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PROSPECTUS MAY 1, 1998
DREYFUS VARIABLE INVESTMENT FUND
BALANCED PORTFOLIO
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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.
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, 1998, 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.................................... 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 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 May 1, 1997
(commencement of operations) to December 31, 1997. 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.
PER SHARE DATA: BALANCED PORTFOLIO
___________________
Net asset value, beginning of period............ $12.50
______
INVESTMENT OPERATIONS:
Investment income-net........................... .25
Net realized and unrealized gain
on investments................................. 2.06
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TOTAL FROM INVESTMENT OPERATIONS................ 2.31
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Distributions:
Dividends from investment income-net............ (.25)
Dividends from net realized gain on investments. (.52)
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Total Distributions............................. (.77)
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Net asset value, end of period.................. $14.04
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TOTAL INVESTMENT RETURN........................... 18.48%(1)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets......... .67%(1)
Ratio of net investment income to
average net assets............................. 1.91%(1)
Portfolio Turnover Rate......................... 45.78%(1)
Average commission rate paid(2)................. $.0504
Net assets, end of period (000's omitted)....... $41,144
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(1) Not annualized.
(2) 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. Differences in tax treatment or other
considerations may cause the interest of holders of VA contracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 Bond
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 Index. 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 Index . 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
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* "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 Standard &Poor's ("S&P") or The McGraw-Hill Companies, Inc.
[Page 4]
Moody's Investors Service, Inc. ("Moody's"), S&P Ratings Group or Fitch IBCA,
Inc. ("Fitch"), 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 Index 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 Bond Index is an index established by Lehman
Brothers, Inc. which includes fixed rate debt issues rated investment grade
by Moody's, S&P Ratings Group 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 Bond 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) for the current fiscal year is not expected
to exceed 100%. A turnover rate of 100% is equivalent to the Series buying
and selling all of the securities in its portfolio once in the course of a
year. 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, transactions in options and futures,
and 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,
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 Ratings Group 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.
[Page 5]
Because evidences of ownership of such securities usually are held
outside the United States, the Series will be subject to additional risks
which include possible adverse political and economic
developments, seizure or nationalization of foreign deposits and adoption of
governmental restrictions which might adversely affect 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, or enter into, 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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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 Ron Gala and
Laurie Carroll. Mr. Gala has managed the equity portion of the Series since
the Series commenced operations. Mr. Gala is a 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 Vice President and portfolio
[Page 6]
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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 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. 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.
For the period from May 1, 1997 (commencement of operations) to
December 31, 1997, 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.
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
[Page 7]
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 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
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 by a
Participating Insurance Company. 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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1997 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.
[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., 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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. 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
[Page 10]
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
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.
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 inopportune 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.
[Page 12]
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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. 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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States 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 GDRs in bearer form are designed for use
outside the United States.
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,
[Page 13]
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, A-1 by S&P Ratings Group, 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 Ratings Group,
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
[Page 14]
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.
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 Ratings Group 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 Ratings Group, 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 15]
Variable
Investment
Fund
Balanced
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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 year 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 year indicated.
<TABLE>
CAPITAL APPRECIATION PORTFOLIO
____________________________________________________________
YEAR ENDED DECEMBER 31,
____________________________________________________________
PER SHARE DATA: 1993(1) 1994 1995 1996 1997
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $12.50 $13.27 $13.44 $17.71 $21.98
------ ------ ------ ----- ------
INVESTMENT OPERATIONS:
Investment income-net............................. .08 .23 .23 .23 .22
Net realized and unrealized gain
on investments.................................... .76 .17 4.27 4.30 5.95
------ --___- ------ --___- ___---
TOTAL FROM INVESTMENT OPERATIONS.................. .84 .40 4.50 4.53 6.17
------ --___- ------ --___- ___---
DISTRIBUTIONS:
Dividends from investment income-net.............. (.07) (.23) (.23) (.23) .(.22)
Dividends from net realized gain on investments... _ _ _ (.03) (.02)
------ --___- ------ --___- ___---
TOTAL DISTRIBUTIONS............................... (.07) (.23) (.23) (.26) (.24)
------ --___- ------ --___- ___---
Net asset value, end of year...................... $13.27 $13.44 $17.71 $21.98 $27.91
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN............................... 6.74%(2) 3.04% 33.52% 25.56% 28.05%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets........... .28%(2) .25% .85% .84% .80%
Ratio of net investment income to
average net assets................................ 1.89%(2) 2.99% 2.08% 1.46% 1.08%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation........... 3.67%(2) .86% .02% _ _
Portfolio Turnover Rate........................... .01%(2) .12% 2.81% 2.47% 1.69%
Average commission rate paid(3)................... _ _ _ $.0705 $.0608
Net assets, end of year (000's omitted)........... $3,770 $16,118 $46,930 $103,745 $247,011
________________________
(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>
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. Differences in tax treatment or
other considerations may cause the interest of holders of VA contracts and
VLI policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 emphasizes investments in equity securities of
established companies and employs a long-term, low portfolio turnover
investment approach. As a result, the Series invests for long-term growth
rather than short-term profits.
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.
Because the Series invests for long-term growth rather than
short-term profits, the Series' annual portfolio turnover rate is not
expected to exceed 15% and will exceed 25% only in the event of extraordinary
market conditions. Nevertheless, securities transactions for the Series will
be based only upon investment considerations and will not be limited by other
considerations when Sarofim deems it appropriate to make changes in the
Series' portfolio securities. 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.
[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' portfolio
securities will result in changes in the value of the Series' 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,
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.
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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Series.
[Page 5]
MANAGEMENT OF THE FUND
INVESTMENT ADVISERS _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of March 31, 1998, The Dreyfus Corporation managed
or administered approximately $100 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 billion in mutual fund assets.
Sarofim, a registered investment adviser located at Two Houston
Center, Suite 2907, Houston, Texas 77010, serves as the Series'
sub-investment adviser. Sarofim was formed in 1958 and, as of December 31,
1997, managed approximately $39.1 billion in discretionary separate accounts
and provided investment advisory services to four other investment companies
having aggregate assets of approximately $3.1 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:
<TABLE>
<S> <C> <C>
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, 1997, 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:
[Page 6]
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%
</TABLE>
For the fiscal year ended December 31, 1997, 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.
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. 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
[Page 7]
with applicable requirements. VA contract holders and VLI policy holders
should refer to the prospectus for their contracts or policies in this
regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. Net asset value per share is computed by
dividing the value of the net assets of the Series (i.e., the value of its
assets less liabilities) by the total number of Series shares outstanding.
The Series' investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in
good faith by the Fund's Board. For further information regarding the methods
employed in valuing the Series' investments, see "Determination of Net Asset
Value" in the Statement of Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. INDIVIDUALS MAY NOT PLACE REDEMPTION
ORDERS DIRECTLY WITH THE FUND. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. VA contract holders and VLI policy
holders should consult their Participating Insurance Company in this regard.
The value of the shares redeemed may be more or less than their original
cost, depending on the Series' then-current net asset value. No charges are
imposed by the Fund when shares are redeemed.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission.
Should any conflict between VA contract holders and VLI policy
holders arise which would require that a substantial amount of net assets be
withdrawn, orderly portfolio management could be disrupted to the potential
detriment of such contract holders and policy holders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series declares and pays dividends from net investment income
annually. The Series will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the 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 by a
Participating Insurance Company. 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
taxable as long-term capital
[Page 8]
gains whether received in cash or reinvested in additional shares. Since the
Fund's shareholders are the Participating Insurance Companies and their
separate accounts, no discussion is included herein as to the Federal income
tax consequences to VA contract holders and VLI policy holders. For
information concerning the Federal income tax consequences to such holders,
see the prospectus for such contract or policy.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately diversified"
as provided therein or in accordance with U.S. Treasury Regulations in order
for the account to serve as the basis for VA contracts or VLI policies.
Section 817(h) and the U.S. Treasury Regulations issued thereunder provide
the manner in which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification requirements.
If the Series satisfies certain conditions, a segregated asset account
owning shares of the Series will be treated as owning multiple investments
consisting of the account's proportionate share of each of the assets of the
Series. The Series intends to satisfy these conditions so that the shares of
the Series owned by a segregated asset account of a Participating Insurance
Company will be treated as multiple investments. 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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1997, 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.
