File Nos.33-13690
811-5125
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [__]
Post-Effective Amendment No. 24 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 24 [X]
(Check appropriate box or boxes.)
DREYFUS VARIABLE INVESTMENT FUND
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Mark N. Jacobs, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
----
X on May 1, 1999 pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(1)
----
on (date) pursuant to paragraph (a)(1)
----
75 days after filing pursuant to paragraph (a)(2)
----
on (date) pursuant to paragraph (a)(2) of Rule 485
----
If appropriate, check the following box:
this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
----
Dreyfus Variable Investment Fund
Money Market Portfolio
Capital Appreciation Portfolio
Growth and Income Portfolio
Special Value Portfolio
Small Cap Portfolio
Small Company Stock Portfolio
Disciplined Stock Portfolio
International Value Portfolio
International Equity Portfolio
Quality Bond Portfolio
Zero Coupon 2000 Portfolio
Balanced Portfolio
Limited Term High Income Portfolio
PROSPECTUS May 1, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Contents
The Portfolios
- --------------------------------------------------------------------------------
Money Market Portfolio INSIDE COVER
Capital Appreciation Portfolio 3
Growth and Income Portfolio 6
Special Value Portfolio 9
Small Cap Portfolio 12
Small Company Stock Portfolio 15
Disciplined Stock Portfolio 18
International Value Portfolio 21
International Equity Portfolio 24
Quality Bond Portfolio 27
Zero Coupon 2000 Portfolio 30
Balanced Portfolio 33
Limited Term High
Income Portfolio 36
Management 39
Financial Highlights 42
Account Information
- --------------------------------------------------------------------------------
Account Policies 49
Distributions and Taxes 50
For More Information
- --------------------------------------------------------------------------------
INFORMATION ON THE PORTFOLIOS' RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN
THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER.
Portfolio shares are offered only to separate accounts established by insurance
companies to fund variable annuity contracts ("VA contracts") and variable life
insurance policies ("VLI policies"). Individuals may not purchase shares
directly from, or place sell orders directly with, the portfolios. The VA
contracts and the VLI policies are described in the separate prospectuses issued
by the participating insurance companies, over which the portfolios assume no
responsibility. Conflicts may arise between the interests of VA contract holders
and VLI policyholders. The board of trustees will monitor events to identify any
material conflicts and, if such conflicts arise, determine what action, if any,
should be taken.
Each portfolio has its own investment strategy and risk/return profile. The
differences in strategy among the portfolios determine the types of securities
in which each portfolio invests and can be expected to affect the degree of risk
each portfolio is subject to and its performance.
While the portfolios' investment objectives and policies may be similar to those
of other funds managed by the investment advisers, the portfolios' investment
results may be higher or lower than, and may not be comparable to, those of the
other funds.
Money Market Portfolio
GOAL/APPROACH
The portfolio seeks as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity. As a money market
fund, the portfolio is subject to maturity, quality and diversification
requirements designed to help it maintain a stable share price of $1.00.
The portfolio invests in a diversified portfolio of high-quality, short-term
debt securities, including the following:
(pound) securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities
(pound) certificates of deposit, time deposits,
bankers' acceptances and other short-term securities issued by U.S. or
foreign banks or their subsidiaries or branches
(pound) repurchase agreements
(pound) asset-backed securities
(pound) domestic and dollar-denominated foreign commercial paper, and other
short-term corporate and bank obligations of U.S. and foreign issuers
(pound) obligations issued or guaranteed by one or more foreign governments
or their agencies, including obligations of supranational entities
Normally, the portfolio invests at least 25% of its net assets in domestic or
dollar-denominated foreign bank obligations.
Concepts to understand
MONEY MARKET FUND: a specific type of fund that seeks to maintain a $1.00 price
per share. Money market funds are subject to strict federal requirements and
must:
(pound) maintain an average dollar-weighted portfolio maturity of 90 days or
less
(pound) buy individual securities that have remaining maturities of 13 months or
less
(pound) invest only in high-quality dollar-denominated obligations
<PAGE>
MAIN RISKS
An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
portfolio seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the portfolio. Additionally, the
portfolio's yield will vary as the short-term securities in its portfolio mature
and the proceeds are reinvested in securities with different interest rates.
While the portfolio has maintained a constant share price since inception, and
will continue to try to do so, the following factors could reduce the
portfolio's income level and/or share price:
(pound) interest rates could rise sharply, causing the
value of the portfolio's securities, and share price, to drop
(pound) any of the portfolio's holdings could have its
credit rating downgraded or could default
(pound) the risks generally associated with concentrating investments in
the banking industry, such as interest rate risk, credit risk and
regulatory developments relating to the banking industry
(pound) the risks generally associated with dollar-denominated foreign
investments, such as economic and political developments, seizure
or nationalization of deposits, imposition of taxes or other
restrictions on the payment of principal and interest
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Concepts to understand
CREDIT RATING: a measure of the issuer's expected ability to make all required
interest and principal payments in a timely manner.
An issuer with the highest credit rating has a very strong degree of certainty
(or safety) with respect to making all payments. An issuer with the
second-highest credit rating has strong capacity to make all payments, but the
degree of safety is somewhat less.
Generally, the portfolio is required to invest at least 95% of its assets in the
securities of issuers with the highest credit rating or the unrated equivalent
as determined by Dreyfus, with the remainder invested in securities with the
second-highest credit rating.
Money Market Portfolio
<PAGE 1>
MONEY MARKET PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table averages performance over time. Both tables
assume the reinvestment of dividends and distributions. As with all mutual
funds, the past is not a prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
5.99 4.15 3.29 4.37 5.66 5.10 5.19 5.12
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q1 '91 +1.57%
WORST QUARTER: Q2 '93 +0.78%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year 5 Years (8/31/90)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO 5.12% 5.09% 4.96%
</TABLE>
The portfolio's 7-day yield on 12/31/98 was 4.62%. For the portfolio's current
yield, call toll-free 1-800-645-6561.
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.50%
Other expenses 0.06%
- --------------------------------------------------------------------------------
TOTAL 0.56%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
$57 $179 $313 $701
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 2>
Capital Appreciation Portfolio
GOAL/APPROACH
The portfolio seeks long-term capital growth consistent with the preservation of
capital; current income is a secondary goal. To pursue these goals, the
portfolio invests in common stocks focusing on "blue chip" companies with total
market values of more than $5 billion at the time of purchase. These established
companies have demonstrated sustained patterns of profitability, strong balance
sheets, an expanding global presence and the potential to achieve predictable,
above-average earnings growth.
In choosing stocks, the portfolio looks for growth companies. The portfolio
first identifies economic sectors it believes will expand over the next three to
five years or longer. Using fundamental analysis, the portfolio then seeks
companies within these sectors that have demonstrated sustained patterns of
profitability, strong balance sheets, an expanding global presence and the
potential to achieve predictable, above-average earnings growth. The portfolio
is also alert to companies which it considers undervalued in terms of earnings,
assets or growth prospects. The portfolio generally maintains relatively large
positions in the securities it purchases.
The portfolio employs a "buy-and-hold" investment strategy, and seeks to keep
annual portfolio turnover below 15%. As a result, the portfolio invests for
long-term growth rather than short-term profits.
The portfolio typically sells a stock when there is a change in a company's
business fundamentals or in the portfolio's view of company management.
Concepts to understand
"BLUE CHIP" COMPANIES: established companies that are considered "known
quantities." These companies often have a long record of profit growth and
dividend payment and a reputation for quality management, products and services
"BUY-AND-HOLD" STRATEGY: an investment strategy characterized by a low portfolio
turnover rate, which helps reduce the portfolio's trading costs and minimizes
tax liability by limiting the distribution of capital gains.
<PAGE 3>
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of a shareholder's investment in the
portfolio will go up and down, which means that shareholders could lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the portfolio's performance may sometimes be
lower or higher than that of other types of funds (such as those emphasizing
smaller companies). Moreover, since the portfolio holds large positions in a
relatively small number of stocks, it can be volatile when the
large-capitalization sector of the market is out of favor with investors.
Growth companies are expected to increase their earnings at a certain rate. When
these expectations are not met, investors can punish the stocks inordinately --
even if earnings showed an absolute increase. In addition, growth stocks
typically lack the dividend yield to cushion stock prices in market downturns.
While many companies in which the portfolio invests are listed on a domestic
exchange, they have foreign operations that pose special risks such as exposure
to currency fluctuations and changing political climate.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its primary investment
objective.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goals, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
<PAGE 4>
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the S&P 500((reg.tm)), a widely recognized unmanaged index
of stock performance. Both tables assume the reinvestment of dividends and
distributions. As with all mutual funds, the past is not a prediction of the
future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
3.04 33.52 25.56 28.05 30.22
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +20.77%
WORST QUARTER: Q3 '98 -10.69%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year 5 Years (4/5/93)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO 30.22% 23.56% 21.61%
S&P 500 28.60% 24.05% 21.73%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 3/31/93 IS USED AS THE
BEGINNING VALUE ON 4/5/93.
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.06%
- --------------------------------------------------------------------------------
TOTAL 0.81%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$83 $259 $450 $1,002
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment advisers for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
Capital Appreciation Portfolio
<PAGE 5>
Growth and Income Portfolio
GOAL/APPROACH
The portfolio seeks long-term capital growth, current income and growth of
income consistent with reasonable investment risk. To pursue this goal, it
invests in stocks, bonds and money market instruments of domestic and foreign
issuers. The port-folio's stock investments may include common stocks, preferred
stocks and convertible securities.
The portfolio will invest in stocks of primarily value companies with market
capitalizations of $1 billion or more. In choosing stocks, the portfolio manager
uses a "bottom-up" approach, seeking to compile a portfolio with a
price-to-earnings ratio lower than the S&P 500((reg.tm)) and a long-term
projected earnings growth rate greater than the S&P 500. Because the portfolio
is non-diversified, a relatively high percentage of its assets may be invested
in a limited number of issuers; however, the portfolio currently invests in 50
to 75 stocks, with any one position usually not exceeding 3% of assets.
The portfolio will invest in investment grade debt securities (other than
convertible securities). The portfolio may invest up to 35% of its assets in
convertible debt securities rated, when purchased, at least Caa/CCC or the
unrated equivalent as determined by Dreyfus.
The portfolio typically sells a security when it has met the price target
established by the portfolio manager; the original reason for purchasing the
stock or bond is no longer valid; the company shows deteriorating fundamentals;
or another more attractive opportunity has been identified.
Concepts to understand
VALUE COMPANIES: companies that appear undervalued in terms of price relative to
other financial measurements of the intrinsic worth or business prospects (such
as price-to-earnings or price-to-book ratios). Because a stock can remain
undervalued for years, value investors often look for factors that could trigger
a rise in price, such as new products or markets; opportunities for greater
market share; more effective management; positive changes in corporate structure
or market perception.
"BOTTOM-UP" APPROACH: an investment style that focuses on selecting outstanding
companies before looking at economic and industry trends.
<PAGE 6>
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of a shareholder's investment in the
portfolio will go up and down, which means that shareholders could lose money.
Midsize companies carry additional risks because their earnings tend to be less
predictable, their share prices more volatile and their securities less liquid
than larger, more established companies.
The portfolio's investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, or their prices may go
down. Further, while the portfolio's investments in value stocks may limit the
overall downside risk of the portfolio over time, the portfolio may produce more
modest gains than riskier stock funds as a trade-off for this potentially lower
risk.
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the portfolio to invest for higher yields, the most
immediate effect is usually a drop in bond prices, and therefore the portfolio's
share price as well.
The portfolio may also invest in lower-rated convertible securities which have
higher credit risk. With this type of investment, there is a greater likelihood
that interest and principal payments will not be made on a timely basis.
Foreign securities involve special risks such as changes in currency exchange
rates, a lack of comprehensive company information, political instability and
potentially less liquidity.
Under adverse market conditions, the portfolio could invest up to all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio, at times, may invest some assets in derivative securities, such
as options and futures, and in foreign currencies. It may also sell short. These
practices, when employed, are used primarily to hedge the portfolio but may be
used to increase returns; however, such practices may reduce returns or increase
volatility. Derivatives can be illiquid, and a small investment in certain
derivatives could have a potentially large impact on the portfolio's
performance.
Because a relatively high percentage of the portfolio's assets may be invested
in the securities of a limited number of issuers, its performance may be more
vulnerable to changes in the market value of a single issuer or group of
issuers.
The portfolio can buy securities with borrowed money (a form of leverage), which
could have the effect of magnifying the portfolio's gains and losses.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Growth and Income Portfolio
<PAGE 7>
GROWTH AND INCOME PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the S&P 500((reg.tm)), a widely recognized unmanaged index
of stock performance, and the Wilshire Large Company Value Index, an unmanaged
index of large companies that is constructed by using a blend of price-to-book
and forecast price-to-earnings ratios. Both tables assume the reinvestment of
dividends and distributions. As with all mutual funds, the past is not a
prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
61.89 20.75 16.21 11.81
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +18.58%
WORST QUARTER: Q3 '98 -11.45%
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
Since inception
1 Year (5/2/94)
- --------------------------------------------------------------------------------
PORTFOLIO 11.81% 21.77%
S&P 500 28.60% 26.68%*
WILSHIRE LARGE COMPANY
VALUE INDEX 11.25% 21.08%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF EACH INDEX ON 4/30/94 IS USED AS THE
BEGINNING VALUE ON 5/2/94.
