- ------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
- ------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. Fund shares are
offered only to variable annuity and variable life insurance separate
accounts established by insurance companies ("Participating Insurance
Companies") to fund variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND.
THE FUND PERMITS INVESTORS TO INVEST IN THIRTEEN 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OTHER THAN MONEY MARKET FUNDS
WILL FLUCTUATE FROM TIME TO TIME.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE PAGE
<S> <C> <S> <C>
CONDENSED FINANCIAL INFORMATION........ 4 HOW TO REDEEM SHARES................... 31
PERFORMANCE INFORMATION................ 10 DIVIDENDS, DISTRIBUTIONS AND TAXES..... 31
DESCRIPTION OF THE FUND................ 11 GENERAL INFORMATION.................... 32
MANAGEMENT OF THE FUND................. 26 APPENDIX............................... 34
HOW TO BUY SHARES...................... 30
</TABLE>
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
(CONTINUED FROM COVER PAGE)
The MONEY MARKET PORTFOLIO'S investment objective 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 investment objective is
to provide long-term capital growth consistent with the preservation of
capital; current income is a secondary investment objective. This Series
invests primarily in the common stocks of domestic and foreign issuers.
The GROWTH AND INCOME PORTFOLIO'S investment objective 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 investment objective is to maximize
total return, consisting of capital appreciation and current income. This
Series is managed as a "contrary value" portfolio and its investments include
equity securities, debt securities and money market instruments of domestic
and foreign issuers.
The SMALL CAP PORTFOLIO'S investment objective 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 investment objective 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 investment objective 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 investment objective 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
Dreyfus Corporation.
The INTERNATIONAL EQUITY PORTFOLIO'S investment objective 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 investment objective 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 U.S. major banking institutions.
The ZERO COUPON 2000 PORTFOLIO'S investment objective 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
(CONTINUED FROM PREVIOUS PAGE)
The BALANCED PORTFOLIO'S investment objective is to provide
investment results that are greater than the total return performance of
common stocks and bonds in the aggregate, as represented by a hybrid index,
60% of which is composed of the common stocks in the Standard & Poor's 500
Composite Stock Price Index and 40% of which is composed of the bonds in the
Lehman Brothers Intermediate Government/Corporate Bond Index. This Series
invests primarily in common stocks and bonds in proportion consistent with
their expected returns and risks as determined by The Dreyfus Corporation.
The LIMITED TERM HIGH INCOME PORTFOLIO'S investment objective is to
maximize total return, consisting of capital appreciation and current income.
This Series seeks to achieve its objective by investing up to all of its
assets in a portfolio of lower rated fixed-income securities, commonly known
as "junk bonds," that, under normal market conditions, has an effective
duration of three and one-half years or less and an effective average
portfolio maturity of four years or less. INVESTMENTS OF THIS TYPE ARE
SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THE SERIES.
Page 3
CONDENSED FINANCIAL INFORMATION
The information in the following tables has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany the Statement of
Additional Information, available upon request. No financial information is
provided for the Balanced Portfolio and Limited Term High Income Portfolio
which had not commenced operations as of the date of the financial
information.
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>
<CAPTION>
MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .024 .058 .041 .032 .043 .055 .050
DISTRIBUTIONS:
Dividends from investment income-net. (.024) (.058) (.041) (.032) (.043) (.055) (.050)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $ 1.00 $ 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% 5.10%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .03%(2) -- -- -- -- .62% .62%
Ratio of net investment income to
average net assets................... 7.18%(2) 5.78% 4.10% 3.23% 4.62% 5.51% 4.96%
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 period (000's omitted) $741 $1,619 $790 $ 7,651 $34,728 $45,249 $56,186
(1).From August 31, 1990 (commencement of operations) to December 31, 1990.
(2).Annualized.
</TABLE>
Page 4
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PER SHARE DATA: 1993(1) 1994 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...................... $12.50 $13.27 $13.44 $17.71
------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net..................................... .08 .23 .23 .23
Net realized and unrealized gain
on investments............................................ .76 .17 4.27 4.30
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS.......................... .84 .40 4.50 4.53
------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net...................... (.07) (.23) (.23) (.23)
Dividends from net realized gain on investments........... _ _ _ (.03)
------ ------ ------ ------
TOTAL DISTRIBUTIONS....................................... (.07) (.23) (.23) (.26)
------ ------ ------ ------
Net asset value, end of period............................ $13.27 $13.44 $17.71 $21.98
====== ====== ====== ======
TOTAL INVESTMENT RETURN..................................... 6.74%(2) 3.04% 33.52% 25.56%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................... .28%(2) .25% .85% .84%
Ratio of net investment income to
average net assets........................................ 1.89%(2) 2.99% 2.08% 1.46%
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% 2.47%
Average commission rate paid(3)........................... _ _ _ $.0705
Net assets, end of period (000's omitted)................. $3,770 $16,118 $46,930 $103,745
(1).From April 5, 1993 (commencement of operations) to December 31, 1993.
(2).Not annualized.
(3).For fiscal years beginning January 1, 1996, the Series is required to disclose its average commission rate paid per share
for purchases and sales of investment securities.
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
----------------------------------
DECEMBER 31,
----------------------------------
PER SHARE DATA: 1994(1) 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of period............................... $12.50 $11.98 $18.33
------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net.............................................. .28 .28 .36
Net realized and unrealized gain (loss)
on investments..................................................... (.43) 7.07 3.43
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................... (.15) 7.35 3.79
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net............................... (.28) (.27) (.35)
Dividends from net realized gain on investments.................... (.09) (.73) (2.22)
------ ------ ------
TOTAL DISTRIBUTIONS................................................ (.37) (1.00) (2.57)
------ ------ ------
Net asset value, end of period..................................... $11.98 $18.33 $19.55
====== ====== ======
TOTAL INVESTMENT RETURN.............................................. (1.22%)(2) 61.89% 20.75%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................ .22%(2) .92% .83%
Ratio of net investment income to
average net assets................................................. 2.25%(2) 2.21% 1.96%
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% 237.44%
Average commission rate paid(3).................................... _ _ $.1904
Net assets, end of period (000's omitted).......................... $1,040 $71,161 $225,935
(1).From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
(3).For fiscal years beginning January 1, 1996, the Series is required to disclose its average commission rate paid per share
for purchases and sales of investment securities.
</TABLE>
Page 5
<TABLE>
<CAPTION>
MANAGED ASSETS PORTFOLIO
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $10.00 $10.11 $10.76 $10.14 $12.92 $12.37 $11.70
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .08 .41 .22 .20 .35 .51 .63
Net realized and unrealized gain
(loss) on investments................ .11 .66 (.11) 2.71 (.56) (.54) (1.05)
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..... .19 1.07 .11 2.91 (.21) (.03) (.42)
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net. (.08) (.42) (.31) (.13) (.32) (.64) (.56)
Dividends in excess of investment income-net -- -- -- -- (.02) -- (.06)
Dividends from net realized gain on investments -- -- (.42) -- -- -- --
Paid-in capital...................... -- -- -- -- -- -- (.06)
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................. (.08) (.42) (.73) (.13) (.34) (.64) (.68)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $10.11 $10.76 $10.14 $12.92 $12.37 $11.70 $10.60
====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................ 1.85%(2) 10.60% 1.07% 28.59% (1.56%) (.26%) (3.62%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .34%(2) 1.00% .97% .27% .25% .94% .93%
Ratio of net investment income to
average net assets 2.11%(2) 4.46% 1.88% 1.87% 3.54% 3.56% 4.12%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation
and Comstock Partners, Inc. ........ 8.82%(2) 2.83% 1.70% 2.25% .88% -- --
Portfolio Turnover Rate.............. -- 91.97% 118.78% 99.08% 25.96% 53.88% 124.19%
Average commission rate paid(3)...... -- -- -- -- -- -- $.0250
Net assets, end of period (000's omitted) $ 716 $2,179 $1,865 $7,957 $30,510 $25,272 $21,101
(1).From August 31, 1990 (commencement of operations) to December 31, 1990.
(2).Not annualized.
(3).For fiscal years beginning January 1, 1996, the Series is required to disclose its average commission rate paid per share
for purchases and sales of investment securities.
SMALL CAP PORTFOLIO
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
Net asset value, beginning of period. $10.00 $10.21 $20.60 $22.71 $34.45 $36.52 $46.13
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .21(2) .14(2) .18(2) .14 .17 .16 .10
Net realized and unrealized gain on investments -- 15.85(2) 13.10(2) 14.93 2.50 10.54 7.53
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..... .21(2) 15.99(2) 13.28(2) 15.07 2.67 10.70 7.63
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net. -- (.15) (.15) (.14) (.16) (.18) (.10)
Dividends in excess of investment income-net -- -- -- (.01) -- -- --
Dividends from net realized gain on investments -- (5.45) (11.02) (3.18) (.33) (.91) (1.51)
Dividends in excess of net realized gain
on investments....................... -- -- -- -- (.11) -- (.07)
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................. -- (5.60) (11.17) (3.33) (.60) (1.09) (1.68)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $10.21 $ 20.60 $22.71 $34.45 $36.52 $46.13 $52.08
====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................ 2.10%(3) 159.73% 71.28% 68.31% 7.75% 29.38% 16.60%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .34%(3) 1.16% .94% .25% .55% .83% .79%
Ratio of net investment income to
average net assets 2.10%(3) .77% .76% .89% 1.18% .54% .24%
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% 89.10%
Average commission rate paid(4)...... -- -- -- -- -- -- $.0571
Net assets, end of period (000's omitted) $36 $1,554 $2,679 $18,337 $173,215 $543,281 $960,365
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2).Based on average shares outstanding.
(3).Not annualized.
(4).For fiscal years beginning January 1, 1996, the Series is required to disclose its average commission rate paid per share
for purchases and sales of investment securities.
</TABLE>
Page 6
<TABLE>
<CAPTION>
SMALL COMPANY STOCK PORTFOLIO
--------------------------------------------------
FROM APRIL 30, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $12.50
-------
INVESTMENT OPERATIONS:
Investment income-net................................ .05
Net realized and unrealized gain
on investments....................................... 1.03
-------
TOTAL FROM INVESTMENT OPERATIONS..................... 1.08
-------
DISTRIBUTIONS:
Dividends from investment income-net................. (.05)
Dividends from net realized gain investments......... (.01)
-------
TOTAL DISTRIBUTIONS.................................. .06
-------
Net asset value, end of period....................... $13.52
-------
-------
TOTAL INVESTMENT RETURN................................ 8.73%(1,2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.............. .75%(1)
Ratio of net investment income to
average net assets................................... .39%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation............... .19%(1)
Portfolio Turnover Rate.............................. 35.68%(1)
Average commission rate paid(3)...................... $.0412
Net assets, end of period (000's omitted)............ $8,148
(1).Not annualized.
(2).Calculated based on net asset value on the close of business on May 1, 1996
(commencement of initial offering) to December 31, 1996.
(3).The Series is required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
DISCIPLINED STOCK PORTFOLIO
--------------------------------------------------
FROM APRIL 30, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period................. $12.50
-------
INVESTMENT OPERATIONS:
Investment income-net................................ .07
Net realized and unrealized gain
on investments....................................... 2.29
-------
TOTAL FROM INVESTMENT OPERATIONS..................... 2.36
-------
DISTRIBUTIONS:
Dividends from investment income-net................. (.07)
-------
Net asset value, end of period....................... $14.79
-------
-------
TOTAL INVESTMENT RETURN................................ 18.86%(1,2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.............. .80%(1)
Ratio of net investment income to
average net assets................................... .72%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation............... .16%(1)
Portfolio Turnover Rate.............................. 30.62%(1)
Average commission rate paid(3)...................... $.0450
Net assets, end of period (000's omitted)............ $17,722
(1) Not annualized.
(2).Calculated based on net asset value on the close of business on May 1, 1996
(commencement of initial offering) to December 31, 1996.
(3).The Series is required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
Page 7
INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------
FROM APRIL 30, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period................. $12.50
-------
INVESTMENT OPERATIONS:
Investment income-net................................ .08
Net realized and unrealized gain
on investments....................................... .34
-------
TOTAL FROM INVESTMENT OPERATIONS..................... .42
-------
DISTRIBUTIONS:
Dividends from investment income-net................. (.08)
Dividends from net realized gain on investments...... (.04)
-------
TOTAL DISTRIBUTIONS.................................. (.12)
-------
Net asset value, end of period....................... $12.80
-------
-------
TOTAL INVESTMENT RETURN................................ 3.41%(1,2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.............. 1.01%(1)
Ratio of net investment income to
average net assets................................... .76%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation............... .34%(1)
Portfolio Turnover Rate.............................. 24.48%(1)
Average commission rate paid(3)...................... $.0351
Net assets, end of period (000's omitted)............ $8,027
(1) Not annualized.
(2).Calculated based on net asset value on the close of business on May 1, 1996
(commencement of initial offering) to December 31, 1996.
(3).The Series is required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
----------------------------------
DECEMBER 31,
----------------------------------
1994(1) 1995 1996
------ ------ ------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................... $12.50 $12.02 $12.82
------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net.............................................. .15 .15 .10
Net realized and unrealized gain (loss)
on investments..................................................... (.40) .74 1.16
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................... (.25) .89 1.26
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net............................... (.14) (.08) (.09)
Dividends in excess of investment income-net....................... (.09) (.01) _
Dividends from net realized gain on investments.................... _ _ (.39)
Dividends in excess of net realized gain on investments............ _ _ (.06)
------ ------ ------
TOTAL DISTRIBUTIONS................................................ (.23) (.09) (.54)
------ ------ ------
CAPITAL CONTRIBUTION FROM AN AFFILIATE OF THE DREYFUS CORPORATION.. _ _ .22
------ ------ ------
Net asset value, end of period..................................... $12.02 $12.82 $13.76
====== ====== ======
TOTAL INVESTMENT RETURN.............................................. (2.00%)(2) 7.39% 11.61%(3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................ .23%(2) 1.59% 1.28%
Ratio of net investment income to
average net assets................................................. 1.11%(2) 1.13% .92%
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% 181.13%
Average commission rate paid (4)................................... _ _ $.0255
Net assets, end of period (000's omitted).......................... $1,089 $7,672 $24,355
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
(3) Had the Series not had a capital contribution by an affiliate of The Dreyfus Corporation during the period, the total
investment return would have been 9.89%.
(4) For fiscal years beginning January 1, 1996, the Series is required to disclose its average commission rate paid per share
for purchases and sales of investment securities.