[Page 9]
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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the 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.
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.
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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase
[Page 11]
commitments. At no time will the Series have more than 331\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 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."
[Page 12]
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 & Poor's Rating
Group ("S&P"), F-1 by Fitch IBCA, Inc. ("Fitch") or Duff-1 by Duff & Phelps
Credit Rating Co. ("Duff"), (b) issued by companies having an outstanding
unsecured debt issue currently rated at least A3 by Moody's or A- by S&P,
Fitch or Duff, or (c) if unrated, determined by The Dreyfus Corporation and
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]
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[Page 14]
[This Page Intentionally Left Blank]
[Page 15]
Variable
Investment
Fund
Capital Appreciation
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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........................................ 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 each year 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 year indicated.
<TABLE>
DISCIPLINED STOCK PORTFOLIO
___________________________________
YEAR ENDED DECEMBER 31,
___________________________________
1996(1) 1997
___-__ _____
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................. $12.50 $14.79
___-__ ______
INVESTMENT OPERATIONS:
Investment income-net............................................... .07 .08
Net realized and unrealized gain
on investments...................................................... 2.29 4.53
___-__ ______
TOTAL FROM INVESTMENT OPERATIONS.................................... 2.36 4.61
___-__ ______
DISTRIBUTIONS:
Dividends from investment income-net................................ (.07) (.08)
Dividends from net realized gain on investments..................... ._ (1.02)
___-__ ______
TOTAL DISTRIBUTIONS................................................. (.07) (1.10)
___-__ ______
Net asset value, end of year........................................ $14.79 $18.30
====== ======
TOTAL INVESTMENT RETURN............................................... 18.86%(2,3) 31.51%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................. .80%(2) 1.02%
Ratio of net investment income to
average net assets.................................................. .72%(2) .68%
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation.............................. .16%(2) ._
Portfolio Turnover Rate............................................. 30.62%(2) 79.74%
Average commission rate paid(4)..................................... $.0450 $.0542
Net assets, end of year (000's omitted)............................. $17,722 $53,317
____________________________
(1) From April 30, 1996 (commencement of operations) to December 31, 1996.
(2) Not annualized.
(3) Calculated based on net asset value on the close of business on May 1,
1996 (commencement of initial offering) to December 31, 1996.
(4) The Series is required to disclose its average commission rate paid per
share for purchases and sales of investment securities
</TABLE>
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. Differences in tax treatment or other
considerations may cause the interest of holders of VAcontracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 maintaining 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 for the current fiscal
year is not expected to exceed 100%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
the course of a year. Higher portfolio turnover rates usually generate
additional brokerage commissions and transaction costs 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 transactions in options and
___________________________________________________
* "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 Standard &
Poor's or The McGraw-Hill Companies, Inc.
[Page 4]
futures, 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.
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.
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.
Use of Derivatives _ The Series may invest in, or enter into, 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
[Page 5]
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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed or
administered approximately $100 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 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 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 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 one or more series and/or to
purchasers of VA contracts or VLI policies.
[Page 6]
For the fiscal year ended December 31, 1997, the Fund paid The Dreyfus
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.
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
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
[Page 7]
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 by a
Participating Insurance Company. 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, 1997 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. The Fund ordinarily
[Page 9]
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. 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 instructions
from policy holders and will vote shares in proportion to the voting
instructions received. A Participating Insurance Company could, from time to
time, be deemed to control a Series to the extent that its separate
account(s) may own in the aggregate more than 25% of a Series' shares. For
further information on voting rights, see the prospectus for the VA contract
or VLI policy for information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Disciplined 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 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 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.
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 inopportune 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
[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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. At no
time will the Series have more than 331\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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States 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 GDRs in bearer form are designed for use
outside the United States.
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
[Page 12]
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 & Poor's Ratings
Group ("S&P"), F-1 by Fitch IBCA, 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.
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
[Page 13]
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 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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............................ 7
How to Buy Shares................................. 8
How to Redeem Shares.............................. 8
Dividends, Distributions and Taxes................ 9
Performance Information........................... 10
General Information............................... 10
Appendix.......................................... 12
[Page 2]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. 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 year 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 year indicated.
<TABLE>
GROWTH AND INCOME PORTFOLIO
___________________________________
YEAR ENDED DECEMBER 31,
___________________________________
PER SHARE DATA: 1994(1) 1995 1996 1997
______ _______ _____ ______
<S> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $12.50 $11.98 $18.33 $19.55
______ _______ _____ ______
INVESTMENT OPERATIONS:
Investment income-net....................................... .28 .28 .36 .28
Net realized and unrealized gain (loss)
on investments.............................................. (.43) 7.07 3.43 2.79
___-___ _______ _____- ______
TOTAL FROM INVESTMENT OPERATIONS.......................... (.15) 7.35 3.79 3.07
___-___ _______ _____- ______
DISTRIBUTIONS:
Dividends from investment income-net........................ (.28) (.27) (.35) (.28)
Dividends from net realized gain on investments............. (.09) (.73) (2.22) (1.56)
___-___ _______ _____- ______
TOTAL DISTRIBUTIONS....................................... (.37) (1.00) (2.57) (1.84)
___-___ _______ _____- ______
Net asset value, end of year................................ $11.98 $18.33 $19.55 $20.78
======= ======= ====== ======
TOTAL INVESTMENT RETURN......................................... (1.22%)(2) 61.89% 20.75% 16.21%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................... .22%(2) .92% .83% .80%
Ratio of net investment income to
average net assets.......................................... 2.25%(2) 2.21% 1.96% 1.37%
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% 180.73%
Average commission rate paid(3)............................. ._ ._ $.0600(4) $.0583
Net assets, end of year (000's omitted)..................... $1,040 $71,161 $225,935 $369,832
______________________
(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.
(4) Restated to reflect current years presentation.
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.
</TABLE>
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. Differences in tax treatment or
other considerations may cause the interest of holders of VA contracts and
VLI policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
[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. See "General Information."
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
IBCA, Inc. ("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 for the current fiscal
year is not expected to exceed 300%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
the course of a year. Higher portfolio turnover rates usually generate
additional brokerage commissions and transaction
[Page 4]
costs 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 transactions in foreign
currency, options and futures, leveraging, 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 its shares and thus the
Series' total return to investors.
The Series may purchase the securities of small capitalization
companies the prices of which 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.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk, and may
be more volatile and less liquid than more traditional debt securities.
Mortgage-related securities are subject to credit risks associated with the
performance of the underlying mortgage properties. Adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commercial properties than on those secured by loans on residential
properties. In addition, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than
residential mortgages and prepayment protection features. Some
mortgage-related securities have structures that make their reactions to
interest rate changes and other factors difficult to predict, making their
value highly volatile. See "Appendix_Certain Portfolio
Securities_Mortgage-Related Securities."
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. 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
[Page 5]
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.
USE OF DERIVATIVES _ The Series may invest in, or enter into, 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.
[Page 6]
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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 Douglas D. Ramos.
He has held that position and has been employed by The Dreyfus Corporation
since July 1997. For more than five years prior thereto, Mr. Ramos was
employed by Loomis Sayles & Company, L.P., most recently serving as a Senior
Partner and Investment Counselor. 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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. 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 7]
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 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.
[Page 8]
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 by a
Participating Insurance Company. 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, 1997 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.
[Page 9]
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., 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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
[Page 10]
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.
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.
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.
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 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. 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
[Page 12]
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 inopportune 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 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
[Page 13]
the Series' exposure to changes in interest rates and will increase the
volatility of its returns. The Series will set aside in a segregated account
permissible liquid assets at least equal at all times to the amount of the
Series' purchase commitments. 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 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 commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities. 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 a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
In certain instances, the credit risk associated with mortgage-related
securities can be reduced by third party guarantees or other
forms of credit support. Improved credit risk does not reduce prepayment risk
which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. If a mortgage-related security is purchased
at a premium, all or part of the premium may be lost if there is a decline in
the market value of the security, whether resulting from changes in interest
rates or prepayments on the underlying mortgage collateral. Certain
mortgage-related securities that may be purchased by the Series, such as
inverse floating rate collateralized mortgage obligations, have coupons that
move inversely to a multiple of a specific index which may result in a form
of leverage. As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Series. Moreover, with respect to
certain 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
[Page 14]
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.
