGS.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND AND
SERIES THAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN THE SERIES THROUGH A
VA CONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996, 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
1-800-554-4611. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -----------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES OR CONTRACTS.
TABLE OF CONTENTS
Page
Condensed Financial Information................................. 3
Description of the Fund and Series.............................. 3
Management of the Fund.......................................... 6
How to Buy Shares............................................... 7
How to Redeem Shares............................................ 7
Dividends, Distributions and Taxes.............................. 8
Performance Information......................................... 9
General Information............................................. 9
Appendix........................................................ 11
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited 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 are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each period indicated.
This information has been derived from the Series' financial statements. The
total investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for each period indicated.
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1990(1) 1991 1992 1993 1994 1995
-------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year........... $10.00 $10.21 $20.60 $22.71 $34.45 $36.52
------ ------- ------- ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net ....................... .21(2) .14(2) .18(2) .14 .17 .16
Net realized and unrealized gain on investments -- 15.85(2) 13.10(2) 14.93 2.50 10.54
------ ------- ------- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS....... .21(2) 15.99(2) 13.28(2) 15.07 2.67 10.70
------ ------- ------- ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net......... -- (.15) (.15) (.14) (.16) (.18)
Dividends in excess of investment income-net... -- -- -- (.01) -- --
Dividends from net realized gain on investments.. -- (5.45) (11.02) (3.18) (.33) (.91)
Dividends in excess of net realized gain on investments.. -- -- -- -- (.11) --
------ ------- ------- ------ ------ ------
TOTAL DISTRIBUTIONS.................... -- (5.60) (11.17) (3.33) (.60) (1.09)
------ ------- ------- ------ ------ ------
Net asset value, end of year................. $10.21 $20.60 $22.71 $34.45 $36.52 $46.13
====== ====== ====== ====== ===== =======
TOTAL INVESTMENT RETURN.......................... 2.10%(3) 159.73% 71.28% 68.31% 7.75% 29.38%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... .34%(3) 1.16% .94% .25% .55% .83%
Ratio of net investment income to average net assets.. 2.10%(3) .77% .76% .89% 1.18% .54%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation.... 84.84%(3) 3.64% 2.29% 1.79% .52% --
Portfolio Turnover Rate...................... -_ 388.70% 358.27% 244.59% 106.00% 99.02%
Net assets, end of year (000's omitted)...... $ 36 $1,554 $2,679 $18,337 $173,215 $543,281
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Based on average shares outstanding.
(3) Not annualized.
</TABLE>
Further information about the Series' 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.
DESCRIPTION OF THE FUND AND SERIES
GENERAL
The Fund is intended to be a funding vehicle for VA contracts and VLI
policies to be offered by the separate accounts of Participating Insurance
Companies. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies over
which the Fund assumes no responsibility. The Fund currently does not foresee
any disadvantages to the holders of VA contracts and VLI policies arising
from the fact that the interests of the holders of such contracts and
policies may differ.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irreconcil-
Page 3
able conflict might result in the withdrawal of a substantial amount of the
Series' assets which could adversely affect the Series' net asset value per
share.
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders.
INVESTMENT OBJECTIVE
The Series is a diversified portfolio, the investment objective of
which is to maximize capital appreciation. The Series' investment objective
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Series' outstanding voting shares. There can be no assurance that the Series'
investment objective will be achieved. The types of portfolio securities in
which the Series may invest are described in greater detail below and under
"Appendix -- Certain Portfolio Securities."
MANAGEMENT POLICIES
The Series seeks out companies that The Dreyfus Corporation believes
have the potential for significant growth. During periods The Dreyfus
Corporation judges to be of market strength, the Series will act aggressively
to increase shareholders' capital by investing principally in common stocks
(some of which may be dividend paying) of domestic and foreign issuers. Under
normal market conditions, the Series will invest at least 65% of its total
assets in companies, both domestic and foreign, with market capitalizations
of less than $750 million at the time of purchase which the Series believes
to be characterized by new or innovative products or services which should
enhance prospects for growth in future earnings. The Series also will make
investments based on prospective economic or political changes. Further, the
Series will invest in special situations such as corporate restructurings,
mergers or acquisitions, thereby seeking out undervalued securities.
The Series may invest up to 25% of the value of its assets in the
common stocks of foreign companies which are not publicly traded in the
United States. The Series currently does not intend to invest more than 20%
of its assets in foreign securities. See "Investment Considerations and Risks
- -- Foreign Securities" below.
The Series also may invest in debt securities rated as low as the
lowest rating assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies,
Inc. ("S&P"), and in unrated debt securities, which have special risks. See
"Investment Considerations and Risks --Fixed-Income Securities" and "Lower
Rated Securities" below.
While seeking desirable investments, the Series may invest in money
market instruments consisting of U.S. Government securities, certificates of
deposit, time deposits, bankers' acceptances, short-term investment grade
corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth under "Appendix -- Certain Portfolio Securities --
Money Market Instruments." Under normal market conditions, the Series does
not expect to have a substantial portion of its assets invested in money
market instruments. However, when The Dreyfus Corporation determines that
adverse market conditions exist, the Series may adopt a temporary defensive
posture and invest all of its assets in money market instruments.
The Series' annual portfolio turnover rate is expected to exceed
100%. Higher portfolio turnover rates usually generate additional brokerage
commissions and expenses and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. In addition, the
Series may engage in various investment techniques, such as lending portfolio
securities, foreign currency transactions and, to a limited extent,
short-selling. See "Investment Considerations and Risks" and "Appendix --
Investment Techniques" below and "Investment Objective and Management
Policies -- Management Policies" in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The net asset value per share of the Series should be expected to
fluctuate. Investors should consider the Series as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
Page 4
EQUITY SECURITIES -- Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of the Series'
investments will result in changes in the value of its shares and thus the
Series' total return to investors.
The securities of the smaller companies in which the Series may
invest may be subject to more abrupt or erratic market movements than larger,
more established companies, because these securities typically are traded in
lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FIXED-INCOME SECURITIES -- Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
the Series may be subject to such risk with respect to the issuing entity and
to greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Once the rating of a portfolio security has been
changed, the Fund will consider all circumstances deemed relevant in
determining whether to continue to hold the security. See "Appendix -- Certain
Portfolio Securities -- Ratings" below and "Appendix" in the Statement of
Additional Information.
LOWER RATED SECURITIES--The Series may invest a portion of its assets in
higher yielding (and, therefore, higher risk) debt 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 (commonly known as junk bonds). 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. The retail secondary market
for these securities may be less liquid than that of higher rated securities;
adverse conditions could make it difficult at times for the Series to sell
certain securities or could result in lower prices than those used in
calculating the Series' net asset value. See "Appendix -- Certain Portfolio
Securities -- Ratings."
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Series have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The percentage of the Series' assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
FOREIGN CURRENCY TRANSACTIONS -- 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
unpre-
Page 5
dictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix -- Investment
Techniques -- Foreign Currency Transactions."
STATE INSURANCE REGULATION -- The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, the Series may be limited in its
ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that the Series
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Series is offered.
SIMULTANEOUS INVESTMENT BY OTHER SERIES OR FUNDS -- Investment decisions for
the Series are made independently from those of the other series and
investment companies managed by The Dreyfus Corporation. However, if such
other series or investment companies desire to invest in, or dispose of, the
same securities as the Series, 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
Series or the price paid or received by the Series.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The Series' primary portfolio manager is Thomas A. Frank.
He has held that position since August 1990 and has been employed by The
Dreyfus Corporation since 1985. The Series' other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus Corporation
also provides research services for the Series and for other funds advised
by The Dreyfus Corporation through a professional staff of portfolio managers
and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCOCredit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets
including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1995, the Fund paid The
Dreyfus Corporation a monthly investment advisory fee at the annual rate of
.75 of 1% of the value of the Series' average daily net assets. The advisory
fee payable to The Dreyfus Corporation is higher than that paid by most other
investment companies. From time to time, The Dreyfus Corporation may waive
receipt of its fees and/or voluntarily assume certain expenses of the Series,
which would have the effect of lowering the expense ratio of the Series and
increasing yield to investors. The Fund will not pay The Dreyfus Corporation
at a later time for any amounts which may be waived nor will the Fund
reimburse The Dreyfus Corporation for any amounts which may be assumed.
Page 6
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Separate accounts of the Participating Insurance Companies place
orders based on, among other things, the amount of premium payments to be
invested pursuant to VA contracts and VLI policies. Individuals may not place
orders directly with the Fund. See the prospectus of the separate account of
the Participating Insurance Company for more information on the purchase of
Fund shares and with respect to the availability for investment in specific
portfolios of the Fund. The Fund does not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. Net asset value per share is computed by
dividing the value of the net assets of the Series (i.e., the value of its
assets less liabilities) by the total number of Series shares outstanding.
The Series' investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in
good faith by the Fund's Board. For further information regarding the methods
employed in valuing the Series' investments, see "Determination of Net Asset
Value" in the Statement of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. Individuals may not place redemption
orders directly with the Fund. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with
Page 7
applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
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.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
Dividends, Distributions and Taxes
The Series declares and pays dividends from net investment income
annually. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), in all events in a manner consistent
with the provisions of the 1940 Act. The Series will not make distributions
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. Dividends are automatically reinvested in
additional shares at net asset value unless payment in cash is elected.
Shares begin earning dividends on the day the purchase order is effective. If
all shares in an account are redeemed at any time, all dividends to which the
shareholder is entitled will be paid along with the proceeds of the
redemption. An omnibus accountholder may indicate in a partial redemption
request that a portion of any accrued dividends to which such account is
entitled belongs to an underlying accountholder who has redeemed all shares
in his or her account, and such portion of the accrued dividends will be paid
to the accountholder along with the proceeds of the redemption. All expenses
are accrued daily and deducted before declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income
(including discount recognized as ordinary income, if any), together with
distributions of net realized short-term securities gains and and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains generally are taxable as long-term
capital gains whether received in cash or reinvested in additional shares.
Since the Fund's shareholders are the Participating Insurance Companies and
their separate accounts, no discussion is included herein as to the Federal
income tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1995, as a "regulated investment company"
under the Code. The Series intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Qualification as
a regulated investment company relieves the Series of any liability for
Federal income taxes to the extent that its earnings are distributed in
Page 8
accordance with applicable provisions of the Code. The Series may be subject
to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of investment income and capital gains.
Participating Insurance Companies should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the
basis of average annual total return and/or total return basis.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 Series' performance will include the Series' 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 Series has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance Companies under their VA contracts or VLI
policies. The Series' total return should be distinguished from the rate of
return of a corresponding sub-account or investment division of a separate
account of a Participating Insurance Company, which rate will reflect the
deduction of additional charges, including mortality and expense risk
charges, and will therefore be lower. VA contract holders and VLI policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund." Comparative performance information may be used
from time to time in advertising the Series' shares, including data from
Lipper Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price
Index, Standard & Poor's MidCap 400 Index, the Dow Jones Industrial Average,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated October 29, 1986, and
commenced operations on August 31, 1990. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote. In accordance with current law, the Fund anticipates
that a Participating Insurance Company issuing a VA contract or VLI policy
that participates in the Fund will request voting actions from policy holders
and will vote shares in proportion to the voting instructions received. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instru-
Page 9
ment entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
instances in which the Fund itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Fund
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As described under "Management of the Fund" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Trustees.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Small Cap
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of eleven series of
shares. All consideration received by the Fund for shares of one of the
series, and all assets in which such consideration is invested, will belong
to that series (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Fund has the ability to create, from time to time, a new
series without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which shares of one or more series are the investment
vehicle will receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Fund's independent public auditors. Each report will show
the investments owned by the Fund and the market values thereof as determined
by the Fund's Board and will provide other information about the Fund and its
operations.