</TABLE>
Page 8
<TABLE>
<CAPTION>
QUALITY BOND PORTFOLIO
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $10.00 $10.01 $10.67 $10.94 $1.81 $10.53 $11.81
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .23 .70 .92 .76 .73 .68 .66
Net realized and unrealized gain
(loss) on investments .01 .66 .30 .88 (1.27) 1.42 (.31)
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..... .24 1.36 1.22 1.64 (.54) 2.10 .35
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net. (.23) (.70) (.92) (.76) (.73) (.69) (.66)
Dividends from net realized
gain on investments.................. -- -- (.03) (.01) (.01) (.13) --
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................. (.23) (.70) (.95) (.77) (.74) (.82) (.66)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $10.01 $10.67 $10.94 $11.81 $10.53 $11.81 $11.50
====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................ 7.12%(2) 14.12% 12.09% 15.33% (4.59%) 20.42% 3.13%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .15%(2) -- -- -- -- .81% .79%
Ratio of net investment income
to average net assets................ 7.20%(2) 7.52% 8.54% 6.51% 7.03% 6.13% 5.86%
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% 258.36%
Net assets, end of period (000's omitted) $59 $410 $405 $4,706 $13,244 $37,447 $60,936
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
ZERO COUPON 2000 PORTFOLIO
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
Net asset value, beginning of period. $10.00 $10.45 $11.64 $11.77 $12.57 $11.39 $12.70
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .22 .76 .83 .79 .69 .69 .68
Net realized and unrealized gain
(loss) on investments .45 1.25 .15 .96 (1.18) 1.31 (.36)
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..... .67 2.01 .98 1.75 (.49) 2.00 .32
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net. (.22) (.76) (.84) (.78) (.68) (.69) (.68)
Dividends from net realized
gain on investments.................. -- (.06) (.01) (.17) (.01) -- (.05)
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................. (.22) (.82) (.85) (.95) (.69) (.69) (.73)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $10.45 $11.64 $11.77 $12.57 $11.39 $12.70 $12.29
====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................ 20.09%(2) 20.09% 8.87% 15.19% (3.91%) 17.95% 2.59%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .70%(2) .72% .64% -- -- .68% .66%
Ratio of net investment income to
average net assets................... 8.03%(2) 7.41% 7.15% 6.21% 6.04% 5.73% 5.54%
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% 98.28%
Net assets, end of period (000's omitted) $155 $1,296 $1,362 $5,696 $10,913 $22,291.. $31,796
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
Further information about the performance of each Series (other than
the Balanced and Limited Term High Income Portfolios which had not commenced
operations as of December 31, 1996) is contained in such Series' annual report
which may be obtained without charge by writing to the address or calling the
number set forth on the cover page of this Prospectus.
Page 9
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.
BALANCED, 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 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.
LIMITED TERM HIGH INCOME, 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."
Page 10
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 the
Consumer Price Index, Lipper Analytical Services, Inc., IBC's Money Fund
Reporttrademark, 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, Moody's Bond
Survey Bond Index, Lehman Brothers Intermediate Government/Corporate Bond
Index, 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 invests, 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."
Page 11
MONEY MARKET PORTFOLIO -- The Money Market Portfolio 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 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, asset-backed securities, 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, which Rule includes various maturity, quality and
diversification requirements, certain of which are summarized below. In
accordance with Rule 2a-7, the Series is required to 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 ("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 investment objective of which is to
provide long-term capital growth consistent with the preservation of capital;
current income is a secondary investment objective. 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 earn-
Page 12
ings, 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 various investment techniques,
such as lending portfolio securities and foreign currency transactions. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
GROWTH AND INCOME PORTFOLIO -- The Growth and Income Portfolio 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 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 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. For a discussion
of the investment techniques and their related risks, see "Investment
Considerations and
Page 13
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 investment objective of which is to maximize total
return, consisting of capital appreciation and current income. The Series is
managed as a "contrary value" portfolio and its investments will include (i)
securities which are out-of-favor and whose price to earnings ratios are
lower than the rest of the market or industry, (ii) securities which are
temporarily depressed but for which a turnaround is expected and (iii)
special situations, such as corporate restructurings, gold stocks and high
yield bonds. In connection therewith, 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 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
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 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 cer-
Page 14
tain 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 leveraging, foreign currency transactions, options and futures
transactions, lending portfolio securities and short-selling. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
SMALL CAP PORTFOLIO -- The Small Cap Portfolio is a diversified
portfolio, the investment objective 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 $1.5 billion 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. For a discussion of the investment techniques
and their related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
SMALL COMPANY STOCK PORTFOLIO -- The Small Company Stock Portfolio is
a diversified portfolio, the investment objective 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 $3 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
to offer above-average growth potential. The Series also may invest in
initial public offerings of stock when The Dreyfus Corporation determines
that such offerings provide above-average short-term appreciation
opportunities. The equity securities in which the Series invests consist of
common stocks, preferred
- -----------------------
* Russell 2500trademark is a trademark of Frank Russell Company. The Series
is not sponsored, endorsed, sold or promoted by Frank Russell Company.
Page 15
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 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 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. For a discussion of the investment techniques
and their related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
DISCIPLINED STOCK PORTFOLIO -- The Disciplined Stock Portfolio is a
diversified portfolio, the investment objective 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 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 then uses 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 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 an effort to increase returns, the Series may engage in various
investment techniques, such as options and futures transactions. For a
discussion of the investment techniques and their related risks, see
- ---------------------
**"S&PRegistration Mark," "S&P 500Registration 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 16
"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 investment objective 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. 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.
The Series' investment approach is value-oriented, research-driven
and risk adverse. To manage the Series, The Dreyfus Corporation classifies
issuers as "growth" or "value" companies. In general, The Dreyfus Corporation
believes 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. In addition, The Dreyfus Corporation intends to consider broader
measures of value, including operating return characteristics, overall
financial health and positive changes in business momentum. This
value-oriented, bottom-up investment style is both quantitative and
fundamentally based, focusing first on stock selection then enhanced by
country allocation guidelines.
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 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. For a discussion of the investment techniques
and their related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INTERNATIONAL EQUITY PORTFOLIO -- The International Equity Portfolio
is a non-diversified portfolio, the investment objective 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
Page 17
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. For a discussion of the investment techniques
and their related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
QUALITY BOND PORTFOLIO -- The Quality Bond Portfolio 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 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 various investment techniques,
such as lending portfolio securities. For a discussion of the investment
techniques and their related risks, see "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 investment objective 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
Page 18
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.
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 in various investment techniques,
such as options and futures transactions and lending portfolio securities.
For a discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
Page 19
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
LIMITED TERM HIGH INCOME PORTFOLIO--The Limited Term High Income
Portfolio is a diversified portfolio, the investment objective of which is to
maximize total return, consisting of capital appreciation and current income.
Under normal market conditions, the Series will invest at least 65% of the
value of its net assets in bonds, debentures, notes and other debt
instruments rated below investment grade, or, if unrated, determined by The
Dreyfus Corporation to be of comparable quality. The securities in which the
Series invests also include mortgage-related securities, asset-backed
securities, zero coupon securities, municipal obligations, preferred stock,
convertible debt obligations and convertible preferred stock. The issuers of
such securities may include domestic and foreign corporations, partnerships,
trusts or similar entities, and governmental entities or their political
subdivisions, agencies or instrumentalities. The Series may invest in
companies in, or governments of, developing countries.
Under normal market conditions, the Series will invest in a portfolio
of securities that has an effective duration of three and one-half years or
less. As a measure of a fixed-income security's cash flow, duration is an
alternative to the concept of "term to maturity" in assessing the price
volatility associated with changes in interest rates. Generally, the longer
the duration, the more volatility an investor should expect. For example, the
market price of a bond with a duration of two years would be expected to
decline 2% if interest rates rose 1%. Conversely, the market price of the
same bond would be expected to increase 2% if interest rates fell 1%. The
market price of a bond with a duration of four years would be expected to
increase or decline twice as much as the market price of a bond with a
two-year duration. Duration is a way of measuring a security's maturity in
terms of the average time required to receive the present value of all
interest and principal payments as opposed to its term to maturity. The
maturity of a security measures only the time until final payment is due; it
does not take account of the pattern of a security's cash flows over time,
which would include how cash flow is affected by prepayments and by changes
in interest rates. Incorporating a security's yield, coupon interest
payments, final maturity and option features into one measure, duration is
computed by determining the weighted average maturity of a bond's cash flows,
where the present values of the cash flows serve as weights. In computing the
duration of the Series, The Dreyfus Corporation will estimate the duration of
obligations that are subject to features such as prepayment or redemption by
the issuer, put options retained by the investor or other imbedded options,
taking into account the influence of interest rates on prepayments and coupon
flows. This method of computing duration is known as option-adjusted
duration.
The Series' investment in high yield debt securities may cause the
Series' share price to be highly volatile at times. Securities rated below
investment grade carry a high degree of risk and are considered speculative
by the credit rating agencies. Bond prices are inversely related to interest
rate changes; however, bond price volatility also is inversely related to
coupon. Accordingly, below investment grade debt securities may be relatively
less sensitive to interest rate changes than higher quality debt securities
of comparable maturity, because of their higher coupon. This higher coupon is
what the investor receives in return for bearing greater credit risk. The
higher credit risks associated with below investment grade debt securities
potentially can have greater affect on the value of such securities than may
be the case with higher quality issues of comparable maturity. These
securities may be particularly susceptible to economic downturns. It is
likely that an 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.
See "Investment Considerations and Risks_Lower Rated Securities" and
"Appendix_Certain Portfolio Securities_Ratings" below for a discussion of
certain risks, and "Appendix" in the Statement of Additional Information. The
Series may hold investment grade rated debt securities (or unrated securities
of compa-
Page 20
rable quality) when the yield differential between below investment
grade and investment grade securities narrows and the risk of loss may be
reduced with only a relatively small reduction in yield. The Series also may
invest in investment grade rated debt securities when The Dreyfus Corporation
determines that a defensive investment position is appropriate in light of
market or economic conditions.
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,
swaps, lending portfolio securities and short-selling. For a discussion of
the investment techniques and their related risks, see "Investment
Considerations and Risks" and "Appendix_Investment Techniques" below and
"Investment Objectives and Management Policies _ Management Policies" in the
Statement of Additional Information.
BALANCED PORTFOLIO--The Balanced Portfolio is a diversified
portfolio, the investment objective of which is to provide investment results
that are greater than the total return performance of common stocks and bonds
in the aggregate, as represented by a hybrid index, 60% of which is composed
of the common stocks in the S&P 500 Index and 40% of which is composed of the
bonds in the Lehman Brothers Intermediate Government/Corporate Bond Index
(the "Intermediate Index"). The Series invests in common stocks and bonds in
proportions consistent with their expected returns and risks as determined by
The Dreyfus Corporation.
To outperform the hybrid index, The Dreyfus Corporation first employs
a disciplined valuation methodology to determine the return and risks of
common stocks and bonds. The Dreyfus Corporation considers various factors,
including an interest rate adjusted market price/earnings ratio, interest
rate spreads reflecting the term structure of interest rates, and the level
and volatility of the return premium for common stocks. The Dreyfus
Corporation then decides which asset class is relatively more attractive
based on a formal decision rule process which includes extensive research.
After developing the expected return and risks of each asset class,
The Dreyfus Corporation uses computer models designed to identify imbalances
in the pricing of common stocks and bonds. The Dreyfus Corporation then
invests the Series' assets in common stocks and bonds in proportions intended
to exploit the perceived imbalances. Under normal circumstances, the Series'
total assets will be allocated approximately 60% to common stocks and 40% to
bonds. However, the Series may invest up to 75%, and as little as 40%, of its
total assets in common stocks and up to 60%, and as little as 25%, of its
total assets in bonds, as deemed advisable by The Dreyfus Corporation.
Common stocks are selected so that, in the aggregate, the investment
characteristics and risk profile of the equity portion of the Series are
similar to the S&P 500. These characteristics include such measures as
dividend yield (before expenses), price-to-earnings ratio, "beta" (relative
volatility), return on equity, and market price-to-book value ratio. However,
while it may maintain aggregate investment characteristics similar to the S&P
500, the Series seeks to invest in individual common stocks which together
will provide a higher total return than the S&P 500. The Series will not be
operated as an index fund, and the Series' equity portion will not be limited
to stocks included in the S&P 500. Individual security selection is the
foundation upon which The Dreyfus Corporation seeks to implement the
investment objective and policies of the equity portion of the Series. The
Dreyfus Corporation collects information from diverse sources from which The
Dreyfus Corporation constructs and combines valuation models into a
computerized valuation ranking system identifying common stocks that are
undervalued and should be purchased or retained by the Series. These models
include measures of changes in earnings and relative value based on present
and historical price-to-earnings ratios, as well as dividend discount
calculations. Once the ranking of common stocks is com-
Page 21
plete, The Dreyfus Corporation's experienced investment analysts construct
the right component of the Series to resemble in the aggregate the S&P 500
Index, but weighted toward the most attractive stocks as determined by the
valuation models.
The bond portion of the Series' portfolio ordinarily is invested in
U.S. dollar-denominated fixed-income obligations of domestic and foreign
issuers. The Series' dollar-weighted average maturity may not exceed ten
years. Investment selections are based on fundamental economic, market, and
other factors leading to valuation by sector, maturity, and quality. The
Series invests in bonds rated investment grade by Moody's, S&P or Fitch, or
if unrated, determined to be of comparable quality by The Dreyfus Corporation.
The Series will, in a prudent and orderly fashion, sell bonds whose ratings
drop below these minimum ratings.
The S&P 500 is composed of 500 common stocks which are chosen by S&P
to best capture the price performance of a large cross-section of the U.S.
publicly traded stock market.
The Intermediate Index is an index established by Lehman Brothers,
Inc. which includes fixed rate debt issues rated investment grade or higher
by Moody's, S&P or Fitch. All issues have at least one year to maturity and
an outstanding par value of at least $100 million for U.S. Government issues
and $50 million for all others. The Intermediate Index includes bonds with
maturities of up to ten years.
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 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 also may engage in various investment techniques, such as
lending portfolio securities and options and futures transactions, and may
enter into reverse repurchase agreements. For a discussion of the investment
techniques and their related risks, see "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies" 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" in the Statement of
Additional Information for a further discussion of certain risks.
EQUITY SECURITIES -- (Balanced, 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.
Page 22
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 Limited Term High Income, 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 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 redemp-
Page 23
tions 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.
LOWER RATED SECURITIES --(Growth and Income, Limited Term High
Income, Managed Assets, Quality Bond and, to a limited extent, Small Cap
Portfolios) The Limited Term High Income Portfolio invests primarily, and
each other such 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 Limited Term High Income,
Managed Assets and Small Cap Portfolios (commonly known as junk bonds). They
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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.
FOREIGN CURRENCY TRANSACTIONS -- (Capital Appreciation, Growth and
Income, International Equity, International Value, Limited Term High Income,
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
Page 24
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 -- (Balanced, Disciplined Stock, Growth and
Income, International Value, International Equity, Limited Term High Income,
Managed Assets, Quality Bond, 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 (except in the
case of the Quality Bond Portfolio) and, in the case of the Growth and Income
and Quality Bond Portfolios, mortgage-related securities, and, in the case of
the Limited Term High Income Portfolio, mortgage-related securities,
asset-backed securities and swaps. 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,
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
value 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, Limited
Term High 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 Limited Term High Income, Managed Assets and Small Cap Portfolios,
to be less than 100% for the Balanced (for both common stock and bond
portions of its portfolio), Capital Appreciation, Disciplined Stock and Small
Company Stock Portfolios, to be less than 150% for the Zero Coupon 2000,
International Value and International Equity Portfolios and to be less than
300% for the Growth and Income and Quality Bond 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 (as is the case for the
Quality Bond and Zero Coupon 2000 Portfolios) usually does not pay brokerage
commissions when it purchases short-term debt obligations.