RESIDENTIAL MORTGAGE-RELATED SECURITIES. The Series may invest in
mortgage-related securities representing participation interests in pools of
one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued
by private entities. Similar to commercial mortgage-related securities,
residential mortgage-related securities have been issued using a variety of
structures, including multi-class structures featuring senior and
subordinated classes.
COMMERCIAL MORTGAGE-RELATED SECURITIES. The Series may invest in
commercial mortgage-related securities, which generally are multi-class debt
or pass-through certificates secured by mortgage loans on commercial
properties. These mortgage-related securities generally are structured to
provide protection to the senior class investors against potential losses on
the underlying mortgage loans. This protection is generally provided by
having the holders of subordinated classes of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protections, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and
over-collateralization.
SUBORDINATED SECURITIES. The Series also may invest in Subordinated
Securities issued or sponsored by commercial banks, savings and loan
institutions, mortgage bankers, private mortgage insurance companies and
other non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner 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.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multiclass
bonds backed by pools of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured
by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other
mortgage-related securities or (e) any combination thereof.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index, such as the London Interbank Offered
Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The
Series also may invest in inverse floating rate CMOs. Inverse floating rate
CMOs constitute a tranche of a CMO with a coupon rate that moves in the
reverse direction to an applicable index such as the LIBOR. Accordingly, the
coupon rate thereon will increase as interest rates decrease. Inverse
floating rate CMOs are typically more volatile than fixed or floating rate
tranches of CMOs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Series also may invest in
stripped mortgage-backed securities which are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities, each with a specified percentage of the underlying
security's principal or
[Page 15]
interest payments. Mortgage securities may be partially stripped so
that each investor class received some interest and some principal. When
securities are completely stripped, however, all of the interest is
distributed to holders of one type of security, known as an interest-only
security, or IO, and all of the principal is distributed to holders of
another type of security known as a principal-only security, or PO. Strips
can be created in a pass-through structure or as tranches of a CMO. The
yields to maturity on IOs and POs are very sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may not fully recoup its initial
investment in IOs. Conversely, if the underlying mortgage assets experience
less than anticipated prepayments of principal, the yield on POs could be
materially and adversely affected.
REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Code. The Code permits a qualifying REIT to
deduct dividends paid, thereby effectively eliminating corporate level
Federal income tax and making the REIT a pass-through vehicle for Federal
income tax purposes. To meet the definitional requirements of the Code, a
REIT must, among other things, invest substantially all of its assets in
interests in real estate (including mortgages and other REITs) or cash and
government securities, derive most of its income from rents from real
property or interest on loans secured by mortgages on real property, and
distribute to shareholders annually a substantial portion of its otherwise
taxable income. REITs are subject to heavy cash flow dependency, defaults by
borrowers or tenants, self-liquidation and the possibility of failing to
qualify for tax-free status under the Code or to maintain exemption from the
1940 Act.
PRIVATE ENTITY SECURITIES. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers.
Timely payment of principal and interest on mortgage-related securities
backed by pools created by non-governmental issuers often is supported
partially by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance.
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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States 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 GDRs in bearer form are designed for use
outside the United States.
[Page 16]
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES _ The
Series may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Series may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS_The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series _ Investment
Considerations and Risks _ Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer then seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. Other short-term bank
obligations may include uninsured, direct obligations bearing fixed, floating
or variable interest rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies
having an outstanding unsecured debt issue currently rated at least A3 by
Moody's or A- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation to be of comparable quality to those rated obligations
which may be purchased by the Series.
[Page 17]
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, 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.
[Page 18]
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 19]
Variable
Investment
Fund
Growth and Income
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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.......................................... 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 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 year 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 year indicated.
<TABLE>
INTERNATIONAL EQUITY PORTFOLIO
___________________________________________
YEAR ENDED DECEMBER 31,
___________________________________________
PER SHARE DATA: 1994(1) 1995 1996 1997
________ ______ _______ ______
<S> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $12.50 $12.02 $12.82 $13.76
________ ______ _______ ______
INVESTMENT OPERATIONS:
Investment income-net....................................... .15 .15 .10 .05
Net realized and unrealized gain (loss)
on investments.............................................. (.40) .74 1.16 1.27
________ ______- _______ ______
TOTAL FROM INVESTMENT OPERATIONS............................ (.25) .89 1.26 1.32
________ ______- _______ ______
DISTRIBUTIONS:
Dividends from investment income-net........................ (.14) (.08) (.09) (.07)
Dividends in excess of investment income-net................ (.09) (.01) ._ ._
Dividends from net realized gain on investments............. ._ ._ (.39) (.34)
Dividends in excess of net realized gain on investments..... ._ ._ (.06) (.65)
________ ______- _______ ______
TOTAL DISTRIBUTIONS......................................... (.23) (.09) (.54) (1.06)
________ ______- _______ ______
CAPITAL CONTRIBUTION FROM AN AFFILIATE OF THE DREYFUS CORPORATION... ._ ._ .22 ._
________ ______- _______ ______
Net asset value, end of year................................ $12.02 $12.82 $13.76 $14.02
======== ======= ======= ======
TOTAL INVESTMENT RETURN......................................... (2.00%)(2) 7.39% 11.61%(3) 9.61%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................... .23%(2) 1.59% 1.28% 1.06%
Ratio of net investment income to
average net assets.......................................... 1.11%(2) 1.13% .92% .38%
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% 165.75%
Average commission rate paid (4)............................ ._ ._ $.0255 $.0236
Net assets, end of year (000's omitted)..................... $1,089 $7,672 $24,355 $39,388
____________________
(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>
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. Differences in tax treatment or
other considerations may cause the interest of holders of VAcontracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 without restriction in companies in, or
government of, developing 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 IBCA, Inc. ("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 for the current fiscal
year is not expected to exceed 150%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
[Page 4]
the course of a year. Higher portfolio turnover rates usually generate
additional brokerage commissions and transaction costs 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 transactions in foreign currency, options and futures,
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.
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 Series may purchase the securities of small capitalization
companies the prices of which 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
[Page 5]
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.
USE OF DERIVATIVES _ The Series may invest in, or enter into, 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.
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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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
[Page 6]
subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary
of Mellon Bank Corporation ("Mellon"). As of March 31, 1998, The Dreyfus
Corporation managed or administered approximately $100 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 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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. 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
[Page 7]
of the separate account of the Participating Insurance Company for more
information on the purchase of Fund shares and with respect to the
availability for investment in specific portfolios of the Fund. The Fund does
not issue share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the Series determined on such business day if the orders are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day and Federal Funds (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)
in the net amount of such orders are received by the Fund on the next
business day in accordance with applicable requirements. It is each
Participating Insurance Company's responsibility to properly transmit
purchase orders and Federal Funds in accordance with applicable requirements.
VA contract holders and VLI policy holders should refer to the prospectus for
their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures contracts will be valued 15 minutes after the
close of trading on the floor of the New York Stock Exchange. Net asset value
per share is computed by dividing the value of the net assets of the Series
(i.e., the value of its assets less liabilities) by the total number of
Series shares outstanding. The Series' investments are valued based on market
value, or where market quotations are not readily available, based on fair
value as determined in good faith by the Fund's Board. For further
information regarding the methods employed in valuing the Series'
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
HOW TO REDEEM SHARES
Series shares may be redeemed at any time by the separate accounts of
the Participating Insurance Companies. INDIVIDUALS MAY NOT PLACE REDEMPTION
ORDERS DIRECTLY WITH THE FUND. Redemption requests from separate accounts
based on premiums and transaction requests received by the Participating
Insurance Company on a given business day in accordance with procedures
established by the Participating Insurance Company will be effected at the
net asset value of the Series determined on such business day if the requests
are received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Participating Insurance
Company's responsibility to 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 by a
Participating Insurance Company. 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
[Page 8]
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, 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, 1997 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.
[Page 9]
Advertisements may include the percentage rate of total return or may include
the value of a hypothetical investment at the end of the period, which
assumes the application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
of the Series should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges
imposed by Participating Insurance Companies under their VA contracts or VLI
policies. The Series' total return should be distinguished from the rate of
return of a corresponding sub-account or investment division of a separate
account of a Participating Insurance Company, which rate will reflect the
deduction of additional charges, including mortality and expense risk
charges, and will therefore be lower. VA contract holders and VLI policy
holders should consult the prospectus for their contract or policy.