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.03%
- --------------------------------------------------------------------------------
TOTAL 0.78%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
$80 $249 $433 $966
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual return and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 8>
Special Value Portfolio
GOAL/APPROACH
The portfolio seeks to maximize total return, consisting of capital appreciation
and current income. To pursue this goal, the portfolio invests primarily in
stocks of value companies of any size. The portfolio's stock investments may
include common stocks, preferred stocks and convertible securities of both U.S.
and foreign issuers. In choosing stocks, the portfolio manager looks for value
companies that provide opportunities for capital growth. The manager then
reviews these stocks for factors that could signal a rise in price, such as:
(pound) new products or markets
(pound) opportunities for greater market share
(pound) more effective management
(pound) positive changes in corporate structure or market perception
(pound) potential for improved earnings
The portfolio typically sells a stock when it is no longer considered a value
company, appears less likely to benefit from the current market and economic
environment, shows deteriorating fundamentals or falls short of the manager's
expectations.
The portfolio also may invest in bonds that offer opportunities for capital
growth. These bonds may be investment grade or below investment grade in
quality.
Concepts to understand
VALUE COMPANIES: companies that appear underpriced according to certain
financial measurements of their intrinsic worth or business prospects (such as
price-to-earnings or price-to-book ratios). Because a stock can remain
undervalued for years, value investors often look for factors that could trigger
a rise in price.
<PAGE 9>
SPECIAL VALUE PORTFOLIO (CONTINUED)
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of a shareholder's investment in the
portfolio will go up and down, which means that shareholders could lose money.
Value stocks involve the risk that they may never reach what the manager
believes is their full market value, either because the market fails to
recognize the stock's intrinsic worth or the manager misgauged that worth. They
also may decline in price, even though in theory they are already underpriced.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the portfolio's performance may sometimes be
lower or higher than that of other types of funds (such as those emphasizing
growth stocks).
The portfolio may invest in companies of any size. Investments in small and
midsize companies carry additional risks because their earnings tend to be less
predictable, their share prices more volatile and their securities less liquid
than larger, more established companies. Foreign securities involve special
risks such as changes in currency exchange rates, a lack of comprehensive
company information, political instability, and potentially less liquidity.
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the portfolio to invest for higher yields, the most
immediate effect is usually a drop in bond prices, and therefore in the
portfolio's share price as well. In addition, if an issuer fails to make timely
interest or principal payments or there is a decline in the credit quality of a
bond, or perception of a decline, the bond's value could fall, potentially
lowering the portfolio's share price.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio, at times, may invest some assets in derivative securities, such
as options and futures, and in foreign currencies. It may also sell short. These
practices, when employed, are used primarily to hedge the portfolio but may be
used to increase returns; however, such practices sometimes may reduce returns
or increase volatility. Derivatives can be illiquid, and a small investment in
certain derivatives could have a potentially large impact on the portfolio's
performance.
At times, the portfolio may engage in short-term trading, which could produce
higher brokerage costs and taxable distributions.
The portfolio can buy securities with borrowed money (a form of leverage), which
could have the effect of magnifying the portfolio's gains or losses.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
<PAGE 10>
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the S&P 500((reg.tm)), a widely recognized unmanaged index
of stock performance, and the Wilshire Midcap Value Index, an unmanaged index of
midcap stocks that is constructed by using a blend of price-to-book and forecast
price-to-earnings ratios. Both tables assume the reinvestment of dividends and
distributions. As with all mutual funds, the past is not a prediction of the
future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
10.60 1.07 28.69 -1.56 -0.26 -3.62 23.14 15.69
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +17.23%
WORST QUARTER: Q3 '98 -9.34%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year 5 Years (8/31/90)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO 15.69% 6.16% 8.50%
S&P 500 28.60% 24.05% 20.42%
WILSHIRE MIDCAP
VALUE INDEX (2.69%) 14.93% 18.87%
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.08%
- --------------------------------------------------------------------------------
TOTAL 0.83%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$85 $265 $460 $1,025
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
Special Value Portfolio
<PAGE 11>
Small Cap Portfolio
GOAL/APPROACH
The portfolio seeks to maximize capital appreciation. To pursue this goal, the
portfolio generally invests at least 65% of its assets in the common stock of
U.S. and foreign companies. The portfolio focuses on small-cap companies with
total market values of less than $1.5 billion.
In choosing stocks, the portfolio uses a blended approach, investing in growth
stocks, value stocks or stocks that exhibit characteristics of both. The
portfolio seeks companies characterized by new or innovative products or
services which should enhance prospects for growth of future earnings. The
portfolio also invests based on economic or political changes and may invest in
special situations, such as corporate restructurings, mergers or acquisitions.
The portfolio may invest up to 25% of its assets in common stocks of foreign
companies but currently intends to invest no more than 20% of its assets in
foreign securities.
The portfolio managers use a sector management approach, supervising a team of
sector managers who each make buy and sell decisions within their respective
areas of expertise. The fund's sector weightings typically approximate those of
the Russell 2000 Index.
The portfolio typically sells a stock when the reasons for buying it no longer
apply or when the company begins to show deteriorating fundamentals or poor
relative performance.
Concepts to understand
SMALL-CAP COMPANIES: these companies tend to grow faster than large-cap
companies and typically use profits for expansion rather than to pay dividends.
They are more volatile than larger companies and fail more often.
GROWTH COMPANIES: companies whose earnings are expected to grow faster than the
overall market. Often, growth stocks have relatively high price-to-earnings and
price-to-book ratios, and tend to be more volatile than value stocks.
VALUE COMPANIES: companies that appear underpriced according to certain
financial measurements (such as price-to-earnings or price-to-book ratios).
Because a stock can remain undervalued for years, value investors often look for
factors that could trigger a rise in price.
<PAGE 12>
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of a shareholder's investment in the
portfolio will go up and down, which means that shareholders could lose money.
Small companies may present additional risks because their earnings are less
predictable, their share prices more volatile and their securities less liquid
than larger, more established companies. Some of the portfolio's investments
will rise and fall based on investor perception rather than economics. Other
investments, including special situations, anticipate future products, services
or events whose delay could cause the stock price to drop.
Investments in growth companies may lack the dividend yield that can cushion
stock prices in market downturns. These companies are expected to increase their
earnings at a certain rate. If expectations are not met, investors can punish
the stocks inordinately, even if earnings do increase.
The portfolio's investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, or their prices may go
down. Further, while the portfolio's investments in value stocks may limit the
overall downside risk of the portfolio over time, the portfolio may produce more
modest gains than riskier small-company stock funds as a trade-off for this
potentially lower risk.
Foreign securities, while allowing the portfolio to seek attractive
opportunities worldwide, also include special risks, such as exposure to
currency fluctuations, changing political climate, lack of comprehensive company
information and potentially less liquidity.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
Small Cap Portfolio
<PAGE 13>
SMALL CAP PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the Russell 2000 Index, a widely recognized, unmanaged
index of smaller capitalization common stocks. Both tables assume the
reinvestment of dividends and distributions. As with all mutual funds, the past
is not a prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
159.73 71.28 68.31 7.75 29.38 16.60 16.75 -3.44
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q3 '91 +32.09%
WORST QUARTER: Q3 '98 -23.45%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year 5 Years (8/31/90)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO (3.44%) 12.88% 37.23%
RUSSELL 2000 INDEX (2.55%) 11.87% 16.02%
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.02%
- --------------------------------------------------------------------------------
TOTAL 0.77%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$79 $246 $428 $954
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 14>
Small Company Stock Portfolio
GOAL/APPROACH
The portfolio seeks investment returns (consisting of capital appreciation and
income) that are greater than the total return performance of stocks represented
by the Russell 2500(tm) Stock Index ("Russell 2500"). To pursue this goal, the
portfolio normally invests in a blended portfolio of growth and value stocks of
small and midsize domestic companies, whose market values generally range
between $100 million and $3 billion. Stocks are chosen through a disciplined
process combining computer modeling techniques, fundamental analysis and risk
management. Consistency of returns and stability of the portfolio's share price
compared to the Russell 2500 are primary goals of the investment process.
Dreyfus uses a computer model to identify and rank stocks within an industry or
sector, based on:
(pound) VALUE, or how a stock is priced relative to its perceived intrinsic
worth
(pound) GROWTH, in this case the sustainability or growth of earnings
(pound) FINANCIAL PROFILE, which measures the financial health of the company
Next, Dreyfus uses fundamental analysis to select the most attractive of the
top-ranked securities, drawing on information technology as well as Wall Street
sources and company management. Then Dreyfus manages risk by diversifying across
companies and industries, limiting the potential adverse impact from any one
stock or industry. The portfolio is structured so that its sector weightings and
risk characteristics, such as growth, size, quality and yield, are similar to
those of the Russell 2500. The portfolio may invest in securities in all
available domestic trading markets, including initial public offerings and the
after-market.
Concepts to understand
COMPUTER MODEL: a proprietary computer model that evaluates and ranks a universe
of over 2,000 stocks, screening each stock for relative attractiveness within
its economic sector and industry. To ensure that the model remains effective,
Dreyfus reviews each of the screens on a regular basis, and maintains the
flexibility to adapt the screening criteria to changes in market and economic
conditions.
<PAGE 15>
SMALL COMPANY STOCK PORTFOLIO (CONTINUED)
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of a shareholder's investment in the
portfolio will go up and down, which means that shareholders could lose money.
Small and midsize companies carry additional risks because their earnings are
less predictable, their share prices more volatile and their securities less
liquid than larger, more established companies. Some of the portfolio's
investments will rise and fall based on investor perception rather than
economics.
Although the portfolio seeks to manage risk by broadly diversifying among
industries and by maintaining a risk profile similar to the Russell 2500, the
portfolio is expected to hold fewer securities than the index. Owning fewer
securities and the ability to purchase companies not listed in the index can
cause the portfolio to underperform the index.
By investing in a mix of growth and value companies, the portfolio assumes the
risks of both and may achieve more modest gains than funds that use only one
investment style. Because the stock prices of growth companies are based in part
on future expectations, they may fall sharply if earnings expectations are not
met or investors believe the prospects for a stock, industry or the economy in
general are weak. Growth stocks also typically lack the dividend yield that
could cushion stock prices in market downturns. With value stocks, there is the
risk that they may never reach what the manager believes is their full market
value, or that their intrinsic values may fall. While investments in value
stocks may limit downside risk over time, they may produce smaller gains than
riskier stocks.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio, at times, may invest in derivative securities, such as options
and futures. These practices, when employed, are used primarily to hedge the
portfolio but may be used to increase returns; however, such practices may
reduce returns or increase volatility. Derivatives can be illiquid, and a small
investment in certain derivatives could have a potentially large impact on the
portfolio's performance.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
<PAGE 16>
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the Russell 2500 Index, a widely recognized unmanaged index
of small-cap stock performance. Both tables assume the reinvestment of dividends
and distributions. As with all mutual funds, the past is not a prediction of the
future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
21.77 -5.97
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +16.44%
WORST QUARTER: Q3 '98 -21.84%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year (5/1/96)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PORTFOLIO (5.97%) 8.55%
RUSSELL 2500 0.38% 11.64%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/96 IS USED AS THE
BEGINNING VALUE ON 5/1/96.
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.23%
- --------------------------------------------------------------------------------
TOTAL 0.98%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$100 $312 $542 $1,201
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
Small Company Stock Portfolio
<PAGE 17>
Disciplined Stock Portfolio
GOAL/APPROACH
The portfolio seeks investment returns (consisting of capital appreciation and
income) that are greater than the total return performance of stocks represented
by the Standard & Poor's 500 Composite Stock Price Index. To pursue this goal,
the portfolio invests in a blended portfolio of growth and value stocks chosen
through a disciplined investment process. Consistency of returns and stability
of the portfolio's share price compared to the S&P 500((reg.tm)) are primary
goals of the process.
Dreyfus uses a computer model to identify and rank stocks within an industry or
sector, based on:
(pound) VALUE, or how a stock is priced relative to its
perceived intrinsic worth
(pound) GROWTH, in this case the sustainability or
growth of earnings
(pound) FINANCIAL PROFILE, which measures the financial
health of the company
Next, Dreyfus uses fundamental analysis to select the most attractive of the
top-ranked securities, drawing on information technology as well as Wall Street
sources and company management. Then Dreyfus manages risk by diversifying across
companies and industries, limiting the potential adverse impact from any one
stock or industry. The portfolio is structured so that its sector weightings and
risk characteristics, such as growth, size, quality and yield, are similar to
those of the S&P 500.
Concepts to understand
S&P 500((reg.tm)): a widely recognized, unmanaged index of 500 common stocks
chosen to reflect the industries of the U.S. economy.
COMPUTER MODEL: a proprietary computer model that evaluates and ranks a universe
of 2,000 stocks, screening each stock for relative attractiveness within its
economic sector and industry. To ensure that the model remains effective,
Dreyfus reviews each of the screens on a regular basis, and maintains the
flexibility to adapt the screening criteria to changes in market and economic
conditions.
<PAGE 18>
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of a shareholder's investment in the
portfolio will go up and down, which means that shareholders could lose money.
Although the portfolio seeks to manage risk by broadly diversifying among
industries and by maintaining a risk profile very similar to the S&P 500, the
portfolio is expected to hold fewer securities than the index. Owning fewer
securities and the ability to purchase stocks of companies not listed in the
index can cause the portfolio to underperform the index.
By investing in a mix of growth and value companies, the portfolio assumes the
risks of both, and may achieve more modest gains than funds that use only one
investment style. Because the stock prices of growth companies are based in part
on future expectations, they may fall sharply if earnings expectations are not
met or investors believe the prospects for a stock, industry or the economy in
general are weak. Growth stocks also typically lack the dividend yield that
could cushion stock prices in market downturns. With value stocks, there is the
risk that they may never reach what the manager believes is their full market
value, or that their intrinsic values may fall. While investments in value
stocks may limit downside risk over time, they may produce smaller gains than
riskier stocks.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
The portfolio, at times, may invest some assets in derivative securities, such
as options and futures. When employed, derivatives are used primarily to hedge
the portfolio but may be used to increase returns; however, they sometimes may
reduce returns or increase volatility. Derivatives can be illiquid, and a small
investment in certain derivatives could have a potentially large impact on the
portfolio's performance.