Page 10
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Series has agreed to
buy or sell; to hedge the U.S. dollar value of securities the Series already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Series'
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Series agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Series' success in these transactions will depend principally
on The Dreyfus Corporation's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar.
SHORT-SELLING -- The Series may make short sales "against the box," in which
the Series enters into a short sale of a security it owns in order to hedge
an unrealized gain on the security. At no time will more than 15% of the
value of the Series' net assets be in deposits on short sales against the
box.
BORROWING MONEY -- The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of the Series' total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Series' total assets, the Series will
not make any additional investments.
LENDING PORTFOLIO SECURITIES -- The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 10% of
the value of the Series' total assets and the Series will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Series at any time upon specified notice. The Series might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Series.
FORWARD COMMITMENTS -- The Series may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Series enters into the commitment,
but the Series does not make payment until it receives delivery from the
counterparty. The Series will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Series may sell
these securities before the settlement date if it is deemed advisable. A
segregated account of the Series 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 amount of the commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- Convertible securities 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. 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
Page 11
of payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
WARRANTS -- 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. The Series may
invest up to 2% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Series that are sold in units
with, or attached to, other securities. Included in such amount may be
warrants which are not listed on the New York or American Stock Exchange.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Series may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTs--The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series -- Investment
Considerations and Risks -- Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer then seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. Other short-term bank
obligations may include uninsured, direct obligations bearing fixed, floating
or variable interest rates.
Page 12
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch Investors Service, L.P. ("Fitch") or Duff-1
by Duff & Phelps Rating Co. ("Duff"), (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation to be of comparable quality to those rated obligations which may
be purchased by the Series.
PARTICIPATION INTERESTS. The Series may purchase from financial
institutions participation interests in securities in which the Series may
invest. A participation interest gives the Series an undivided interest in
the security in the proportion that the Series' participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Series, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, The Dreyfus Corporation must have determined that
the instrument is of comparable quality to those instruments in which the
Series may invest.
ZERO COUPON SECURITIES -- The Series may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and 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 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.
ILLIQUID SECURITIES -- The Series 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 Series' investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Series is subject to a risk that should
the Series desire to sell them when a ready buyer is not available at a price
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
RATINGS -- The ratings of Moody's, S&P, Fitch or Duff represent their
opinions as to the quality of the obligations which they undertake to rate.
Ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of such obligations. Although these ratings
may be an initial criterion for selection of portfolio investments, The
Dreyfus Corporation also will evaluate these securities and the ability of
the issuers of such securities to pay interest and principal. The Series'
ability to achieve its investment objective may be more dependent on The
Dreyfus Corporation's credit analysis than might be the case for a fund that
invested in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 13
DREYFUS
Variable
Investment
Fund
Small Cap Portfolio
Prospectus
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
121p050196
DREYFUS VARIABLE INVESTMENT FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MAY 1, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus Variable Investment Fund (the "Fund"), dated May 1, 1996, as it
may be revised from time to time. To obtain a copy of the Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call (516) 338-3300.
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies. . . . . . .B-2
Management of the Fund . . . . . . . . . . . . . . . . . .B-17
Investment Advisory Agreements . . . . . . . . . . . . . .B-22
Purchase of Shares . . . . . . . . . . . . . . . . . . . .B-29
Redemption of Shares . . . . . . . . . . . . . . . . . . .B-29
Determination of Net Asset Value . . . . . . . . . . . . .B-29
Dividends, Distributions and Taxes . . . . . . . . . . . .B-31
Portfolio Transactions . . . . . . . . . . . . . . . . . .B-33
Yield and Performance Information. . . . . . . . . . . . .B-35
Information About the Fund . . . . . . . . . . . . . . . .B-37
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors. . . . . . . . . . . . .B-38
Appendix . . . . . . . . . . . . . . . . . . . . . . . . .B-39
Financial Statements . . . . . . . . . . . . . . . . . . .B-46
Report of Independent Auditors . . . . . . . . . . . . . .B-46
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled
"Description of the Fund" and "Appendix."
Portfolio Securities
Depositary Receipts. (Disciplined Stock, Growth and Income,
International Equity, International Value, Managed Assets and Small Company
Stock Portfolios). These securities may be purchased through "sponsored"
or "unsponsored" facilities. A sponsored facility is established jointly
by the issuer of the underlying security and a depositary, whereas a
depositary may establish an unsponsored facility without participation by
the issuer of the deposited security. Holders of unsponsored depositary
receipts generally bear all the costs of such facilities and the depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts
in respect of the deposited securities.
Repurchase Agreements. (All Series) The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated account,
securities acquired by a Series under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Series. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, each Series will enter into
repurchase agreements only with domestic banks with total assets in excess
of $1 billion, or primary government securities dealers reporting to the
Federal Reserve Bank of New York, with respect to securities of the type in
which the Series may invest, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease
below the resale price.
Commercial Paper and Other Short-Term Corporate Obligations. (All
Series) These instruments include variable amount master demand notes,
which are obligations that permit a Series to invest fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the
Series, as lender, and the borrower. These notes permit daily changes in
the amounts borrowed. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that
such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time. Accordingly,
where these obligations are not secured by letters of credit or other
credit support arrangements, the Series' right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies, and a Fund
may invest in them only if at the time of an investment the borrower meets
the criteria set forth in the Fund's Prospectus for other commercial paper
issuers.
Convertible Securities. (Capital Appreciation, Disciplined Stock,
Growth and Income, International Equity, International Value, Managed
Assets, Small Cap and Small Company Stock Portfolios). Although to a
lesser extent than with fixed-income securities generally, the market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stock. A unique feature of convertible securities is
that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so
may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no
securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock of
the same issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There
can be no assurance of current income because the issuers of the
convertible securities may default on their obligations. A convertible
security, in addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which enables the
holder to benefit from increases in the market price of the underlying
common stock. There can be no assurance of capital appreciation, however,
because securities prices fluctuate. Convertible securities, however,
generally offer lower interest or dividend yields than non-convertible
securities of similar quality because of the potential for capital
appreciation.
Municipal Obligations. (Quality Bond and Growth and Income
Portfolios) Municipal obligations generally include debt obligations
issued to obtain funds for various public purposes as well as certain
industrial development bonds issued by or on behalf of public authorities.
Municipal obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenue derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from
the general taxing power. Industrial development bonds, in most cases, are
revenue bonds and generally do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity
on whose behalf they are issued. Notes are short-term instruments which
are obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal obligations include municipal lease/purchase
agreements which are similar to installment purchase contracts for property
or equipment issued by municipalities.
Mortgage-Related Securities--Government Agency Securities. (Growth
and Income Portfolio) Mortgage-related securities issued by the Government
National Mortgage Association ("GNMA") include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed as to the
timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the department of Housing
and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Mortgage-Related Securities--Government Related Securities. (Growth
and Income Portfolio) Mortgage-related securities issued by the Federal
National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely
the obligations of FNMA and are not backed by or entitled to the full faith
and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Mortgage-Related Securities--Private Entity Securities. (Growth and
Income Portfolio) These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies, so that if the issuers default on
their obligations the holders of the security could sustain a loss. No
insurance or guarantee covers the Series or the price of the Series'
shares. Mortgage-related securities issued by non-governmental issuers
generally offer a higher rate of interest than government-agency and
government-related securities because there are no direct or indirect
government guarantees of payment. The Series will not invest more than 5%
of its assets in such private entity securities issued by any one issuer,
including any one bank or savings and loan institution.
Stripped Treasury Securities. (Zero Coupon 2000 Portfolio and, to a
limited extent, all other Series) The U.S. Government does not issue
Stripped Treasury Securities directly. The STRIPS program, which is
ongoing, is designed to facilitate the secondary market stripping of
selected U.S. Treasury notes and bonds into separate interest and principal
components. Under the program, the U.S. Treasury continues to sell its
notes and bonds through its customary auction process. A purchaser of
those specified notes and bonds who has access to a book-entry account at a
Federal Reserve bank, however, may separate the Treasury notes and bonds
into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the
Federal Reserve in a manner that permits the separate trading and ownership
of the interest and principal payments. Investment banks also may strip
U.S. Treasury securities and sell them under proprietary names. Such
securities may not be as liquid as STRIPS and CUBES and are not viewed by
the staff of the Securities and Exchange Commission as U.S. Government
securities for purposes of the Investment Company Act of 1940, as amended
(the "1940 Act"). CUBES, like STRIPS, are direct obligations of the U.S.
Government. CUBES are coupons that have previously been physically
stripped from U.S. Treasury notes and bonds, but which were deposited with
the Federal Reserve Bank's book-entry system and are now carried and
transferable in book-entry form only. Only stripped U.S. Treasury coupons
maturing on or after January 15, 1988, that were stripped prior to January
5, 1987, were eligible for conversion to book-entry form under the CUBES
program.
By agreement, the underlying debt obligations will be held separate
from the general assets of the custodian and nominal holder of such
securities, and will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of or against the custodian or
any person claiming through the custodian, and the custodian will be
responsible for applying all payments received on those underlying debt
obligations to the related receipts or certificates without making any
deductions other than applicable tax withholding. The custodian is
required to maintain insurance for the protection of holders of receipts or
certificates in customary amounts against losses resulting from the custody
arrangement due to dishonest or fraudulent action by the custodian's
employees. The holders of receipts or certificates, as the real parties in
interest, are entitled to the rights and privileges of the underlying debt
obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without
acting in concert with other holders of those receipts or certificates or
the custodian.
Publicly filed documents state that counsel to the underwriters of
certificates or other evidences of ownership of U.S. Treasury securities
have stated that for Federal tax and securities purposes, purchasers of
such certificates most likely will be deemed the beneficial holders of the
underlying U.S. Government securities, which are payable in full at their
stated maturity amount and are not subject to redemption prior to maturity.
See "Description of the Fund--Investment Considerations and Risks--Special
Considerations Relating to Stripped Securities" in the Prospectus.