Page 25
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 no
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). If, however,
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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
Page 26
In allocating brokerage transactions, 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. Brokerage transactions for the Fund may
be conducted through Dreyfus Investment Services Corporation, an affiliate of
The Dreyfus Corporation, in accordance with procedures adopted by the Fund's
Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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:
BALANCED PORTFOLIO -- Ron Gala and Laurie Carroll. Mr. Gala has
managed the equity portion of the Series since the Series commenced
operations. Mr. Gala is a Senior Vice President and portfolio manager for
Mellon Bank, N.A. and a portfolio manager for Mellon Equity Associates, an
affiliate of The Dreyfus Corporation. Mr. Gala also is responsible for Mellon
Equity Associates' asset allocation. Mr. Gala has been employed by Mellon
Bank, N.A. in various capacities since 1982. Ms. Carroll has managed the
fixed-income portion of the Series since the Series commenced operations. Ms.
Carroll is a Senior Vice President and portfolio manager at Mellon Bank, N.A.
Ms. Carroll has been employed by Mellon Bank, N.A. since 1986. Mr. Gala and
Ms. Carroll have been employed by The Dreyfus Corporation as portfolio
managers since October 1994.
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.
LIMITED TERM HIGH INCOME PORTFOLIO -- Roger King. He has been the
Series' primary portfolio manager since the Series commenced operations and
has been employed by The Dreyfus Corporation since February 1996. Prior
thereto, Mr. King was a Vice President of High Yield Research and, most
recently, director of High Yield Research at Citibank Securities, Inc.
MANAGED ASSETS PORTFOLIO -- Timothy M. Ghriskey. He has been the
Series' primary portfolio manager since January 1, 1997. Mr. Ghriskey has
been employed by The Dreyfus Corporation since July 1995. For more than five
years prior thereto, he was Vice President and Associate Managing Partner of
Loomis, Sayles & Company.
SMALL CAP PORTFOLIO -- Hilary R. Woods and Paul Kandel. Ms. Woods and
Mr. Kandel have been the Series' primary portfolio managers since October
1996. Ms. Woods and Mr. Kandel have been employed by The Dreyfus Corporation
since 1987 and 1994, respectively. Prior to joining The Dreyfus Corporation,
Mr. Kandel was a Manager at Ark Asset Management for two years; prior
thereto, he was an Assistant Vice President at Bankers Trust Company for four
years.
SMALL COMPANY STOCK PORTFOLIO -- James Wadsworth. He has been the
Series' primary portfolio manager since the Series commenced operations. In
addition to being a portfolio manager with The Dreyfus Corporation, Mr.
Wadsworth also has been employed by Laurel Capital Advisors, an affiliate of
The Dreyfus Corporation, since October 1990, and has been Chief Investment
Officer of Laurel Capital Advisors since June 1994. 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 commenced operations, and has been
employed by The Dreyfus Corporation since
Page 27
October 1994. In addition to being a portfolio manager with The Dreyfus
Corporation, Mr. Mullins also has been employed by Laurel Capital Advisors,
an affiliate of The Dreyfus Corporation, since October 1990. Mr. Mullins also
is a Vice President, Portfolio Manager and Senior Security Analyst of Mellon,
where he has been employed since 1966.
INTERNATIONAL VALUE PORTFOLIO -- Sandor Cseh. He has been the Series'
primary portfolio manager since the Series commenced operations and has been
employed by The Dreyfus Corporation since May 1996 and by The Boston Company
Asset Management, Inc., an affiliate of The Dreyfus Corporation, or its
predecessor since October 1994. Prior to joining The Boston Company Asset
Management, Inc., 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 -- Investment decisions are made by the
Taxable Fixed-Income Committee of The Dreyfus Corporation, and no person is
primarily responsible for making recommendations to that committee.
ZERO COUPON 2000 PORTFOLIO -- Gerald E. Thunelius. He has been the
Series' primary portfolio manager since March 1997 and a portfolio manager of
the Series since June 1994. He has been employed by The Dreyfus Corporation
since September 1989.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate set
forth below as a percentage of the relevant Series' average daily net assets.
The effective annual rate of the monthly investment advisory fee the Fund
paid The Dreyfus Corporation pursuant to any undertaking in effect for the
fiscal year ended December 31, 1996 as a percentage of the relevant Series'
average daily net assets also is set forth below:
<TABLE>
<CAPTION>
ANNUAL RATE OF EFFECTIVE ANNUAL
INVESTMENT ADVISORY RATE OF INVESTMENT
NAME OF SERIES FEE PAYABLE ADVISORY FEE PAID
--------------- -------------------- -------------------
<S> <C> <C>
Money Market Portfolio .50% .50%
Growth and Income Portfolio .75% .75%
Managed Assets Portfolio .75% .375%*
Small Cap Portfolio .75% .75%
Small Company Stock Portfolio .75% .47%
Disciplined Stock Portfolio .75% .52%
International Value Portfolio 1.00% .50%
International Equity Portfolio .75% .75%
Quality Bond Portfolio .65% .65%
Zero Coupon 2000 Portfolio .45% .45%
Balanced Portfolio .75% **%
Limited Term High Income Portfolio .65% **%
Capital Appreciation Portfolio .55%
0 to $150 million of average daily net assets .55%
$150 million to $300 million of average daily net assets.50%
$300 million or more of average daily net assets .375%
*Prior to termination of the Sub-Investment Advisory Agreement with Comstock Partners, Inc. on December 31, 1996, as set
forth below, the Fund paid The Dreyfus Corporation and Comstock Partners, Inc. advisory fees each at the annual rate of
.375% of the Series' average daily net assets.
**The Series had not commenced operations as of December 31, 1996.
</TABLE>
Page 28
SUB-INVESTMENT ADVISERS -- 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 December 31,
1996, provided investment advisory services to discretionary accounts having
aggregate assets of approximately $32.3 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 a monthly fee at
the annual rate set forth below as a percentage of the Capital Appreciation
Portfolio's average daily net assets. The effective annual rate of the
monthly sub-investment advisory fee the Fund paid Sarofim for the fiscal year
ended December 31, 1996, as a percentage of the Capital Appreciation
Portfolio's average daily net assets also is set forth below:
<TABLE>
<CAPTION>
EFFECTIVE ANNUAL RATE OF
ANNUAL RATE OF SUB-INVESTMENT SUB-INVESTMENT
CAPITAL APPRECIATION PORTFOLIO ADVISORY FEE PAYABLE ADVISORY FEE PAID
---------------------------- --------------------------- ----------------------
<S> <C> <C>
0 to $150 million of average daily net assets .20% .20%
$150 million to $300 million of average daily net assets .25%
$300 million or more of average daily net assets .375%
</TABLE>
With respect to the Managed Assets Portfolio, from August 31, 1990
(commencement of operations) through December 31, 1996, Comstock Partners,
Inc. ("Comstock Partners"), a registered investment adviser located at
10 Exchange Place, Jersey City, New Jersey 07302, served as the Series'
sub-investment adviser. Comstock Partners, subject to the supervision
and approval of The Dreyfus Corporation, provided 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, 1996, 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. Effective
December 31, 1996, the Sub-Investment Advisory Agreement with Comstock
Partners was terminated.
With respect to the International Equity Portfolio, from May 2, 1994
(commencement of operations) through 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 period January 1, 1996 through
March 31, 1996, The Dreyfus Corporation paid M&G a monthly sub-investment
advisory fee at the effective annual rate of .30 of 1% of the value of the
International Equity Portfolio's average daily net assets. Effective April 1,
1996, the Sub-Investment Advisory Agreement between The Dreyfus Corporation
and M&G was terminated.
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
Page 29
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.
From time to time, The Dreyfus Corporation (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 expense ratio of that Series and increasing yield to
investors. The Fund will not pay The Dreyfus Corporation (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 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 60 State Street, 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, serves as the Fund's Custodian
with respect to the International Equity, International Value, Managed Assets
and Money Market Portfolios. Mellon Bank, N.A., One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with respect
to the Balanced, Capital Appreciation, Growth and Income, Limited Term High
Income, Quality Bond, Small Cap, Zero Coupon 2000, Small Company Stock and
Disciplined Stock Portfolios.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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
Page 30
each Series (i.e., the value of its assets less liabilities) by the total
number of such Series' shares outstanding. The Limited Term High Income, 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 Balanced, 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.
BALANCED, GROWTH AND INCOME AND LIMITED TERM HIGH INCOME PORTFOLIOS --
Declare and pay 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
Page 31
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.
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. By meeting these
and other requirements, the Participating Insurance Companies, rather than VA
contract holders or VLI holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
Management of the Fund believes that each Series (other than the
Balanced and Limited Term High Income Portfolios which had not commenced
operations as of December 31, 1996) has qualified for the fiscal year ended
December 31, 1996 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 Balanced and
Limited Term High Income 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
Page 32
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 thirteen 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.
Each report will show the investments owned by each Series and the market
values thereof as determined by the Fund's Board and will provide other
information about the Fund and its operations.
Page 33
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- (Capital Appreciation, Growth and Income,
Limited Term High 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, Limited Term High Income, Managed Assets
and, to a limited extent, 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, Limited Term High Income and Managed Assets
Portfolios also may make, and the and Small Cap Portfolio 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 33 1\3% of the value of its total assets. Each
Series, other than the Growth and Income, Managed Assets and Limited Term High
Income Portfolios, 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 Balanced, 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, Managed Assets, Limited Term High Income and,
to a limited extent, Balanced, 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 33 1\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. See "Forward
Commitments" below.
Page 34
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 and Limited
Term High Income Portfolios' borrowings generally will be unsecured.
USE OF DERIVATIVES -- (Balanced, Disciplined Stock, Growth and Income,
International Equity, International Value, Limited Term High Income, Managed
Assets, Quality Bond, Small Company Stock and Zero Coupon 2000 Portfolios)
The Series may invest in, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such Derivatives. The Series (other than the Quality Bond Portfolio) 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, exceeds 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 (other than the Quality Bond Portfolio) may invest up to
5% of its assets, represented by the premium paid, in the purchase of call
and put options, and 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
Page 35
interest on the amount of the loan and on the loaned securities' collateral.
Loans of portfolio securities may not exceed 33 1\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 or sell
securities on a forward commitment, when-issued or delayed delivery basis,
which means that delivery and payment take place a number of days after the
date of the commitment to purchase or sell the securities at a predetermined
price and/or yield. Typically, no interest accrues to the purchaser until the
security is delivered. When purchasing a security on a forward commitment
basis, the Series assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the
Series is not required to pay for these securities until the delivery date,
these risks are in addition to the risks associated with the Series' other
investments. If the Series is fully or almost fully invested when forward
commitment purchases are outstanding, such purchases may result in a form of
leverage. Each Series may engage in forward commitments to increase its
portfolio's financial exposure to the types of securities in which it
invests. Leveraging the portfolio in this manner will increase the Series'
exposure to changes in interest rates and will increase the volatility of its
returns. A segregated account of the Series consisting of permissible liquid
assets at least equal at all times to the amount of the Series' purchase
commitments will be established and maintained at the Fund's custodian bank.
At no time will a Series have more than 33 1\3% of its assets committed to
purchase securities on a forward commitment basis.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES -- (Balanced, Capital Appreciation, Disciplined Stock,
Growth and Income, International Equity, International Value, Limited Term
High Income, 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 -- (Balanced, 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 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 -- (Growth and Income, Limited Term High Income
and Quality Bond Portfolios) 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
Page 36
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.
The mortgage-related securities in which the Series may invest also
include multi-class pass through certificates secured principally by mortgage
loans on commercial properties. These mortgage-related securities are
structured similarly to mortgage-related securities secured by pools of
residential mortgages. Commercial lending, however, generally is viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves large
r loans to single borrowers or groups of related borrowers than residential
one- to four-family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
The Series also may invest in subordinated mortgage-related
securities ("Subordinated Securities"), which are issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some
manner as to the payment of principal and/or interest to the holders of more
senior mortgage-related securities arising out of the same pool of mortgages.
The holders of Subordinated Securities typically are compensated with a
higher stated yield than are the holders of more senior mortgage-related
securities. On the other hand, Subordinated Securities typically subject the
holder to greater risk than senior mortgage-related securities and tend to be
rated in a lower rating category, and frequently a substantially lower rating
category, than the senior mortgage-related securities issued in respect of
the same pool of mortgages. Subordinated Securities generally are likely to
be more sensitive to changes in prepayment and interest rates and the market
for such securities may be less liquid than is the case for traditional
fixed-income securities and senior mortgage-related securities.
As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the 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. During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity which generally would cause the value of such security to fluctuate
more widely in response to changes in interest rates. Were the prepayments on
the Series' mortgage-related securities to decrease broadly, the Series'
effective duration, and thus sensitivity to
Page 37
interest rate fluctuations, would increase. For further discussion concerning
the investment considerations involved, see "Description of the
Fund_Investment Considerations and Risks_Fixed-Income Securities" and
"Illiquid Securities" below.
ASSET-BACKED SECURITIES--(Limited Term High Income and, to a limited extent,
Money Market Portfolios) Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. These securities include debt
securities and securities with debt-like characteristics. The collateral for
these securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Series may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-related securities. Primarily, these securities may provide the
Series with a less effective security interest in the related collateral than
do mortgage-related securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
The asset-backed securities in which the Money Market Portfolio may
invest are securities issued by special purpose entities whose primary assets
consist of a pool of mortgages, loans, receivables or other assets. Payment
of principal and interest may depend largely on the cash flows generated by
the assets backing the securities and in certain cases, supported by letters
of credit, surety bonds or other forms of credit or liquidity enhancements.
The value of these asset-backed securities also may be affected by the
creditworthiness of the servicing agent for the pool of assets, the
originator of the loans or receivables or the financial institution providing
the credit support.
MUNICIPAL OBLIGATIONS -- (Growth and Income, Limited Term High 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 -- (Balanced, 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
Page 38
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
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.
Page 39
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 (and, if applicable, the Series' sub-investment
adviser) must have determined that the instrument is of comparable quality to
those instruments in which the Series may invest.
INVESTMENT COMPANIES -- (Balanced, 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.
U.S. TREASURY SECURITIES -- (Quality Bond and Zero Coupon Portfolios) U.S
Treasury securities include Treasury Inflation-Protection Securities
("TIPS"), which are newly created securities issued by the U.S. Treasury
designed to provide investors a long term investment vehicle that is not
vulnerable to inflation. The interest rate paid by TIPS is fixed, while the
principal value rises or falls semi-annually based on changes in a published
Consumer Price Index. Thus, if inflation occurs, the principal and interest
payments on the TIPS are adjusted accordingly to protect investors from
inflationary loss. During a deflationary period, the principal and interest
payments decrease, although the TIPS' principal will not drop below its face
amount at maturity.
In exchange for the inflation protection, TIPS generally pay lower
interest rates than typical Treasury securities. Only if inflation occurs
will TIPS offer a higher real yield than a conventional Treasury bond of the
same maturity. In addition, it is not possible to predict with assurance how
the market for TIPS will develop; initially, the secondary market for these
securities may not be as active or liquid as the secondary market for
conventional Treasury securities. Principal appreciation and interest
payments on TIPS will be taxed annually as ordinary interest income for
Federal income tax calculations. As a result, any appreciation in principal
must be counted as interest income in the year the increase occurs, even
though the investor will not receive such amounts until the TIPS are sold or
mature. Principal appreciation and interest payments will be exempt from
state and local income taxes.
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.