Disciplined Stock Portfolio
<PAGE 19>
DISCIPLINED STOCK PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the S&P 500((reg.tm)). Both tables assume the reinvestment
of dividends and distributions. As with all mutual funds, the past is not a
prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
31.51 26.72
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +22.71%
WORST QUARTER: Q3 '98 -12.32%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year (5/1/96)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PORTFOLIO 26.72% 29.18%
S&P 500 28.60% 29.00%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/96 IS USED AS THE
BEGINNING VALUE ON 5/1/96.
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.13%
- --------------------------------------------------------------------------------
TOTAL 0.88%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$90 $281 $488 $1,084
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 20>
International Value Portfolio
GOAL/APPROACH
The portfolio seeks long-term capital growth. To pursue this goal, the portfolio
ordinarily invests most of its assets in equity securities of foreign issuers
which Dreyfus considers to be "value" companies. To a limited extent, the
portfolio may invest in debt securities of foreign issuers. Though not
specifically limited, the portfolio ordinarily invests in companies in at least
three foreign countries, and limits its investments in any single company to no
more than 5% of its assets at the time of purchase.
The portfolio's investment approach is value oriented, research driven, and risk
averse. In selecting stocks, the portfolio manager identifies potential
investments through extensive quantitative and fundamental research. Emphasizing
individual stock selection rather than economic and industry trends, the
portfolio focuses on three key factors:
(pound) VALUE, or how a stock is valued relative to its intrinsic worth based
on traditional value measures
(pound) BUSINESS HEALTH, or overall efficiency and profit-
ability as measured by return on assets and return on equity
(pound) BUSINESS MOMENTUM, or the presence of a catalyst (such as corporate
restructuring, change in management or spin-off) that potentially will
trigger a price increase near term to midterm
The portfolio typically sells a stock when it is no longer considered a value
company, appears less likely to benefit from the current market and economic
environment, shows deteriorating fundamentals or declining momentum, or falls
short of the portfolio manager's expectations.
Concepts to understand
VALUE COMPANIES: companies that appear underpriced according to certain
financial measurements of their intrinsic worth or business prospects (such as
price-to-earnings or price-to-book ratios). For international investing, "value"
is determined relative to a company's home market. Because a stock can remain
undervalued for years, value investors often look for factors that could trigger
a rise in price.
<PAGE 21>
INTERNATIONAL VALUE PORTFOLIO (CONTINUED)
MAIN RISKS
The portfolio's performance will be influenced by political, social and economic
factors affecting companies in foreign countries. Like the stocks of U.S.
companies, the securities of foreign issuers fluctuate in price, often based on
factors unrelated to the issuers' value, and such fluctuations can be
pronounced. Unlike investing in U.S. companies, foreign securities include
special risks such as exposure to currency fluctuations, a lack of comprehensive
company information, political instability, and differing auditing and legal
standards. The value of a shareholder's investment in the portfolio will go up
and down, which means that shareholders could lose money.
Value stocks involve the risk that they may never reach what the portfolio
manager believes is their full market value either because the market fails to
recognize the stock's intrinsic worth or the portfolio manager misgauged that
worth. They also may decline in price, even though in theory they are already
underpriced. Because different types of stocks tend to shift in and out of favor
depending on market and economic conditions, the portfolio's performance may
sometimes be lower or higher than that of other types of funds (such as those
emphasizing growth stocks).
The portfolio may invest in companies of any size. Investments in small
companies carry additional risks because their earnings tend to be less
predictable, their share prices more volatile and their securities less liquid
than larger, more established companies.
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the portfolio to invest for higher yields, the most
immediate effect is usually a drop in bond prices, and therefore in the
portfolio's share price as well. In addition, if an issuer fails to make timely
interest or principal payments or there is a decline in the credit quality of a
bond, or perception of a decline, the bond's value could fall, potentially
lowering the portfolio's share price.
Under adverse market conditions, the portfolio could invest some or all of its
assets in the securities of U.S. issuers or money market securities. Although
the portfolio would do this to avoid losses, it could have the effect of
reducing the benefit from any upswing in the market. During such period, the
portfolio may not achieve its investment objective.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
The portfolio, at times, may invest some assets in derivative securities, such
as options and futures, and in foreign currencies. These practices, when
employed, are used primarily to hedge the portfolio, but may be used to increase
returns; however, such practices may lower returns or increase volatility.
Derivatives can be illiquid, and a small investment in certain derivatives could
have a potentially large impact on the portfolio's performance.
At times, the portfolio may engage in short-term trading. When employed, this
could increase the portfolio's transaction costs and taxable distributions,
lowering its after-tax performance accordingly.
<PAGE 22>
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the Morgan Stanley Capital International Europe,
Australasia, Far East Index ("MSCI EAFE((reg.tm)) Index"), an unmanaged index
composed of a representative sample of companies located in European and Pacific
Basin countries and includes net dividends reinvested. Both tables assume the
reinvestment of dividends and distributions. As with all mutual funds, the past
is not a prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
8.71 8.74
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +15.33%
WORST QUARTER: Q3 '98 -16.49%
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
Since
inception
1 Year (5/1/96)
- --------------------------------------------------------------------------------
PORTFOLIO 8.74% 7.81%
MSCI EAFE((reg.tm)) INDEX 20.00% 7.85%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/96 IS USED AS THE
BEGINNING VALUE ON 5/1/96.
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 1.00%
Other expenses 0.29%
- --------------------------------------------------------------------------------
TOTAL 1.29%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$131 $409 $708 $1,556
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual return and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
International Value Portfolio
<PAGE 23>
International Equity Portfolio
GOAL/APPROACH
The portfolio seeks capital growth. To pursue this goal, the portfolio invests
primarily in the stocks of foreign issuers. Typically, the portfolio invests in
15 to 25 markets around the world, including emerging markets. The portfolio's
stock investments may include common stocks, preferred stocks and convertible
securities.
In choosing stocks, the portfolio conducts a "bottom-up" approach, focusing on
individual stock selection. There are no country allocation models or targets.
The portfolio is particularly alert to companies whose revenue and earnings
growth potential are considered by management to be faster than those of
industry peers or the local market.
The portfolio typically sells a stock when its growth forecast is reduced, its
valuation target is reached, or the portfolio manager decides to reduce the
weighting in its market.
Concepts to understand
"BOTTOM-UP" APPROACH: an investment style that focuses on selecting outstanding
companies before looking at economic and industry trends.
<PAGE 24>
MAIN RISKS
The portfolio's performance will be influenced by political, social and economic
factors affecting companies in foreign countries. Like the stocks of U.S.
companies, the securities of foreign issuers fluctuate in price, often based on
factors unrelated to the issuers' value, and such fluctuations can be
pronounced. Unlike investing in U.S. companies, foreign securities include
special risks such as exposure to currency fluctuations, a lack of comprehensive
company information, political instability, and differing auditing and legal
standards. The value of a shareholder's investment in the portfolio will go up
and down, which means that shareholders could lose money.
The portfolio expects to invest primarily in the stocks of companies located in
developed countries. However, the portfolio may invest in the stocks of
companies located in emerging markets. These countries generally have economic
structures that are less diverse and mature, and political systems that are less
stable, than those of developed countries. Emerging markets may be more volatile
than the markets of more mature economies, and the securities of companies
located in emerging markets are often subject to rapid and large changes in
price; however, these markets also may provide higher long-term rates of return
Under adverse market conditions, the portfolio could invest some or all of its
assets in the securities of U.S. issuers or money market securities. Although
the portfolio would do this to avoid losses, it could have the effect of
reducing the benefit from any upswing in the market. During such period, the
portfolio may not achieve its investment objective.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
The portfolio, at times, may invest some assets in derivative securities, such
as options and futures, and in foreign currencies. These practices, when
employed, are used primarily to hedge the portfolio but may be used to increase
returns; however, such practices sometimes may reduce returns or increase
volatility. Derivatives can be illiquid, and a small investment in certain
derivatives could have a potentially large impact on the portfolio's
performance.
Because a relatively high percentage of the portfolio's assets may be invested
in the securities of a limited number of issuers, its performance may be more
vulnerable to changes in the market value of a single issuer or group of
issuers.
International Equity Portfolio
<PAGE 25>
INTERNATIONAL EQUITY PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the Morgan Stanley Capital International Europe,
Australasia, Far East Index ("MSCI EAFE((reg.tm) )Index"), an unmanaged index
composed of a representative sample of companies located in European and Pacific
Basin countries and includes net dividends reinvested. Both tables assume the
reinvestment of dividends and distributions. As with all mutual funds, the past
is not a prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
7.39 11.61 9.61 4.49
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q1 '98 +16.55%
WORST QUARTER: Q3 '98 -20.29%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year (5/2/94)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PORTFOLIO 4.49% 6.56%
MSCI EAFE((reg.tm)) INDEX 20.00% 8.11%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/94 IS USED AS THE
BEGINNING VALUE ON 5/2/94.
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.24%
- --------------------------------------------------------------------------------
TOTAL 0.99%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$101 $315 $547 $1,213
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual return and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 26>
Quality Bond Portfolio
GOAL/APPROACH
The portfolio seeks to maximize current income as is consistent with the
preservation of capital and the maintenance of liquidity. To pursue this goal,
the portfolio invests at least 80% of net assets in fixed-income securities,
including mortgage-related securities, collateralized mortgage obligations
("CMOs"), and asset-backed securities, that, when purchased, are rated A or
better or are the unrated equivalent as determined by Dreyfus, and in securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
The portfolio also may invest in:
(pound) high grade commercial paper of U.S. issuers
(pound) certificates of deposit, time deposits and bankers' acceptances
(pound) fixed-income securities rated lower than A (but not lower than B) by
both Moody's and S&P
(pound) municipal obligations and zero coupon securities
The portfolio may invest up to 10% of net assets in foreign securities.
Concepts to understand
MORTGAGE-RELATED SECURITIES: pools of residential or commercial mortgages whose
cash flows are "passed through" to the holders of the securities via monthly
payments of interest and principal.
CMOS: multi-class bonds backed by pools of mortgage pass-through securities or
mortgage loans. CMOs may be issued by government agencies or private issuers.
RATINGS: represent the opinions of rating agencies (like Moody's and S&P) as to
the quality of the fixed-income securities. Ratings are relative and subjective
and are not absolute standards of quality.
<PAGE 27>
QUALITY BOND PORTFOLIO (CONTINUED)
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the portfolio to invest for higher yields, the most
immediate effect is usually a drop in bond prices, and therefore in the
portfolio's share price as well. As a result, the value of a shareholder's
investment in the portfolio could go up and down, which means that shareholders
could lose money.
Although the portfolio invests primarily in high quality bonds, it may invest to
a limited extent in high-yield bonds which involve greater credit risk,
including the risk of default, than investment grade bonds. They tend to be more
volatile in price and less liquid and are considered speculative. As with
stocks, the prices of high-yield bonds can fall in response to bad news about
the issuer, the issuer's industry or the economy in general.
Other risk factors could have an effect on the portfolio's performance,
including:
(pound) if an issuer fails to make timely interest or principal payments or
there is a decline in the credit quality of a bond, or perception of
a decline, the bond's value could fall, potentially lowering the
portfolio's share price
(pound) if the portfolio's mortgage-related securities are paid off
substantially earlier or later than expected, the portfolio's share
price or yield could be hurt
(pound) the price and yield of foreign debt securities could be affected by
factors ranging from political and economic instability to changes
in currency exchange rates
(pound) during unusual market conditions, the portfolio may not be able to sell
certain securities at the time and price it would like
Under adverse market conditions, the portfolio could invest up to all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
Other potential risks
Most mortgage-related securities are a form of derivative. Derivatives can be
illiquid and highly sensitive to changes in their underlying securities,
interest rate or index and, as a result, can be highly volatile. Certain
derivatives, at times, may be used to leverage the portfolio, meaning that a
small investment could have a potentially large impact on the portfolio.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
<PAGE 28>
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the Merrill Lynch Domestic Master Index (Subindex D010), an
unmanaged index of U.S. government, mortgage and corporate securities rated A or
better. Both tables assume the reinvestment of dividends and distributions. As
with all mutual funds, the past is not a prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
14.12 12.08 15.33 -4.59 20.42 3.13 9.42 5.49
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q3 '92 +7.99%
WORST QUARTER: Q1 '94 -4.57%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year 5 Years (8/31/90)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO 5.49% 6.46% 9.09%
MERRILL LYNCH
DOMESTIC MASTER
INDEX (SUBINDEX D010) 8.95% 7.29% 9.09%
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.65%
Other expenses 0.08%
- --------------------------------------------------------------------------------
TOTAL 0.73%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$75 $233 $406 $906
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
Quality Bond Portfolio
<PAGE 29>
Zero Coupon 2000 Portfolio
GOAL/APPROACH
The portfolio seeks as high an investment return as is consistent with the
preservation of capital. To pursue this goal, the portfolio invests primarily in
debt obligations issued by the U.S. government and its agencies and
instrumentalities that have been stripped of their unmatured interest coupons,
and interest coupons that have been stripped from these debt obligations
("stripped securities").
The portfolio may invest in other zero coupon securities issued by state and
local governments and their agencies, and in investment grade zero coupon
securities issued by domestic corporations.