Calculations of the Series' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund." Comparative performance information may be used
from time to time in advertising or marketing the Series' shares, including
data from Lipper Analytical Services, Inc., Money Magazine, Standard & Poor's
500 Composite Stock Price Index, Standard & Poor's MidCap 400 Index, Morgan
Stanley Capital International World Index, the Dow Jones Industrial Average,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the 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.
[Page 10]
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.
BORROWING MONEY _ The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. In
addition, while borrowings exceed 5% of the Series' total assets, the Series
will not make any additional investments.
USE OF DERIVATIVES _ The Series may invest in, 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 inopportune 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 12]
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
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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. At no
time will the Series have more than 331\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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States typically by non-United States banks and
trust companies that evidence ownership
[Page 13]
of either foreign or domestic securities. Generally, ADRs in registered form
are designed for use in the United States securities markets and GDRs in
bearer form are designed for use outside the United States.
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 14]
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 15]
Variable
Investment
Fund
International Equity
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
- -----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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..................................... 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 each year 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 year indicated.
<TABLE>
INTERNATIONAL VALUE PORTFOLIO
________________________________
YEAR ENDED DECEMBER 31,
________________________________
1996(1) 1997
________ _______
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................. $12.50 $12.80
________ ________
INVESTMENT OPERATIONS:
Investment income-net............................................... .08 .07
Net realized and unrealized gain
on investments...................................................... .34 1.03
________ ________
TOTAL FROM INVESTMENT OPERATIONS.................................... .42 1.10
________ ________
DISTRIBUTIONS:
Dividends from investment income-net................................ (.08) (.07)
Dividends from net realized gain on investments..................... (.04) (.30)
Dividends in excess of net realized gain on investments............. _ (.08)
________ ________
TOTAL DISTRIBUTIONS................................................. (.12) (.45)
________ ________
Net asset value, end of year........................................ $12.80 $13.45
======== =======
TOTAL INVESTMENT RETURN............................................... 3.41%(2,3) 8.71%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................. 1.01%(2) 1.42%
Ratio of net investment income to
average net assets.................................................. .76%(2) .74%
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation.............................. .34%(2) __
Portfolio Turnover Rate............................................. 24.48%(2) 25.67%
Average commission rate paid(4)..................................... $.0351 $.0297
Net assets, end of year (000's omitted)............................. $8,027 $19,016
(1) From April 30, 1996 (commencement of operations) to December 31, 1996.
(2) Not annualized.
(3) Calculated based on net asset value on the close of business on May 1,
1996 (commencement of initial offering) to December 31, 1996.
(4) The Series is required to disclose its average commission rate paid per
share for purchases and sales of investment securities.
</TABLE>
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. Differences in tax treatment or other
considerations may cause the interest of holders of VAcontracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
Nevertheless, the Fund's Board intends to monitor events in order to
identify any material conflicts which may arise and to determine what action,
if any, should be taken in response thereto. Resolution of an irrecon
[Page 3]
cilable conflict might result in the withdrawal of a substantial amount of
the Series' assets which could adversely affect the Series' net asset value
per share.
Individual VA contract holders and VLI policy holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders (the "shareholders"), although
such companies will pass through voting rights to their VA contract holders
and VLI policy holders. See "General Information."
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 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 for the current fiscal
year is not expected to exceed 150%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
the course of a year. 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 may engage in various
investment techniques, such as transactions in foreign currency, options and
futures, 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.
[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.
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, or enter into, 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]
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed or
administered approximately $100 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 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. 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 of VA contracts or VLI policies.
For the fiscal year ended December 31, 1997, the Fund paid The
Dreyfus Corporation a monthly advisory fee at the annual rate of 1.00% 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
[Page 6]
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.
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, 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 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
[Page 7]
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 by a
Participating Insurance Company. 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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1997 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
[Page 8]
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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25%
[Page 9]
of a Series' shares. 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.
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 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.
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 inopportune 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
[Page 11]
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Series will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
Lending Portfolio Securities _ The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Series an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331\3%
of the value of the Series' total assets, and the Series will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Such
loans are terminable by the Series at any time upon specified notice. The
Series might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Series.
FORWARD COMMITMENTS _ The Series may purchase 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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. At no
time will the Series have more than 331\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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States typically by non-United States banks and
trust companies that evidence ownership
[Page 12]
of either foreign or domestic securities. Generally, ADRs in registered form
are designed for use in the United States securities markets and GDRs in
bearer form are designed for use outside the United States.
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 & Poor's Ratings
Group ("S&P"), F-1 by Fitch IBCA, Inc. ("Fitch") or Duff-1 by Duff & Phelps
Credit Rating Co. ("Duff"), (b) issued by companies having an out
[Page 13]
standing 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 1998, Dreyfus Service Corporation
152p0598
[Page 16]
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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 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 in lower rated
fixed-income securities 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, 1998, 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............................ 7
How to Buy Shares................................. 8
How to Redeem Shares.............................. 9
Dividends, Distributions and Taxes................ 9
Performance Information........................... 10
General Information............................... 11
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 the period April 30, 1997
(commencement of operations) to December 31, 1997. 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>
LIMITED TERM HIGH INCOME PORTFOLIO
_______________________________________
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $12.50
______
INVESTMENT OPERATIONS:
Investment income-net................................ .78
Net realized and unrealized gain
on investments....................................... .41
______
TOTAL FROM INVESTMENT OPERATIONS..................... 1.19
______
DISTRIBUTIONS:
Dividends from investment income-net................. (.77)
Dividends from net realized gain on investments...... (.04)
______
Total Distributions.................................. (.81)
______
Net asset value, end of period....................... $12.88
======
TOTAL INVESTMENT RETURN................................ 14.27%(1)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets.... .89%(1)
Ratio of interest expenses to average net assets..... .20%(2)
Ratio of net investment income to
average net assets................................... 10.27%(1)
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation............... .05%(1)
Portfolio Turnover Rate.............................. 37.98%(2)
Net assets, end of period (000's omitted)............ $31,454
__________________________
(1) Annualized.
(2 Not Annualized.
</TABLE>
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. Differences in tax treatment or other
considerations may cause the interest of holders of VA contracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 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 IBCA, Inc. ("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.
[Page 4]
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 the current fiscal year is
expected to exceed 100%. A turnover rate of 100% is equivalent to the Series
buying and selling all of the securities in its portfolio once in the course
of a year. 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. 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 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.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk, and may
be more volatile and less liquid than more traditional debt securities.
Mortgage-related securities are subject to credit risks associated with the
performance of the underlying mortgage properties. Adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commercial properties than on those secured by loans on residential
properties. In addition, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than
residential mortgages and prepayment protection features. Some
mortgage-related securities have structures that make their reactions to
interest rate changes and other factors difficult to predict, making their
value highly volatile. See "Appendix_Certain Portfolio
Securities_Mortgage-Related Securities."
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
[Page 5]
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.
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, or enter into, 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, 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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and
[Page 6]
the Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 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. 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 .65 of 1%
of the value of the Series' average daily net assets. For the period from
April 30, 1997 (commencement of operations) through December 31, 1997, the
Fund paid The Dreyfus Corporation a monthly advisory fee at the effective
annual rate of .60 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
[Page 7]
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.
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
[Page 8]
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
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 by a
Participating Insurance Company. 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
[Page 9]
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 believes that the Series has qualified for the fiscal year
ended December 31, 1997 as a "regulated investment company" under the Code.
The Series intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Qualification as a regulated investment
company relieves the Series of any liability for Federal income taxes to the
extent its earnings are distributed in accordance with applicable provisions
of the Code. The Series may be subject to a non-deductible 4% excise tax,
measured with respect to certain undistributed amounts of investment income
and capital gains. Participating Insurance Companies should consult their tax
advisers regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Series' annualized net investment income per
share over a 30-day period, expressed as a percentage of the net asset value
per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in 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
[Page 10]
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. 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. 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 instructions from policy holders and will vote
shares in proportion to the voting instructions received. A Participating
Insurance Company could, from time to time, be deemed to control a Series to
the extent that its separate account(s) may own in the aggregate more than
25% of a Series' shares. 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.
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.
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.
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 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. 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
[Page 12]
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 inopportune 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 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. The Series
will set aside in a segregated account permissible liquid assets at
[Page 13]
least equal at all times to the amount of the Series' purchase commitments.