Page 40
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,
Limited Term High Income, 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 Limited
Term High Income, 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
days after notice, certain mortgage-backed securities, 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 -- (Balanced, Growth and Income, Limited Term High Income, Managed
Assets, Small Cap and Quality Bond Portfolios) Securities rated Baa by
Moody's are considered medium grade obligations; they are neither highly
protected nor poorly secured, and are considered by Moody's to have
speculative characteristics. Bonds rated BBB by S&P, Fitch and Duff are
investment grade and regarded as having adequate capacity to pay interest and
repay principal; however, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on these bonds and,
therefore, impair timely payment. Securities rated Ba by Moody's are judged
to have speculative elements; their future cannot be considered as well
assured and often the protection of interest and principal payments may be
very moderate. Securities rated BB by S&P, Fitch or Duff are regarded as
having predominantly speculative characteristics and, while such obligations
have less near-term vulnerability to default than other speculative grade
debt, they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and
Page 41
principal payments. Securities rated Caa by Moody's or CCC by S&P, Fitch and
Duff are of poor standing and may be in default or there may be present
elements of danger with respect to principal or interest. Securities rated C
by Moody's are regarded as having extremely poor prospects of ever attaining
any real investment standing. Securities rated D by S&P, Fitch and Duff are in
default and the payment of interest and/or repayment of principal is in
arrears. Such securities, though high yielding, are characterized by great
risk. See "Appendix" in the Statement of Additional Information for a general
description of securities ratings.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, 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 42
[This Page Intentionally Left Blank]
Page 43
Variable
Investment
Fund
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
VIFp050197
Page 44
- ----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
BALANCED PORTFOLIO
- ----------------------------------------------------------------------------
THE BALANCED PORTFOLIO (THE "SERIES") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES ARE
OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE IS TO PROVIDE INVESTMENT RESULTS
THAT ARE GREATER THAN THE TOTAL RETURN PERFORMANCE OF COMMON STOCKS AND BONDS
IN THE AGGREGATE, AS REPRESENTED BY A HYBRID INDEX, 60% OF WHICH IS COMPOSED
OF THE COMMON STOCKS IN THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
AND 40% OF WHICH IS COMPOSED OF THE BONDS IN THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX. THE SERIES INVESTS PRIMARILY IN COMMON
STOCKS AND BONDS IN PROPORTION CONSISTENT WITH THEIR EXPECTED RETURNS AND
RISKS AS DETERMINED BY THE DREYFUS CORPORATION.
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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE
FROM TIME TO TIME.
- ----------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Description of the Fund and Series................... 3
Management of the Fund............................... 5
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]
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 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' investment objective is to provide investment results
that are greater than the total return performance of common stocks and bonds
in the aggregate, as represented by a hybrid index, 60% of which is composed
of the common stocks in the Standard & Poor's 500 Composite Stock Price Index
("S&P 500 Index")* and 40% of which is composed of the bonds in the Lehman
Brothers Intermediate Government/Corporate Bond Index (the "Intermediate
Index"). 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 common stocks and bonds in proportions
consistent with their expected returns and risks as determined by The Dreyfus
Corporation.
To outperform the hybrid index, The Dreyfus Corporation first employs
a disciplined valuation methodology to determine the return and risks of
common stocks and bonds. The Dreyfus Corporation considers various factors,
including an interest rate adjusted market price/earnings ratio, interest
rate spreads reflecting the term structure of interest rates, and the level
and volatility of the return premium for common stocks. The Dreyfus
Corporation then decides which asset class is relatively more attractive
based on a formal decision rule process which includes extensive research .
After developing the expected return and risks of each asset class,
The Dreyfus Corporation uses computer models designed to identify imbalances
in the pricing of common stocks and bonds. The Dreyfus Corporation then
invests the Series' assets in common stocks and bonds in proportions intended
to exploit the perceived imbalances. Under normal circumstances, the Series'
total assets will be allocated approximately 60% to common stocks and 40% to
bonds. However, the Series may invest up to 75%, and as little as 40%, of its
total assets in common stocks and up to 60%, and as little as 25%, of its
total assets in bonds, as deemed advisable by The Dreyfus Corporation.
Common stocks are selected so that, in the aggregate, the investment
characteristics and risk profile of the equity portion of the Series are
similar to the S&P 500. These characteristics include such measures as
dividend yield (before expenses), price-to-earnings ratio, "beta" (relative
volatility), return on equity, and market price-to-book value ratio. However,
while it may maintain aggregate investment characteristics similar to the S&P
500, the Series seeks to invest in individual common stocks which together
will provide a higher total return than the S&P 500. The Series will not be
operated as an index fund, and the Series' equity portion will not be
[Page 3]
limited to stocks included in the S&P 500. To construct the equity portion of
the Series, The Dreyfus Corporation collects information from diverse sources
to create valuation models for a computerized valuation ranking system
identifying common stocks that are undervalued. These models include measures
of changes in earnings and relative value based on present and historical
price-to-earnings ratios, as well as dividend discount calculations. Once the
ranking of common stocks is complete, The Dreyfus Corporation's experienced
investment analysts construct the right component of the Series to resemble
in the aggregate the S&P 500 Index, but weighted toward the most attractive
stocks as determined by the valuation models.
The bond portion of the Series' portfolio ordinarily is invested in
U.S. dollar-denominated fixed-income obligations of domestic and foreign
issuers. The Series' dollar-weighted average portfolio maturity may not
exceed ten years. Investment selections are based on fundamental economic,
market, and other factors leading to valuation by sector, maturity, and
quality. The Series invests in bonds rated investment grade by Moody's
Investors Service, Inc. ("Moody's"), S&P or Fitch Investors Service, L.P. ("Fi
tch"), or, if unrated, determined to be of comparable quality by The Dreyfus
Corporation. The Series will sell, in a prudent and orderly fashion, bonds
whose ratings drop below investment grade.
The S&P 500 is composed of 500 common stocks which are chosen by S&P
to best capture the price performance of a large cross-section of the U.S.
publicly traded stock market.
The Intermediate Index is an index established by Lehman Brothers,
Inc. which includes fixed rate debt issues rated investment grade or higher
by Moody's, S&P or Fitch. All issues have at least one year to maturity and
an outstanding par value of at least $100 million for U.S. Government issues
and $50 million for all others. The Intermediate Index includes bonds with
maturities of up to ten years.
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 (for both common stock and
bond portions of its portfolio) is not expected to exceed 100%. 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 Series also may engage in various investment techniques, such as
lending portfolio securities and options and futures transactions, and may
enter into reverse repurchase agreements. For a discussion of the investment
techniques and their related risks, see "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ 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" 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.
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,
[Page 4]
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 by Moody's and
BBB by S&P and Fitch, 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. See "Appendix_Certain Portfolio
Securities_Ratings" below and "Appendix" in the Statement of Additional
Information.
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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, decrease the liquidity of the Series' portfoli
o 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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
[Page 5]
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
managers are Ron Gala and Laurie Carroll. Mr. Gala has managed the equity
portion of the Series since the Series commenced operations. Mr. Gala is a
Senior Vice President and portfolio manager for Mellon Bank, N.A. and a
portfolio manager for Mellon Equity Associates, an affiliate of The Dreyfus
Corporation. Mr. Gala also is responsible for Mellon Equity Associates' asset
allocation. Mr. Gala has been employed by Mellon Bank, N.A. in various
capacities since 1982. Ms. Carroll has managed the fixed-income portion of
the Series since the Series commenced operations. Ms. Carroll is a Senior
Vice President and portfolio manager at Mellon Bank, N.A. and has been
employed by Mellon Bank, N.A. since 1986. Mr. Gala and Ms. Carroll have been
employed by The Dreyfus Corporation as portfolio managers since October 1994.
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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
In allocating brokerage transactions, 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. Brokerage transactions for the Fund may
be conducted through Dreyfus Investment Services Corporation, an affiliate of
The Dreyfus Corporation, in accordance with procedures adopted by the Fund's
Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more series and/or to
purchasers of VA contracts or VLI policies.
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. 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 it may waive nor will the Fund reimburse The Dreyfus Corporation
for any amounts it may assume.
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
[Page 6]
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 the Series are charged against the assets of the Series;
other expenses of the Fund are allocated among the Fund's series on the basis
determined by the Board, including, but not limited to, proportionately in
relation to the net assets of each series.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with
respect to the Series.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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.
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 the Series
(i.e., the value of its assets less liabilities) by the total number of
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.
[Page 7]
HOW TO REDEEM SHARES
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
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Series is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. 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 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.
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. By meeting these
and other requirements, the Participating Insurance Companies, rather than VA
contract holders or VLI policy holders, should be subject to tax on
distributions received with respect to Series shares. The tax treatment on
distributions made to a Participating Insurance Company will depend on the
Participating Insurance Company's tax status.
[Page 8]
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net
investment income, 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.
It is expected that the Series 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.
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 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 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 effective yield and total return for 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.
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 the Series' shares, including data from the
Consumer Price
[Page 9]
Index, Lipper Analytical Services, Inc., Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average, Moody's Bond Survey Bond
Index, Lehman Brothers Intermediate Government/Corporate Bond Index,
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
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.
To date, the Board has authorized the creation of thirteen 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.
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 Series' shares are the investment vehicle will
receive from the Participating Insurance Companies unaudited semi-annual
financial statements and audited year-end financial statements. Each report
will show the investments owned by the Series 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 33 1\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.
USE OF DERIVATIVES _ The Series may invest in, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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
[Page 11]
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 33 1\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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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 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.
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
[Page 12]
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 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 direct
[Page 13]
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 & 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.
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 othe
r expenses.
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 _ Securities rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P and Fitch 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, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, 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]
Variable
Investment
Fund
Balanced
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
154p050197
[Page 16]
- -----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
CAPITAL APPRECIATION PORTFOLIO
- -----------------------------------------------------------------------------
THE CAPITAL APPRECIATION PORTFOLIO (THE "SERIES") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. Fund shares
are offered only to variable annuity and variable life insurance separate
accounts established by insurance companies ("Participating Insurance
Companies") to fund variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS. THE SERIES' PRIMARY
INVESTMENT OBJECTIVE IS TO PROVIDE LONG-TERM CAPITAL GROWTH CONSISTENT WITH
THE PRESERVATION OF CAPITAL; CURRENT INCOME IS A SECONDARY INVESTMENT
OBJECTIVE. THE SERIES INVESTS PRIMARILY IN THE COMMON STOCKS OF DOMESTIC AND
FOREIGN ISSUERS.
THE DREYFUS CORPORATION SERVES AS THE SERIES' INVESTMENT ADVISER.
FAYEZ SAROFIM & CO. ("SAROFIM") SERVES AS THE SERIES' SUB-INVESTMENT ADVISER
AND PROVIDES DAY-TO-DAY MANAGEMENT OF THE SERIES' PORTFOLIO.
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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
Condensed Financial Information............................ 3
Description of the Fund and Series......................... 3
Management of the Fund..................................... 5
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. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
________________________________________________________________
<S> <C> <C> <C> <C>
1993(1) 1994 1995 1996
_______ _______ _______ ______
PER SHARE DATA:
Net asset value, beginning of period............. $12.50 $13.27 $13.44 $17.71
_______ _______ _______ ______
INVESTMENT OPERATIONS:
Investment income_net ........................... .08 .23 .23 .23
Net realized and unrealized gain on investments..... .76 .17 4.27 4.30
_______ _______ _______ ______
Total from Investment Operations............... .84 .40 4.50 4.53
_______ _______ _______ ______
DISTRIBUTIONS:
Dividends from investment income-net........... (.07) (.23) (.23) (.23)
Dividends from realized gain on investments... -- -- -- (.03)
_______ _______ _______ ______
Total DISTRIBUTIONS......................... (.07) (.23) (.23) (.26)
_______ _______ _______ ______
Net asset value, end of period................. $13.27 $13.44 $17.71 $21.98
======== ======= ======= ========
TOTAL INVESTMENT RETURN.......................... 6.74%(2) 3.04% 33.52% 25.56%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.............. .28%(2) .25% .85% .84%
Ratio of net investment income to average net assets 1.89%(2) 2.99% 2.08% 1.46%
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% 2.47%
Average commission rate paid(3)........... -- -- -- $.0705
Net Assets, end of period (000's omitted)........... $3,770 $16,118 $46,930 $103,745
- ---------------------
</TABLE>
(1)...From April 5, 1993 (commencement of
operations) to December 31, 1993.
(2)...Not annualized.
(3)...For fiscal years beginning January
1, 1996, the Series is required to disclose its average commission rate paid
per share for purchases and sales of investment securities.
Further information about the Series' performance is contained in the
Series' 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
[Page 3]
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 OBJECTIVES
The Series' primary investment objective 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 Sarofim 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 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 Sarofim 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
100%. In addition, the Series may engage in various investment techniques,
such as lending portfolio securities and foreign currency transactions. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ 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" 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' total return to investors.
[Page 4]
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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 or Sarofim. If,
however, 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 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
[Page 5]
("Mellon"). As of March 31, 1997, The Dreyfus Corporation managed or
administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 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 December 31,
1996, provided investment advisory services to discretionary accounts having
aggregate assets of approximately $32.3 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 a monthly fee, at the annual rate set
forth below as a percentage of the Series' average daily net assets:
Annual Rate of
Investment Advisory Fee
Average Daily Net Assets Payable
_____________________ ________________________
0 to $150 million................................. .55%
$150 million to $300 million...................... .50%
$300 million or more.............................. .375%
For the fiscal year ended December 31, 1996, the Fund paid The
Dreyfus Corporation a monthly investment advisory fee at the annual rate of
.55 of 1% of the value of the Series' average daily net assets.
Under the terms of the Sub-Investment Advisory Agreement, the Fund
has agreed to pay Sarofim a monthly fee at the annual rate set forth below as
a percentage of the Series' average daily net assets:
Annual Rate of
Sub-Investment
Average Daily Net Assets Advisory Fee Payable
______________________ ______________________
0 to $150 million............................ .20%
$150 million to $300 million................. .25%
$300 million or more......................... .375%
For the fiscal year ended December 31, 1996, 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.
[Page 6]
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, 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 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. Brokerage transactions for the
Series may be conducted through Dreyfus Investment Services Corporation, an
affiliate of The Dreyfus Corporation, in accordance with procedures adopted
by the Fund's Board. See "Portfolio Transactions" in the Statement of
Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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 60 State Street, Boston, Massachusetts,
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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
[Page 7]
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, 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 taxab
le 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
[Page 8]
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. By me
eting these and other requirements, the Participating Insurance Companies,
rather than VA contract holders or VLI policy holders, should be subject to
tax on distributions received with respect to Series shares. The tax
treatment on distributions made to a Participating Insurance Company will
depend on the Participating Insurance Company's tax status.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996, 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 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.
[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 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 thirteen 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.
Each report will show the investments owned by the Series 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 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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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
[Page 11]
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.
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 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
[Page 12]
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 and Sarofim 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 13]
[This Page Intentionally Left Blank]
[Page 14]
[This Page Intentionally Left Blank]
[Page 15]
Variable
Investment
Fund
Capital Appreciation
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
112p050197
[Page 16]
- ----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
DISCIPLINED STOCK PORTFOLIO
- ----------------------------------------------------------------------------
THE DISCIPLINED STOCK PORTFOLIO (THE "SERIES") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES
ARE OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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. THE 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 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE
FROM TIME TO TIME.