The portfolio will invest at least 65% of its assets in zero coupon securities
which will mature on or about December 31, 2000. On that date, the portfolio
will be liquidated. Prior to December 31, 2000, you will be informed of the
liquidation of the portfolio and will have an opportunity to exchange your
investment for another portfolio of Dreyfus Variable Investment Fund. If the
portfolio has not received your instructions before the liquidation date, your
investment will be invested automatically in the Money Market Portfolio.
Concepts to understand
STRIPPED SECURITIES: a debt obligation that does not entitle the holder to any
periodic payments of interest prior to maturity. Stripped securities are issued
and trade at a discount from the face amount. The discount varies depending on
the time to maturity, prevailing interest rates and the perceived credit quality
of the issuer. Investors who hold stripped securities until maturity know the
total amount of their return at the time of investment.
<PAGE 30>
MAIN RISKS
Prices of stripped securities tend to move inversely with changes in interest
rates. While a rise in rates may allow the portfolio to invest for higher
yields, the most immediate effect is usually a drop in the prices of such
securities, and therefore in the portfolio's share price as well. As a result,
the value of a shareholder's investment in the portfolio will fluctuate and
shareholders could lose money by investing in the portfolio.
The portfolio may be subject to greater fluctuations in response to changing
interest rates than would a fund investing in debt obligations of comparable
maturities paying interest periodically. Because of the price volatility of
stripped securities prior to maturity, the portfolio may not be appropriate for
investors who have a current need for income from the investment or wish to
liquidate their investment prior to December 31, 2000.
The portfolio may purchase interest-bearing U.S. government securities and other
money market securities to provide income to pay the portfolio's expenses and to
meet redemption requests. If this income is insufficient, the portfolio may have
to sell certain stripped securities at times or prices that might be
disadvantageous.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
The portfolio, at times, may invest some of its assets in derivative securities,
such as options and futures. These practices, when employed, are used primarily
to hedge the portfolio but may be used to increase returns; however, such
practices may reduce returns or increase volatility. Derivatives can be
illiquid, and a small investment in certain derivatives could have a potentially
large impact on the portfolio's performance.
Zero Coupon 2000 Portfolio
<PAGE 31>
ZERO COUPON 2000 PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows how the portfolio's performance has varied
from year to year. The second table compares the performance of the portfolio
over time to that of the Merrill Lynch U.S. Treasury Coupon 2-Year Strips Index,
an unmanaged zero coupon index with constant maturity and duration. Both tables
assume the reinvestment of dividends and distributions. As with all mutual
funds, the past is not a prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
20.08 8.87 15.19 -3.91 17.95 2.59 7.01 7.27
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q3 '91 +8.54%
WORST QUARTER: Q1 '92 -3.77%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since
inception
1 Year 5 Years (8/31/90)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO 7.27% 5.94% 9.59%
MERRILL LYNCH
U.S. TREASURY COUPON
2-YEAR STRIPS INDEX 7.19% 6.10% 7.27%
</TABLE>
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.45%
Other expenses 0.14%
- --------------------------------------------------------------------------------
TOTAL 0.59%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$60 $189 $329 $738
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 32>
Balanced Portfolio
GOAL/APPROACH
The portfolio seeks to provide investment results that are greater than the
total return performance of common stocks and bonds represented by a hybrid
index, 60% of which is the Standard & Poor's 500 Composite Stock Price Index
("S&P 500") and 40% of which is the Lehman Brothers Intermediate
Government/Corporate Bond Index ("Lehman Intermediate Index"). To pursue this
goal, the portfolio invests in a diversified mix of stocks and investment grade
bonds of both U.S. and foreign issuers. The portfolio's normal asset allocation
is approximately 60% stocks and 40% bonds. However, the portfolio is permitted
to invest up to 75%, and as little as 40%, of its assets in stocks and up to 60%
, and as little as 25%, of its assets in bonds.
In allocating assets between stocks and bonds, the portfolio managers assess the
relative return and risks of each asset class using a model which analyzes
several factors, including interest-rate-adjusted price/earnings ratios, the
valuation and volatility levels of stocks relative to bonds, and other economic
factors, such as interest rates.
In selecting stocks, Dreyfus uses a valuation model to identify and rank stocks
within an industry or sector based on:
(pound) VALUE, or how a stock is priced relative to its perceived intrinsic
worth
(pound) GROWTH, in this case the sustainability or growth of earnings
(pound) FINANCIAL PROFILE, which measures the financial health of the company
Next, Dreyfus uses fundamental analysis to select the most attractive of the
top-ranked securities. Dreyfus then manages risk by diversifying across
companies and industries and by maintaining risk characteristics, such as
growth, size, quality and yield, that are similar to those of the S&P 500.
In choosing bonds, the portfolio managers review economic, market and other
factors, leading to valuations by sector, maturity and quality. The portfolio's
bond component consists primarily of domestic and foreign bonds issued by
corporations or governments and rated investment grade or considered to be of
comparable quality by Dreyfus. The dollar-weighted average maturity of the bond
component normally will not exceed 10 years.
Concepts to understand
S&P 500((reg.tm)): a widely recognized, unmanaged index of 500 common stocks
chosen to reflect the industries of the U.S. economy.
LEHMAN INTERMEDIATE INDEX: a recognized, unmanaged index of U.S. government and
investment grade corporate bonds.
<PAGE 33>
BALANCED PORTFOLIO (CONTINUED)
MAIN RISKS
The stock and bond markets can perform differently from each other, so the
portfolio will be affected by its asset allocation. If the portfolio favors an
asset class during a period when that class underperforms, performance may be
hurt. The value of a shareholder's investment in the portfolio will go up and
down, which means that shareholders could lose money.
The portfolio is exposed to risks of both growth and value companies. Value
stocks may never reach what the portfolio manager believes is their full market
value and, even though they are undervalued, may decline in price. Prices of
growth stocks are based in part on future expectations, which means they can
fall sharply if the prospects for a stock, industry or the economy in general
are below the market's expectations.
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the portfolio to invest for higher yields, the most
immediate effect is usually a drop in prices, and therefore in the portfolio's
share price as well.
Bond prices also may be hurt by a downgrade of the bond's credit rating, or a
decline in or the perception of a decline in the financial condition of the
issuer, which could potentially lower the portfolio's share price.
In general, the risks of foreign stocks and bonds are greater than the risks of
their U.S. counterparts because of less liquidity, changes in currency exchange
rates, a lack of comprehensive company information and political instability.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
The portfolio, at times, may invest some of its assets in derivative securities,
such as options and futures. These practices, when employed, are used primarily
to hedge the portfolio but may be used to increase returns; however, such
practices may reduce returns or increase volatility. Derivatives can be
illiquid, and a small investment in certain derivatives could have a potentially
large impact on the portfolio's performance.
The portfolio, at times, may also engage in short-term trading, which could
increase the portfolio's transaction costs and taxable distributions, lowering
its after-tax performance accordingly.
<PAGE 34>
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows the portfolio's performance for its first
full calendar year of operations. The second table compares the performance of
the portfolio over time to that of the S&P 500((reg.tm)), the Lehman
Intermediate Index, and the hybrid index composed of 60% S&P 500((reg.tm)) and
40% Lehman Intermediate Index. Both tables assume the reinvestment of dividends
and distributions. As with all mutual funds, the past is not a prediction of the
future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
22.34
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q4 '98 +14.14%
WORST QUARTER: Q3 '98 -1.39%
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
Since inception
1 Year (5/1/97)
- --------------------------------------------------------------------------------
PORTFOLIO 22.34% 24.89%
S&P 500 28.60% 31.38%*
LEHMAN
INTERMEDIATE INDEX 8.44% 9.15%*
HYBRID INDEX 20.54% 22.37%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF EACH INDEX ON 4/30/97 IS USED AS THE
BEGINNING VALUE ON 5/1/97.
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75%
Other expenses 0.12%
- --------------------------------------------------------------------------------
TOTAL 0.87%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$89 $278 $482 $1,073
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual return and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
Balanced Portfolio
<PAGE 35>
Limited Term High Income Portfolio
GOAL/APPROACH
The portfolio seeks to maximize total return, consisting of capital appreciation
and current income. To pursue this goal, the portfolio normally invests in
fixed-income securities rated, when purchased, below investment grade ("high
yield" or "junk" bonds) or the unrated equivalent as determined by Dreyfus. The
portfolio may invest in various types of fixed-income securities, including
corporate bonds and notes, mortgage-related securities, asset-backed securities,
zero coupon securities, convertible securities, preferred stock and other debt
instruments of U.S. and foreign issuers.
In choosing securities, the portfolio manager seeks to capture the higher yields
offered by junk bonds, while managing credit risk and the volatility caused by
interest rate movements. The portfolio attempts to reduce interest rate risk by
maintaining an average effective portfolio duration of 3.5 years or less and an
average effective portfolio maturity of 4 years or less, although there is no
limit on the maturity or duration of individual securities.
The portfolio's investment process is based on fundamental credit research and,
at times, focusing on companies that are currently out-of-favor. The portfolio
looks at a variety of factors when assessing a potential investment, including
the company's financial strength, the state of the industry or sector it belongs
to, the long-term fundamentals of that industry or sector, the company's
management, and whether there is sufficient equity value in the company. The
portfolio may also invest in investment grade bonds, typically when it takes a
defensive investment position.
Concepts to understand
HIGH YIELD BONDS: those rated below BBB or Baa by credit rating agencies such as
Standard & Poor's or Moody's. Because their issuers may be at an early stage of
development or may have been unable to repay past debts, these bonds typically
must offer higher yields than investment grade bonds to compensate investors for
greater credit risk.
DURATION: an indication of an investment's "interest rate risk," or how
sensitive a bond or mutual fund portfolio may be to changes in interest rates.
Generally, the longer a fund's duration, the more it will react to interest rate
fluctuations.
<PAGE 36>
MAIN RISKS
High yield bonds involve greater credit risk than investment grade bonds. They
tend to be more volatile in price and less liquid and are considered
speculative. As with stocks, the prices of high yield bonds can fall in response
to bad news about the issuer, the issuer's industry or the economy in general.
The portfolio's share price could also be hurt if it holds bonds of issuers that
default on payments of principal or interest. As a result, the value of a
shareholder's investment in the portfolio could go up and down, which means that
shareholders could lose money.
Other risk factors could have an effect on the portfolio's performance,
including:
(pound) if there is a decline in the credit quality of a bond, or perception
of a decline, the bond's value could fall, potentially lowering the
portfolio's share price
(pound) if the loans underlying the portfolio's mortgage-related securities
are paid off substantially earlier or later than expected, which could
occur because of movements in market interest rates, the portfolio's
share price or yield could be hurt and the duration of its portfolio
affected
(pound) if the portfolio holds securities which are traded in a market that
becomes "illiquid," typically when there are more sellers than buyers
for the securities, the value of such securities, and the portfolio's
share price, may fall dramatically
The portfolio's investments in investment grade bonds could also reduce the
portfolio's yield and/or return.
Foreign securities, while allowing the portfolio to seek attractive
opportunities worldwide, also include special risks, such as exposure to
currency fluctuations, changing political climate, lack of comprehensive company
information and potentially less liquidity.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in the
market. During such period, the portfolio may not achieve its investment
objective.
What the portfolio is -- and isn't
The portfolio is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it cannot
offer guaranteed results.
An investment in the portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. Shareholders could lose money in the portfolio, but
shareholders also have the potential to make money.
Other potential risks
The portfolio, at times, may invest some of its assets in derivative securities,
such as options, futures and swaps, and in foreign currencies. The portfolio may
also sell short. These practices, when employed, are used primarily to hedge the
portfolio but may be used to increase returns; however, such practices may
reduce returns or increase volatility. Derivatives can be illiquid, and a small
investment in certain derivatives could have a potentially large impact on the
portfolio's performance.
In addition, the portfolio may borrow for certain purposes including to
facilitate trades in its portfolio securities (a form of leveraging), which
could have the effect of magnifying the portfolio's gains or losses.
At times, the portfolio may engage in short-term trading. When employed, this
could increase the portfolio's transaction costs and taxable distributions,
lowering its after-tax performance accordingly.
Limited Term High Income Portfolio
<PAGE 37>
LIMITED TERM HIGH INCOME PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The two tables below provide some indication of the risks of investing in the
portfolio by showing the portfolio's annual returns and its long-term
performance. The first table shows the portfolio's performance for its first
full calendar year of operations. The second table compares the performance of
the portfolio over time to that of the Merrill Lynch High Yield Master II Index,
an index of high yield bonds with at least $100 million par amount outstanding
and at least one year to maturity. Both tables assume the reinvestment of
dividends and distributions. As with all mutual funds, the past is not a
prediction of the future.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
0.29
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q1 '98 +3.90%
WORST QUARTER: Q3 '98 -5.46%
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
Since inception
1 Year (4/30/97)
- --------------------------------------------------------------------------------
PORTFOLIO 0.29% 5.84%
MERRILL LYNCH HIGH YIELD
MASTER II INDEX 2.95% 8.22%
EXPENSES
Investors pay certain fees and expenses in connection with the portfolio, which
are described in the table below. Annual portfolio operating expenses are paid
out of portfolio assets, so their effect is included in the portfolio's share
price. As with the performance information given previously, these figures do
not reflect any fees or charges imposed by participating insurance companies.
- --------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.65%
Other expenses 0.44%
- --------------------------------------------------------------------------------
TOTAL 1.09%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$111 $347 $601 $1,329
</TABLE>
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether investors sold their shares at the end
of a period or kept them. Because actual returns and expenses will be different,
the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the
portfolio and assisting in all aspects of the portfolio's operations.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Additional costs
Performance information reflects the portfolio's expenses only and does not
reflect the fees and charges imposed by participating insurance companies under
their VA contracts or VLI policies. Because these fees and charges will reduce
total return, VA contract holders and VLI policyholders should consider them
when evaluating and comparing the portfolio's performance. VA contract holders
and VLI policyholders should consult the prospectus for their contract or policy
for more information.