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
description 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 commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities. 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 a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
In certain instances, the credit risk associated with
mortgage-related securities can be reduced by third party guarantees or other
forms of credit support. Improved credit risk does not reduce prepayment risk
which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. If a mortgage-related security is purchased
at a premium, all or part of the premium may be lost if there is a decline in
the market value of the security, whether resulting from changes in interest
rates or prepayments on the underlying mortgage
[Page 14]
collateral. Certain mortgage-related securities that may be purchased
by the Series, such as inverse floating rate collateralized mortgage
obligations, have coupons that move inversely to a multiple of a specific
index which may result in a form of leverage. As with other interest-bearing
securities, the prices of certain mortgage-related securities are inversely
affected by changes in interest rates. However, although the value of a
mortgage-related security may decline when interest rates rise, the converse
is not necessarily true, since in periods of declining interest rates the
mortgages underlying the security are more likely to be prepaid. For this and
other reasons, a mortgage-related security's stated maturity may be shortened
by unscheduled prepayments on the underlying mortgages, and, therefore, it is
not possible to predict accurately the security's return to the Series.
Moreover, with respect to certain 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.
RESIDENTIAL MORTGAGE-RELATED SECURITIES. The Series may invest in
mortgage-related securities representing participation interests in pools of
one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued
by private entities. Similar to commercial mortgage-related securities,
residential mortgage-related securities have been issued using a variety of
structures, including multi-class structures featuring senior and
subordinated classes.
COMMERCIAL MORTGAGE-RELATED SECURITIES. The Series may invest in
commercial mortgage-related securities, which generally are multi-class debt
or pass-through certificates secured by mortgage loans on commercial
properties. These mortgage-related securities generally are structured to
provide protection to the senior class investors against potential losses on
the underlying mortgage loans. This protection is generally provided by
having the holders of subordinated classes of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protections, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and
over-collateralization.
SUBORDINATED SECURITIES. The Series also may invest in Subordinated
Securities issued or sponsored by commercial banks, savings and loan
institutions, mortgage bankers, private mortgage insurance companies and
other non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner 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.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multiclass
bonds backed by pools of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured
by the Federal Housing
[Page 15]
Administration or guaranteed by the Department of Veterans' Affairs,
(c) unsecuritized conventional mortgages, (d) other mortgage-related
securities or (e) any combination thereof.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index, such as the London Interbank Offered
Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The
Series also may invest in inverse floating rate CMOs. Inverse floating rate
CMOs constitute a tranche of a CMO with a coupon rate that moves in the
reverse direction to an applicable index such as the LIBOR. Accordingly, the
coupon rate thereon will increase as interest rates decrease. Inverse
floating rate CMOs are typically more volatile than fixed or floating rate
tranches of CMOs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Series also may invest in
stripped mortgage-backed securities which are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities, each with a specified percentage of the underlying
security's principal or interest payments. Mortgage securities may be
partially stripped so that each investor class received some interest and
some principal. When securities are completely stripped, however, all of the
interest is distributed to holders of one type of security, known as an
interest-only security, or IO, and all of the principal is distributed to
holders of another type of security known as a principal-only security, or
PO. Strips can be created in a pass-through structure or as tranches of a
CMO. The yields to maturity on IOs and POs are very sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may not fully recoup its initial
investment in IOs. Conversely, if the underlying mortgage assets experience
less than anticipated prepayments of principal, the yield on POs could be
materially and adversely affected.
REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Code. The Code permits a qualifying REIT to
deduct dividends paid, thereby effectively eliminating corporate level
Federal income tax and making the REIT a pass-through vehicle for Federal
income tax purposes. To meet the definitional requirements of the Code, a
REIT must, among other things, invest substantially all of its assets in
interests in real estate (including mortgages and other REITs) or cash and
government securities, derive most of its income from rents from real
property or interest on loans secured by mortgages on real property, and
distribute to shareholders annually a substantial portion of its otherwise
taxable income. REITs are subject to heavy cash flow dependency, defaults by
borrowers or tenants, self-liquidation and the possibility of failing to
qualify for tax-free status under the Code or to maintain exemption from the
1940 Act.
PRIVATE ENTITY SECURITIES. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers.
Timely payment of principal and interest on mortgage-related securities
backed by pools created by non-governmental issuers often is supported
partially by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance.
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 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
[Page 16]
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 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
[Page 17]
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.
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.
[Page 18]
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 19]
Variable
Investment
Fund
Limited Term High Income
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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.............................. 8
Dividends, Distributions and Taxes................ 8
General Information............................... 9
Appendix.......................................... 11
[Page 2]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. 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 year 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 year indicated.
<TABLE>
MONEY MARKET PORTFOLIO
______________________________________________________________________________-
YEAR ENDED DECEMBER 31,
_______________________________________________________________________________
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996 1997
______ ______ ______ ______ ______ ______ ______ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year..... $ 1.00 $ 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 .050
______ ______ ______ ______ ______ ______ ______ _____
DISTRIBUTIONS:
Dividends from investment
income-net.................... (.024) (.058) (.041) (.032) (.043) (.055) (.050) (.050)
______ ______ ______ ______ ______ ______ ______ _____
Net asset value, end of year.... $ 1.00 $ 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% 5.19%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.... .03%(2) ._ ._ ._ ._ .62% .62% .61%
Ratio of net investment income to
average net assets.............. 7.18%(2) 5.78% 4.10% 3.23% 4.62% 5.51% 4.96% 5.08%
Decrease reflected in above
expense ratios due to undertakings
by The Dreyfus Corporation...... 30.51%(2) 3.94% 4.25% 2.81% .88% .03% ._ ._
Net assets, end of year (000's omitted).... $741 $1,619 $790 $ 7,651 $34,728 $45,249 $56,186 $64,628
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
YIELD INFORMATION
From time to time, the Series will advertise its yield and effective
yield. It can be expected that these yields will fluctuate substantially.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The yield of the Series refers to the investment
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
[Page 3]
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 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. Differences in tax treatment
or other considerations may cause the interest of holders of VAcontracts and
VLI policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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
[Page 4]
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 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 IBCA,
Inc. ("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
[Page 5]
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.
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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed or
administered approximately $100 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,
[Page 6]
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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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.
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
Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies in connection with the
provision of certain administrative services to one or more Series and/or to
purchasers to VA contracts of VLI policies.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 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. 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
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 by a Participating Insurance
Company. 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
[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 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 securities
gains and all or a portion of any gains realized from the sale or other
disposition of certain market discount bonds, generally are taxable as
ordinary income whether received in cash or reinvested in additional shares.
Distributions from net realized long-term securities gains of the Series
generally are taxable as long-term capital gains whether received in cash or
reinvested in additional shares. Since the Fund's shareholders are the
Participating Insurance Companies and their separate accounts, no discussion
is included herein as to the Federal income tax consequences to VA contract
holders and VLI policy holders. For information concerning the Federal income
tax consequences to such holders, see the prospectus for such contract or
policy.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1997, 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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the 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
[Page 9]
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 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 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 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. The Series will set aside in a segregated account
permissible liquid assets at least equal at all times to the amount of the
Series' purchase commitments.
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 bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such
[Page 11]
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 the InterAmerican Development Bank. The percentage
of the Series' assets invested in securities issued by
[Page 12]
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]
[This Page Intentionally Left Blank]
[Page 15]
Variable
Investment
Fund
Money Market Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
DREYFUS VARIABLE INVESTMENT FUND
SPECIAL VALUE PORTFOLIO
______________________________________________________________________________
The Special 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.
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
VAcontract or VLI policy offered by a Participating Insurance Company. It
should be read and retained for future reference.
The Statement of Additional Information, dated May 1, 1998, 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.......................................... 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 year 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 year indicated.