- ----------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information............................ 3
Description of the Fund and Series......................... 3
Management of the Fund..................................... 5
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. Further financial data, related
notes and the report of independent auditors accompany 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 from April 30,
1996 (commencement of operations) to December 31, 1996. 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>
PER SHARE DATA:
<S> <C>
Net asset value, beginning of period.......................... $12.50
________
INVESTMENT OPERATIONS:
Investment income-net......................................... .07
Net realized and unrealized gain
on investments................................................ 2.29
________
TOTAL FROM INVESTMENT OPERATIONS.............................. 2.36
________
DISTRIBUTIONS:
Dividends from investment income-net.......................... (.07)
________
TOTAL DISTRIBUTIONS........................................... (.12)
________
Net asset value, end of period................................ $14.79
========
TOTAL INVESTMENT RETURN......................................... 18.86%(1,2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets....................... .80%(1)
Ratio of net investment income to
average net assets............................................ .72%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation........................ .16%(1)
Portfolio Turnover Rate....................................... 30.62%(1)
Average commission rate paid(3)............................... $.0450
Net assets, end of period (000's omitted)..................... $17,722
</TABLE>
(1) Not annualized.
(2)..Calculated based on net asset value on the close of business on
May 1, 1996 (commencement of initial offering) to December 31, 1996.
(3)..The Series is required to disclose its average commission rate paid
per share for purchases and sales of investment securities.
Further information about the Series' performance is contained in the
Series' 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 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' investment objective 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 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 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 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 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 then uses 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 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
100%. Higher portfolio turnover rates are likely to result in comparatively
greater brokerage commissions and transactions costs. In addition, short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income. In an effort to increase returns, the Series may engage in
various investment techniques, such as options and futures transactions and
lending portfolio securities. For a discussion of the investment techniques
and their related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
- ---------------------------
* "S&PRegistration Mark," "S&P 500Registration 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 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" 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.
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
Use of Derivatives _ 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, 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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
[Page 5]
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 Bert Mullins. He has held that position since the Series commenced
operations, and has been employed by The Dreyfus Corporation since October
1994. In addition to being a portfolio manager with The Dreyfus Corporation,
Mr. Mullins has been employed by Laurel Capital Advisors, an affiliate of The
Dreyfus Corporation, since October 1990. Mr. Mullins also is a Vice
President, Portfolio Manager and Senior Security Analyst of Mellon, where he
has been employed since 1966. 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
In allocating brokerage transactions, 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. Brokerage transactions for the Fund may
be conducted through Dreyfus Investment Services Corporation, an affiliate of
The Dreyfus Corporation, in accordance with procedures adopted by the Fund's
Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more series and/or to
purchasers of VA contracts or VLI policies.
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 period
from April 30, 1996 (commencement of operations) through December 31, 1996,
the Fund paid The Dreyfus Corporation a monthly advisory fee at the effective
annual rate of .52 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 it may waive nor will the Fund reimburse The Dreyfus
Corporation for any amounts it may assume.
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
[Page 6]
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 the Series are charged against the assets of the
Series; other expenses of the Fund are allocated among the Fund's series on
the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each series.
Distributor _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
Transfer and Dividend Disbursing Agent and Custodian _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with
respect to the Series.
HOW TO BUY SHARES
Fund shares currently are offered only to separate accounts of
Participating Insurance Companies. Individuals may not place purchase orders
directly with the Fund.
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. 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.
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 the Series
(i.e., the value of its assets less liabilities) by the total number of
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
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
[Page 7]
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
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Series is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. 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.
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. By meeting these
and other requirements, the Participating Insurance Companies, rather than VA
contract holders or VLI policy holders, should be subject to tax on
distributions received with respect to Series shares. The tax treatment on
distributions made to a Participating Insurance Company will depend on the
Participating Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
[Page 8]
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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 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 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 total return for 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. Variable annuity contract holders
and variable life insurance 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 the
Consumer Price Index, Lipper Analytical Services, Inc., Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, Moody's Bond
Survey Bond Index, Lehman Brothers Intermediate Government/Corporate Bond
Index, 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
[Page 9]
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
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.
To date, the Board has authorized the creation of thirteen 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.
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 Series' shares are the investment vehicle will
receive from the Participating Insurance Companies unaudited semi-annual
financial statements and audited year-end financial statements. Each report
will show the investments owned by the Series 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 33 1\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.
Use of Derivatives _ The Series may invest in, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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 33 1\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
[Page 11]
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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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.
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 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
[Page 12]
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 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 and Poor's
Ratings 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 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.
[Page 13]
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.
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]
Variable
Investment
Fund
Disciplined Stock
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
150p050197
[Page 16]
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
GROWTH AND INCOME PORTFOLIO
- -------------------------------------------------------------------------------
The Growth and Income Portfolio (the "Series") is a separate
non-diversified portfolio of Dreyfus Variable Investment Fund (the "Fund"),
an open-end, management investment company, known as a mutual fund. Fund
shares are offered only to variable annuity and variable life insurance
separate accounts established by insurance companies ("Participating
Insurance Companies") to fund variable annuity contracts ("VA contracts") and
variable life insurance policies ("VLI policies"). Individuals may not
purchase shares directly from the Fund. This Prospectus should be read in
conjunction with the prospectus of the separate accounts of the specific
insurance product which should precede or accompany this Prospectus.
The Series' investment objective 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, 1997, which may
be revised from time to time, provides a further discussion of certain areas
in this Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The Securities and Exchange Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding the Fund. For a free copy of the Statement of
Additional Information, write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call 1-800-554-4611. When telephoning, ask
for Operator 144.
Mutual fund shares are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. Mutual fund shares involve certain investment risks, including the
possible loss of principal. The net asset value of funds of this type will
fluctuate from time to time.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
PER SHARE DATA: 1994(1) 1995 1996
<S> ------ ------ ------
<C> <C> <C>
Net asset value, beginning of period............................... $12.50 $11.98 $18.33
------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net.............................................. .28 .28 .36
Net realized and unrealized gain (loss)
on investments..................................................... (.43) 7.07 3.43
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS................................... (.15) 7.35 3.79
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net............................... (.28) (.27) (.35)
Dividends from net realized gain on investments.................... (.09) (.73) (2.22)
------ ------ ------
TOTAL DISTRIBUTIONS................................................ (.37) (1.00) (2.57)
------ ------ ------
Net asset value, end of period..................................... $11.98 $18.33 $19.55
====== ====== ======
TOTAL INVESTMENT RETURN.............................................. (1.22%)(2) 61.89% 20.75%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................ .22%(2) .92% .83%
Ratio of net investment income to
average net assets................................................. 2.25%(2) 2.21% 1.96%
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% 237.44%
Average commission rate paid(3).................................... ._ ._ $.1904
Net assets, end of period (000's omitted).......................... $1,040 $71,161 $225,935
</TABLE>
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
(3) For fiscal years beginning January 1, 1996, the Series is required to
disclose its average commission rate paid per share for purchases and
sales of investment securities.
Further information about the Series' performance is contained in the
Series' 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.
Page 3
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' investment objective 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 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 Investors Service, Inc.
("Moody's") or at least BBB by Standard & Poor's Ratings Group ("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
Convertible Securities" below.
The money market instruments in which the Series may invest consist
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
300%. 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, leveraging, lending
Page 4
portfolio securities and short-selling. For a discussion of the investment
techniques and their related risks, see "Investment Considerations and Risks"
and "Appendix -- Investment Techniques" below and "Investment Objectives and
Management Policies -- Management Policies"in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- 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" 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. 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 Series 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 CONVERTIBLE 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 may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated convertible debt 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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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,
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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance
Page 6
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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
For the fiscal year ended December 31, 1996, the Fund paid The
Dreyfus Corporation a monthly advisory fee at the annual rate of .75 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 it may waive
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
In allocating brokerage transactions, 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. Brokerage transactions for the Series may
be conducted through Dreyfus Investment Services Corporation, an affiliate
of The Dreyfus Corporation, in accordance with procedures adopted by the
Fund's Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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.
Page 7
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 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
Page 8
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 a
re accrued daily and deducted before declaration of dividends to investors.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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 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 thirteen 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.
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.
Each report will show the investments owned by the Series 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, or enter into, 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 its
Page 12
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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-convert-
Page 13
ible 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.
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.
The mortgage-related securities in which the Series may invest also
include multi-class pass through certificates secured principally by mortgage
loans on commercial properties. These mortgage-related securities are
structured similarly to mortgage-related securities secured by pools of
residential mortgages. Commercial lending, however, generally is viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves large
r loans to single borrowers or groups of related borrowers than residential
one- to four-family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
The Series also may invest in subordinated mortgage-related
securities ("Subordinated Securities"), which are issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some
manner as to the payment of principal and/or interest to the holders of more
senior mortgage-related securities arising out of the same pool of mortgages.
The holders of Subordinated Securities typically are compensated with a
higher stated yield than are the holders of more senior mortgage-related
securities. On the other hand, Subordinated Securities typically subject the
holder to greater risk than senior mortgage-related securities and tend to be
rated in a lower rating category, and frequently a substantially lower rating
category, than the senior mortgage-related securities issued in respect of
the same pool of mortgages. Subordinated Securities generally are likely to
be more sensitive to changes in prepayment and interest rates and the market
for such securities may be less liquid than is the case for traditional
fixed-income securities and senior mortgage-related securities.
As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
Page 14
security's expected 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. During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity which generally would cause the value of such security to fluctuate
more widely in response to changes in interest rates. Were the prepayments on
the Series' mortgage-related securities to decrease broadly, the Series'
effective duration, and thus sensitivity to interest rate fluctuations, would
increase. 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 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
Page 15
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.
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
Page 16
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, certain mortgage-backed
securities, 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 -- Securities rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P, Fitch and Duff are investment grade and regarded as having adequate
capacity to pay interest and repay principal; however, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. Securities rated
Ba by Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions 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 and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, 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.
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Page 19
Variable
Investment
Fund
Growth and Income
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
108p050197
Page 20
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
INTERNATIONAL EQUITY PORTFOLIO
THE INTERNATIONAL EQUITY PORTFOLIO (THE "SERIES") IS A SEPARATE
NON-DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"),
AN OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND
SHARES ARE OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE
SEPARATE ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING
INSURANCE COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT
PURCHASE SHARES DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC
INSURANCE PRODUCT WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
Mutual fund shares are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. Mutual fund shares involve certain investment risks, including the
possible loss of principal. The net asset value of funds of this type will
fluctuate from time to time.
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.
TABLE OF CONTENTS
Page
Condensed Financial 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
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. Further
financial data, related notes and the report of independent auditors
accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
_________________________________________________
1994(1) 1995 1996
__________ __________ __________
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................... $12.50 $12.02 $12.82
__________ __________ __________
INVESTMENT OPERATIONS:
Investment income-net........................................... .15 .15 .10
Net realized and unrealized gain (loss)
on investments..................................................... (.40) .74 1.16
__________ __________ __________
TOTAL FROM INVESTMENT OPERATIONS................................... (.25) .89 1.26
__________ __________ __________
DISTRIBUTIONS:
Dividends from investment income-net.............................. (.14) (.08) (.09)
Dividends in excess of investment income-net....................... (.09) (.01) --
Dividends from net realized gain on investments.................... -- -- (.39)
Dividends in excess of net realized gain on investments............ -- -- (.06)
__________ __________ __________
TOTAL DISTRIBUTIONS................................................ (.23) (.09) (.54)
__________ __________ __________
CAPITAL CONTRIBUTION FROM AN AFFILIATE OF THE DREYFUS CORPORATION.. -- -- .22
__________ __________ __________
Net asset value, end of period..................................... $12.02 $12.82 $13.76
============ =========== ==========
TOTAL INVESTMENT RETURN......................................... (2.00%)(2) 7.39% 11.61%(3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......................... .23%(2) 1.59% 1.28%
Ratio of net investment income to
average net assets................................................. 1.11%(2) 1.13% .92%
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% 181.13%
Average commission rate paid (4)................................... -- -- $.0255
Net assets, end of period (000's omitted).......................... $1,089 $7,672 $24,355
</TABLE>
(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.
(3) Had the Series not had a capital contribution by an affiliate of The
Dreyfus Corporation during the period, the total
investment return would have been 9.89%.
(4) For fiscal years beginning January 1, 1996, the Series is required to
disclose its average commission rate paid per share
for purchases and sales of investment securities.
Further information about the Series' performance is contained in the
Series' annual report which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
[Page 3]
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. 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' investment objective 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 ("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. For a discussion of the investment techniques and their related
risks, see "Investment
[Page 4]
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" 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.
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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. 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 Series 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.
[Page 5]
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, decrease the liquidity of the Series' portfoli
o 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, 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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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
[Page 6]
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, 1996, including approximately $86 billion in
proprietary mutual fund assets. As of December 31, 1996, Mellon, through
various subsidiaries, provided non-investment services, such as custodial or
administration services, for more than $1.046 trillion in assets including
approximately $57 billion in mutual fund assets.
For the fiscal year ended December 31, 1996, the Fund paid The
Dreyfus Corporation a monthly advisory fee at the annual rate of .75 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 it may waive,
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
In allocating brokerage transactions, 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. Brokerage transactions for the Series may
be conducted through Dreyfus Investment Services Corporation, an affiliate
of The Dreyfus Corporation, in accordance with procedures adopted by the
Fund's Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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.
[Page 7]
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 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.
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
[Page 8]
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. By meeting these and other requirements,
the Participating Insurance Companies, rather than VA contract holders or VLI
policy holders, should be subject to tax on distributions received with
respect to Series shares. The tax treatment on distributions made to a
Participating Insurance Company will depend on the Participating Insurance
Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends derived from net investment
income, 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 taxab
le 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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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 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.
[Page 9]
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.
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 thirteen 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.
Each report will show the investments owned by the Series 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 33 1\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, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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
[Page 11]
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 33 1\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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's finan
cial exposure to the types of securities in which it invests. Leveraging the
portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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
[Page 12]
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 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
[Page 13]
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.
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]
Variable
Investment
Fund
International Equity
Portfolio
PROSPECTUS
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
109p050197
[Page 16]
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
INTERNATIONAL VALUE PORTFOLIO
- -------------------------------------------------------------------------------
THE INTERNATIONAL VALUE PORTFOLIO (THE "SERIES") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES
ARE OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL GROWTH. THE
SERIES INVESTS PRIMARILY IN A PORTFOLIO OF PUBLICLY-TRADED EQUITY SECURITIES
OF FOREIGN ISSUERS WHICH ARE CHARACTERIZED AS "VALUE" COMPANIES ACCORDING TO
CRITERIA ESTABLISHED BY THE DREYFUS CORPORATION.
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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE
FROM TIME TO TIME.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Condensed Financial Information......................... 3
Description of the Fund and Series...................... 3
Management of the Fund.................................. 5
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. Further financial data, related
notes and the report of independent auditors accompany 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 from April 30,
1996 (commencement of operations) to December 31, 1996. 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>
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................... $12.50
-------
INVESTMENT OPERATIONS:
Investment income-net......................................... .08
Net realized and unrealized gain
on investments................................................ .34
-------
TOTAL FROM INVESTMENT OPERATIONS.............................. .42
-------
DISTRIBUTIONS:
Dividends from investment income-net.......................... (.08)
Dividends from net realized gain on investments............... (.04)
-------
TOTAL DISTRIBUTIONS........................................... (.12)
-------
Net asset value, end of period................................ $12.80
-------
-------
TOTAL INVESTMENT RETURN......................................... 3.41%(1,2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets....................... 1.01%(1)
Ratio of net investment income to
average net assets............................................ .76%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation........................ .34%(1)
Portfolio Turnover Rate....................................... 24.48%(1)
Average commission rate paid(3)............................... $.0351
Net assets, end of period (000's omitted)..................... $8,027
</TABLE>
(1) Not annualized.