<PAGE 38>
MANAGEMENT
The investment adviser for the portfolios is The Dreyfus Corporation, 200 Park
Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages one of the
nation's leading mutual fund complexes, with more than $120 billion in over 160
mutual fund portfolios. Dreyfus is the primary mutual fund business of Mellon
Bank Corporation, a broad-based financial services company with a bank at its
core. With more than $389 billion of assets under management and $1.9 trillion
of assets under administration and custody, Mellon provides a full range of
banking, investment and trust products and services to individuals, businesses
and institutions. Its mutual fund companies place Mellon as the leading bank
manager of mutual funds. Mellon is headquartered in Pittsburgh, Pennsylvania.
MONEY MARKET PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.50% of the
portfolio's average daily net assets.
CAPITAL APPRECIATION PORTFOLIO -- During the past fiscal year, the portfolio
paid Dreyfus an investment advisory fee at the annual rate of 0.75% of the
portfolio's average daily net assets.
GROWTH AND INCOME PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.75% of the
portfolio's average daily net assets.
SPECIAL VALUE PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.75% of the
portfolio's average daily net assets.
SMALL CAP PORTFOLIO -- During the past fiscal year, the portfolio paid Dreyfus
an investment advisory fee at the annual rate of 0.75% of the portfolio's
average daily net assets.
SMALL COMPANY STOCK PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.75% of the
portfolio's average daily net assets.
DISCIPLINED STOCK PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.75% of the
portfolio's average daily net assets.
INTERNATIONAL VALUE PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 1.00% of the
portfolio's average daily net assets.
INTERNATIONAL EQUITY PORTFOLIO -- During the past fiscal year, the portfolio
paid Dreyfus an investment advisory fee at the annual rate of 0.75% of the
portfolio's average daily net assets.
QUALITY BOND PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.65% of the
portfolio's average daily net assets.
ZERO COUPON 2000 PORTFOLIO -- During the past fiscal year, the portfolio paid
Dreyfus an investment advisory fee at the annual rate of 0.45% of the
portfolio's average daily net assets.
BALANCED PORTFOLIO -- During the past fiscal year, the portfolio paid Dreyfus an
investment advisory fee at the annual rate of 0.75% of the portfolio's average
daily net assets.
LIMITED TERM HIGH INCOME PORTFOLIO -- During the past fiscal year, the portfolio
paid Dreyfus an investment advisory fee at the annual rate of 0.65% of the
portfolio's average daily net assets.
Management philosophy
The Dreyfus asset management philosophy is based on the belief that discipline
and consistency are important to investment success. For each portfolio, Dreyfus
seeks to establish clear guidelines for portfolio management and to be
systematic in making decisions. This approach is designed to provide each
portfolio with a distinct, stable identity.
<PAGE 39>
MANAGEMENT (CONTINUED)
Portfolio managers
The primary portfolio managers of the portfolios are as follows:
CAPITAL APPRECIATION PORTFOLIO -- Fayez Sarofim. He has been the portfolio's
primary portfolio manager since the portfolio's inception. He is the President
and Chairman of Fayez Sarofim & Co., Two Houston Center, Suite 2907, Houston,
Texas 77010, which serves as the portfolio's sub-investment adviser. Sarofim
managed approximately $49 billion in discretionary separate accounts and
provided investment advisory services for five other investment companies having
aggregate assets of approximately $5.4 billion as of December 31, 1998.
GROWTH AND INCOME PORTFOLIO -- Douglas D. Ramos. He has been the portfolio's
primary portfolio manager and has been employed by Dreyfus 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.
SPECIAL VALUE PORTFOLIO -- Timothy M. Ghriskey. He has been the portfolio's
primary portfolio manager since January 1, 1997. Mr. Ghriskey has been employed
by Dreyfus since July 1995. For more than five years prior thereto, he was Vice
President and Associate Managing Partner of Loomis, Sayles & Company, L.P.
SMALL CAP PORTFOLIO -- Hilary R. Woods and Paul Kandel. Ms. Woods and Mr. Kandel
have been the portfolio's primary portfolio managers since October 1996. Ms.
Woods and Mr. Kandel have been employed by Dreyfus since 1987 and 1994,
respectively. Prior to joining Dreyfus, Mr. Kandel was a Manager at Ark Asset
Management.
SMALL COMPANY STOCK PORTFOLIO -- James Wadsworth. He has been the portfolio's
primary portfolio manager since the portfolio's inception. In addition to being
a portfolio manager with Dreyfus, Mr. Wadsworth also has been employed by Laurel
Capital Advisors, an affiliate of Dreyfus, since October 1990, serving as Chief
Investment Officer of Laurel Capital Advisors since June 1994. Mr. Wadsworth
also is a First Vice President of Mellon, where he has been employed since 1977
DISCIPLINED STOCK PORTFOLIO -- Bert Mullins. He has been the portfolio's primary
portfolio manager since the portfolio's inception, and has been employed by
Dreyfus since October 1994. In addition to being a portfolio manager with
Dreyfus, Mr. Mullins also has been employed by Laurel Capital Advisors, an
affiliate of Dreyfus, since October 1990. Mr. Mullins also is a Vice President,
Senior Security Analyst and portfolio manager at Mellon, where he has been
employed since 1966.
INTERNATIONAL VALUE PORTFOLIO -- Sandor Cseh. He has been the portfolio's
primary portfolio manager since the portfolio's inception, and has been employed
by Dreyfus since May 1996 and by The Boston Company Asset Management, Inc., an
affiliate of Dreyfus or its predecessor, since October 1994. Prior to joining
The Boston Company Asset Management, Inc., Mr. Cseh was President of Cseh
International & Associates Inc., the international money management division of
Cashman, Farrell & Association, and was a securities analyst with several banks
<PAGE 40>
INTERNATIONAL EQUITY PORTFOLIO -- Douglas A. Loeffler. Mr. Loeffler has been the
portfolio's primary portfolio manager since he joined Dreyfus in February 1999.
He is also employed by Founders Asset Management LLC, an affiliate of Dreyfus,
since 1997 as a Vice President of Investments and from 1995 to 1997 as a Senior
International Equities Analyst. For seven years prior thereto, he served as an
International Equities Analyst and a Quantitative Analyst for Scudder, Stevens &
Clark.
QUALITY BOND PORTFOLIO -- Investment decisions for the portfolio are made by the
Taxable Fixed-Income Committee of Dreyfus, and no person is primarily
responsible for making recommendations to that committee.
ZERO COUPON 2000 PORTFOLIO -- Gerald E. Thunelius. He has been the portfolio's
primary portfolio manager since March 1997 and a portfolio manager of the
portfolio since June 1994. He has been employed by Dreyfus since September 1989
BALANCED PORTFOLIO -- Ron Gala and Laurie Carroll. Mr. Gala has managed the
equity portion of the portfolio since the portfolio's inception. Mr. Gala is a
Vice President and portfolio manager at Mellon Bank and a portfolio manager for
Mellon Equity Associates, an affiliate of Dreyfus. Mr. Gala also is responsible
for Mellon Equity Associates' asset allocation. Mr. Gala has been employed by
Mellon Bank in various capacities since 1982. Ms. Carroll has managed the
fixed-income portion of the portfolio since the portfolio's inception. Ms.
Carroll is a Vice President and portfolio manager at Mellon Bank. Ms. Carroll
has been employed by Mellon Bank since 1986. Mr. Gala and Ms. Carroll have been
employed by Dreyfus as portfolio managers since October 1994.
LIMITED TERM HIGH INCOME PORTFOLIO -- Roger King. He has been the portfolio's
primary portfolio manager since the portfolio's inception and has been employed
by Dreyfus 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.
Concepts to understand
YEAR 2000 ISSUES: the portfolios could be adversely affected if the computer
systems used by Dreyfus and the portfolios' other service providers do not
properly process and calculate date-related information from and after January
1, 2000.
Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the portfolios invest may be
adversely affected by year 2000-related problems. This could have an impact on
the value of a portfolio's investments and its share price.
Management
<PAGE 41>
FINANCIAL HIGHLIGHTS
The following tables describe each portfolio's performance for the fiscal
periods indicated. Certain information reflects financial results for a single
portfolio share. "Total return" shows how much your investment in the portfolio
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the
portfolios' financial statements, is included in the annual report, which is
available upon request. Keep in mind that fees and charges imposed by
participating insurance companies, which are not reflected in the tables, would
reduce the investment returns that are shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
MONEY MARKET PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 1.00 1.00 1.00 1.00 1.00
Investment operations: Investment income -- net .050 .050 .050 .055 .043
Distributions: Dividends from investment income -- net (.050) (.050) (.050) (.055) (.043)
Net asset value, end of period 1.00 1.00 1.00 1.00 1.00
Total return (%) 5.12 5.19 5.10 5.66 4.37
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .56 .61 .62 .62 --
Ratio of net investment income to average net assets (%) 5.01 5.08 4.96 5.51 4.62
Decrease reflected in above expense ratios due to
actions by The Dreyfus Corporation (%) -- -- -- .03 .88
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 89,025 64,628 56,186 45,249 34,728
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
CAPITAL APPRECIATION PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 27.91 21.98 17.71 13.44 13.27
Investment operations: Investment income -- net .20 .22 .23 .23 .23
Net realized and unrealized gain (loss)
on investments 8.21 5.95 4.30 4.27 .17
Total from investment operations 8.41 6.17 4.53 4.50 .40
Distributions: Dividends from investment income -- net (.20) (.22) (.23) (.23) (.23)
Dividends from net realized gain on investments (.01) (.02) (.03) -- --
Total distributions (.21) (.24) (.26) (.23) (.23)
Net asset value, end of period 36.11 27.91 21.98 17.71 13.44
Total return (%) 30.22 28.05 25.56 33.52 3.04
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .80 .80 .84 .85 .25
Ratio of interest expense and loan commitment fees
to average net assets (%) .01 -- -- -- --
Ratio of net investment income
to average net assets (%) .84 1.08 1.46 2.08 2.99
Decrease reflected in above expense ratios due to
actions by The Dreyfus Corporation (%) -- -- -- .02 .86
Portfolio turnover rate (%) 1.34 1.69 2.47 2.81 .12
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 673,835 247,011 103,745 46,930 16,118
<PAGE 42>
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
GROWTH AND INCOME PORTFOLIO 1998 1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 20.78 19.55 18.33 11.98 12.50
Investment operations: Investment income -- net .21 .28 .36 .28 .28
Net realized and unrealized gain (loss)
on investments 2.23 2.79 3.43 7.07 (.43)
Total from investment operations 2.44 3.07 3.79 7.35 (.15)
Distributions: Dividends from investment income -- net (.20) (.28) (.35) (.27) (.28)
Dividends from net realized gain on investments (.39) (1.56) (2.22) (.73) (.09)
Total distributions (.59) (1.84) (2.57) (1.00) (.37)
Net asset value, end of period 22.63 20.78 19.55 18.33 11.98
Total return (%) 11.81 16.21 20.75 61.89 (1.22)(2)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .78 .80 .83 .92 .22(2)
Ratio of net investment income to average net assets (%) 1.00 1.37 1.96 2.21 2.25(2)
Decrease reflected in above expense ratios
due to actions by The Dreyfus Corporation (%) -- -- -- .03 1.28(2)
Portfolio turnover rate (%) 126.18 180.73 237.44 255.42 237.09(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 430,702 369,832 225,935 71,161 1,040
(1) FROM MAY 2, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994.
(2) NOT ANNUALIZED.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SPECIAL VALUE PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.99 10.60 11.70 12.37 12.92
Investment operations: Investment income -- net .10 .06 .63 .51 .35
Net realized and unrealized gain (loss)
on investments 1.94 2.40 (1.05) (.54) (.56)
Total from investment operations 2.04 2.46 (.42) (.03) (.21)
Distributions: Dividends from investment income -- net (.10) (.01) (.56) (.64) (.32)
Dividends in excess of investment income -- net -- (.00)* (.06) -- (.02)
Dividends from net realized gain on investments -- (.06) -- -- --
Paid-in capital -- -- (.06) -- --
Total distributions (.10) (.07) (.68) (.64) (.34)
Net asset value, end of period 14.93 12.99 10.60 11.70 12.37
Total return (%) 15.69 23.14 (3.62) (.26) (1.56)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .83 .99 .93 .94 .25
Ratio of dividends on securities sold short to average net assets (%) -- .02 -- -- --
Ratio of net investment income to average net assets (%) .67 .38 4.12 3.56 3.54
Decrease reflected in above expense ratios due to
actions by The Dreyfus Corporation (%) -- -- -- -- .88
Portfolio turnover rate (%) 252.24 188.57 124.19 53.88 25.96
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 63,264 52,981 21,101 25,272 30,510
* AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
</TABLE>
Financial Highlights
<PAGE 43>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SMALL CAP PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 57.14 52.08 46.13 36.52 34.45
Investment operations: Investment income -- net .04 .07 .10 .16 .17
Net realized and unrealized gain (loss)
on investments (2.21) 8.49 7.53 10.54 2.50
Total from investment operations (2.17) 8.56 7.63 10.70 2.67
Distributions: Dividends from investment income -- net (.00)* (.07) (.10) (.18) (.16)
Dividends from net realized gain on investments (1.06) (3.43) (1.51) (.91) (.33)
Dividends in excess of net realized gain on
investments -- -- (.07) -- (.11)
Total distributions (1.06) (3.50) (1.68) (1.09) (.60)
Net asset value, end of period 53.91 57.14 52.08 46.13 36.52
Total return (%) (3.44) 16.75 16.60 29.38 7.75
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .77 .78 .79 .83 .55
Ratio of net investment income to average net assets (%) .07 .12 .24 .54 1.18
Decrease reflected in above expense ratios due
to actions by The Dreyfus Corporation (%) -- -- -- -- .52
Portfolio turnover rate (%) 75.04 79.00 89.10 99.02 106.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,246,804 1,274,292 960,365 543,281 173,215
* AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SMALL COMPANY STOCK PORTFOLIO 1998 1997 1996(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 16.13 13.52 12.50
Investment operations: Investment income -- net .04 .05 .05
Net realized and unrealized gain (loss) on
Total from investment operations (.95) 2.94 1.08
Distributions: Dividends from investment income -- net (.04) (.04) (.05)
Dividends from net realized gain on investments (.05) (.29) (.01)
Total
Net asset value, end of period 15.09 16.13 13.52
Total return (%) (5.97) 21.77 8.73(2,3)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .98 1.12 .75(2)
Ratio of net investment income to average net assets (%) .26 .53 .39(2)
Decrease reflected in above expense ratios
due to actions by The Dreyfus Corporation (%) -- -- .19(2)
Portfolio turnover rate (%) 45.09 34.48 35.68(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 34,857 28,154 8,148
(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.