Illiquid Securities. (All Series) When purchasing securities that
have not been registered under the Securities Act of 1933, as amended, and
are not readily marketable, a Series will endeavor, to the extent
practicable, to obtain the right to registration at the expense of the
issuer. Generally, there will be a lapse of time between the Series'
decision to sell any such security and the registration of the security
permitting sale. During any such period, the price of the securities will
be subject to market fluctuations. However, where a substantial market of
qualified institutional buyers has developed for certain unregistered
securities purchased by the Series pursuant to Rule 144A under the
Securities Act of 1933, as amended, the Series intends to treat such
securities as liquid securities in accordance with procedures approved by
the Fund's Board. Because it is not possible to predict with assurance how
the market for specific restricted securities sold pursuant to Rule 144A
will develop, the Fund's Board has directed the Manager to monitor
carefully the relevant Series' investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, a Series' investing in such securities
may have the effect of increasing the level of illiquidity in its
investment portfolio during such period.
Management Policies
Leverage. (Growth and Income and, to a limited extent, Money Market
and Small Company Stock Portfolios) For borrowings for investment
purposes, the 1940 Act requires the Series to maintain continuous asset
coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) of 300% of the amount borrowed. If the required
coverage should decline as a result of market fluctuations or other
reasons, the Series may be required to sell some of its portfolio
securities within three days to reduce the amount of its borrowings and
restore the 300% asset coverage, even though it may be disadvantageous from
an investment standpoint to sell securities at that time. The Series also
may be required to maintain minimum average balances in connection with
such borrowing or pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing
over the stated interest rate. To the extent a Series enters into a
reverse repurchase agreement, the Series will maintain in a segregated
custodial account cash or U.S. Government securities or other high quality
liquid debt securities at least equal to the aggregate amount of its
reverse repurchase obligations, plus accrued interest, in certain cases, in
accordance with releases promulgated by the Securities and Exchange
Commission. The Securities and Exchange Commission views reverse
repurchase transactions as collateralized borrowings by a Series.
Short-Selling. (Growth and Income and, to a limited extent, Managed
Assets and Small Cap Portfolios). Until a Series closes its short position
or replaces the borrowed security, it will: (a) maintain a segregated
account, containing cash or U.S. Government securities, at such a level
that the amount deposited in the account plus the amount deposited with the
broker as collateral always equals the current value of the security sold
short; or (b) otherwise cover its short position.
Lending Portfolio Securities. (All Series) In connection with its
securities lending transactions, a Series may return to the borrower or a
third party which is unaffiliated with the Series, and which is acting as a
"placing broker," a part of the interest earned from the investment of
collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Series must receive at least 100% cash collateral from the
borrower; (2) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(3) the Series must be able to terminate the loan at any time; (4) the
Series must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions payable on the loaned
securities, and any increase in market value; (5) the Series may pay only
reasonable custodian fees in connection with the loan; and (6) while voting
rights on the loaned securities may pass to the borrower, the Fund's Board
must terminate the loan and regain the right to vote the securities if a
material event adversely affecting the investment occurs.
Derivatives. (Disciplined Stock, Growth and Income, International
Equity, International Value, Managed Assets, Small Company Stock and Zero
Coupon 2000 Portfolios) A Series may invest in Derivatives (as defined in
the Fund's Prospectus) for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Series to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit a Series to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Series can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter Derivatives. Therefore, each party to an over-
the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Manager (or, if applicable, the Series' sub-investment
adviser) will consider the creditworthiness of counterparties to over-the-
counter Derivatives in the same manner as it would review the credit
quality of a security to be purchased by a Series. Over-the-counter
Derivatives are less liquid than exchange-traded Derivatives since the
other party to the transaction may be the only investor with sufficient
understanding of the Derivative to be interested in bidding for it.
Futures Transactions--In General. (Disciplined Stock, Growth and Income,
International Equity, International Value, Managed Assets, Small Company
Stock and Zero Coupon 2000 Portfolios) A Series may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and
the International Monetary Market of the Chicago Mercantile Exchange, or,
if permitted in the Fund's Prospectus, on exchanges located outside the
United States, such as the London International Financial Futures Exchange
and the Sydney Futures Exchange Limited. Foreign markets may offer
advantages such as trading opportunities or arbitrage possibilities not
available in the United States. Foreign markets, however, may have greater
risk potential than domestic markets. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and an
investor may look only to the broker for performance of the contract. In
addition, any profits that a Series might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Series could
incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic
exchanges and those which are not. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to a Fund which
could adversely affect the value of the Series' net assets. Although each
Series 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 Series to substantial losses.
Successful use of futures by a Series also is subject to the ability
of the Manager (or, if applicable, the Series' sub-investment adviser) to
predict correctly movements in the direction of the relevant market and, to
the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged
and the price movements of the futures contract. For example, if a Series
uses futures to hedge against the possibility of a decline in the market
value of securities held in its portfolio and the prices of such securities
instead increase, the Series 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 Series has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. A Series may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, a Series 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
a Series' ability otherwise to invest those assets.
Specific Futures Transactions. The Disciplined Stock, Growth and Income,
International Equity, International Value, Managed Assets and Small Company
Stock Portfolios may purchase and sell stock index futures contracts. A
stock index future obligates the Series to pay or receive an amount of cash
equal to a fixed dollar amount specified in the futures contract multiplied
by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock
prices of the securities that comprise it at the opening of trading in such
securities on the next business day.
The Growth and Income, International Equity, International Value,
Managed Assets and Small Company Stock Portfolios may purchase and sell
currency futures. A foreign currency future obligates the Series to
purchase or sell an amount of a specific currency at a future date at a
specific price.
The Growth and Income, International Equity, International Value,
Managed Assets and Zero Coupon 2000 Portfolios may purchase and sell
interest rate futures contracts. An interest rate future obligates the
Series to purchase or sell an amount of a specific debt security at a
future date at a specific price.
Options--In General. (Disciplined Stock, Growth and Income, International
Equity, Managed Assets, Small Company Stock and Zero Coupon 2000
Portfolios) The Series may purchase and write (i.e., sell) call or put
options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date. Conversely, a put option
gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period.
A covered call option written by a Series is a call option with
respect to which the Series owns the underlying security or otherwise
covers the transaction by segregating cash or other securities. A put
option written by a Series is covered when, among other things, cash or
liquid securities having a value equal to or greater than the exercise
price of the option are placed in a segregated account with the Fund's
custodian to fulfill the obligation undertaken. The principal reason for
writing covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. A Series receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If,
as a covered call option writer, the Series is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Specific Options Transactions. The Disciplined Stock, Growth and Income,
International Equity, Managed Assets and Small Company Stock Portfolios may
purchase and sell call and put options in respect of specific securities
(or groups or "baskets" of specific securities) or stock indices listed on
national securities exchanges or traded in the over-the-counter market. An
option on a stock index is similar to an option in respect of specific
securities, except that settlement does not occur by delivery of the
securities comprising the index. Instead, the option holder receives an
amount of cash if the closing level of the stock index upon which the
option is based is greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option. Thus, the
effectiveness of purchasing or writing stock index options will depend upon
price movements in the level of the index rather than the price of a
particular stock.
The Growth and Income, International Equity, Managed Assets and Small
Company Stock Portfolios may purchase and sell call and put options on
foreign currency. These options convey the right to buy or sell the
underlying currency at a price which is expected to be lower or higher than
the spot price of the currency at the time the option is exercised or
expires.
The Disciplined Stock, Growth and Income, International Equity,
Managed Assets and Small Company Stock Portfolios may purchase cash-settled
options on equity index swaps in pursuit of its investment objective.
Equity index swaps involve the exchange by the Series with another party of
cash flows based upon the performance of an index or a portion of an index
of securities which usually includes dividends. A cash-settled option on a
swap gives the purchaser the right, but not the obligation, in return for
the premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Successful use by a Series of options will be subject to the ability
of the Manager (or, if applicable, the Series' sub-investment adviser) to
predict correctly movements in the prices of individual stocks, the stock
market generally, foreign currencies or interest rates. To the extent such
predictions are incorrect, a Series may incur losses.
Future Developments. A Series may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives which are not presently contemplated for use by
the Series or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Series'
investment objective and legally permissible for the Series. Before
entering into such transactions or making any such investment on behalf of
a Series, the Fund will provide appropriate disclosure in its Prospectus or
Statement of Additional Information.
Forward Commitments. (All Series) Securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e., appreciating when interest rates decline
and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a
forward commitment or when-issued basis may expose a Series to risks
because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction
itself. Purchasing securities on a forward commitment or when-issued basis
when a Series is fully or almost fully invested may result in greater
potential fluctuation in the value of the Series' net assets and its net
asset value per share.
Investment Considerations and Risks
Lower Rated Securities. (Growth and Income, Managed Assets, Small Cap
and Quality Bond Portfolios) Each of the Growth and Income, Managed
Assets, Small Cap and Quality Bond Portfolios is permitted to invest in
securities (convertible debt securities with respect to the Growth and
Income Portfolio) rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Group ("S&P"),
Fitch Investors Service, L.P. ("Fitch") and Duff & Phelps Credit Rating Co.
("Duff"). In no case, however, will the Quality Bond Portfolio invest in
bonds rated lower than B by Moody's and S&P and in no case will the Growth
and Income Portfolio invest in convertible debt securities rated lower than
Caa by Moody's and CCC by S&P, Fitch and Duff. Such securities, though
higher yielding, are characterized by risk. See "Description of the
Fund--Investment Considerations and Risks--Lower Rated Securities" in the
Prospectus for a discussion of certain risks and "Appendix" for a general
description of Moody's, S&P, Fitch and Duff ratings. Although ratings may
be useful in evaluating the safety of interest and principal payments, they
do not evaluate the market value risk of these securities. The Series will
rely on its adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities generally are considered by S&P,
Moody's, Fitch and Duff to be, on balance, predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk
than securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher rated
securities and will fluctuate over time. For example, during an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of these securities may experience financial stress. During such
periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations also may be affected adversely by specific corporate
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss
because of default by the issuer is significantly greater for the holders
of these securities because such securities generally are unsecured and
often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and the Series' ability to dispose of
particular issues when necessary to meet such Series' liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid security market for
certain securities also may make it more difficult for the Series to obtain
accurate market quotations for purposes of valuing the Series' portfolio
and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play
a greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic
downturns. It is likely that any economic recession could disrupt severely
the market for such securities and may have an adverse impact on the value
of such securities. In addition, it is likely that any such economic
downturn could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon and increase the
incidence of default for such securities.
The Series may acquire these securities during an initial offering.
Such securities may involve special risks because they are new issues. The
Series has no arrangement with any persons concerning the acquisition of
such securities, and the Manager (or, if applicable, the Series' sub-
investment adviser) will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated Stripped Corporate Securities in which each Series
other than the Quality Bond Portfolio may invest and pay-in-kind bonds in
which each Series may invest up to 5% of its total assets. Stripped
Corporate Securities are debt obligations which do not entitle the holder
to any periodic payments of interest prior to maturity or a specified cash
payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their
face amounts or par value. The discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, decreases
as the final maturity or cash payment date of the security approaches.
The market prices of Stripped Corporate Securities generally are more
volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a
greater degree than do non-zero coupon securities having similar maturities
and credit quality. Such Stripped Corporate Securities, pay-in-kind or
delayed interest bonds carry an additional risk in that, unlike bonds which
pay interest throughout the period to maturity, the relevant Series will
realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Series may obtain no
return at all on its investment. See "Dividends, Distributions and Taxes."