(2) Calculated based on net asset value on the close of business on May 1, 1996
(commencement of initial offering) to December 31, 1996.
(3) The Series is required to disclose its average commission rate paid per
share for purchases and sales of investment securities.
Further information about the Series' performance is contained in the
Series' 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 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' investment objective is long-term 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
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
characterized as "value" companies according to criteria established by The
Dreyfus Corporation. 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.
The Series' investment approach is value-oriented, research-driven
and risk adverse. To manage the Series, The Dreyfus Corporation classifies
issuers as "growth" or "value" companies. In general, The Dreyfus Corporation
believes 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. In addition, The Dreyfus Corporation intends to consider broader
measures of value, including operating return characteristics, overall
financial health and positive changes in business momentum. This
value-oriented, bottom-up investment style is both quantitative and
fundamentally based, focusing first on stock selection then enhanced by
country allocation guidelines.
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 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 are likely to result in comparatively
greater brokerage commissions and transactions costs. In addition, short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income. The Series may engage in various investment techniques, such
as foreign currency transactions, options and futures transactions and
lending portfolio securities. For a discussion of the investment techniques
and their related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
General _ 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" 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.
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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. 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, 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. If, however, 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
Page 5
("Mellon"). As of March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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 Sandor Cseh. He
has held that position since the Series commenced operations, and has been
employed by The Dreyfus Corporation since May 1996 and by The Boston Company
Asset Management, Inc., an affiliate of The Dreyfus Corporation, or its
predecessor since 1994. Prior to joining The Boston Company Asset Management,
Inc., 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. 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
In allocating brokerage transactions, 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. Brokerage transactions for the Fund may
be conducted through Dreyfus Investment Services Corporation, an affiliate of
The Dreyfus Corporation, in accordance with procedures adopted by the Fund's
Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more series and/or to
purchasers of VA contracts or VLI policies.
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
1.00% of the value of the Series' average daily net assets. For the period
from April 30, 1996 (commencement of operations) through December 31, 1996,
the Fund paid The Dreyfus Corporation a monthly advisory fee at the effective
annual rate of .50 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 it may waive nor will the Fund reimburse The Dreyfus
Corporation for any amounts it may assume.
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
Page 6
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 the Series are charged against the assets of the
Series; other expenses of the Fund are allocated among the Fund's series on
the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each series.
Distributor _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
Transfer and Dividend Disbursing Agent and Custodian _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with
respect to the Series.
HOW TO BUY SHARES
Fund shares currently are offered only to separate accounts of
Participating Insurance Companies. Individuals may not place purchase orders
directly with the Fund.
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. 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.
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 the Series
(i.e., the value of its assets less liabilities) by the total number of
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
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
Page 7
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
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Series is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. 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.
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. By meeting these
and other requirements, the Participating Insurance Companies, rather than VA
contract holders or VLI policy holders, should be subject to tax on
distributions received with respect to Series shares. The tax treatment on
distributions made to a Participating Insurance Company will depend on the
Participating Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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
Page 8
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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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 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 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 total return for 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. Variable annuity contract holders
and variable life insurance 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 the
Consumer Price Index, Lipper Analytical Services, Inc., Standard & Poor's 500
Composite Stock Price 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
Page 9
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
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.
To date, the Board has authorized the creation of thirteen 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.
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 Series' shares are the investment vehicle will
receive from the Participating Insurance Companies unaudited semi-annual
financial statements and audited year-end financial statements. Each report
will show the investments owned by the Series 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 33 1\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.
Use of Derivatives _ The Series may invest in, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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
Page 11
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 33 1\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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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 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.
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 securi-
Page 12
ties. 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 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 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 and Poor's
Ratings Group ("S&P"), F-1 by Fitch Investors
Page 13
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.
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
Variable
Investment
Fund
International Value
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
152p050197
Page 16
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
LIMITED TERM HIGH INCOME PORTFOLIO
THE LIMITED TERM HIGH INCOME PORTFOLIO (THE "SERIES") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES
ARE OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN, CONSISTING
OF CAPITAL APPRECIATION AND CURRENT INCOME. THE SERIES SEEKS TO ACHIEVE ITS
OBJECTIVE BY INVESTING UP TO ALL OF ITS ASSETS IN A PORTFOLIO OF LOWER RATED
FIXED-INCOME SECURITIES, COMMONLY KNOWN AS "JUNK BONDS," THAT, UNDER NORMAL
MARKET CONDITIONS, HAS AN EFFECTIVE DURATION OF THREE AND ONE-HALF YEARS OR
LESS AND AN EFFECTIVE AVERAGE PORTFOLIO MATURITY OF FOUR YEARS OR LESS.
INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL
AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SERIES.
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, 1997, WHICH MAY BE
REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS IN
THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME INVESTORS.
IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency. Mutual
fund shares involve certain investment risks, including the possible loss of
principal. The net asset value of funds of this type will fluctuate from time
to time.
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.
TABLE OF CONTENTS
Page
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]
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 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' investment objective 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
Under normal market conditions, the Series will invest at least 65% of
the value of its net assets in bonds, debentures, notes and other debt
instruments rated below investment grade, or, if unrated, determined by The
Dreyfus Corporation to be of comparable quality. The securities in which the
Series invests also include mortgage-related securities, asset-backed
securities, zero coupon securities, municipal obligations, preferred stock,
convertible debt obligations and convertible preferred stock. The issuers of
such securities may include domestic and foreign corporations, partnerships,
trusts or similar entities, and governmental entities or their political
subdivisions, agencies or instrumentalities. The Series may invest in
companies in, or governments of, developing countries.
Under normal market conditions, the Series will invest in a portfolio of
securities that has an effective duration of three and one-half years or
less. As a measure of a fixed-income security's cash flow, duration is an
alternative to the concept of "term to maturity" in assessing the price
volatility associated with changes in interest rates. Generally, the longer
the duration, the more volatility an investor should expect. For example, the
market price of a bond with a duration of two years would be expected to
decline 2% if interest rates rose 1%. Conversely, the market price of the
same bond would be expected to increase 2% if interest rates fell 1%. The
market price of a bond with a duration of four years would be expected to
increase or decline twice as much as the market price of a bond with a
two-year duration. Duration is a way of measuring a security's maturity in
terms of the average time required to receive the present value of all
interest and principal payments as opposed to its term to maturity. The
maturity of a security measures only the time until final payment is due; it
does not take account of the pattern of a security's cash flows over time,
which would include how cash flow is affected by prepayments and by changes
in interest rates. Incorporating a security's yield, coupon interest
payments, final maturity and option features into one measure, duration is
computed by determining the weighted average maturity of a bond's cash flows,
where the present values of the cash flows serve as weights. In computing the
duration of the Series, The Dreyfus Corporation will estimate the duration of
obligations that are subject to features such as prepayment or redemption by
the issuer, put options retained by the investor or other imbedded
[Page 3]
options, taking into account the influence of interest rates on prepayments
and coupon flows. This method of computing duration is known as
option-adjusted duration.
Securities rated below investment grade are those rated lower than Baa by
Moody's Investors Service, Inc. ("Moody's") and BBB by Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, L.P. ("Fitch") or Duff &
Phelps Credit Rating Co. ("Duff"). These securities carry a high degree of
risk and are considered speculative by the credit rating agencies. See
"Investment Considerations and Risks_High Yield-Lower Rated Securities" and
"Appendix_Certain Portfolio Securities_High Yield-Lower Rated Securities"
below for a discussion of certain risks, and "Appendix" in the Statement of
Additional Information. The Series may hold investment grade rated debt
securities (or unrated securities of comparable quality) when the yield
differential between below investment grade and investment grade securities
narrows and the risk of loss may be reduced with only a relatively small
reduction in yield. The Series also may invest in investment grade rated debt
securities when The Dreyfus Corporation determines that a defensive
investment position is appropriate in light of market or economic conditions.
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 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 Series also may engage in various investment techniques, such as
transactions in foreign currency, options, futures and swaps, lending
portfolio securities and short-selling. For a discussion of the investment
techniques and their related risks, see "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ The net asset value per share of the Series should be expected to
fluctuate. The Series' investment in high yield fixed-income securities may
cause the Series' share price to be highly volatile at times. 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" in the Statement of
Additional Information for a further discussion of certain risks.
HIGH YIELD-LOWER RATED SECURITIES_The Series invests primarily in higher
yielding (and, therefore, higher risk) debt securities such as those rated Ba
by Moody's or BB by S&P, Fitch or Duff, or as low as the lowest rating
assigned by Moody's, S&P, Fitch or Duff (commonly known as junk bonds). They
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.
Bond prices are inversely related to interest rate changes; however, bond
price volatility also is inversely related to coupon. Accordingly, below
investment grade debt securities may be relatively less sensitive to interest
rate changes than higher quality debt securities of comparable maturity,
because of their higher
[Page 4]
coupon. This higher coupon is what the investor receives in return for
bearing greater credit risk. The higher credit risks associated with below
investment grade debt securities potentially can have greater affect on the
value of such securities than may be the case with higher quality issues of
comparable maturity. See "Appendix_Certain Portfolio Securities_High
Yield-Lower Rated Securities" below and "Appendix" in the Statement of
Additional Information.
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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 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."
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 consider, on an ongoing basis, a number of factors including
the likelihood that the issuing municipality will discontinue appropriating
funding for the leased property.
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,
mortgage-related securities, asset-backed securities and swaps. 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,
[Page 5]
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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall management
of the Fund's affairs under 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 Roger King. He has held that
position since the Series commenced operations and has been employed by The
Dreyfus Corporation since February 1996. Prior thereto, Mr. King was a Vice
President of High Yield Research and, most recently, director of High Yield
Research at Citibank Securities, Inc. 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
In allocating brokerage transactions, 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
[Page 6]
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. Brokerage Transactions for the Series
may be conducted through Dreyfus Investment Services Corporation, an
affiliate of The Dreyfus Corporation, in accordance with procedures adopted
by the Fund's Board. See "Portfolio Transactions" in the Statement of Addition
al 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.
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. 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 it may waive
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
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 the Series are charged against the assets of the
Series; other expenses of the Fund are allocated among the Fund's series on
the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each series.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with
respect to the Series.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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.
[Page 7]
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.
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 the Series
(i.e., the value of its assets less liabilities) by the total number of
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
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
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Series is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. 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 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
[Page 8]
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.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be mailed
to shareholders annually. Dividends from net investment income, 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.
It is expected that the Series 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.
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.
[Page 9]
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 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 effective yield and total return for 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.
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 the Series' shares, including data from the
Consumer Price Index, Lipper Analytical Services, Inc., Moody's Bond Survey
Bond Index, Bond Buyer's 20-Bond Index, 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
[Page 10]
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.
To date, the Board has authorized the creation of thirteen 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.
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 Series' shares are the investment vehicle will receive
from the Participating Insurance Companies unaudited semi-annual financial
statements and audited year-end financial statements. Each report will show
the investments owned by the Series 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 also 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, or enter into, 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
[Page 12]
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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may
[Page 13]
engage in forward commitments to increase its portfolio's financial exposure
to the types of securities in which it invests. Leveraging the portfolio in
this manner will increase the Series' exposure to changes in interest rates
and will increase the volatility of its returns. A segregated account of the
Series consisting of permissible liquid assets at least equal at all times to
the amount of the Series' purchase commitments will be established and
maintained at the Fund's custodian bank. At no time will the Series have more
than 33 1\3% of its assets committed to purchase securities on a forward
commitment basis.
CERTAIN PORTFOLIO SECURITIES
HIGH YIELD-LOWER RATED SECURITIES _ 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 C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Securities rated D by S&P, Fitch and Duff are in default
and the payment of interest and/or repayment of principal is in arrears. Such
securities, though high yielding, are characterized by great risk. See
"Appendix" in the Statement of Additional Information for a general descriptio
n of securities ratings.
These securities may be particularly susceptible to economic downturns.
It is likely that an 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 ratings of Moody's, S&P, Fitch and Duff represent their opinions as
to the quality of the obligations which they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating the
safety of interest and principal payments, they do not evaluate the market
value risk of such obligations. Although these ratings may be an initial
criterion for selection of portfolio investments, 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.
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.
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
[Page 14]
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.
The mortgage-related securities in which the Series may invest also
include multi-class pass through certificates secured principally by mortgage
loans on commercial properties. These mortgage-related securities are
structured similarly to mortgage-related securities secured by pools of
residential mortgages. Commercial lending, however, generally is viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves large
r loans to single borrowers or groups of related borrowers than residential
one- to four-family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
The Series also may invest in subordinated mortgage-related securities
("Subordinated Securities"), which are issued or sponsored by commercial
banks, savings and loan institutions, mortgage bankers, private mortgage
insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some
manner as to the payment of principal and/or interest to the holders of more
senior mortgage-related securities arising out of the same pool of mortgages.
The holders of Subordinated Securities typically are compensated with a
higher stated yield than are the holders of more senior mortgage-related
securities. On the other hand, Subordinated Securities typically subject the
holder to greater risk than senior mortgage-related securities and tend to be
rated in a lower rating category, and frequently a substantially lower rating
category, than the senior mortgage-related securities issued in respect of
the same pool of mortgages. Subordinated Securities generally are likely to
be more sensitive to changes in prepayment and interest rates and the market
for such securities may be less liquid than is the case for traditional
fixed-income securities and senior mortgage-related securities.
As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the 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. During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity which generally would cause the value of such security to fluctuate
more widely in response to changes in interest rates. Were the prepayments on
the Series' mortgage-related securities to decrease broadly, the Series'
effective duration, and thus sensitivity to interest rate fluctuations, would
increase.
ASSET-BACKED SECURITIES _ Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. These securities include debt
securities and securities with debt-like characteristics. The collateral for
these securities has
[Page 15]
included home equity loans, automobile and credit card receivables, boat
loans, computer leases, airplane leases, mobile home loans, recreational
vehicle loans and hospital account receivables. The Series may invest in
these and other types of asset-backed securities that may be developed in the
future.
Asset-backed securities present certain risks that are not presented by
mortgage-related securities. Primarily, these securities may provide the
Series with a less effective security interest in the related collateral than
do mortgage-related securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
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.
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.
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
[Page 16]
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 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.
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.
[Page 17]
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, certain mortgage-backed
securities, 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.
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 18]
[This Page Intentionally Left Blank]
[Page 19]
Variable
Investment
Fund
Limited Term High Income
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
156p050197
[Page 20]
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
MANAGED ASSETS PORTFOLIO
THE MANAGED ASSETS PORTFOLIO (THE "SERIES") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES ARE
OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN,
CONSISTING OF CAPITAL APPRECIATION AND CURRENT INCOME. THE SERIES IS MANAGED
AS A "CONTRARY VALUE" PORTFOLIO AND ITS INVESTMENTS INCLUDE 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
Mutual fund shares are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. Mutual fund shares involve certain investment risks, including the
possible loss of principal. The net asset value of funds of this type will
fluctuate from time to time.