<TABLE>
SPECIAL VALUE PORTFOLIO
_____________________________________________________________________________
YEAR ENDED DECEMBER 31,
_____________________________________________________________________________
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996 1997
______ ______ ______ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $10.00 $10.11 $10.76 $10.14 $12.92 $12.37 $11.70 $10.60
______ ______ ______ ______ ______ ______ ______ ______
INVESTMENT OPERATIONS:
Investment income-net........... .08 .41 .22 .20 .35 .51 .63 .06
Net realized and unrealized gain
(loss) on investments........... .11 .66 (.11) 2.71 (.56) (.54) (1.05) 2.40
______ ______ ______ ______ ______ ______ ______ ______
TOTAL FROM INVESTMENT OPERATIONS..... .19 1.07 .11 2.91 (.21) (.03) (.42) 2.46
______ ______ ______ ______ ______ ______ ______ ______
DISTRIBUTIONS:
Dividends from investment income-net.... (.08) (.42) (.31) (.13) (.32) (.64) (.56) (.01)
Dividends in excess of investment
income-net..................... ._ ._ ._ ._ (.02) ._ (.06) (.00)(2)
Dividends from net realized
gain on investments....... ._ ._ (.42) ._ ._ ._ ._ (.06)
Paid-in capital................. ._ ._ ._ ._ ._ ._ (.06) ._
______ ______ ______ ______ ______ ______ ______ ______
TOTAL DISTRIBUTIONS............. (.08) (.42) (.73) (.13) (.34) (.64) (.68) (.07)
______ ______ ______ ______ ______ ______ ______ ______
Net asset value, end of year.... $10.11 $10.76 $10.14 $12.92 $12.37 $11.70 $10.60 $12.99
====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN........... 1.85%(3) 10.60% 1.07% 28.59% (1.56%) (.26%) (3.62%) 23.14%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.... .34%(3) 1.00% .97% .27% .25% .94% .93% .99%
Ratio of dividends on securities sold short
to average net assets........... ._ ._ ._ ._ ._ ._ ._ .02%
Ratio of net investment income to average
net assets...................... 2.11%(3) 4.46% 1.88% 1.87% 3.54% 3.56% 4.12% .38%
Decrease reflected in above expense ratios
due to undertakings............. 8.82%(3) 2.83% 1.70% 2.25% .88% ._ ._ ._
Portfolio Turnover Rate......... ._ 91.97% 118.78% 99.08% 25.96% 53.88% 124.19% 188.57%
Average commission rate paid(4). ._ ._ ._ ._ ._ ._ $.0250 $.0495
Net assets, end of year (000's omitted).... $ 716 $2,179 $1,865 $7,957 $30,510 $25,272 $21,101 $52,981
___________________________
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Amount represents less than $.01 per share.
(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>
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. Differences in tax treatment or
other considerations may cause the interest of holders of VAcontracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 Series may invest in common stocks, preferred stocks, convertible
securities, warrants, 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 that offer
above average potential for total return. In making investment decisions for
the Series, The Dreyfus Corporation takes into account factors including
price-earnings ratios, cash flow and the relationship of asset value to
market value of the securities. The Series will be alert to companies engaged
in restructuring efforts, such as mergers, acquisitions and divestitures of
less profitable units.
The Series will invest in debt securities when The Dreyfus
Corporation considers the yield and potential for capital appreciation of the
security sufficiently attractive in light of the risks of ownership of the
security.
[Page 4]
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.
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 for the current fiscal
year may exceed 100%. A turnover rate of 100% is equivalent to the Series
buying and selling all of the securities in its portfolio once in the course
of a year. Higher portfolio turnover rates usually generate additional
brokerage commissions and transaction costs 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
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.
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 Series may purchase the securities of small capitalization
companies the prices of which 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
circumstances deemed relevant in determining whether to continue to hold the
security.
See "Appendix_Certain Portfolio Securities_Ratings" below and "Appendix" in
the Statement of Additional Information.
LOWER RATED SECURITIES _ The Series may invest up to 35% of its assets in
higher yielding (and, therefore, higher risk) debt securities such as those
rated Ba by Moody's or BB by S&P, or as low as the lowest rating assigned by
Moody's or S&P. 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, or enter into, 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.
[Page 6]
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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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, L.P. 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, Mellon managed more than
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries,
[Page 7]
provided non-investment services, such as custodial or administration
services, for more than $1.532 trillion in assets including approximately $60
billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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. 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.
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
[Page 8]
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 by a
Participating Insurance Company. 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
[Page 9]
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, 1997, 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.
[Page 10]
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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Special Value
Portfolio are being offered. Before October 1, 1997, the Series' name was
Managed Assets Portfolio. 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 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 future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention 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.
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. 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
[Page 12]
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 inopportune 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 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
[Page 13]
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. The Series will set aside in a segregated
account permissible liquid assets at least equal at all times to the amount
of the Series' purchase commitments. 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 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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States 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 GDRs in bearer form are designed for use
outside the United States.
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 14]
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series _ Investment
Considerations and Risks _ Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. The other short-term bank obligations may
include uninsured, direct obligations bearing fixed, floating or variable
interest rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of direct obligations which,
at the time of their purchase, are (a) rated not lower than Prime-1 by
Moody's, A-1 by S&P, F-1 by Fitch IBCA, 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
[Page 15]
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 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
[Page 16]
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
Special Value
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
- ----------------------------------------------------------------------------
PROSPECTUS MAY 1, 1998
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.
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
VACONTRACT OR VLI POLICY OFFERED BY A PARTICIPATING INSURANCE COMPANY. IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1998, 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.................................... 7
How to Buy Shares......................................... 8
How to Redeem Shares...................................... 8
Dividends, Distributions and Taxes........................ 9
Performance Information................................... 10
General Information....................................... 10
Appendix.................................................. 12
[Page 2]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. 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 year 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 year indicated.
<TABLE>
QUALITY BOND PORTFOLIO
____________________________________________________________________________________
YEAR ENDED DECEMBER 31,
____________________________________________________________________________________
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996 1997
_____ _____ _____ _____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.00 $10.01 $10.67 $10.94 $11.81 $10.53 $11.81 $11.50
_____ _____ _____ _____ _____ _____ _____ _____
INVESTMENT OPERATIONS:
Investment income-net........... .23 .70 .92 .76 .73 .68 .66 .73
Net realized and unrealized gain
(loss) on investments........... .01 .66 .30 .88 (1.27) 1.42 (.31) .32
_____ _____ _____ _____ _____ _____ _____ _____
TOTAL FROM INVESTMENT OPERATIONS .24 1.36 1.22 1.64 (.54) 2.10 .35 1.05
_____ _____ _____ _____ _____ _____ _____ _____
DISTRIBUTIONS:
Dividends from investment income-net (.23) (.70) (.92) (.76) (.73) (.69) (.66) (.73)
Dividends from net realized
gain on investments............. __ __ (.03) (.01) (.01) (.13) __ (.09)
_____ _____ _____ _____ _____ _____ _____ _____
TOTAL DISTRIBUTIONS............. (.23) (.70) (.95) (.77) (.74) (.82) (.66) (.82)
_____ _____ _____ _____ _____ _____ _____ _____
Net asset value, end of year.... $10.01 $10.67 $10.94 $11.81 $10.53 $11.81 $11.50 $11.73
======= ======= ====== ======= ======= ======= ====== =======
TOTAL INVESTMENT RETURN........... 7.12%(2) 14.12% 12.09% 15.33% (4.59%) 20.42% 3.13% 9.42%
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets...................... .15%(2) __ __ __ __ .81% .79% .75%
Ratio of interest expense to
average net assets __ __ __ __ __ __ __ .02%
Ratio of net investment income
to average net assets........... 7.20%(2) 7.52% 8.54% 6.51% 7.03% 6.13% 5.86% 6.27%
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% 374.76%
Net assets, end of year (000's omitted) $59 $410 $405 $4,706 $13,244 $37,447 $60,936 $88,292
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
Further information about the Series' performance is contained in the
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. Differences in tax treatment or
other considerations may cause the interest of holders of VA contracts and
VLI policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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. See "General Information."
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 for the current fiscal
year is not expected to exceed 300%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
the course of a year. Higher portfolio turnover rates usually generate
additional brokerage commissions and transaction costs and the short-term
gains realized from these transactions are taxable to shareholders as
ordinary income. However, the Series usually does not pay brokerage commission
s when it purchases debt obligations. 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
[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.
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, 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.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk, and may
be more volatile and less liquid than more traditional debt securities.
Mortgage-related securities are subject to credit risks associated with the
performance of the underlying mortgage properties. Adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commercial properties than on those secured by loans on residential
properties. In addition, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than
residential mortgages and prepayment protection features. Some mortgage-relate
d securities have structures that make their reactions to interest rate
changes and other factors difficult to predict, making their value highly
volatile. See "Appendix_Certain Portfolio Securities_Mortgage-Related
Securities."