Investment Restrictions
Capital Appreciation, Managed Assets, Money Market, Quality Bond,
Small Cap and Zero Coupon 2000 Portfolios. Each of these Series (except as
noted below) has adopted investment restrictions numbered 1 through 14 as
fundamental policies. These restrictions cannot be changed, as to a
Series, without approval by the holders of a majority (as defined in the
1940 Act) of such Series' outstanding voting shares. However, the
amendment of these restrictions to add an additional Series, which
amendment does not substantively affect the restrictions with respect to an
existing Series, will not require approval as described in the preceding
sentence. Investment restrictions numbered 15 and 16 are not fundamental
policies and may be changed, as to a Series, by vote of a majority of the
Fund's Trustees at any time. With respect to the Capital Appreciation
Portfolio, investment restrictions numbered 2 and 3, 10 through 12 and 14
are not fundamental policies and may be changed, as to that Series, by vote
of a majority of the Fund's Board members at any time. Except where
otherwise expressly stated, each such Series may not:
1. Borrow money, except, with respect to each Series other than the
Money Market Portfolio, to the extent permitted under the 1940 Act (which
currently limits borrowing to no more than 33-1/3% of the value of the Series'
total assets); the Money Market Portfolio may borrow money only (i) from
banks for temporary or emergency (not leveraging) purposes in an amount up
to 15% of the value of its total assets (including the amount borrowed)
based on the lesser of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made and (ii) in connection
with the entry into reverse repurchase agreements to the extent described
in the Prospectus. While borrowings under (i) above exceed 5% of a Series'
total assets, the Series will not make any additional investments.
2. Sell securities short or purchase securities on margin, except
that the Managed Assets and Small Cap Portfolios may engage in short sales
and each Series may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities.
3. Purchase or write puts and calls or combinations thereof, except
as described in the Prospectus and Statement of Additional Information.
4. Act as an underwriter of securities of other issuers.
5. Purchase or sell real estate or real estate investment trust
securities, but each Series may purchase and sell securities that are
secured by real estate and may purchase and sell securities issued by
companies that invest or deal in real estate.
6. Invest in commodities, except that the Managed Assets, Capital
Appreciation and Zero Coupon 2000 Portfolios may invest in futures
contracts, including those related to indexes, and options on futures
contracts or indices, and commodities underlying or related to any such
futures contracts as well as invest in forward contracts and currency
options.
7. Lend any funds or other assets except through the purchase of
bonds, debentures or other debt securities, or the purchase of bankers'
acceptances, commercial paper of corporations, and repurchase agreements.
However, each Series may lend its portfolio securities to the extent set
forth in the Prospectus. Any portfolio securities will be loaned according
to guidelines established by the Securities and Exchange Commission and the
Fund's Board.
8. Invest more than 5% of its assets in the obligations of any one
issuer, except that up to 25% of the value of the Series' total assets may
be invested, and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities may be purchased, without regard to any
such limitations. Notwithstanding the foregoing, to the extent required by
the rules of the Securities and Exchange Commission, the Money Market
Portfolio will not invest more than 5% of its assets in the obligations of
any one bank.
9. Purchase the securities of any issuer if such purchase would cause
the Series to hold more than 10% of the voting securities of such issuer.
This restriction applies only with respect to 75% of such Series' total
assets.
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Series will vote the securities
it owns as a shareholder in accordance with its views.
11. Purchase or retain the securities of any issuer if the officers
or Trustees of the Fund or the officers or Directors of the Manager (and,
with respect to the Managed Assets Portfolio, the officers and Directors of
Comstock Partners, Inc. and, with respect to the Capital Appreciation
Portfolio, the officers and Directors of Fayez Sarofim & Co.) individually
own beneficially more than 1/2 of l% of the securities of such issuer or
together own beneficially more than 5% of the securities of such issuer.
12. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of its investments in all such companies to
exceed 5% of the value of its total assets.
13. Invest, except in the case of the Money Market Portfolio, more
than 25% of its total assets in the securities of issuers in any single
industry; provided that for temporary defensive purposes, there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Money Market Portfolio
may not invest less than 25% of its assets in obligations issued by banks
under normal market conditions.
14. Purchase warrants, except each of the Capital Appreciation,
Managed Assets and Small Cap Portfolios may purchase warrants not to exceed
2% of its respective net assets. For purposes of this restriction, such
warrants shall be valued at the lower of cost or market, except that
warrants acquired by the Series in units or attached to securities shall
not be included within this 2% restriction.
15. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings. The Managed
Assets, Capital Appreciation, Zero Coupon 2000 and Small Cap Portfolios'
entry into collateral arrangements with respect to options, currency
options, futures contracts, including those related to indices, and options
on futures contracts or indices and arrangements with respect to initial or
variation margin for futures contracts or options will not be deemed to be
pledges of such Series' assets.
16. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid if,
in the aggregate, more than 15% (10% with respect to the Money Market
Portfolio) of the value of the Series' net assets would be so invested.
Disciplined Stock, Growth and Income, International Equity,
International Value and Small Company Stock Portfolios. Each of these
Series has adopted investment restrictions numbered 1 through 8 as
fundamental policies, and each of the Disciplined Stock, International
Value and Small Company Stock Portfolios has adopted investment
restrictions numbered 16 and 17 as additional fundamental policies. These
restrictions cannot be changed, as to a Series, without approval by the
holders of a majority (as defined in the 1940 Act) of such Series'
outstanding voting shares. However, the amendment of these restrictions to
add an additional Series, which amendment does not substantively effect the
restrictions with respect to an existing Series, will not require approval
as described in the preceding sentence. Investment restrictions numbered 9
through 15 are not fundamental policies and may be changed, as to a Series,
by vote of a majority of the Fund's Board members at any time. Each such
Series may not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Invest in commodities, except that a Series may purchase and sell
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
3. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but a Series may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
4. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Series' total assets). For purposes of this Investment Restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, a Series
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board.
6. Act as an underwriter of securities of other issuers, except to
the extent a Series may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 2, 4, 11 and 12 may be deemed to give rise to a
senior security.
8. Purchase securities on margin, but a Series may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indices, and options on
futures contracts or indices.
9. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such
purchase would cause the value of its investments in all such companies to
exceed 5% of the value of its total assets.
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Series will vote the securities
it owns as a shareholder in accordance with its views.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.
12. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Prospectus and Statement of Additional
Information.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of its net assets would be so
invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
15. Purchase warrants in excess of 5% of its net assets. For
purposes of this restriction, such warrants shall be valued at the lower of
cost or market, except that warrants acquired by a Series in units or
attached to securities shall not be included within this restriction.
The following investment restrictions numbered 16 and 17 apply only to
the Disciplined Stock, International Value and Small Company Stock
Portfolios. None of these Series may:
16. Invest more than 5% of its assets in the obligations of any
single issuer, except that up to 25% of the value of the Series' total
assets may be invested, and securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities may be purchased, without
regard to any such limitation.
17. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to
75% of the Series' total assets.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of a Series' shares in certain
states. Should the Fund determine that a commitment is no longer in the
best interest of a Series and its shareholders, the Fund reserves the right
to revoke the commitment by terminating the sale of such Series' shares in
the state involved.
In addition, each Series has adopted the following policies as
non-fundamental policies. Each Series intends (i) to comply with the
diversification requirements prescribed in regulations under Section 817(h)
of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) to
comply in all material respects with insurance laws and regulations that
the Fund has been advised are applicable to investments of separate
accounts of Participating Insurance Companies. In addition, each Series,
except the Growth and Income and International Equity Portfolios, has
agreed not to invest more than 10% of its total assets in the obligations
of any one issuer (excluding U.S. Government securities) and to purchase no
more than 10% of an issuer's outstanding securities. As non-fundamental
policies, these policies may be changed by vote of a majority of the Board
members at any time.
MANAGEMENT OF THE FUND
Board members and officers of the Fund, together with information as
to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Fund, as defined in the 1940 Act, is indicated
by an asterisk.
Board Members of the Fund
* JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the Fund's distributor. From August 1994 until
December 31, 1994, he was a director of Mellon Bank Corporation. He
is also Chairman of the Board of Directors of Noel Group, Inc.; a
trustee of Bucknell University; and a director of The Muscular
Dystrophy Association, HealthPlan Services Corporation, Belding
Heminway Company, Inc., Curtis Industries, Inc., and Staffing
Resources, Inc. He is 52 years old and his address is 200 Park
Avenue, New York, New York 10166.
*DAVID P. FELDMAN, Board Member. Chairman and Chief Executive Officer of
AT&T Investment Management Corporation. He is also a trustee of
Corporate Property Investors, a real estate investment company. He is
56 years old and his address is One Oak Way, Berkeley Heights, New
Jersey 07922.
JOHN M. FRASER, JR., Board Member. President of Fraser Associates, a
service company for planning and arranging corporate meetings and
other events. From September 1975 to June 1978, he was Executive Vice
President of Flagship Cruises, Ltd. Prior thereto, he was Senior Vice
President and Resident Director of the Swedish-American Line for the
United States and Canada. He is 74 years old and his address is 133
East 64th Street, New York, New York 10021.
ROBERT R. GLAUBER, Board Member. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University, since January 1992. He was Under Secretary of the
Treasury for Finance at the U.S. Treasury Department, from May 1989 to
January 1992. For more than five years prior thereto, he was a
Professor of Finance at the Graduate School of Business Administration
of Harvard University and, from 1985 to 1989, Chairman of its Advanced
Management Program. He is 57 years old and his address is 79 John F.
Kennedy Street, Cambridge, Massachusetts 02138.
JAMES F. HENRY, Board Member. President of the CPR Institute for Dispute
Resolution, a non-profit organization principally engaged in the
development of alternatives to business litigation. He was of counsel
to the law firm of Lovejoy, Wasson & Ashton from October 1975 to
December 1976 and from October 1979 to June 1983, and was a partner of
the firm from January 1977 to September 1979. He was President and a
director of the Edna McConnell Clark Foundation, a philanthropic
organization, from September 1971 to December 1976. Mr. Henry is 65
years old and his address is c/o CPR Institute for Dispute Resolution,
366 Madison Avenue, New York, New York 10017.
ROSALIND GERSTEN JACOBS, Board Member. Director of Merchandise and
Marketing for Corporate Property Investors, a real estate investment
company. From 1974 to 1976, she was owner and manager of a
merchandise and marketing consulting firm. Prior to 1974, she was a
Vice President of Macy's, New York. Mrs. Jacobs is 70 years old and
her address is c/o Corporate Property Investors, 305 East 47th Street,
New York, New York 10017.
IRVING KRISTOL, Board Member. John M. Olin Distinguished Fellow of the
American Enterprise Institute for Public Policy Research, co-editor of
The Public Interest magazine, and an author or co-editor of several
books. From May 1981 to December 1994, he was a consultant to the
Manager on economic matters; from 1969 to 1988, he was Professor of
Social Thought at the Graduate School of Business Administration, New
York University; and from September 1969 to August 1979, he was Henry
R. Luce Professor of Urban Values at New York University. Mr. Kristol
is 76 years old and his address is c/o The Public Interest, 1112 16th
Street, N.W., Suite 530, Washington, D.C. 20036.