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.
TABLE OF CONTENTS
Page
Condensed Financial Information................... 3
Description of the Fund and Series................ 4
Management of the Fund............................ 7
How to Buy Shares................................. 8
How to Redeem Shares.............................. 9
Dividends, Distributions and Taxes................ 9
Performance Information........................... 10
General Information............................... 11
Appendix.......................................... 13
[Page 2]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
____________________________________-_________________________________________
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
_______ _______ _______ ________ _______ _______ _______
Net asset value, beginning of period. $10.00 $10.11 $10.76 $10.14 $12.92 $12.37 $11.70
_______ _______ _______ ________ _______ _______ _______
INVESTMENT OPERATIONS:
Investment income-net................ .08 .41 .22 .20 .35 .51 .63
Net realized and unrealized gain
(loss) on investments................ .11 .66 (.11) 2.71 (.56) (.54) (1.05)
_______ _______ _______ ________ _______ _______ _______
TOTAL FROM INVESTMENT OPERATIONS..... .19 1.07 .11 2.91 (.21) (.03) (.42)
_______ _______ _______ ________ _______ _______ _______
DISTRIBUTIONS:
Dividends from investment income-net. (.08) (.42) (.31) (.13) (.32) (.64) (.56)
Dividends in excess of investment income-net -- -- -- -- (.02) -- (.06)
Dividends from net realized gain on investments -- -- (.42) -- -- -- --
Paid-in capital...................... -- -- -- -- -- -- (.06)
_______ _______ _______ ________ _______ _______ _______
TOTAL DISTRIBUTIONS.................. (.08) (.42) (.73) (.13) (.34) (.64) (.68)
_______ _______ _______ ________ _______ _______ _______
Net asset value, end of period....... $10.11 $10.76 $10.14 $12.92 $12.37 $11.70 $10.60
======= ======= ======= ======== ======== ======== ========
TOTAL INVESTMENT RETURN................ 1.85%(2) 10.60% 1.07% 28.59% (1.56%) (.26%) (3.62%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .34%(2) 1.00% .97% .27% .25% .94% .93%
Ratio of net investment income to
average net assets 2.11%(2) 4.46% 1.88% 1.87% 3.54% 3.56% 4.12%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation
and Comstock Partners, Inc. ........ 8.82%(2) 2.83% 1.70% 2.25% .88% .-- --
Portfolio Turnover Rate............. -- 91.97% 118.78% 99.08% 25.96% 53.88% 124.19%
Average commission rate paid(3)...... -- -- -- -- -- -- $.0250
Net assets, end of period (000's omitted) $ 716 $2,179 $1,865 $7,957 $30,510 $25,272 $21,101
</TABLE>
(1) From August 31, 1990 (commencement of operations) to
December 31, 1990.
(2) Not annualized.
(3) For fiscal years beginning January 1, 1996, the
Series is required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
Further information about the Series' performance is contained in the
Series' annual report which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
[Page 3]
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' investment objective 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 is managed as a "contrary value" portfolio and its
investments include (i) securities which are out-of-favor and whose price to
earnings ratios are lower than the rest of the market or industry, (ii)
securities which are temporarily depressed but for which a turnaround is
expected and (iii) special situations, such as corporate restructuring, gold
stocks and high yield bonds. In connection therewith, 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 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
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, Germany, Japan or the
United Kingdom. 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.
[Page 4]
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 ("S&P") or other
recognized rating agencies also will be considered. The judgment of The
Dreyfus Corporation 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 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. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ 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" 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.
[Page 5]
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. 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 Series will consider all circumstance
s 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 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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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
[Page 6]
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, 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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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 Timothy M.
Ghriskey. He has held that position since January 1, 1997 and has been
employed by The Dreyfus Corporation since July 1995. For more than five years
prior thereto, he was Vice President and Associate Managing Partner of Loomis,
Sayles & Company. The Fund's other portfolio managers are identified in the
Statement of Additional Information. The Dreyfus Corporation also provides
research services for the Fund as well as 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,
[Page 7]
Mellon managed more than $233 billion in assets as of December 31, 1996,
including approximately $86 billion in proprietary mutual fund assets. As of
December 31, 1996, Mellon, through various subsidiaries, provided
non-investment services, such as custodial or administration services, for
more than $1.046 trillion in assets including approximately $57 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. 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 it may waive, nor will the Fund reimburse The Dreyfus Corporation
for any amounts it may assume.
From August 31, 1990 (commencement of operations) through December
31, 1996, Comstock Partners, Inc. ("Comstock Partners"), a registered
investment adviser located at 10 Exchange Place, Jersey City, New Jersey
07302, served as the Series' sub-investment adviser. Comstock Partners,
subject to the supervision and approval of The Dreyfus Corporation, provided
investment advisory assistance and the day-to-day management of the Series,
as well as research and statistical information under a Sub-Investment Advisor
y Agreement with the Fund, subject to the overall authority of the Fund's
Board in accordance with Massachusetts law. Effective December 31, 1996, the
Sub-Investment Advisory Agreement with Comstock Partners was terminated.
For the fiscal year ended December 31, 1996, 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, 1996, the Fund paid Comstock Partners a
monthly sub-investment advisory fee at the annual rate of .375 of 1% of the
value of the Series' average daily net assets.
In allocating brokerage transactions, 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. Brokerage transactions for the Fund may
be conducted through Dreyfus Investment Services Corporation, an affiliate of
The Dreyfus Corporation, in accordance with procedures adopted by the Fund's
Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. See the prospectus of the
separate account of the Participating Insurance Company for more information
on the purchase of
[Page 8]
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 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
[Page 9]
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.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996, 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
[Page 10]
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 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 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
[Page 11]
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. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of thirteen 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.
Each report will show the investments owned by the Series and the market
values thereof as determined by the Fund's Board and will provide other
information about the Fund and its operations.
[Page 12]
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 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, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such Derivatives. The Series may invest in futures contracts and options with
[Page 13]
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,
exceeds 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 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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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.
[Page 14]
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 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 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
[Page 15]
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 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 -- 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
[Page 16]
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 -- Securities rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P 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 and 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 17]
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[Page 18]
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[Page 19]
Variable
Investment
Fund
Managed Assets
Portfolio
PROSPECTUS
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
118P050197
[Page 20]
- ------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO (THE "SERIES") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. Fund shares are
offered only to variable annuity and variable life insurance separate
accounts established by insurance companies ("Participating Insurance
Companies") to fund variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN 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.
- ------------------------------------------------------------------------------
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.............................. 7
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. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
Net asset value, beginning of period. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .024 .058 .041 .032 .043 .055 .050
DISTRIBUTIONS:
Dividends from investment income-net. (.024) (.058) (.041) (.032) (.043) (.055) (.050)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $ 1.00 $ 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% 5.10%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .03%(2) .-- .-- .-- .-- .62% .62%
Ratio of net investment income to
average net assets................... 7.18%(2) 5.78% 4.10% 3.23% 4.62% 5.51% 4.96%
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 period (000's omitted) $741 $1,619 $790 $7,651 $34,728 $45,249 $56,186
</TABLE>
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
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 since the figures provided do
Page 3
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's Money Fund
ReportTM, 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' investment objective 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 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,
asset-backed securities, 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_
Page 4
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,
which Rule includes various maturity, quality and diversification
requirements, certain of which are summarized below. In accordance with Rule
2a-7, the Series is required to 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 ("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 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.
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
Page 5
or restrict the payment of principal and interest on the foreign securities
to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed or
administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
For the fiscal year ended December 31, 1996, the Fund paid The
Dreyfus Corporation a monthly advisory fee at the annual rate of .50 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 it may
waive, nor will the Fund reimburse The Dreyfus Corporation for any amounts it
may assume.
Page 6
In allocating brokerage transactions, 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 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 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 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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.
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
Page 7
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.
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. By meeting these
and other requirements, the Participating Insurance Companies, rather than VA
contract holders or VLI policy holders, should be subject to tax on
distributions received with respect to Series shares. The tax treatment on
distributions made to a Participating Insurance Company will depend on the
Participating Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends derived from net investment
income, together with distributions of net realized short-term securi-
Page 8
ties 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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996, 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 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.
To date, the Board has authorized the creation of thirteen 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
Page 9
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.
Each report will show the investments owned by the Series 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 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, when-issued or delayed delivery basis, which means that delivery
and payment take place a number of days after the date of the commitment to
purchase. 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
permissible liquid assets 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 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
Page 11
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 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 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
Page 12
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.
ASSET-BACKED SECURITIES -- The asset-backed securities in which the Series
may invest are securities issued by special purpose entities whose primary
assets consist of a pool of mortgages, loans, receivables or other assets.
Payment of principal and interest may depend largely on the cash flows
generated by the assets backing the securities and in certain cases,
supported by letters of credit, surety bonds or other forms of credit or
liquidity enhancements. The value of these asset-backed securities also may
be affected by the creditworthiness of the servicing agent for the pool of
assets, the originator of the loans or receivables or the financial
institutions providing the credit support.
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
Variable
Investment
Fund
Money Market Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
117p050197
Page 16
- ------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
QUALITY BOND PORTFOLIO
- ------------------------------------------------------------------------------
THE QUALITY BOND PORTFOLIO (THE "SERIES") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES ARE
OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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.
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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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..................................................... 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. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------
Net asset value, beginning of period. $10.00 $10.01 $10.67 $10.94 $11.81 $10.53 $11.81
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .23 .70 .92 .76 .73 .68 .66
Net realized and unrealized gain (loss)
on investments....................... .01 .66 .30 .88 (1.27) 1.42 (.31)
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..... .24 1.36 1.22 1.64 (.54) 2.10 .35
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net. (.23) (.70) (.92) (.76) (.73) (.69) (.66)
Dividends from net realized
gain on investments.................. ._ ._ (.03) (.01) (.01) (.13) ._
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................. (.23) (.70) (.95) (.77) (.74) (.82) (.66)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $10.01 $10.67 $10.94 $11.81 $10.53 $11.81 $11.50
====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................ 7.12%(2) 14.12% 12.09% 15.33% (4.59%) 20.42% 3.13%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .15%(2) ._- ._- ._- .-_ .81% .79%
Ratio of net investment income
to average net assets................ 7.20%(2) 7.52% 8.54% 6.51% 7.03% 6.13% 5.86%
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% 258.36%
Net assets, end of period (000's omitted) $59 $410 $405 $4,706 $13,244 $37,447 $60,936
</TABLE>
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
Further information about the Series' performance is contained in the
Series' 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. 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' investment objective 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 ("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 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.
The Series' annual portfolio turnover rate is not expected to exceed
300%. 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. For discussion of the investment techniques and their related
risks, see "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 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" 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 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
Page 4
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 Series 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 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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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.
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
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,
decrease the liquidity of the Series' portfolio and make more difficult the
accurate pricing of the Series' portfolio. See "Investment Objectives and
Management Policies_Management Policies_Derivatives" in the Statement of
Additional Information.
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
Page 5
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.
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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under an Investment Advisory Agreement with
the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. The investment decisions for the Series are made by the
Taxable Fixed-Income Committee of The Dreyfus Corporation, and no person is
primarily responsible for making recommendations to that committee. The
portfolio managers comprising the Taxable Fixed-Income Committee 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
For the fiscal year ended December 31, 1996, the Fund paid The
Dreyfus Corporation a monthly advisory fee at the annual rate of .65 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 it may waive,
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
Page 6
In allocating brokerage transactions, 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. Brokerage transactions for the Fund may
be conducted through Dreyfus Investment Services Corporation, an affiliate of
The Dreyfus Corporation, in accordance with procedures adopted by the Fund's
Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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.
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
Page 7
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.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
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.
Page 8
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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 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' 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 the
Consumer Price Index, Lipper Analytical Services, Inc., Moody's Bond Survey
Bond Index, Lehman Brothers Intermediate Government Corporate Bond Index,
Money Magazine, 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 Quality Bond
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of thirteen 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.
Each report will show the investments owned by the Series 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 33 1\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 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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
CERTAIN PORTFOLIO SECURITIES
U.S. TREASURY SECURITIES -- U.S. Treasury securities include Treasury
Inflation-Protection Securities ("TIPS"), which are newly created securities
issued by the U.S. Treasury designed to provide investors a long term
investment vehicle that is not vulnerable to inflation. The interest rate
paid by TIPS is fixed, while the principal value rises or falls semi-annually
based on changes in a published Consumer Price Index. Thus, if inflation
occurs, the principal and interest payments on the TIPS are adjusted
accordingly to protect investors from inflationary loss. During a
deflationary period, the principal and interest payments decrease, although
the TIPS' principal will not drop below its face amount at maturity.
In exchange for the inflation protection, TIPS generally pay lower
interest rates than typical Treasury securities. Only if inflation occurs
will TIPS offer a higher real yield than a conventional Treasury bond of the
same maturity. In addition, it is not possible to predict with assurance how
the market for TIPS will develop; initially, the secondary market for these
securities may not be as active or liquid as the secondary market for
conventional Treasury securities. Principal appreciation and interest
payments on TIPS will be taxed annually as ordinary interest income for
Federal income tax calculations. As a result, any appreciation in principal
Page 11
must be counted as interest income in the year the increase occurs, even
though the investor will not receive such amounts until the TIPS are sold or
mature. Principal appreciation and interest payments will be exempt from
state and local income taxes.
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.
The mortgage-related securities in which the Series may invest also
include multi-class pass through certificates secured principally by mortgage
loans on commercial properties. These mortgage-related securities are
structured similarly to mortgage-related securities secured by pools of
residential mortgages. Commercial lending, however, generally is viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves large
r loans to single borrowers or groups of related borrowers than residential
one- to four-family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
The Series also may invest in subordinated mortgage-related
securities ("Subordinated Securities"), which are issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some
manner as to the payment of principal and/or interest to the holders of more
senior mortgage-related securities arising out of the same pool of mortgages.
The holders of Subordinated Securities typically are compensated with a
higher stated yield than are the holders of more senior mortgage-related
securities. On the other hand, Subordinated Securities typically subject the
holder to greater risk than senior mortgage-related securities and tend to be
rated in a lower rating category, and frequently a substantially lower rating
category, than the senior mortgage-related securities issued in respect of
the same pool of mortgages. Subordinated Securities generally are likely to
be more sensitive to changes in prepayment and interest rates and the market
for such securities may be less liquid than is the case for traditional
fixed-income securities and senior mortgage-related securities.
As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the 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. During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity
Page 12
which generally would cause the value of such security to fluctuate
more widely in response to changes in interest rates. Were the prepayments on
the Series' mortgage-related securities to decrease broadly, the Series'
effective duration, and thus sensitivity to interest rate fluctuations, would
increase. 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.