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 secur
ities; 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 experi
[Page 5]
enced 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, or enter into, 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 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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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 identifie
d 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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.
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 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. 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 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 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 by a
Participating Insurance Company. 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.
Management of the Fund believes that the Series has qualified for the
fiscal year ended December 31, 1997 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.
[Page 9]
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.
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. The Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may
[Page 10]
have the right to call a meeting of shareholders for the purpose of voting to
remove Trustees. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Quality Bond
Portfolio are being offered. Other portfolios are sold pursuant to other
offering documents.
To date, the Board has authorized the creation of 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 11]
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY _ The Series is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Series' total assets, the Series will not make
any additional investments.
LENDING PORTFOLIO SECURITIES _ The Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Series continues to
be entitled to payments in amounts equal to the interest 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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. 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
[Page 12]
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.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are a form of
Derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities. 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 a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
In certain instances, the credit risk associated with
mortgage-related securities can be reduced by third party guarantees or other
forms of credit support. Improved credit risk does not reduce prepayment risk
which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. If a mortgage-related security is purchased
at a premium, all or part of the premium may be lost if there is a decline in
the market value of the security, whether resulting from changes in interest
rates or prepayments on the underlying mortgage collateral. Certain
mortgage-related securities that may be purchased by the Series, such as
inverse floating rate collateralized mortgage obligations, have coupons that
move inversely to a multiple of a specific index which may result in a form
of leverage. As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Series. Moreover, with respect to
certain 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.
RESIDENTIAL MORTGAGE-RELATED SECURITIES. The Series may invest in
mortgage-related securities representing participation interests in pools of
one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued
by private entities. Similar to commercial mortgage-related securities,
residential mortgage-related securities have been issued using a variety of
structures, including multi-class structures featuring senior and
subordinated classes.
[Page 13]
COMMERCIAL MORTGAGE-RELATED SECURITIES. The Series may invest in
commercial mortgage-related securities, which generally are multi-class debt
or pass-through certificates secured by mortgage loans on commercial
properties. These mortgage-related securities generally are structured to
provide protection to the senior class investors against potential losses on
the underlying mortgage loans. This protection is generally provided by
having the holders of subordinated classes of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protections, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and over-
collateralization.
SUBORDINATED SECURITIES. The Series also may invest in Subordinated
Securities issued or sponsored by commercial banks, savings and loan
institutions, mortgage bankers, private mortgage insurance companies and
other non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner 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.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multiclass
bonds backed by pools of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured
by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other
mortgage-related securities or (e) any combination thereof.
Each class of CMOs, often referred to as a "tranche," is issued at
a specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index, such as the London Interbank Offered
Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The
Series also may invest in inverse floating rate CMOs. Inverse floating rate
CMOs constitute a tranche of a CMO with a coupon rate that moves in the
reverse direction to an applicable index such as the LIBOR. Accordingly, the
coupon rate thereon will increase as interest rates decrease. Inverse
floating rate CMOs are typically more volatile than fixed or floating rate
tranches of CMOs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Series also may invest in
stripped mortgage-backed securities which are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities, each with a specified percentage of the underlying
security's principal or interest payments. Mortgage securities may be
partially stripped so that each investor class received some interest and
some principal. When securities are completely stripped, however, all of the
interest is distributed to holders of one type of security, known as an
interest-only security, or IO, and all of the principal is distributed to
holders of another type of security known as a principal-only security, or
PO. Strips can be created in
[Page 14]
a pass-through structure or as tranches of a CMO. The yields to
maturity on IOs and POs are very sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Series may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the yield on POs could be materially
and adversely affected.
REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation, or a
business trust that would otherwise be taxed as a corporation, which meets
the definitional requirements of the Code. The Code permits a qualifying REIT
to deduct dividends paid, thereby effectively eliminating corporate level
Federal income tax and making the REIT a pass-through vehicle for Federal
income tax purposes. To meet the definitional requirements of the Code, a
REIT must, among other things, invest substantially all of its assets in
interests in real estate (including mortgages and other REITs) or cash and
government securities, derive most of its income from rents from real
property or interest on loans secured by mortgages on real property, and
distribute to shareholders annually a substantial portion of its otherwise
taxable income. REITs are subject to heavy cash flow dependency, defaults by
borrowers or tenants, self-liquidation and the possibility of failing to
qualify for tax-free status under the Code or to maintain exemption from the
1940 Act.
PRIVATE ENTITY SECURITIES. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers.
Timely payment of principal and interest on mortgage-related securities
backed by pools created by non-governmental issuers often is supported
partially by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance.
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.
[Page 15]
MONEY MARKET INSTRUMENTS _ The Series may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the U.S. Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Series buys,
and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Series may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, the Series may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Fund and Series _ Investment
Considerations and Risks _ Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Series will consist only of 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 IBCA, 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 permissi
[Page 16]
ble 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; 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 17]
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[Page 18]
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[Page 19]
Variable
Investment
Fund
Quality Bond
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
120p0598
[Page 20]
_____________________________________________________________________________-
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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 year 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 year indicated.
<TABLE>
SMALL CAP PORTFOLIO
____________________________________________________________________________________
YEAR ENDED DECEMBER 31,
____________________________________________________________________________________
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996 1997
______ _______ ______ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $10.00 $10.21 $20.60 $22.71 $34.45 $36.52 $46.13 $52.08
______ _______ ______ ______ ______ ______ ______ ______
INVESTMENT OPERATIONS:
Investment income-net........... .21(2) .14(2) .18(2) .14 .17 .16 .10 .07
Net realized and unrealized gain
on investments.................. ._ 15.85(2) 13.10(2) 14.93 2.50 10.54 7.53 8.49
______ _______ ______ ______ ______ ______ ______ ______
TOTAL FROM INVESTMENT OPERATIONS... .21(2) 15.99(2) 13.28(2) 15.07 2.67 10.70 7.63 8.56
______ _______ ______ ______ ______ ______ ______ ______
DISTRIBUTIONS:
Dividends from investment income-net..... ._ (.15) (.15) (.14) (.16) (.18) (.10) (.07)
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) (3.43)
Dividends in excess of net realized gain
on investments.................. ._ ._ ._ ._ (.11) ._ (.07) ._
______ _______ ______ ______ ______ ______ ______ ______
TOTAL DISTRIBUTIONS............. ._ (5.60) (11.17) (3.33) (.60) (1.09) (1.68) (3.50)
______ _______ ______ ______ ______ ______ ______ ______
Net asset value, end of year.... $10.21 $ 20.60 $22.71 $34.45 $36.52 $46.13 $52.08 $57.14
====== ======= ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN........... 2.10%(3) 159.73% 71.28% 68.31% 7.75% 29.38% 16.60% 16.75%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .34%(3) 1.16% .94% .25% .55% .83% .79% .78%
Ratio of net investment income to
average net assets.............. 2.10%(3) .77% .76% .89% 1.18% .54% .24% .12%
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% 79.00%
Average commission rate paid(4). ._ ._ ._ ._ ._ ._ $.0571 $.0657
Net assets, end of year (000's omitted)... $36 $1,554 $2,679 $18,337 $173,215 $543,281 $960,365 $1,274,292
____________________
(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>
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. Differences in tax treatment or
other considerations may cause the interest of holders of VA contracts
[Page 3]
and VLI policies to conflict, although the Fund currently does not
foresee any disadvantages to the holders of VA contracts and VLI policies
arising therefrom.
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. See "General Information."
INVESTMENT OBJECTIVE
The Series' 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 TheDreyfus 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 the current fiscal
year is expected to exceed 100%. A turnover rate of 100% is equivalent to the
Series buying and selling all of the securities in its portfolio once in the
course of a year. Higher portfolio turnover rates usually generate additional
brokerage commissions and transaction costs 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.
[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.
The Series may purchase the securities of small capitalization
companies the prices of which 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. 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.
[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.
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.
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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. The Series' other portfolio managers are identified in the
Statement of Additional Information. The Dreyfus Corporation also provides
research services for the Series and for other funds advised by The Dreyfus
Corporation through a professional staff of portfolio managers and securities
analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCOCredit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$305 billion in assets as of December 31, 1997, including approximately $104
billion in
[Page 6]
proprietary mutual fund assets. As of December 31, 1997, Mellon, through
various subsidiaries, provided non-investment services, such as custodial or
administration services, for more than $1.532 trillion in assets including
approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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. 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
[Page 7]
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 by a
Participating Insurance Company.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
[Page 8]
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
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, 1997, 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
[Page 9]
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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the 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.