DR. PAUL A. MARKS, Board Member. President and Chief Executive Officer of
Memorial Sloan-Kettering Cancer Center. He was Vice President for
Health Sciences and Director of the Cancer Center at Columbia
University from 1973 to 1980, and Professor of Medicine and of Human
Genetics and Development at Columbia University from 1968 to 1982. He
is also a director of Pfizer, Inc., a pharmaceutical company, Life
Technologies, Inc., a life science company producing products for cell
and molecular biology and microbiology, and Tularik, Inc., a
biotechnology company, and a general partner of LINC Venture Lease
Partners II, L.P., a limited partnership engaged in leasing. Dr.
Marks is 69 years old and his address is c/o Memorial Sloan-Kettering
Cancer Center, 1275 York Avenue, New York, New York 10021.
DR. MARTIN PERETZ, Board Member. Editor-in-Chief of The New Republic
magazine and a lecturer in Social Studies at Harvard University, where
he has been a member of the faculty since 1965. He is a trustee of
The Center for Blood Research at the Harvard Medical School and a
director of LeukoSite Inc., a biopharmaceutical company. Dr. Peretz
is 56 years old and his address is c/o The New Republic, 1220 19th
Street, N.W., Washington, D.C. 20036.
BERT W. WASSERMAN, Board Member. Financial Consultant. From January 1990
to March 1995, Executive Vice President and Chief Financial Officer,
and, from January 1990 to March 1993, a director of Time Warner Inc;
from 1981 to 1990, he was a member of the office of the President and
a director of Warner Communications, Inc. He is also a director of
The New Germany Fund, Mountasia Entertainment International, Inc. and
the Lillian Vernon Corporation. Mr. Wasserman is 63 years old and his
address is 126 East 56th Street, Suite 12 North, New York, New York
10022-3613.
There ordinarily will be no meetings of shareholders for the purpose
of electing Board members unless and until such time as less than a
majority of the Board members holding office have been elected by
shareholders, at which time the Board members then in office will call a
shareholders' meeting for the election of Board members. Under the 1940
Act, shareholders of record of not less than two-thirds of the outstanding
shares of the Fund may remove a Board members through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. The Board members are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any such Board
members when requested in writing to do so by the shareholders of record of
not less than 10% of the Fund's outstanding shares.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund, and by all other funds
in the Dreyfus Family of Funds for which such person is a Board member (the
number of which is set forth in parenthesis next to each Board member's
total compensation) for the year ended December 31, 1995, were as follows:
<TABLE>
Total Compensation
From Fund and
Aggregate Fund Complex
Name of Board Compensation Paid to Board
Member From Fund* Member
<S> <C> <C>
Joseph S. DiMartino $4,080 $448,618(93)
David P. Feldman $3,750 $113,783(37)
John M. Fraser, Jr. $3,750 $58,606(14)
Robert R. Glauber $3,750 $97,503(20)
James F. Henry $3,750 $53,500(10)
Rosalind Gersten Jacobs $3,750 $92,500(20)
Irving Kristol $3,750 $53,500(10)
Dr. Paul A. Marks $3,500 $49,427(10)
Dr. Martin Peretz $3,750 $53,500(10)
Bert W. Wasserman $3,750 $54,739(10)
______________________________
* Amount does not include reimbursed expenses for attending Board meetings, which amounted
to $764 for all Board members as a group.
</TABLE>
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer and Compliance Officer of the Distributor and an officer of
other investment companies advised or administered by the Manager.
From December 1991 to July 1994, she was President and Chief
Compliance Officer of Funds Distributor, Inc., the ultimate parent of
which is Boston Institutional Group, Inc. Prior to December 1991, she
served as Vice President and Controller, and later as Senior Vice
President, of The Boston Company Advisors, Inc. She is 38 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President,
General Counsel and Secretary of the Distributor and an officer of
other investment companies advised or administered by the Manager.
From February 1992 to July 1994, he served as Counsel for The Boston
Company Advisors, Inc. From August 1990 to February 1992, he was
employed as an Associate at Ropes & Gray. He is 31 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to August
1994, he was manager of the High Performance Fabric Division of
Springs Industries Inc. He is 34 years old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Vice President
and Associate General Counsel of the Distributor and an officer of
other investment companies advised or administered by the Manager.
From September 1992 to August 1994, he was an attorney with the Board
of Governors of the Federal Reserve System. He is 31 years old.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Assistant
Vice President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years
old.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The Boston
Company, Inc. where he held various management positions in the
Corporate Finance and Treasury areas. He is 33 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1984 to July 1994, he was Assistant
Vice President in the Mutual Fund Accounting Department of the
Manager. He is 60 years old.
MARGARET M. PARDO, Assistant Secretary. Legal Assistant with the
Distributor and an officer of other investment companies advised or
administered by the Manager. From June 1992 to April 1995, she was a
Medical Coordination Officer at ORBIS International. Prior to June
1992, she worked as Program Coordinator at Physicians World
Communications Group. She is 27 years old.
The address of each officer of the Company is 200 Park Avenue, New
York, New York 10166.
The following shareholders are known by the Fund to own of record 5%
or more of the indicated Series' shares outstanding on March 19, 1996:
<TABLE>
Shareholder Series % of Shares
<S> <C> <C>
Transamerica Occidental Growth and Income 69.35%
Life Insurance Company International Equity 73.74%
1150 South Olive Street Capital Appreciation 77.02%
Los Angeles, CA Money Market 76.85%
90015-2223 Managed Assets 64.02%
Zero Coupon 2000 63.56%
Quality Bond 76.11%
Small Cap 19.50%
First Transamerica Life Growth and Income 19.04%
Insurance Company International Equity 14.35%
1150 South Olive Street Capital Appreciation 22.96%
Los Angeles, CA Money Market 22.40%
90015 Managed Assets 31.62%
Zero 2000 Coupon 20.38%
Quality Bond 14.86%
Small Cap 7.04%
Providian Life and Health Growth and Income 7.52%
Insurance Company Zero Coupon 2000 12.44%
P.O. Box 32830 Quality Bond 6.94%
Louisville, KY
40232-2830
Valic Separate Account A Small Cap 67.08%
2929 Allen Parkway
Houston, Texas
77019-2197
</TABLE>
A shareholder that beneficially owns, directly or indirectly, 25% or
more of a Series' voting securities may be deemed to be a "control person"
(as defined in the 1940 Act) of such Series.
INVESTMENT ADVISORY AGREEMENTS
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides advisory services pursuant to the Investment
Advisory Agreement (the "Agreement") with the Fund dated August 24, 1994.
As to each Series, the Agreement is subject to annual approval by (i) the
Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Series, provided that in either event
the continuance also is approved by a majority of the Board members who are
not "interested persons" (as defined in the 1940 Act) of the Fund or the
Manager, by vote cast in person at a meeting called for the purpose of
voting on such approval. The Agreement was approved by shareholders of
each Series (other than the Growth and Income and International Equity
Portfolios) on August 22, 1994 and by the shareholder of the Growth and
Income and International Equity Portfolios on August 2, 1994. The
Agreement was last approved by the Fund's Board, including a majority of
the Board members who are not "interested persons" of any party to the
Agreement, at a meeting held on March 11, 1996. As to each Series, the
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of the holders of a majority of the shares of such Series,
or, upon not less than 90 days' notice, by the Manager. The Agreement will
terminate automatically, as to the relevant Series, in the event of its
assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice
Chairman--Distribution and a director; Philip L. Toia, Vice
Chairman--Operations and Administration and a director; William T.
Sandalls, Jr., Senior Vice President and Chief Financial Officer; Barbara
E. Casey, Vice President--Dreyfus Retirement Services; Diane M. Coffey,
Vice President--Corporate Communications; Elie M. Genadry, Vice President-
- -Institutional Sales; William F. Glavin, Jr., Vice President--Corporate
Development; Mark N. Jacobs, Vice President, General Counsel and Secretary;
Mary Beth Leibig, Vice President--Human Resources; Jeffrey N. Nachman, Vice
President--Mutual Fund Accounting; Andrew S. Wasser, Vice President--
Information Services; Maurice Bendrihem, Controller; Elvira Oslapas,
Assistant Secretary; and Mandell L. Berman, Frank V. Cahouet, Alvin E.
Friedman, Lawrence M. Greene and Julian M. Smerling, directors.
With respect to the Managed Assets Portfolio, the Fund has entered
into a Sub-Investment Advisory Agreement (the "Comstock Sub-Advisory
Agreement") with Comstock Partners, Inc. dated May 21, 1990. As to such
Series, the Comstock Sub-Advisory Agreement is subject to annual approval
by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940
Act) of the Series' outstanding voting securities, provided that in either
event the continuance also is approved by a majority of the Board members
who are not "interested persons" (as defined in the 1940 Act) of the Fund
or Comstock Partners, Inc., by vote cast in person at a meeting called for
the purpose of voting on such approval. The Comstock Sub-Advisory
Agreement was approved by shareholders on July 12, 1991, and was last
approved by the Fund's Board, including a majority of the Board members who
are not "interested persons" of any party to the Comstock Sub-Advisory
Agreement, at a meeting held on March 11, 1996. The Comstock Sub-Advisory
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of the holders of a majority of the Series' outstanding
voting securities, or, upon not less than 90 days' notice, by Comstock
Partners, Inc. The Comstock Sub-Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of Comstock
Partners, Inc.: Stanley D. Salvigsen, Chairman of the Board and Chief
Executive Officer; Charles L. Minter, Vice Chairman of the Board and
President; W. Troy Hottenstein, Chief Operating Officer; and Robert
Ringstad, Vice President of Operations.
With respect to the Capital Appreciation Portfolio, the Fund has
entered into a Sub-Investment Advisory Agreement (the "Sarofim Sub-Advisory
Agreement") with Fayez Sarofim & Co. dated August 17, 1992. As to such
Series, the Sarofim Sub-Advisory Agreement is subject to annual approval by
(i) the Fund's Board or (ii) vote of a majority (as defined in the 1940
Act) of the Series' outstanding voting securities, provided that in either
event the continuance also is approved by a majority of the Board members
who are not "interested persons" (as defined in the 1940 Act) of the Fund
or Fayez Sarofim & Co., by vote cast in person at a meeting called for the
purpose of voting on such approval. The Sarofim Sub-Advisory Agreement was
last approved by the Fund's Board, including a majority of the Board
members who are not "interested persons" of any party to the Sarofim Sub-
Advisory Agreement, at a meeting held on March 11, 1996. The Sarofim
Sub-Advisory Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board or by vote of the holders of a majority of the Series'
outstanding voting securities, or, upon not less than 90 days' notice, by
Fayez Sarofim & Co. The Sarofim Sub-Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of Fayez Sarofim &
Co.: Fayez S. Sarofim, Chairman of the Board and President; Raye G. White,
Executive Vice President, Secretary, Treasurer and a director; Russell M.