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,
Page 13
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 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 -- Securities rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are investment grade and regarded as having adequate capacity to pay
interest and repay principal;
Page 14
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 and 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
Variable
Investment
Fund
Quality Bond
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
120p050197
Page 16
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
SMALL CAP PORTFOLIO
- -------------------------------------------------------------------------------
THE SMALL CAP PORTFOLIO (THE "SERIES") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES ARE
OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
--------- ------ ------ ------ ------ ------ -------
Net asset value, beginning of period. $10.00 $10.21 $20.60 $22.71 $34.45 $36.52 $46.13
--------- ------ ------ ------ ------ ------ -------
INVESTMENT OPERATIONS:
Investment income-net................ .21(2) .14(2) .18(2) .14 .17 .16 .10
Net realized and unrealized gain on investments .-- 15.85(2) 13.10(2) 14.93 2.50 10.54 7.53
--------- ------ ------ ------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS..... .21(2) 15.99(2) 13.28(2) 15.07 2.67 10.70 7.63
--------- ------ ------ ------ ------ ------ -------
DISTRIBUTIONS:
Dividends from investment income-net. .-- (.15) (.15) (.14) (.16) (.18) (.10)
Dividends in excess of investment income-net .-- .-- .-- (.01) .-- .-- .--
Dividends from net realized gain on investments .-- (5.45) (11.02) (3.18) (.33) (.91) (1.51)
Dividends in excess of net realized gain
on investments....................... .-- .-- .-- .-- (.11) .-- (.07)
--------- ------ ------ ------ ------ ------ -------
TOTAL DISTRIBUTIONS.................. .-- (5.60) (11.17) (3.33) (.60) (1.09) (1.68)
--------- ------ ------ ------ ------ ------ -------
Net asset value, end of period....... $10.21 $ 20.60 $22.71 $34.45 $36.52 $46.13 $52.08
--------- ------ ------ ------ ------ ------ -------
TOTAL INVESTMENT RETURN................ 2.10%(3) 159.73% 71.28% 68.31% 7.75% 29.38% 16.60%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .34%(3) 1.16% .94% .25% .55% .83% .79%
Ratio of net investment income to
average net assets................... 2.10%(3) .77% .76% .89% 1.18% .54% .24%
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% 89.10%
Average commission rate paid(4)...... .-- .-- .-- .-- .-- .-- $.0571
Net assets, end of period (000's omitted) $36 $1,554 $2,679 $18,337 $173,215 $543,281 $960,365
</TABLE>
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Based on average shares outstanding.
(3) Not annualized.
(4) For fiscal years beginning January 1, 1996, the Series is required
to disclose its average commission rate paid per share for purchases
and sales of investment securities.
Further information about the Series' performance is contained in the
Series' 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
Page 3
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' the investment objective 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.
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 $1.5 billion 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 ("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. For a discussion of the investment techniques and their related
risks, see "Investment Considerations and Risks" and "Appendix -- Investment
Techniques" below and "Investment Objectives and Management Policies --
Management Policies" in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- 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
Page 4
undertake the risks involved. See "Investment Objectives and Management
Policies" in the Statement of Additional Information for a further discussion
of certain risks.
EQUITY SECURITIES -- Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of 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
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 Series 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 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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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.
Page 5
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."
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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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 managers are Hilary R. Woods
and Paul Kandel. They have held that position since October 1996 and have
been employed by The Dreyfus Corporation since 1987 and 1994, respectively.
Prior to joining The Dreyfus Corporation, Mr. Kandel was a Manager at Ark
Asset Management for two years; prior thereto he was an Assistant Vice
President at Bankers Trust Company for four years. 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 billion in mutual fund assets.
Page 6
For the fiscal year ended December 31, 1996, 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. 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 a
ny amounts it may waive nor will the Fund reimburse The Dreyfus Corporation
for any amounts it may assume.
In allocating brokerage transactions, 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. Brokerage transactions for the Series
may be conducted through Dreyfus Investment Services Corporation, an
affiliate of The Dreyfus Corporation, in accordance with procedures adopted
by the Fund's Board. See "Portfolio Transactions" in the Statement of
Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies 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 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Series' Custodian.
How to Buy Shares
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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
Page 7
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.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Page 8
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996, 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 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 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.,
Page 9
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 Small Cap
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of thirteen 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.
Each report will show the investments owned by the Series 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 or sell securities on
a forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
Page 11
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.
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.
Page 12
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.
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.
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 -- The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate.
Ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of such obligations. Although these ratings
may be an initial criterion for selection of portfolio investments, 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
Page 13
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
Variable
Investment
Fund
Small Cap Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
121p050197
Page 16
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
SMALL COMPANY STOCK PORTFOLIO
- -------------------------------------------------------------------------------
THE SMALL COMPANY STOCK PORTFOLIO (THE "SERIES") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. Fund shares
are offered only to variable annuity and variable life insurance separate
accounts established by insurance companies ("Participating Insurance
Companies") to fund variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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 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 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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
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. Further financial data, related
notes and the report of independent auditors accompany 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 April 30, 1996
(commencement of operations) to December 31, 1996. 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.
PER SHARE DATA:
Net asset value, beginning of period................. $12.50
-------
INVESTMENT OPERATIONS:
Investment income-net................................ .05
Net realized and unrealized gain
on investments....................................... 1.03
-------
TOTAL FROM INVESTMENT OPERATIONS..................... 1.08
-------
DISTRIBUTIONS:
Dividends from investment income-net................. (.05)
Dividends from net realized gain investments......... (.01)
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TOTAL DISTRIBUTIONS.................................. .06
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Net asset value, end of period....................... $13.52
=======
TOTAL INVESTMENT RETURN................................ 8.73%(1,2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.............. .75%(1)
Ratio of net investment income to
average net assets................................... .39%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation............... .19%(1)
Portfolio Turnover Rate.............................. 35.68%(1)
Average commission rate paid(3)...................... $.0412
Net assets, end of period (000's omitted)............ $8,148
(1) Not annualized.
(2) Calculated based on net asset
value on the close of business on May 1, 1996 (commencement of initial
offering) to December 31, 1996.
(3) The Series is required to disclose its average commission rate paid
per share for purchases and sales of investment securities.
Further information about the Series' performance is contained in the
Series' 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' investment objective is to provide investment results
that are greater than the total return performance of publicly-traded common
stocks in the aggregate, as represented by Russell 2500trademark Index.* 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 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 Russell 2500trademark Index is composed of common stocks issued by
small- and medium-sized companies, typically with market capitalizations
between $100 million and $3 billion. The Series will invest in the securities
of such issuers that are considered by The Dreyfus Corporation to offer
above-average growth potential. The Series also may invest in initial public
offerings of stock when The Dreyfus Corporation determines 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 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 its entire portfolio in money market instruments.
The Series' annual portfolio turnover rate is not 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 options and futures
transactions, and may enter into reverse repurchase agreements. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix -- Investment Techniques"
below and "Investment Objectives and Management Policies"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 its shares and thus the
Series' total return to investors.
The securities of the smaller companies in which the Series invests
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.
- ------------------------
* Russell 2500trademark is a trademark of Frank Russell Company. The Series
is not sponsored, endorsed, sold or promoted by Frank Russell Company.
Page 4
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 or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
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 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. 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, 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. If, however, 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 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 March 31, 1997, The Dreyfus Corporation managed
or administered approximately $82 billion in assets for approximately
1.7million 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 James Wadsworth.
He has held that position since the Series commenced operations. In addition
to being a portfolio manager with The Dreyfus Corporation, Mr. Wadsworth also
has been employed by Laurel Capital Advisors, an affiliate of The Dreyfus
Corporation, since October 1990, and has been Chief Investment Officer of
Laurel Capital Advisors since June 1994. Mr. Wadsworth also is a First Vice
President of Mellon, where he has been employed since 1977. 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in assets
including approximately $57 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 period
from April 30, 1996 (commencement of operations) to December 31, 1996, 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 it may waive, nor will the Fund reimburse The Dreyfus
Corporation for any amounts it may assume.
In allocating brokerage transactions, 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. Brokerage transactions for the Series may
be conducted through Dreyfus Investment Services Corporation, an affiliate
of The Dreyfus Corporation, in accordance with procedures adopted by the
Fund's Board. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to the Series and/or to
purchasers of VA contracts or VLI policies.
Page 6
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.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Series' Custodian.
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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. 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
Page 7
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
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 a
re accrued daily and deducted before declaration of dividends to investors.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions mad
e to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Page 8
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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 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 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.,
Page 9
Russell 2500trademark Index, 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 Small Company
Stock Portfolio are being offered. Other portfolios are sold pursuant to
other offering documents.
To date, the Board has authorized the creation of thirteen 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.
Each report will show the investments owned by the Series 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. 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.
USE OF DERIVATIVES -- The Series may invest in, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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 purpos-
Page 11
es if the sum of the amount of initial margin deposits and premiums paid for
unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the 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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
The Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will the
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
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.
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 pur-
Page 12
chased 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.
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.
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 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 Investors Service, Inc. ("Moody's"), A-1 by Standard & Poor's Ratings
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 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 -- 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 -- 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.
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
Variable
Investment
Fund
Small Company Stock
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
151p050197
Page 16
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1997
DREYFUS VARIABLE INVESTMENT FUND
ZERO COUPON 2000 PORTFOLIO
- -------------------------------------------------------------------------------
THE ZERO COUPON 2000 PORTFOLIO (THE "SERIES") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND (THE "FUND"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. FUND SHARES
ARE OFFERED ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE
ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES ("PARTICIPATING INSURANCE
COMPANIES") TO FUND VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND VARIABLE
LIFE INSURANCE POLICIES ("VLI POLICIES"). INDIVIDUALS MAY NOT PURCHASE SHARES
DIRECTLY FROM THE FUND. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS OF THE SEPARATE ACCOUNTS OF THE SPECIFIC INSURANCE PRODUCT
WHICH SHOULD PRECEDE OR ACCOMPANY THIS PROSPECTUS.
THE SERIES' INVESTMENT OBJECTIVE 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, AT WHICH TIME IT IS EXPECTED THAT THE PORTFOLIO WILL BE LIQUIDATED.
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, 1997, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-554-4611. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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. Further financial data, related
notes and report of independent auditors accompany 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $10.00 $10.45 $11.64 $11.77 $12.57 $11.39 $12.70
------- ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................ .22 .76 .83 .79 .69 .69 .68
Net realized and unrealized gain (loss) on investments .45 1.25 .15 .96 (1.18) 1.31 (.36)
------- ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..... .67 2.01 .98 1.75 (.49) 2.00 .32
------- ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net. (.22) (.76) (.84) (.78) (.68) (.69) (.68)
Dividends from net realized
gain on investments.................. .-- (.06) (.01) (.17) (.01) .-- (.05)
------- ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................. (.22) (.82) (.85) (.95) (.69) (.69) (.73)
------- ------ ------ ------ ------ ------ ------
Net asset value, end of period....... $10.45 $11.64 $11.77 $12.57 $11.39 $12.70 $12.29
======= ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................ 20.09(2) 20.09% 8.87% 15.19% (3.91%) 17.95% 2.59%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .70%(2) .72% .64% .-- .-- .68% .66%
Ratio of net investment income to
average net assets................... 8.03%(2) 7.41% 7.15% 6.21% 6.04% 5.73% 5.54%
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% 98.28%
Net assets, end of period (000's omitted) $155 $1,296 $1,362 $5,696 $10,913 $22,291 $31,796
</TABLE>
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
Further information about the Series' performance is contained in the
Series' 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' investment objective 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 ("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
inter-
Page 4
est 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 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 in various investment techniques, such as options and
futures transactions and lending portfolio securities. For a discussion of
the investment techniques and their relative risks, see "Investment
Considerations and Risks" and "Appendix_Investment Techniques" below and
"Investment Objectives and Management Policies _Management Policies" in the
Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- 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" 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
Page 5
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 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
Series 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, 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. If, however, 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 March 31, 1997, The Dreyfus Corporation managed or
administered approximately $82 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under 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 Gerald E.
Thunelius. He has held that position since March 1997 and has been a
portfolio manager of the Series since June 1994. Mr. Thunelius has been
employed by The Dreyfus Corporation since September 1989. 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, 1996, including approximately $86
billion in proprietary mutual fund assets. As of December 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.046 trillion in
assets, including approximately $57 billion in mutual fund assets.
For the fiscal year ended December 31, 1996, the Fund paid The
Dreyfus Corporation an advisory fee at the annual rate of .45 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 it may waive, nor will the Fund
reimburse The Dreyfus Corporation for any amounts it may assume.
In allocating brokerage transactions, 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. Brokerage transactions for the Series may
be conducted through Dreyfus Investment Services Corporations, an affiliate
of the Dreyfus Corporation, in accordance with procedures adopted by the
Fund's Broad. 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 60 State Street, Boston, Massachusetts 02109. The
Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Series' Custodian.
PAGE 7
HOW TO BUY SHARES
FUND SHARES CURRENTLY ARE OFFERED ONLY TO SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS
DIRECTLY WITH THE FUND.
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.
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. By meeting these and other
requirements, the Participating Insurance Companies, rather than VA contract
holders or VLI policy holders, should be subject to tax on distributions
received with respect to Series shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income,
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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1996 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
PAGE 9
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 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 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
PAGE 10
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
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 thirteen 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.
Each report will show the investments owned by the Fund and the market values
thereof as determined by the Series 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 33 1\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, or enter into, 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 its
Derivatives were poorly correlated with its other investments or if the
Series 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,
certain Derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Series can invest in
such 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,
exceeds 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 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
PAGE 12
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 or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Series assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Series is not
required to pay for these securities until the delivery date, these risks are
in addition to the risks associated with the Series' other investments. If
the Series is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
Each Series may engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Series' exposure to changes in
interest rates and will increase the volatility of its returns. A segregated
account of the Series consisting of permissible liquid assets at least equal
at all times to the amount of the Series' purchase commitments will be
established and maintained at the Fund's custodian bank. At no time will a
Series have more than 33 1\3% of its assets committed to purchase securities
on a forward commitment basis.
CERTAIN PORTFOLIO SECURITIES
U.S. TREASURY SECURITIES -- U.S. Treasury Securities include Treasury
Inflation-Protection Securities ("TIPS"), which are newly created securities
issued by the U.S. Treasury designed to protect investors against inflation.
The interest rate paid by TIPS is fixed, while the principal value rises or
falls semi-annually based on changes in a published Consumer Price Index.
Thus, if the rate of inflation increases, the principal and interest payments
on the TIPS also increase, protecting investors from inflationary loss.
During a deflationary period, the principal and interest payments decrease,
although the TIPS' principal will not decrease below its face amount at
maturity.
In exchange for the inflation protection, TIPS generally pay lower
interest rates than typical Treasury securities. Only if the rate of
inflation rises will TIPS offer a higher real yield than a conventional
Treasury bond of the same maturity. In addition, it is not possible to
predict with assurance how the market for TIPS will develop; initially, the
secondary market for these securities may not be as active or liquid as the
secondary market for conventional Treasury securities. Principal appreciation
and interest payments on TIPS will be taxed annually as ordinary interest
income for federal income tax calculations. As a result, any appreciation in
principal must be counted as interest income in the year the increase occurs,
even though the investor will not receive such amounts until the TIPS are
sold or mature. Principal appreciation and interest payments will be exempt
from state and local income taxes.
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
PAGE 13
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."
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Series may invest in obligations issued or guaranteed by one of more foreign
governments or any of their political subdivisions 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 and
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 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.
Page 14
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.
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 and 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
Variable
Investment
Fund
Zero Coupon 2000
Portfolio
Prospectus
Registration Mark
Copy Rights 1997, Dreyfus Service Corporation
119p050197
Page 16