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.
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. 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
[Page 11]
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. The Series will set aside in
a segregated account permissible liquid assets at least equal at all times to
the amount of the Series' purchase commitments. At no time will the Series
have more than 331\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 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
[Page 12]
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 IBCA, 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.
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
[Page 13]
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
Small Cap Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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............................... 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 each year indicated. This
information has been derived from the Series' financial statements. The total
investment return information set forth below does not reflect certain
expenses charged the separate accounts or related insurance policies by the
Participating Insurance Companies, the inclusion of which would reduce the
Series' total investment return for the year indicated.
<TABLE>
SMALL COMPANY STOCK PORTFOLIO
___________________________________
YEAR ENDED DECEMBER 31,
___________________________________
1996(1) 1997
______- _____
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................. $12.50 $13.52
______ _____-
INVESTMENT OPERATIONS:
Investment income-net............................................... .05 .05
Net realized and unrealized gain
on investments...................................................... 1.03 2.89
______ _____-
TOTAL FROM INVESTMENT OPERATIONS.................................... 1.08 2.94
______ _____-
DISTRIBUTIONS:
Dividends from investment income-net................................ (.05) (.04)
Dividends from net realized gain investments........................ (.01) (.29)
______ _____-
TOTAL DISTRIBUTIONS................................................. (.06) (.33)
______ _____-
Net asset value, end of year........................................ $13.52 $16.13
====== ======
TOTAL INVESTMENT RETURN............................................... 8.73%(2,3) 21.77%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................. .75%(2) 1.12%
Ratio of net investment income to
average net assets.................................................. .39%(2) .53%
Decrease reflected in above expense ratio due to
undertaking by The Dreyfus Corporation.............................. .19%(2) _
Portfolio Turnover Rate............................................. 35.68%(2) 34.48%
Average commission rate paid(4)..................................... $.0412 $.0555
Net assets, end of year (000's omitted)............................. $8,148 $28,154
_______________________
(1) From April 30, 1996 (commencement of operations) to December 31, 1996.
(2) Not annualized.
(3) Calculated based on net asset value on the close of business on May 1,
1996 (commencement of initial offering) to December 31, 1996.
(4) The Series is required to disclose its average commission rate paid per
share for purchases and sales of investment securities.
</TABLE>
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. Differences in tax treatment or
other considerations may cause the interest of holders of VAcontracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
[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. See "General Information."
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 for the current fiscal
year is not expected to exceed 100%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
the course of a year. Higher portfolio turnover rates usually generate
additional brokerage commissions and transaction costs 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, transactions in foreign
currency, options and futures, and 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.
_______________________________
* Russell 2500trademark is a trademark of Frank Russell Company. The Series
is not sponsored, endorsed, sold or promoted by Frank Russell Company.
[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.
TheSeries may purchase the securities of small capitalization
companies the prices of which 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.
USE OF DERIVATIVES _ The Series may invest in, or enter into, 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]
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed
or administered approximately $100 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in assets
including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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. 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]
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 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.
[Page 7]
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 by a
Participating Insurance Company. 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 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, 1997 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.
[Page 8]
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., 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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25%
[Page 9]
of a Series' shares. For further information on voting rights, see the
prospectus for the VA contract or VLI policy for information in respect of
voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the 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.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
BORROWING MONEY _ The 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 inopportune 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
[Page 11]
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 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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. At no
time will the Series have more than 331\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
[Page 12]
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"), Global
Depositary Receipts ("GDRs") 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. GDRs are receipts
issued outside the United States 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 GDRs in bearer form are designed for use
outside the United States.
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."
[Page 13]
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 Investors Service, Inc. ("Moody's"), A-1 by Standard & Poor's Ratings
Group ("S&P"), F-1 by Fitch IBCA, 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 are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Series is subject to a risk that should
the Series desire to sell them when a ready buyer is not available at a price
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
[Page 14]
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
Small Company Stock
Portfolio
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
______________________________________________________________________________
PROSPECTUS MAY 1, 1998
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.
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, 1998, 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........................... 10
General Information............................... 11
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 year 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 year indicated.
<TABLE>
ZERO COUPON 2000 PORTFOLIO
_____________________________________________________________________________
YEAR ENDED DECEMBER 31,
_____________________________________________________________________________
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996 1997
______ ______ ______ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.... $10.00 $10.45 $11.64 $11.77 $12.57 $11.39 $12.70 $12.29
______ ______ ______ ______ ______ ______ ______ ______
INVESTMENT OPERATIONS:
Investment income-net........... .22 .76 .83 .79 .69 .69 .68 .69
Net realized and unrealized gain (loss)
on investments.................. .45 1.25 .15 .96 (1.18) 1.31 (.36) .14
______ ______ ______ ______ ______ ______ ______ ______
TOTAL FROM INVESTMENT OPERATIONS....... .67 2.01 .98 1.75 (.49) 2.00 .32 .83
______ ______ ______ ______ ______ ______ ______ ______
DISTRIBUTIONS:
Dividends from investment income-net..... (.22) (.76) (.84) (.78) (.68) (.69) (.68) (.69)
Dividends from net realized
gain on investments............. ._ (.06) (.01) (.17) (.01) ._ (.05) (.13)
______ ______ ______ ______ ______ ______ ______ ______
TOTAL DISTRIBUTIONS............. (.22) (.82) (.85) (.95) (.69) (.69) (.73) (.82)
______ ______ ______ ______ ______ ______ ______ ______
Net asset value, end of year.... $10.45 $11.64 $11.77 $12.57 $11.39 $12.70 $12.29 $12.30
====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN........... 20.09%(2) 20.09% 8.87% 15.19% (3.91%) 17.95% 2.59% 7.01%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.... .70%(2) .72% .64% ._ ._ .68% .66% .61%
Ratio of net investment income to
average net assets.............. 8.03%(2) 7.41% 7.15% 6.21% 6.04% 5.73% 5.54% 5.65%
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% 200.54%
Net assets, end of year (000's omitted)..... $155 $1,296 $1,362 $5,696 $10,913 $22,291 $31,796 $35,106
_______________________
(1) From August 31, 1990 (commencement of operations) to December 31, 1990.
(2) Annualized.
</TABLE>
Further information about the Series' performance is contained in the
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. Differences in tax treatment or
other considerations may cause the interest of holders of VAcontracts and VLI
policies to conflict, although the Fund currently does not foresee any
disadvantages to the holders of VA contracts and VLI policies arising
therefrom.
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 2]
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. See "General Information."
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
[Page 4]
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 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 for the current fiscal
year is not expected to exceed 150%. A turnover rate of 100% is equivalent to
the Series buying and selling all of the securities in its portfolio once in
the course of a year. Higher portfolio turnover rates usually generate
additional brokerage commissions and transaction costs 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, or enter into, 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]
Year 2000 Risks _ Like other mutual funds, financial and business
organizations and individuals around the world, the Series could be adversely
affected if the computer systems used by The Dreyfus Corporation and the
Series' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Dreyfus Corporation is taking
steps to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken
by the Series' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on 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, 1998, The Dreyfus Corporation managed or
administered approximately $100 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
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in
assets, including approximately $60 billion in mutual fund assets.
For the fiscal year ended December 31, 1997, 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. 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 7]
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 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.
[Page 8]
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 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 by a Participating Insurance Company. Shares begin
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, 1997 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.
[Page 9]
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 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
[Page 10]
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. 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. 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 instructions from policy holders
and will vote shares in proportion to the voting instructions received. A
Participating Insurance Company could, from time to time, be deemed to
control a Series to the extent that its separate account(s) may own in the
aggregate more than 25% of a Series' shares. For further information on
voting rights, see the prospectus for the VA contract or VLI policy for
information in respect of voting.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the 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 331\3% of the value of its total assets. The Series currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of the Series' total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Series' total assets, the Series will
not make any additional investments.
USE OF DERIVATIVES _ The Series may invest in, 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 inopportune 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.
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. The Series
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the Series' purchase commitments. 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 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 IBCA,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.
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 1998, Dreyfus Service Corporation