Frankel, Russell B. Hawkins, William K. McGee, Jr., Charles E. Sheedy and
Ralph B. Thomas, Senior Vice Presidents; and Nancy Daniel, Frank P. Lee and
James A. Reynolds, III, Vice Presidents.
With respect to the Disciplined Stock and Small Company Stock
Portfolios, the Manager has entered into a Sub-Investment Advisory
Agreement (the "Laurel Sub-Advisory Agreement") with Laurel Capital
Advisors dated December 11, 1995. As to such Series, the Laurel Sub-
Advisory Agreement is subject to annual approval by (i) the Fund's Board or
(ii) vote of a majority (as defined in the 1940 Act) of the Series'
outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Board Members who are not
"interested persons" (as defined in the 1940 Act) of the Fund or Laurel
Capital Advisors, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Laurel Sub-Advisory Agreement is
terminable without penalty, (i) by the Manager on 60 days' notice, (ii) by
the Fund's Board or by vote of the holders of a majority of the Series'
outstanding voting securities on 60 days' notice, or (iii) upon not less
than 90 days' notice, by Laurel Capital Advisors. The Laurel Sub-Advisory
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
The following persons are officers and/or trustees of Laurel Capital
Advisors: Lawrence S. Kash, President and a trustee; Michael J. Ford, Vice
President and a trustee; Christopher M. Condron, W. Keith Smith, Garry E.
Orrill and Philip R. Roberts, trustees; James M. Gockley, Vice President;
William B. Tunney, Treasurer; and James C. Wadsworth, Chief Investment
Officer.
With respect to the International Value Portfolio, the Manager has
entered into a Sub-Investment Advisory Agreement (the "TBC Asset Management
Sub-Advisory Agreement") with The Boston Company Asset Management, Inc.
dated December 11, 1995. As to such Series, the TBC Asset Management Sub-
Advisory Agreement is subject to annual approval by (i) the Fund's Board or
(ii) vote of a majority (as defined in the 1940 Act) of the Series'
outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund or The Boston
Company Asset Management, Inc., by vote cast in person at a meeting called
for the purpose of voting on such approval. The TBC Asset Management Sub-
Advisory Agreement is terminable without penalty, (i) by the Managers on 60
days' notice, (ii) by the Fund's Board or by vote of the holders of a
majority of the Series' outstanding voting securities on 60 days' notice,
or (iii) upon not less than 90 days' notice, by The Boston Company Asset
Management, Inc. The TBC Asset Management Sub-Advisory Agreement will
terminate automatically in the event of its assignment (as defined in the
1940 Act).
The following persons are officers and/or directors of The Boston
Company Asset Management, Inc.: Christopher M. Condron, Chairman of the
Board and Chief Executive Officer; and Philip R. Roberts and W. Keith
Smith, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. With respect to the Managed Assets Portfolio, Comstock Partners,
Inc., with respect to the Capital Appreciation Portfolio, Fayez Sarofim &
Co., with respect to the Disciplined Stock and Small Company Stock
Portfolios, Laurel Capital Advisors, and, with respect to the International
Value Portfolio, The Boston Company Asset Management, Inc., provides day-
to-day management of such Series' portfolio of investments, in each case
subject to the supervision of the Manager and the Fund's Board. The
Series' adviser is responsible for investment decisions, and provides the
Fund with portfolio managers who are authorized by the Fund's Board to
execute purchases and sales of securities. The Fund's portfolio managers
are Bernard W. Kiernan, Jr. and Patricia A. Larkin, with respect to the
Money Market Portfolio; Garitt Kono and Gerald E. Thunelius, with respect
to the Quality Bond and Zero Coupon 2000 Portfolios; Thomas A. Frank and
Elaine Reese, with respect to the Small Cap Portfolio; Richard Hoey, with
respect to the Growth and Income Portfolio; Ronald Chapman, with respect to
the International Equity Portfolio; Stanley D. Salvigsen, Charles L.
Minter, W. Troy Hottenstein, with respect to the Managed Assets Portfolio;
Russell B. Hawkins and Fayez S. Sarofim, with respect to the Capital
Appreciation Portfolio; Bert Mullins, with respect to the Disciplined Stock
Portfolio; James Wadsworth, with respect to the Small Company Stock
Portfolio; and Sandor Cseh, with respect to the International Value
Portfolio. The Manager, Comstock Partners, Inc., Fayez Sarofim & Co.,
Laurel Capital Advisors and The Boston Company Asset Management, Inc.
maintain research departments with professional portfolio managers and
securities analysts who provide research services for the Fund as well as
for other funds advised by the Manager, Comstock Partners, Inc., Fayez
Sarofim & Co., Laurel Capital Advisors or The Boston Company Asset
Management, Inc. All purchases and sales of each Series are reported for
the Board's review at the meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager (or, if
applicable, the Series sub-investment advisor). The expenses borne by the
Fund include: organizational costs, taxes, interest, loan commitment fees,
dividends and interest on securities sold short, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager, Comstock Partners, Inc., Fayez Sarofim & Co., Laurel Capital
Advisors or The Boston Company Asset Management, Inc. or any affiliates
thereof, Securities and Exchange Commission fees, state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining
the Fund's existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of shareholders' reports and meetings, costs
of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses. Expenses attributable to a
particular Series are charged against the assets of that Series; other
expenses of the Fund are allocated among the Series on the basis determined
by the Fund's Board, including, but not limited to, proportionately in
relation to the net assets of each Series.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for its services, the Fund has agreed to pay the
Manager a monthly fee at the annual rate of .50 of l% of the value of the
Money Market Portfolio's average daily net assets; .375 of l% of the value
of the Managed Assets Portfolio's average daily net assets; .45 of l% of
the value of the Zero Coupon 2000 Portfolio's average daily net assets; .65
of l% of the value of the Quality Bond Portfolio's average daily net
assets; .75 of l% of the value of the Small Cap Portfolio's average daily
net assets; .75 of l% of the value of the Growth and Income Portfolio's
average daily net assets; .75 of 1% of the value of the Small Company Stock
Portfolio's average daily net assets; .75 of 1% of the value of the
Disciplined Stock Portfolio's average daily net assets; .75 of 1% of the
value of the International Equity Portfolio's average daily net assets; and
1% of the value of the International Value Portfolio's average daily net
assets. With respect to the Capital Appreciation Portfolio, the Fund has
agreed to pay the Manager a monthly advisory fee at the annual rate as set
forth below:
Annual Fee as a
Percentage of Average
Daily Net Assets of the
Total Assets Capital Appreciation Portfolio
0 to $150 million .55 of l%
$150 million to $300 million .50 of 1%
$300 million or more .375 of 1%
The fees paid by each Series (other than the Disciplined Stock, Small
Company Stock and International Value Portfolios which had not commenced
operations) to the Manager for the fiscal years ended December 31, 1993,
1994 and 1995 were as follows:
<TABLE>
Fee Paid For
Year Ended
December 31, 1993
Advisory Reduction Net
Series Fee Payable in Fee Fee Paid
<S> <C> <C> <C>
Capital Appreciation* $ 4,494 $ 4,494 $ 0
Money Market 13,390 13,390 0
Managed Assets 11,281 11,281 0
Zero Coupon 2000 9,842 9,842 0
Quality Bond 9,382 9,382 0
Small Cap 45,094 45,094 0
_____________________
* From April 5, 1993 (commencement of operations) through December 31,
1993.
</TABLE>
<TABLE>
Fee Paid For
Year Ended
December 31, 1994
Advisory Reduction Net
Series Fee Payable in Fee Fee Paid
<S> <C> <C> <C>
Capital Appreciation $ 49,561 $ 49,561 $ 0
Growth and Income* 5,069 5,069 0
International Equity* 5,080 5,080 0
Money Market 108,958 108,958 0
Managed Assets 79,001 79,001 0
Zero Coupon 2000 38,947 38,947 0
Quality Bond 60,106 60,106 0
Small Cap 487,316 340,893 146,423
_____________________________
* From May 2, 1994 (commencement of operations) through December 31,
1994.
</TABLE>
<TABLE>
Fee Paid For
Year Ended
December 31, 1995
Advisory Reduction Net
Series Fee Payable in Fee Fee Paid
<S> <C> <C> <C>
Capital Appreciation $157,346 $6,445 $150,901
Growth and Income 194,344 8,743 185,601
International Equity 29,314 17,393 11,921
Money Market 187,396 10,251 177,145
Managed Assets 108,913 0 108,913
Zero Coupon 2000 70,948 4,371 66,577
Quality Bond 147,830 10,017 137,813
Small Cap 2,610,562 0 2,610,562
</TABLE>
As compensation for Comstock Partners, Inc.'s services, the Fund has
agreed to pay Comstock Partners, Inc. a monthly sub-advisory fee at the
annual rate of .375 of 1% of the value of the Managed Assets Portfolio's
average daily net assets. The fees payable by the Fund to Comstock
Partners, Inc. with respect to the Managed Assets Portfolio for the fiscal
years ended December 31, 1993, 1994 and 1995 amounted to $11,281, $79,001
and $108,913, respectively. The sub-advisory fee payable to Comstock
Partners, Inc. for fiscal 1994 was reduced by $44,151 pursuant to an
undertaking in effect, resulting in a net fee paid to Comstock Partners,
Inc. of $34,850 for fiscal 1994.
As compensation for Fayez Sarofim & Co.'s services, the Fund has
agreed to pay Fayez Sarofim & Co. a monthly sub-advisory fee at the annual
rate as set forth below:
Annual Fee as a
Percentage of Average
Daily Net Assets of the
Total Assets Capital Appreciation Portfolio
0 to $150 million .20 of 1%
$150 million to $300 million .25 of 1%
$300 million or more .375 of 1%
The fees payable by the Fund to Fayez Sarofim & Co. with respect to
the Capital Appreciation Portfolio for the period April 5, 1993
(commencement of operations) through December 31, 1993 and for the fiscal
years ended December 31, 1994 and 1995 amounted to $1,634, $18,022 and
$57,217, respectively. However, no sub-advisory fee was paid to Fayez
Sarofim & Co. for the period April 5, 1993 (commencement of operations)
through December 31, 1993 or for the fiscal year ended December 31, 1994
pursuant to an undertaking then in effect.
Prior to April 1, 1996, M&G Investment Management Limited served as
sub-investment adviser for the International Equity Portfolio pursuant to a
Sub-Investment Advisory Agreement with the Manager. Pursuant to such
agreement, the Manager agreed to pay M&G Investment Management Limited a
monthly fee at the annual rate of .30 of 1% of the value of the
International Equity Portfolio's average daily net assets. For the period
May 2, 1994 (commencement of operations) through December 31, 1994, no sub-
advisory fee was paid by the Manager to M&G Investment Management Limited
with respect to the International Equity Portfolio pursuant to an
undertaking then in effect. For the fiscal year ended December 31, 1995,
the Manager paid M&G Investment Management Limited a sub-advisory fee in
the amount of $4,800.
As compensation for The Boston Company Asset Management, Inc.'s
services, the Manager has agreed to pay The Boston Company Asset
Management, Inc. a monthly sub-advisory fee at the annual rate of .50 of 1%
of the value of the International Value Portfolio's average daily net
assets.