</TABLE>
<PAGE 44>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
DISCIPLINED STOCK PORTFOLIO 1998 1997 1996(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 18.30 14.79 12.50
Investment operations: Investment income -- net .08 .08 .07
Net realized and unrealized gain (loss) on investments 4.80 4.53 2.29
Total from investment operations 4.88 4.61 2.36
Distributions: Dividends from investment income -- net (.09) (.08) (.07)
Dividends from net realized gain on investments (.14) (1.02) --
Total distributions (.23) (1.10) (.07)
Net asset value, end of period 22.95 18.30 14.79
Total return (%) 26.72 31.51 18.86(2,3)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .88 1.02 .80(2)
Ratio of net investment income to average net assets (%) .53 .68 .72(2)
Decrease reflected in above expense ratios due to
actions by The Dreyfus Corporation (%) -- -- .16(2)
Portfolio turnover rate (%) 56.28 79.74 30.62(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 140,897 53,317 17,722
(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.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INTERNATIONAL VALUE PORTFOLIO 1998 1997 1996(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.45 12.80 12.50
Investment operations: Investment income -- net .14 .07 .08
Net realized and unrealized gain (loss) on investments 1.01 1.03 .34
Total from investment operations 1.15 1.10 .42
Distributions: Dividends from investment income -- net (.12) (.07) (.08)
Dividends from net realized gain on investments (1.03) (.30) (.04)
Dividends in excess of net realized gain on investments -- (.08) --
Total distributions (1.15) (.45) (.12)
Net asset value, end of period 13.45 13.45 12.80
Total return (%) 8.74 8.71 3.41(2,3)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.29 1.42 1.01(2)
Ratio of net investment income to average net assets (%) .94 .74 .76(2)
Decrease reflected in above expense ratios due to
actions by The Dreyfus Corporation (%) -- -- .34(2)
Portfolio turnover rate (%) 42.14 25.67 24.48(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 20,680 19,016 8,027
(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.
</TABLE>
Financial Highlights
<PAGE 45>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INTERNATIONAL EQUITY PORTFOLIO 1998 1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 14.02 13.76 12.82 12.02 12.50
Investment operations: Investment income -- net .15 .05 .10 .15 .15
Net realized and unrealized gain (loss)
on investments .48 1.27 1.16 .74 (.40)
Total from investment operations .63 1.32 1.26 .89 (.25)
Distributions: Dividends from investment income -- net (.15) (.07) (.09) (.08) (.14)
Dividends in excess of investment income -- net .-- .-- .-- (.01) (.09)
Dividends from net realized gain on investments .-- (.34) (.39) .-- .--
Dividends in excess of net realized gain
on investments .-- (.65) (.06) .-- .--
Total distributions (.15) (1.06) (.54) (.09) (.23)
Capital contribution from an affiliate of the adviser .-- .-- .22 .-- .--
Net asset value, end of period 14.50 14.02 13.76 12.82 12.02
Total return (%) 4.49 9.61 11.61(3) 7.39 (2.00)(2)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .99 1.06 1.28 1.59 .23(2)
Ratio of net investment income to average net assets (%) 1.04 .38 .92 1.13 1.11(2)
Decrease reflected in above expense ratios due to
actions by The Dreyfus Corporation (%) .-- .-- .-- .45 1.70(2)
Portfolio turnover rate (%) 204.50 165.75 181.13 70.22 16.75(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 45,811 39,388 24,355 7,672 1,089
(1) FROM MAY 2, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994.
(2) NOT ANNUALIZED.
(3) HAD THE PORTFOLIO NOT HAD A CAPITAL CONTRIBUTION BY AN AFFILIATE OF THE ADVISER DURING THE PERIOD, THE TOTAL INVESTMENT RETURN
WOULD HAVE BEEN 9.89%.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
QUALITY BOND PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 11.73 11.50 11.81 10.53 11.81
Investment operations: Investment income -- net .67 .73 .66 .68 .73
Net realized and unrealized gain (loss)
on investments (.04) .32 (.31) 1.42 (1.27)
Total from investment operations .63 1.05 .35 2.10 (.54)
Distributions: Dividends from investment income -- net (.68) (.73) (.66) (.69) (.73)
Dividends from net realized gain
on investments (.18) (.09) .-- (.13) (.01)
Total distributions (.86) (.82) (.66) (.82) (.74)
Net asset value, end of period 11.50 11.73 11.50 11.81 10.53
Total return (%) 5.49 9.42 3.13 20.42 (4.59)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .73 .75 .79 .81 .--
Ratio of interest expense to average net assets (%) .-- .02 .-- .-- .--
Ratio of net investment income to average net assets (%) 5.74 6.27 5.86 6.13 7.03
Decrease reflected in above expense ratios
due to actions by The Dreyfus Corporation (%) .-- .-- .-- .04 1.20
Portfolio turnover rate (%) 244.95 374.76 258.36 263.53 64.80
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 121,461 88,292 60,936 37,447 13,244
</TABLE>
<PAGE 46>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ZERO COUPON 2000 PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.30 12.29 12.70 11.39 12.57
Investment operations: Investment income -- net .67 .69 .68 .69 .69
Net realized and unrealized gain (loss)
on investments .20 .14 (.36) 1.31 (1.18)
Total from investment operations .87 .83 .32 2.00 (.49)
Distributions: Dividends from investment income -- net (.67) (.69) (.68) (.69) (.68)
Dividends from net realized gain on investments -- (.13) (.05) -- (.01)
Total distributions (.67) (.82) (.73) (.69) (.69)
Net asset value, end of period 12.50 12.30 12.29 12.70 11.39
Total return (%) 7.27 7.01 2.59 17.95 (3.91)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .59 .61 .66 .68 --
Ratio of net investment income to average net assets (%) 5.41 5.65 5.54 5.73 6.04
Decrease reflected in above expense ratios
due to actions by The Dreyfus Corporation (%) -- -- -- .03 1.05
Portfolio turnover rate (%) 84.71 200.54 98.28 49.43 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 38,528 35,106 31,796 22,291 10,913
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
BALANCED PORTFOLIO 1998 1997(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 14.04 12.50
Investment operations: Investment income -- net .43 .25
Net realized and unrealized gain (loss) on investments 2.67 2.06
Total from investment operations 3.10 2.31
Distributions: Dividends from investment income -- net (.43) (.25)
Dividends from net realized gain on investments (.77) (.52)
Total distributions (1.20) (.77)
Net asset value, end of period 15.94 14.04
Total return (%) 22.34 18.48(2)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .87 .67(2)
Ratio of net investment income to average net assets (%) 2.98 1.91(2)
Portfolio turnover rate (%) 111.75 45.78(2)
- --------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 59,841 41,144
(1) FROM MAY 1, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997.
(2) NOT ANNUALIZED.
</TABLE>
Financial Highlights
<PAGE 47>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
LIMITED TERM HIGH INCOME PORTFOLIO 1998 1997(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.88 12.50
Investment operations: Investment income -- net 1.14 .78
Net realized and unrealized gain (loss) on investments (1.08) .41
Total from investment operations .06 1.19
Distributions: Dividends from investment income -- net (1.14) (.77)
Dividends from net realized gain on investments -- (.04)
Total distributions (1.14) (.81)
Net asset value, end of period 11.80 12.88
Total return (%) .29 14.27(2)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .77 .89(2)
Ratio of interest expense to average net assets (%) .32 .20(2)
Ratio of net investment income to average net assets (%) 10.10 10.27(2)
Decrease reflected in above expense ratios due to actions by The Dreyfus
Corporation (%) -- .05(2)
Portfolio turnover rate (%) 50.18 37.98(3)
- --------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 83,418 31,454
(1) FROM APRIL 30, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997.
(2) ANNUALIZED.
(3) NOT ANNUALIZED.
</TABLE>
<PAGE 48>
Account Information
ACCOUNT POLICIES
Buying/Selling shares
PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of
participating insurance companies. VA contract holders and VLI policyholders
should consult the prospectus of the separate account of the participating
insurance company for more information about buying or selling portfolio shares
THE PRICE FOR PORTFOLIO SHARES is the portfolio's NAV, which is generally
calculated as of the close of trading on the New York Stock Exchange (usually 4:
00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders
from separate accounts received in proper form by the participating insurance
company on a given business day are priced at the NAV calculated on such day,
provided that the orders are received by the portfolio in proper form on the
next business day. The participating insurance company is responsible for
properly transmitting purchase and sale orders.
WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating
insurance company is in a commercial bank that is a member of the Federal
Reserve System or any other bank having a correspondent bank in New York City.
Immediately available funds may be transmitted by wire to The Bank of New York
(DDA#8900337605/DREYFUS VARIABLE INVESTMENT FUND: Name of Portfolio), for
purchase of portfolio shares. The wire must include the portfolio account number
(for new accounts, a taxpayer identification number should be included instead),
account registration and dealer number, if applicable, of the participating
insurance company.
MONEY MARKET PORTFOLIO -- uses the amortized cost method of valuing its
investments, which does not take into account unrealized gains or losses.
CAPITAL APPRECIATION, DISCIPLINED STOCK, INTERNATIONAL EQUITY, INTERNATIONAL
VALUE, SMALL CAP and SMALL COMPANY STOCK PORTFOLIOS -- generally value
investments based on market value, or where market quotations are not readily
available, based on fair value as determined in good faith by the board of
trustees. Foreign securities held by each of the INTERNATIONAL EQUITY and
INTERNATIONAL VALUE portfolios may trade on days when the portfolio does not
calculate its NAV and thus affect the portfolio's NAV on days when investors
have no access to the portfolio.
BALANCED, GROWTH AND INCOME, LIMITED TERM HIGH INCOME, QUALITY BOND, SPECIAL
VALUE and ZERO COUPON 2000 PORTFOLIOS -- generally value investments based on
market value, or where market quotations are not readily available, based on
fair value as determined in good faith by the board of trustees or by one or
more pricing services approved by the board.
<PAGE 49>
DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO -- declares dividends from net investment income daily
and pays dividends monthly.
ZERO COUPON 2000 and QUALITY BOND PORTFOLIOS -- declare and pay dividends from
net investment income monthly.
BALANCED, GROWTH AND INCOME and LIMITED TERM HIGH INCOME PORTFOLIOS -- declare
and pay dividends from net investment income quarterly.
CAPITAL APPRECIATION, DISCIPLINED STOCK, INTERNATIONAL EQUITY, INTERNATIONAL
VALUE, SPECIAL VALUE, SMALL CAP and SMALL COMPANY STOCK PORTFOLIOS -- declare
and pay dividends from net investment income annually.
EACH PORTFOLIO GENERALLY WILL DISTRIBUTE any net capital gains it has realized
once a year.
DISTRIBUTIONS WILL BE REINVESTED in the relevant portfolio unless it is
instructed otherwise by a participating insurance company.
Since each portfolio's shareholders are the participating insurance companies
and their separate accounts, the tax treatment of dividends and distributions
will depend on the tax status of the participating insurance company.
Accordingly, no discussion is included as to the federal income tax consequences
to VA contract holders and VLI policyholders. For this information, VA contract
holders and VLI policyholders should consult the applicable prospectus of the
separate account of the participating insurance company or their tax advisers.
Participating insurance companies should consult their tax advisers about
federal, state and local tax consequences.
Who the shareholders are
The participating insurance companies and their separate accounts are the
shareholders of the portfolios. From time to time, a shareholder may own a
substantial number of portfolio shares. The sale of a large number of shares
could hurt the portfolio's net asset value per share (NAV).
<PAGE 50>
NOTES
<PAGE 51>
NOTES
<PAGE 52>
NOTES
<PAGE 53>
For More Information
Dreyfus Variable Investment Fund
- -------------------------------------
SEC file number: 811-5125
More information on the portfolios is available free upon request, including the
following:
Annual/Semiannual Report
Describes each portfolio's performance, lists portfolio holdings and contains a
letter from the portfolio manager discussing recent market conditions, economic
trends and portfolio strategies that significantly affected the portfolio's
performance during the last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the portfolios and their policies. A current SAI is
on file with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
To obtain information:
BY TELEPHONE Call 1-800-554-4611 or 516-338-3300
BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144 Attn: Institutional Servicing
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from: http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
(c) 1999 Dreyfus Service Corporation
VIF/P0599
<PAGE>
___________________________________________________________________________
DREYFUS VARIABLE INVESTMENT FUND
BALANCED PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
DISCIPLINED STOCK PORTFOLIO
GROWTH AND INCOME PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL VALUE PORTFOLIO
LIMITED TERM HIGH INCOME PORTFOLIO
MONEY MARKET PORTFOLIO
QUALITY BOND PORTFOLIO
SMALL CAP PORTFOLIO
SMALL COMPANY STOCK PORTFOLIO
SPECIAL VALUE PORTFOLIO
ZERO COUPON 2000 PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
____________________________________________________________________________
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
the Balanced, Capital Appreciation, Disciplined Stock, Growth and Income,
International Equity, International Value, Limited Term High Income, Money
Market, Quality Bond, Small Cap, Small Company Stock, Special Value and Zero
Coupon 2000 Portfolios, each dated May 1, 1999 (each, a "Portfolio," and
collectively, the "Portfolios") of Dreyfus Variable Investment Fund (the
"Fund"), dated May 1, 1999, as each may be revised from time to time. To
obtain a copy of the relevant Portfolio's Prospectus, please write to the
Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call
(516) 338-3300.