As compensation for Laurel Capital Advisors' services with respect to
the Disciplined Stock Portfolio and Small Company Stock Portfolio, the
Manager has agreed to pay Laurel Capital Advisors a monthly sub-advisory
fee at the annual rate set forth below:
Annual Fee as a Percentage
of Average Daily Net Assets
Total Assets of each such Series
0 to $100 million .25 of 1%
$100 million to $1 billion .20 of 1%
$1 billion to $1.5 billion .15 of 1%
$1.5 billion or more .10 of 1%
The Manager (and, with respect to the Managed Assets Portfolio,
Comstock Partners, Inc., and, with respect to the Capital Appreciation
Portfolio, Fayez Sarofim & Co.) has agreed that if, in any fiscal year, the
aggregate expenses of the Fund, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state
securities commissions) extraordinary expenses, but including the advisory
fees, exceed the expense limitation of any state having jurisdiction over
the Fund, the Fund may deduct from the payment to be made to the Manager
(and, with respect to the Managed Assets Portfolio, Comstock Partners,
Inc., and, with respect to the Capital Appreciation Portfolio, Fayez
Sarofim & Co.), or the Manager (and, with respect to the Managed Assets
Portfolio, Comstock Partners, Inc., and, with respect to the Capital
Appreciation Portfolio, Fayez Sarofim & Co.) will bear, such excess expense
to the extent required by state law. Such deduction or payment, if any,
will be estimated daily, and reconciled and effected or paid, as the case
may be, on a monthly basis.
The aggregate of the fees payable to the Manager (other than for the
Capital Appreciation Portfolio) and Comstock Partners, Inc. is not subject
to reduction as the value of a Series' assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Shares."
The Distributor. The Distributor serves as the Fund's distributor on
a best efforts basis pursuant to an agreement which is renewable annually.
The Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies.
REDEMPTION OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Shares."
Redemption Commitment. The Fund has committed to pay in cash all
redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of a Series'
net assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange Commission. In
the case of requests for redemption in excess of such amount, the Fund's
Board reserves the right to make payments in whole or part in securities
(which may include non-marketable securities) or other assets of the Series
in case of an emergency or any time a cash distribution would impair the
liquidity of the Series to the detriment of the existing shareholders. In
such event, the securities would be valued in the same manner as the
Series' portfolio is valued. If the recipient sold such securities,
brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Shares."
Money Market Portfolio. The valuation of the Money Market Portfolio's
securities is based upon their amortized cost which does not take into
account unrealized capital gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower
than the price the Series would receive if it sold the instrument.
The Fund's Board has established, as a particular responsibility
within the overall duty of care owed to the Money Market Portfolio's
shareholders, procedures reasonably designed to stabilize the Series' price
per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Series' portfolio holdings by the
Fund's Board, at such intervals as it deems appropriate, to determine
whether the Series' net asset value per share calculated by using available
market quotations or market equivalents deviates from $1.00 per share based
on amortized cost. In such review, investments for which market quotations
are readily available will be valued at the most recent bid price or yield
equivalent for such securities or for securities of comparable maturity,
quality and type, as obtained from one or more of the major market makers
for the securities to be valued. Other investments and assets will be
valued at fair value as determined in good faith by the Fund's Board.
The extent of any deviation between the Money Market Portfolio's net
asset value based upon available market quotations or market equivalents
and $1.00 per share based on amortized cost will be examined by the Fund's
Board. If such deviation exceeds 1/2 of l%, the Board members promptly
will consider what action, if any, will be initiated. In the event the
Board determines that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders, it
has agreed to take such corrective action as it regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital
gains; redeeming shares in kind; or establishing a net asset value per
share by using available market quotations or market equivalents.
Zero Coupon 2000 and Quality Bond Portfolios. Substantially all of
each Series' investments are valued each business day by an independent
pricing service (the "Service") approved by the Fund's Board. When, in the
judgment of the Service, quoted bid prices for investments are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments are carried at fair value as
determined by the Service, based on methods which include consideration of:
yields or prices of municipal bonds of comparable quality, coupon, maturity
and type; indications as to values from dealers; and general market
conditions. The Service's procedures are reviewed by the Fund's officers
under the general supervision of the Board. Short-term investments are not
valued by the Service and are carried at amortized cost, which approximates
value. Other investments that are not valued by the Service are valued at
the average of the most recent bid and asked prices in the market in which
such investments are primarily traded, or at the last sales price for
securities traded primarily on an exchange. In the absence of reported
sales of investments traded primarily on an exchange, the average of the
most recent bid and asked prices is used. Bid price is used when no asked
price is available. Investments traded in foreign currencies are
translated to U.S. dollars at the prevailing rates of exchange. Expenses
and fees of a Series, including the advisory fee (reduced by the expense
limitation, if any), are accrued daily and taken into account for the
purpose of determining the net asset value of shares.
Capital Appreciation, Disciplined Stock, Growth and Income,
International Equity, International Value, Managed Assets, Small Company
Stock and Small Cap Portfolios. Each Series' portfolio securities are
valued at the last sale price on the securities exchange or national
securities market on which such securities are primarily traded.
Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average
of the most recent bid and asked prices, except in the case of open short
positions where the asked price is used for valuation purposes. Bid price
is used when no asked price is available. Market quotations for foreign
securities in foreign currencies are translated into U.S. dollars at the
prevailing rates of exchange. Because of the need to obtain prices as of
the close of trading on various exchanges throughout the world, the
calculation of net asset value may not take place contemporaneously with
the determination of prices of many of the Series' portfolio securities.
Short-term investments are carried at amortized cost, which approximates
value. Any securities or other assets for which recent market quotations
are not readily available are valued at fair value as determined in good
faith by the Fund's Board. Expenses and fees, including the advisory fees
(reduced by the expense limitation, if any), are accrued daily and taken
into account for the purpose of determining the net asset value of shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Fund's Board, are valued at fair value as
determined in good faith by the Fund's Board. The Fund's Board will review
the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Board members generally will take
the following factors into consideration: restricted securities which are,
or are convertible into, securities of the same class of securities for
which a public market exists usually will be valued at market value less
the same percentage discount at which purchased. This discount will be
revised periodically by the Fund's Board if the Board members believe that
it no longer reflects the value of the restricted securities. Restricted
securities not of the same class as securities for which a public market
exists usually will be valued initially at cost. Any subsequent adjustment
from cost will be based upon considerations deemed relevant by the Fund's
Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
Each Series (other than the Disciplined Stock, Small Company Stock and
International Value Portfolios which had not commenced operations) has
qualified as a "regulated investment company" under the Code for the fiscal
year ended December 31, 1995. It is expected that each of the Disciplined
Stock, Small Company Stock and International Value Portfolios will qualify
as a regulated investment company under the Code. Each Series intends to
continue to so qualify as long as such qualification is in the best
interests of its shareholders. As a regulated investment company, each
Series will pay no Federal income tax on net investment income and net
realized securities gains to the extent that such income and gains are
distributed to shareholders in accordance with applicable provisions of the
Code. To qualify as a regulated investment company, the Series must
distribute at least 90% of its net income (consisting of net investment
income and net short-term capital gain) to its shareholders, derive less
than 30% of its annual gross income from gain on the sale of securities
held for less than three months, and meet certain asset diversification and
other requirements. The term "regulated investment company" does not imply
the supervision of management or investment practices or policies by any
government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the
cost of the investment. Such a dividend or distribution would be a return
of investment in an economic sense, although taxable as stated in the
Prospectus. In addition, the Code provides that if a shareholder holds
shares of the Series for six months or less and has received a capital gain
distribution with respect to such shares, any loss incurred on the sale of
such shares will be treated as long-term capital loss to the extent of the
capital gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, all or a portion of the
gain or loss realized from the disposition of foreign currency, non-U.S.
dollar denominated debt instruments, and certain financial futures and
options, may be treated as ordinary income or loss under Section 988 of the
Code. In addition, all or a portion of the gain realized from the
disposition of certain market discount bonds will be treated as ordinary
income under Section 1276 of the Code. Finally, all or a portion of the
gain realized from engaging in "conversion transactions" may be treated as
ordinary income under Section 1258 of the Code. "Conversion transactions"
are defined to include certain forward, futures, option and straddle
transactions, transactions marketed or sold to produce capital gains, or
transactions described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss realized by a Series from
certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. Gain or loss will
arise upon the exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures or options
remaining unexercised at the end of the Series' taxable year will be
treated as sold for their then fair market value, resulting in additional
gain or loss to the Series characterized in the manner described above.
Offsetting positions held by a Series involving financial futures and
options may constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of straddles is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the provisions of
Sections 988 and 1256 of the Code. As such, all or a portion of any short-
or long-term capital gain from certain "straddle" transactions may be
recharacterized as ordinary income.
If a Series were treated as entering into straddles by reason of its
futures or options transactions, such straddles could be characterized as
"mixed straddles" if the futures or options transactions comprising such
straddles were governed by Section 1256 of the Code. The Series may make
one or more elections with respect to "mixed straddles." Depending upon
which election is made, if any, the results to the Series may differ. If
no election is made, to the extent the straddle rules apply to positions
established by the Series, losses realized by the Series will be deferred
to the extent of unrealized gain in any offsetting positions. Moreover, as
a result of the straddle and conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term
capital loss, and long-term capital gain may be recharacterized as short-
term capital gain or ordinary income.
Investment by a Series in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders by causing a Series to recognize
income prior to the receipt of cash payments. For example, the Series
could be required to recognize annually a portion of the discount (or
deemed discount) at which such securities were issued and to distribute an
amount equal to such income in order to maintain its qualification as a
regulated investment company. In such case, the Series may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
Since shareholders of the Fund will be the separate accounts of
Participating Insurance Companies, no discussion is included herein as to
the Federal income tax consequences at the level of the holders of the VA
contracts or VLI policies. For information concerning the Federal income
tax consequences to such holders, see the prospectuses for such VA
contracts or VLI policies.
PORTFOLIO TRANSACTIONS
General. Transactions are allocated to various dealers by the Fund's
portfolio managers in their best judgment. The primary consideration is
prompt and effective execution of orders at the most favorable price.
Subject to that primary consideration, dealers may be selected for
research, statistical or other services to enable the Manager (and, if
applicable, the Series' sub-investment adviser) to supplement its own
research and analysis with the views and information of other securities
firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager (or, if applicable, the
Series' sub-investment adviser) in advising other funds or accounts and,
conversely, research services furnished to the Manager (or, if applicable,
the Series' sub-investment adviser) by brokers in connection with other
funds or accounts may be used in advising a Series. Although it is not
possible to place a dollar value on these services, it is the opinion of
the Manager (and, if applicable, the Series' sub-investment adviser) that
the receipt and study of such services should not reduce the overall
research department expenses.
Money Market, Quality Bond and Zero Coupon 2000 Portfolios. Purchases
and sales of portfolio securities usually are principal transactions.
Portfolio securities ordinarily are purchased directly from the issuer or
from an underwriter or market maker. Usually no brokerage commissions are
paid by the Series for such purchases and sales. The prices paid to
underwriters of newly-issued securities usually include a concession paid
by the issuer to the underwriter, and purchases of securities from market
makers may include the spread between the bid and asked price. No
brokerage commissions were paid for the fiscal years ended December 31,
1993, 1994 and 1995. There were no concessions on principal transactions
for the fiscal years ended December 31, 1993, 1994 and 1995, except that
concessions on principal transactions for the Quality Bond Portfolio, where
determinable, amounted to $1,250 for the fiscal year ended December 31,
1993, none of which was paid to the Distributor. The high portfolio
turnover rate for the Quality Bond Portfolio in fiscal 1995 is largely
attributable to the significant increase in its assets during the period.
Capital Appreciation, Disciplined Stock, Growth and Income,
International Equity, International Value, Managed Assets, Small Company
Stock and Small Cap Portfolios. Brokers also will be selected because of
their ability to handle special executions such as are involved in large
block trades or broad distributions, provided the primary consideration is
met. Large block trades may, in certain cases, result from two or more
funds in the Dreyfus Family of Funds being engaged simultaneously in the
purchase or sale of the same security. Certain of the Series' transactions
in securities of foreign issuers may not benefit from the negotiated
commission rates available for transactions in securities of domestic
issuers. Higher portfolio turnover rates are likely to result in
comparatively greater brokerage expenses. The overall reasonableness of
brokerage commissions paid is evaluated based upon knowledge of available
information as to the general level of commissions paid by other
institutional investors for comparable services.
In connection with its portfolio securities transactions for the
fiscal years ended December 31, 1993, 1994 and 1995, the Managed Assets
Portfolio paid brokerage commissions of $5,937,$38,724 and $45,926,
respectively, none of which was paid to the Distributor. The above figures
for the Managed Assets Portfolio do not include concessions on principal
transactions which, where determinable, amounted to $37,885, $21,115 and
$3,165 for the fiscal years ended December 31, 1993, 1994 and 1995,
respectively, none of which was paid to the Distributor.
In connection with its portfolio securities transactions for the
fiscal years ended December 31, 1993, 1994 and 1995, the Small Cap
Portfolio paid brokerage commissions of $6,138, $409,523 and $1,240,756,
respectively, none of which was paid to the Distributor. The above figures
for the Small Cap Portfolio do not include concessions on principal
transactions, which, where determinable, amounted to $311,099, $402,933 and
$3,918,624 for the fiscal years ended December 31, 1993, 1994, and 1995,
respectively, none of which was paid to the Distributor.
In connection with its portfolio securities transactions for the
period April 5, 1993 (commencement of operations) through December 31, 1993
and for the fiscal years ended December 31, 1994 and 1995, the Capital
Appreciation Portfolio paid brokerage commissions of $3,731, $8,911 and
$26,346, respectively, none of which was paid to the Distributor. The
above figures for the Capital Appreciation Portfolio do not include
concessions on principal transactions which, where determinable, amounted
to $5,720 for the fiscal year ended December 31, 1995. There were no
concessions on principal transactions for the period April 5, 1993
(commencement of operations) through December 31, 1993 and for the fiscal
year ended December 31, 1994.
In connection with portfolio securities transactions for the period
May 2, 1994 (commencement of operations) through December 31, 1994 and for
the fiscal year ended December 31, 1995, the Growth and Income Portfolio
paid brokerage commissions of $6,175 and $277,680, respectively, none of
which was paid to the Distributor. The increase in brokerage commissions
paid by the Growth and Income Portfolio for fiscal 1995 is largely
attributable to the significant increase in its assets in fiscal 1995. The
above figures for the Growth and Income Portfolio do not include
concessions on principal transactions which, where determinable, amounted
to $1,006,258 for the fiscal year ended December 31, 1995, none of which
was paid to the Distributor. There were no concessions on principal
transactions for period May 2, 1994 (commencement of operations) through
December 31, 1994.
In connection with portfolio transactions for the period May 2, 1994
(commencement of operations) through December 31, 1994 and for the fiscal
year ended December 31, 1995, the International Equity Portfolio paid
brokerage commissions of $5,171 and $41,932, respectively. There were no
concessions on principal transactions for these periods.
YIELD AND PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Performance
Information."
The performance figures shown below do not reflect the separate
charges applicable to the variable annuity contracts and variable life
policies offered by Participating Insurance Companies.
No performance information is available for the Disciplined Stock,
Small Company Stock or International Value Portfolios which had not
commenced operations.
Money Market Portfolio. For the seven-day period ended December 31,
1995, the Money Market Portfolio's yield was 5.23% and effective yield was
5.37%. Yield is computed in accordance with a standardized method which
involves determining the net change in the value of a hypothetical
pre-existing Money Market Portfolio account having a balance of one share
at the beginning of a seven calendar day period for which yield is to be
quoted, dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and annualizing
the results (i.e., multiplying the base period return by 365/7). The net
change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such
additional shares and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Series' average account
size, but does not include realized gains and losses or unrealized
appreciation and depreciation. Effective annualized yield is computed by
adding 1 to the base period return (calculated as described above), raising
that sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type
and quality of the instruments in the portfolio, portfolio maturity and
operating expenses. An investor's principal in the Fund is not guaranteed.
See "Determination of Net Asset Value" for a discussion of the manner in
which the Series' price per share is determined.
Zero Coupon 2000 and Quality Bond Portfolios. The Zero Coupon 2000
and Quality Bond Portfolios' current yield for the 30-day period ended
December 31, 1995 was 4.89% and 5.17%, respectively. Current yield is
computed pursuant to a formula which operates as follows: The amount of
the relevant Series' expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned (computed in accordance with regulatory requirements) by such Series
during the period. That result is then divided by the product of: (a) the
average daily number of such Series' shares outstanding during the period
that were entitled to receive dividends, and (b) the net asset value per
share on the last day of the period less any undistributed earned income
per share reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is raised to the
6th power, after which 1 is subtracted. The current yield is then arrived
at by multiplying the result by 2.
The Zero Coupon 2000 Portfolio's average annual total return for the 1
and 5.334 year periods ended December 31, 1995 was 17.94% and 11.89%,
respectively. The Quality Bond Portfolio's average annual total return for
the 1 and 5.334 year periods ended December 31, 1995 was 20.42% and 10.88%,
respectively. Average annual total return is calculated by determining the
ending redeemable value of an investment purchased with a hypothetical
$1,000 payment made at the beginning of the period (assuming the
reinvestment of dividends and distributions), dividing by the amount of the
initial investment, taking the "n"th root of the quotient (where "n" is the
number of years in the period) and subtracting 1 from the result.
The Zero Coupon 2000 and Quality Bond Portfolios' total return for the
period August 31, 1990 (commencement of operations) to December 31, 1995
was 82.23% and 73.58%, respectively. Total return is calculated by
subtracting the amount of the relevant Series' net asset value per share at
the beginning of a stated period from the net asset value per share at the
end of the period (after giving effect to the reinvestment of dividends and
distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.
Managed Assets, Capital Appreciation, Growth and Income, Small Cap and
International Equity Portfolios. The Managed Assets Portfolio's average
annual total return for the 1 and 5.334 year periods ended December 31,
1995 was -.26% and 7.05%, respectively. The Capital Appreciation
Portfolio's average annual total return for the 1 and 2.742 year periods
ended December 31, 1995 was 33.52% and 15.05%, respectively. The Growth
and Income Portfolio's average annual total return for the 1 and 1.668 year
periods ended December 31, 1995 was 61.89% and 32.46%, respectively. The
Small Cap Portfolio's average annual total return for the 1 and 5.334 year
periods ended December 31, 1995 was 29.38% and 55.76%, respectively. The
International Equity Portfolio's average annual total return for the 1 and
1.668 year periods ended December 31, 1995 was 7.39% and 3.11%,
respectively. Average annual total return is calculated as described
above.
The Managed Assets and Small Cap Portfolios' total return for the
period August 31, 1990 (commencement of operations) to December 31, 1995
was 43.86% and 965.81%, respectively. The Capital Appreciation Portfolio's
total return for the period April 5, 1993 (commencement of operations)
through December 31, 1995 was 46.85%. The Growth and Income Portfolio's
total return from May 2, 1994 (commencement of operations) through December
31, 1995 was 59.92%. The International Equity Portfolio's total return
from May 2, 1994 (commencement of operations) through December 31, 1995 was
5.25%. Total return is calculated as described above.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic or financial conditions, developments
and/or events. From time to time advertising materials for the Fund also
may refer to Morningstar ratings and related analyses supporting the
rating. From time to time, advertising materials from the Fund may refer
to, or include, commentary by the Fund's portfolio managers relating to
their investment strategy, asset growth of the Series, current or past
business, political, economic or financial conditions and other matters of
general interest to shareholders.
From time to time, the Fund may advertise that Thomas A. Frank was
awarded "1994 Variable Fund Manager of the Year" by Morningstar, Inc. for
managing the Fund's Small Cap Portfolio.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Series share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Shares have no preemptive, subscription or conversion
rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of any
investment company, such as the Fund, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical or that the matter does not affect any interest of such series.
However, the Rule exempts the selection of independent accountants and the
election of Board members from the separate voting requirements of the
rule.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN,
COUNSEL AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the
Fund, the Transfer Agent arranges for the maintenance of shareholder
account records for the Fund, the handling of certain communications
between shareholders and the Fund and the payment of dividends and
distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month, and is reimbursed for
certain out-of-pocket expenses. The Bank of New York, 90 Washington
Street, New York, New York 10286, acts as custodian of the Fund's
investments. Neither the Transfer Agent nor The Bank of New York has any
part in determining the investment policies of the Fund or which securities
are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX
Description of certain ratings:
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned to a debt obligation.
Capacity to pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade bonds. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, they
are not likely to have the capacity to pay interest and repay principal.
CC
The rating CC is typically applied to bonds subordinated to senior
debt which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to bonds subordinated to senior debt
which is assigned an actual or implied CCC- rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major
ratings categories, except in the AAA (Prime Grade) category.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Issues assigned an A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
This designation indicates the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign
(+) designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in the categories below B. The modifier 1 indicates a rating for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such
bonds may be in default or have considerable uncertainty as to timely
payment of interest, preferred dividends and/or principal. Protection
factors are narrow and risk can be substantial with unfavorable economic or
industry conditions and/or with unfavorable company developments.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating
category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by
ample asset protection. Risk factors are minor.
FINANCIAL STATEMENTS and REPORTS OF INDEPENDENT AUDITORS:
Money Market Portfolio, Capital Appreciation Portfolio, Growth and Income
Portfolio, Managed Assets Portfolio, Small Cap Portfolio, International
Equity Portfolio, Quality Bond Portfolio and Zero Coupon 2000 Portfolio
The financial statements and reports of independent auditors with
respect to the above-referenced Series are incorporated by reference to each
Series' annual report dated December 31, 1995. When requesting a copy of the
Fund's Statement of Additional Information, please specify the particular
Series' annual report you wish to receive.