Shares of the Portfolios are offered only to variable annuity and
variable life insurance separate accounts established by insurance companies
("Participating Insurance Companies") to fund variable annuity contracts and
variable life insurance policies (collectively, "Policies").
The most recent Annual Report and Semi-Annual Report to Shareholders
for each Portfolio are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are
incorporated by reference into this Statement of Additional Information.
TABLE OF CONTENTS
Page
Description of the Fund and Portfolios B-3
Management of the Fund B-35
Management Arrangements B-43
How To Buy Shares B-50
How To Redeem Shares B-51
Determination of Net Asset Value B-52
Dividends, Distributions and Taxes B-54
Portfolio Transactions B-57
Yield and Performance Information B-60
Information About the Fund B-64
Counsel and Independent Auditors B-65
Appendix B-66
DESCRIPTION OF THE FUND AND PORTFOLIOS
The Fund is a Massachusetts business trust that commenced operations on
August 31, 1990. Each Portfolio is a separate series of the Fund, an open-
end management investment company, known as a mutual fund. Each of the
Balanced, Capital Appreciation, Disciplined Stock, International Value,
Limited Term High Income, Money Market, Quality Bond, Small Cap, Small
Company Stock, Special Value and Zero Coupon 2000 Portfolios is a
diversified fund, which means that, with respect to 75% of the Portfolio's
total assets, the Portfolio will not invest more than 5% of its assets in
the securities of any single issuer. Each of the Growth and Income and
International Equity Portfolios is a non-diversified fund, which means that
the proportion of the Portfolio's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act
of 1940, as amended (the "1940 Act").
The Dreyfus Corporation (the "Manager") serves as each Portfolio's
investment adviser. The Manager has engaged Fayez Sarofim & Co. ("Sarofim")
to serve as the sub-investment adviser of the Capital Appreciation
Portfolio. Sarofim provides day-to-day management of the Fund's
investments, subject to the supervision of the Manager.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of each Portfolio's shares.
Certain Portfolio Securities
The following information supplements and should be read in conjunction
with each Portfolio's Prospectus.
Depositary Receipts. (Balanced, Disciplined Stock, Growth and Income,
International Equity, International Value, Special Value and Small Company
Stock Portfolios) Each of these Portfolios may invest in the securities of
foreign issuers in the form of American Depositary Receipts and American
Depositary Shares (collectively, "ADRs") and Global Depositary Receipts and
Global Depositary Shares (collectively, "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.
These securities may be purchased through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of
the underlying security and a depositary, whereas a depositary may establish
an unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited
securities.
Foreign Government Obligations; Securities of Supranational Entities.
(All Portfolios) Each Portfolio may invest in obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the
Manager (and, if applicable, the Portfolio's sub-investment adviser) to be
of comparable quality to the other obligations in which the Portfolio 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.
Investment Companies. (Balanced, Special Value and Small Company Stock
Portfolios) Each of these Portfolios may invest in securities issued by
investment companies. Under the 1940 Act, the Portfolio's 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
Portfolio's total assets with respect to any one investment company and
(iii) 10% of the Portfolio's total assets in the aggregate. Investments in
the securities of other investment companies may involve duplication of
advisory fees and certain other expenses.
Money Market Instruments. (All Portfolios) Each Portfolio 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--Each Portfolio may enter into repurchase agreements.
In a repurchase agreement, the Portfolio 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. The
Portfolio's custodian or sub-custodian will have custody of, and will hold
in a segregated account, securities acquired by the Portfolio under a
repurchase agreement. Repurchase agreements are considered by the staff of
the Securities and Exchange Commission to be loans by the Portfolio. In an
attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Portfolio will enter into repurchase agreements only with domestic banks
with total assets in excess of $1 billion, or primary government securities
dealers reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Portfolio may invest or government
securities regardless of their remaining maturities, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. 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
Portfolio's ability to dispose of the underlying securities. The Portfolio
may enter into repurchase agreements with certain banks or non-bank dealers.
Bank Obligations--Each Portfolio 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.
Certificates of deposit ("CDs") are negotiable certificates evidencing
the obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits ("TDs") 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--Each Portfolio may purchase commercial paper consisting of
short-term, unsecured promissory notes issued to finance short-term credit
needs. The commercial paper purchased by the Portfolio will consist only of
direct obligations issued by domestic and foreign entities. The other
corporate obligations in which the Portfolio may invest consist of high
quality, U.S. dollar denominated short-term bonds and notes (including
variable amount master demand notes) issued by domestic and foreign
corporations, including banks.
Participation Interests--Each Portfolio may purchase from financial
institutions participation interests in securities in which the Portfolio
may invest. A participation interest gives the Portfolio an undivided
interest in the security in the proportion that the Portfolio's
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 Portfolio, 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 Manager
(and, if applicable, the Portfolio's sub-investment adviser) must have
determined that the instrument is of comparable quality to those instruments
in which the Portfolio may invest.
Convertible Securities. (Balanced, Capital Appreciation, Disciplined
Stock, Growth and Income, International Equity, International Value, Limited
Term High Income, Special Value, Small Cap and Small Company Stock
Portfolios) Convertible securities may be converted at either a stated
price or stated rate into underlying shares of common stock. Convertible
securities have characteristics similar to both fixed-income and equity
securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right
of payment to all equity securities, and convertible preferred stock is
senior to common stock, of the same issuer. Because of the subordination
feature, however, convertible securities typically have lower ratings than
similar non-convertible securities.
Although to a lesser extent than with fixed-income securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value
of convertible securities tends to vary with fluctuations in the market
value of the underlying common stock. A unique feature of convertible
securities is that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield
basis, and so may not experience market value declines to the same extent as
the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same
issuer.
Convertible securities are investments that provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation.
Warrants. (Balanced, Capital Appreciation, Growth and Income,
International Equity, International Value, Special Value, Small Cap and
Small Company Stock Portfolios) A warrant is an instrument issued by a
corporation which gives the holder the right to subscribe to a specified
amount of the corporation's capital stock at a set price for a specified
period of time. Each Portfolio may invest up to 5% (2% in the case of the
Capital Appreciation, Small Cap and Special Value Portfolios) of its net
assets in warrants, except that this limitation does not apply to warrants
purchased by the Portfolio 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 Portfolio's net assets, may be warrants which are not listed on
the New York or American Stock Exchange.
Municipal Obligations. (Quality Bond, Limited Term High Income and
Growth and Income Portfolios) Municipal obligations are debt obligations
issued by states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, or multistate agencies or authorities, the interest from
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax. Municipal obligations generally include debt obligations issued
to obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities. Municipal
obligations are classified as general obligation bonds, revenue bonds and
notes. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general
taxing power. Industrial development bonds, in most cases, are revenue
bonds and generally do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal obligations include municipal lease/purchase agreements
which are similar to installment purchase contracts for property or
equipment issued by municipalities. 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
obligation and purchased and sold separately. The Portfolio also may
acquire call options on specific Municipal obligations. The Portfolio
generally would purchase these call options to protect the Portfolio 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, the 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 Portfolio investments. Dividends
received by shareholders on Portfolio shares which are attributable to
interest income received by the Portfolio from Municipal obligations
generally will be subject to Federal income tax. The Portfolio may invest
in Municipal obligations, the ratings of which correspond with the ratings
of other permissible Portfolio investments. The Portfolio 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.
Mortgage-Related Securities. (Balanced, Growth and Income, Limited
Term High Income and Quality Bond Portfolios) 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 and stripped mortgage-backed
securities, mortgage pass-through securities, interests in real estate
mortgage investment conduits ("REMICs"), adjustable rate mortgages, real
estate investment trusts ("REITs"), or other kinds of mortgage-backed
securities, including 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.
Residential Mortgage-Related Securities--A Portfolio 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.
Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-
Through Certificates (also know as "Ginnie Maes") which are guaranteed as to
the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA certificates
also are supported by the authority of GNMA to borrow funds from the U.S.
Treasury to make payments under its guarantee. Mortgage-related securities
issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates
(also known as "Fannie Maes") which are solely the obligations of FNMA and
are not backed by or entitled to the full faith and credit of the United
States. Fannie Maes are guaranteed as to timely payment of principal and
interest by FNMA. Mortgage-related securities issued by FHLMC include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
Freddie Macs are not guaranteed by the United States or by any Federal Home
Loan Bank and do not constitute a debt or obligation of the United States or
of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Commercial Mortgage-Related Securities--Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. These mortgage-related
securities generally are constructed to provide protection to the senior
classes investors against potential losses on the underlying mortgage loans.
This protection generally is 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
protection, 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--A Portfolio 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
mortgage. 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 ("CMOs") and Multi-Class Pass-Through-
Securities--A CMO is a multiclass bond backed by a pool of mortgage
pass-through certificates or mortgage loans. CMOs may be collateralized by
(a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through certificates, (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 Portfolio 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 a 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.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying
inversely to a multiple of an applicable index creates a leverage factor.
Inverse floaters 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 loss of principal. The markets
for inverse floating rate CMOs with highly leveraged characteristics at
times may be very thin. The Portfolio's ability to dispose of its positions
in such securities will depend on the degree of liquidity in the markets for
such securities. It is impossible to predict the amount of trading interest
that may exist in such securities, and therefore the future degree of
liquidity.
Stripped Mortgage-Backed Securities--A Portfolio 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 receives 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 IO 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 Portfolio 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 Internal Revenue Code of 1986, as amended (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 characterized as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs, which may include operating or finance companies, own
real estate directly and the value of, and income earned by, the REITs
depends upon the income of the underlying properties and the rental income
they earn. Equity REITs also can realize capital gains (or losses) by
selling properties that have appreciated (or depreciated) in value.
Mortgage REITs can make construction, development or long-term mortgage
loans and are sensitive to the credit quality of the borrower. Mortgage
REITs derive their income from interest payments on such loans. Hybrid
REITs combine the characteristics of both equity and mortgage REITs,
generally by holding both ownership interests and mortgage interests in real
estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also
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.
Adjustable-Rate Mortgage Loans ("ARMs")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest
rate for a specified period of time, generally for either the first three,
six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes in an index. ARMs typically have minimum and maximum rates beyond
which the mortgage interest rate may not vary over the lifetime of the
loans. Certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single
adjustment period. Negatively amortizing ARMs may provide limitations on
changes in the required monthly payment. Limitations on monthly payments
can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other nongovernmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance
or guarantee covers the Portfolio or the price of the Portfolio's shares.
Mortgage-related securities issued by non-governmental issuers generally
offer a higher rate of interest than government-agency and
government-related securities because there are no direct or indirect
government guarantees of payment.
Other Mortgage-Related Securities--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
Asset-Backed Securities. (Limited Term High Income, and, to a limited
extent, Money Market Portfolios) Asset-backed securities are a form of
derivative. The securitization techniques used for asset-backed securities
are similar to those used for mortgage-related securities. These securities
include debt securities and securities with debt-like characteristics. The
collateral for these securities has included home equity loans, automobile
and credit card receivables, boat loans, computer leases, airplane leases,
mobile home loans, recreational vehicle loans and hospital account
receivables. A Portfolio 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-backed securities. Primarily, these securities may provide a
Portfolio with a less effective security interest in the related collateral
than do mortgage-backed securities. Therefore, there is the possibility
that recoveries on the underlying collateral may not, in some cases, be
available to support payments on these securities.
The asset-backed securities in which the Money Market Portfolio may
invest are securities issued by special purpose entities whose primary
assets consist of a pool of mortgages, loans, receivables or other assets.
Payment of principal and interest may depend largely on the cash flows
generated by the assets backing the securities and in certain cases,
supported by letters of credit, surety bonds or other forms of credit or
liquidity enhancements. The value of these asset-backed securities also may
be affected by the creditworthiness of the servicing agent for the pool of
assets, the originator of the loans or receivables or the financial
institution providing the credit support.
U.S. Treasury Securities. (Quality Bond and Zero Coupon 2000
Portfolios) U.S. Treasury securities include Treasury Inflation-Protection
Securities ("TIPS"), which are newly created securities issued by the U.S.
Treasury designed to provide investors a long term investment vehicle that
is not vulnerable to inflation. The interest rate paid by TIPS is fixed,
while the principal value rises or falls semi-annually based on changes in a
published Consumer Price Index. Thus, if inflation occurs, the principal
and interest payments on the TIPS are adjusted accordingly to protect
investors from inflationary loss. During a deflationary period, the
principal and interest payments decrease, although the TIPS' principal will
not drop below its face amount at maturity.
In exchange for the inflation protection, TIPS generally pay lower
interest rates than typical Treasury securities. Only if inflation occurs
will TIPS offer a higher real yield than a conventional Treasury bond of the
same maturity. In addition, it is not possible to predict with assurance
how the market for TIPS will develop; initially, the secondary market for
these securities may not be as active or liquid as the secondary market for
conventional Treasury securities. Principal appreciation and interest
payments on TIPS will be taxed annually as ordinary interest income for
Federal income tax calculations. As a result, any appreciation in principal
must be counted as interest income in the year the increase occurs, even
though the investor will not receive such amounts until the TIPS are sold or
mature. Principal appreciation and interest payments will be exempt from
state and local income taxes.
Stripped Treasury Securities. (Zero Coupon 2000 Portfolio and, to a
limited extent, all other Portfolios) Stripped Treasury Securities are U.S.
Treasury securities that have been stripped of their unmatured interest
coupons (which typically provide for interest payments semi-annually),
interest coupons that have been stripped from such U.S. Treasury securities,
and receipts and certificates for such stripped debt obligations and
stripped coupons.
Stripped bonds and stripped coupons are sold at a deep discount because
the buyer of those securities receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest payments on the security.
Stripped Treasury Securities will include one or more of the following
types of securities: (a) U.S. Treasury debt obligations originally issued
as bearer coupon bonds which have been stripped of their unmatured interest
coupons, (b) coupons which have been stripped from U.S. Treasury bonds,
either of which may be held through the Federal Reserve Bank's book entry
system called "Separate Trading of Registered Interest and Principal of
Securities" ("STRIPS") or "Coupon Under Book-Entry Safekeeping" ("CUBES"),
and (c) receipts or certificates for stripped U.S. Treasury debt obligations
evidencing ownership of future interest or principal payments on U.S.
Treasury notes or bonds which are direct obligations of the United States.
The receipts or certificates must be issued in registered form by a major
bank which acts as custodian and nominal holder of the underlying stripped
U.S. Treasury obligation (which may be held by it either in physical or in
book-entry form). The U.S. Government does not issue Stripped Treasury
Securities directly. The STRIPS program, which is ongoing, is designed to
facilitate the secondary market stripping of selected U.S. Treasury notes
and bonds into separate interest and principal components. Under the
program, the U.S. Treasury continues to sell its notes and bonds through
its customary auction process. A purchaser of those specified notes and
bonds who has access to a book-entry account at a Federal Reserve bank,
however, may separate the Treasury notes and bonds into interest and
principal components. The selected Treasury securities thereafter may be
maintained in the book-entry system operated by the Federal Reserve in a
manner that permits the separate trading and ownership of the interest and
principal payments. Investment banks also may strip U.S. Treasury
securities and sell them under proprietary names. Such securities may not
be as liquid as STRIPS and CUBES and are not viewed by the staff of the
Securities and Exchange Commission as U.S. Government securities for
purposes of the 1940 Act. CUBES, like STRIPS, are direct obligations of the
U.S. Government. CUBES are coupons that have previously been physically
stripped from U.S. Treasury notes and bonds, but which were deposited with
the Federal Reserve Bank's book-entry system and are now carried and
transferable in book-entry form only. Only stripped U.S. Treasury coupons
maturing on or after January 15, 1988, that were stripped prior to January
5, 1987, were eligible for conversion to book-entry form under the CUBES
program.
By agreement, the underlying debt obligations will be held separate
from the general assets of the custodian and nominal holder of such
securities, and will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of or against the custodian or any person
claiming through the custodian, and the custodian will be responsible for
applying all payments received on those underlying debt obligations to the
related receipts or certificates without making any deductions other than
applicable tax withholding. The custodian is required to maintain insurance
for the protection of holders of receipts or certificates in customary
amounts against losses resulting from the custody arrangement due to
dishonest or fraudulent action by the custodian's employees. The holders of
receipts or certificates, as the real parties in interest, are entitled to
the rights and privileges of the underlying debt obligations, including the
right, in the event of default in payment of principal or interest, to
proceed individually against the issuer without acting in concert with other
holders of those receipts or certificates or the custodian.
Publicly filed documents state that counsel to the underwriters of
certificates or other evidences of ownership of U.S. Treasury securities
have stated that for Federal tax and securities purposes, purchasers of such
certificates most likely will be deemed the beneficial holders of the
underlying U.S. Government securities, which are payable in full at their
stated maturity amount and are not subject to redemption prior to maturity.
Stripped Corporate Securities. (Growth and Income, International
Equity, Limited Term High Income, Special Value, Quality Bond and Zero
Coupon 2000 Portfolios) Stripped Corporate Securities consist of corporate
debt obligations issued by domestic corporations without interest coupons,
and, if available, interest coupons that have been stripped from corporate
debt obligations, and receipts and certificates for such stripped debt
obligations and stripped coupons. Stripped Corporate Securities purchased
by the Limited Term High Income, Special Value, Growth and Income,
International Equity or Quality Bond Portfolios will bear ratings comparable
to non-stripped corporate obligations that may be purchased by such
Portfolio. Stripped Corporate Securities purchased by the Zero Coupon 2000
Portfolio will be rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P"). With respect
to other features of Stripped Corporate Securities, such as sales at deep
discounts, see "Stripped Treasury Securities" above and "Investment
Considerations and Risks--Special Considerations Relating to Stripped
Securities" below.
Illiquid Securities. (All Portfolios) Each Portfolio may invest up to
15% (10% with respect to the Money Market Portfolio) of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Portfolio's investment
objective. These securities may include securities that are not readily
marketable, such as 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 Portfolio is
subject to a risk that should the Portfolio desire to sell them when a ready
buyer is not available at a price the Portfolio deems representative of
their value, the value of the Portfolio's net assets could be adversely
affected.
Investment Techniques
The following information supplements and should be read in conjunction
with each Portfolio's Prospectus.
Foreign Currency Transactions. (Capital Appreciation, Growth and
Income, International Equity, International Value, Limited Term High Income,
Small Company Stock and Special Value Portfolios) Each of these Portfolios
may enter into foreign currency transactions for a variety of purposes,
including: to fix in U.S. dollars, between trade and settlement date, the
value of a security the Portfolio has agreed to buy or sell; to hedge the
U.S. dollar value of securities the Portfolio 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, a Portfolio's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Portfolio 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 Portfolio contracted to receive
in the exchange. A Portfolio's success in these transactions will depend
principally on the ability of the Manager (and, where applicable, the
Portfolio's sub-investment adviser) 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. (All Portfolios) Each Portfolio is permitted to
borrow to the extent permitted under the 1940 Act, which permits an
investment company to borrow in an amount up to 33-1/3% of the value of its
total assets. Each Portfolio, other than the Growth and Income, Limited
Term High Income and Special Value Portfolios, currently intends to borrow
money only for temporary or emergency (not leveraging) purposes, in an
amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Portfolio's total assets, the Portfolio will not
make any additional investments. In addition, the Balanced, Money Market
and Small Company Stock Portfolios may borrow for investment purposes on a
secured basis through entering into reverse repurchase agreements, as
described below.
Leverage. (Growth and Income, Limited Term High Income, Special Value
and, to a limited extent, Balanced, Money Market and Small Company Stock
Portfolios) Leveraging (that is, buying securities using borrowed money)
exaggerates the effect on net asset value of any increase or decrease in the
market value of a Portfolio's investments. 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. For borrowings for investment
purposes, the 1940 Act requires a Portfolio to maintain continuous asset
coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) of 300% of the amount borrowed. If the required
coverage should decline as a result of market fluctuations or other reasons,
the Portfolio may be required to sell some of its portfolio securities
within three days to reduce the amount of its borrowings and restore the
300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. The Portfolio also
may be required to maintain minimum average balances in connection with such
borrowing or pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
Each of these Portfolios may enter into reverse repurchase agreements
with banks, brokers or dealers. This form of borrowing involves the transfer
by the Portfolio of an underlying debt instrument in return for cash
proceeds based on a percentage of the value of the security. The Portfolio
retains the right to receive interest and principal payments on the
security. At an agreed upon future date, the Portfolio repurchases the
security at principal plus accrued interest. To the extent a Portfolio
enters into a reverse repurchase agreement, the Portfolio will maintain in a
segregated custodial account permissible liquid assets at least equal to the
aggregate amount of its reverse repurchase obligations, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission. The Securities and Exchange Commission
views reverse repurchase transactions as collateralized borrowings by the
Portfolio. Except for these transactions, borrowings by the Growth and
Income and Limited Term High Income Portfolios generally will be unsecured.
Short-Selling. (Growth and Income, Limited Term High Income, Special
Value and, to a limited extent, Small Cap Portfolios) In these
transactions, a Portfolio sells a security it does not own in anticipation
of a decline in the market value of the security. To complete the
transaction, the Portfolio must borrow the security to make delivery to the
buyer. The Portfolio 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 Portfolio, 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 Portfolio's net assets. The Portfolio may not make
a short sale which results in the Portfolio having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Growth and Income, Limited Term High Income and Special Value
Portfolios also may make short sales "against the box," in which the
Portfolio enters into a short sale of a security it owns. At no time will
more than 15% of the value of the Portfolio's net assets be in deposits on
short sales against the box.
Until the Portfolio closes its short position or replaces the borrowed
security, the Portfolio will: (a) segregate permissible liquid assets at
such a level that the amount segregated plus the amount deposited with the
broker as collateral always equals the current value of the security sold
short; or (b) otherwise cover its short position.
Lending Portfolio Securities. (All Portfolios) Each Portfolio may
lend securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
The Portfolio continues to be entitled to payments in amounts equal to the
interest, dividends or other distributions payable on the loaned securities,
which affords the Portfolio 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% (20% with respect to the Special Value and
Zero Coupon 2000 Portfolios and 10% with respect to the Capital
Appreciation, Quality Bond and Small Cap Portfolios) of the value of the
Portfolio's total assets, and the Portfolio 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 Portfolio at any time upon specified notice. The
Portfolio might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Portfolio. In connection with its securities lending transactions, a
Portfolio may return to the borrower or a third party which is unaffiliated
with the Portfolio, and which is acting as a "placing broker," a part of the
interest earned from the investment of collateral received for securities
loaned.
Derivatives. (Balanced, Disciplined Stock, Growth and Income,
International Equity, International Value, Limited Term High Income, Quality
Bond, Small Company Stock, Special Value and Zero Coupon 2000 Portfolios)
Each of these Portfolios may invest in, or enter into, derivatives, such as
options and futures (except in the case of the Quality Bond Portfolio) and,
in the case of the Growth and Income and Quality Bond Portfolios, mortgage-
related securities, and, in the case of the Limited Term High Income
Portfolio, mortgage-related securities, asset-backed securities and swaps,
for a variety of reasons, including to hedge certain market risks, to
provide a substitute for purchasing or selling particular securities or to
increase potential income gain. Derivatives may provide a cheaper, quicker
or more specifically focused way for the Portfolio to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and
the portfolio as a whole. Derivatives permit a Portfolio 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 Portfolio can increase
or decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities. However,
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 a Portfolio's performance.
If a Portfolio invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Portfolio's
return or result in a loss. A Portfolio also could experience losses if its
derivatives were poorly correlated with its other investments, or if the
Portfolio were unable to liquidate its position because of an illiquid
secondary market. The market for many derivatives is, or suddenly can
become, illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for derivatives.
Although neither the Fund nor any Portfolio will be a commodity pool,
certain derivatives subject the Portfolios to the rules of the Commodity
Futures Trading Commission which limit the extent to which a Portfolio can
invest in such derivatives. A Portfolio may invest in futures contracts and
options with respect thereto for hedging purposes without limit. However,
no Portfolio may 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 Portfolio's
assets, after taking into account unrealized profits and unrealized losses
on such contracts and options; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5% limitation.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
derivatives. Exchange-traded derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter derivatives. Therefore, each party to an over-
the-counter derivative bears the risk that the counterparty will default.
Accordingly, the Manager (or, if applicable, the Portfolio's sub-investment
adviser) will consider the creditworthiness of counterparties to over-the-
counter derivatives in the same manner as it would review the credit quality
of a security to be purchased by a Portfolio. Over-the-counter derivatives
are less liquid than exchange-traded derivatives since the other party to
the transaction may be the only investor with sufficient understanding of
the derivative to be interested in bidding for it.
Futures Transactions-In General--(Balanced, Disciplined Stock, Growth and
Income, International Equity, International Value, Limited Term High Income,
Small Company Stock, Special Value and Zero Coupon 2000 Portfolios) Each of
these Portfolios may enter into futures contracts in U.S. domestic markets,
such as the Chicago Board of Trade and the International Monetary Market of
the Chicago Mercantile Exchange, or on exchanges located outside the United
States, such as the London International Financial Futures Exchange, the
Deutsche Termine Borse and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however,
may have greater risk potential than domestic markets. For example, some
foreign exchanges are principal markets so that no common clearing facility
exists and an investor may look only to the broker for performance of the
contract. In addition, any profits that a Portfolio might realize in
trading could be eliminated by adverse changes in the exchange rate, or the
Portfolio could incur losses as a result of those changes. Transactions on
foreign exchanges may include both commodities which are traded on domestic
exchanges and those which are not. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Portfolio
which could adversely affect the value of the Portfolio's net assets.
Although each Portfolio intends to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Portfolio to
substantial losses.
Successful use of futures by a Portfolio also is subject to the ability
of the Manager (or, if applicable, the Portfolio's sub-investment adviser)
to predict correctly movements in the direction of the relevant market and,
to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged
and the price movements of the futures contract. For example, if a
Portfolio uses futures to hedge against the possibility of a decline in the
market value of securities held in its portfolio and the prices of such
securities instead increase, the Portfolio will lose part or all of the
benefit of the increased value of securities which it has hedged because it
will have offsetting losses in its futures positions. Furthermore, if in
such circumstances the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. A Portfolio may
have to sell such securities at a time when it may be disadvantageous to do
so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, a Portfolio may be required to segregate
permissible liquid assets to cover its obligations relating to its
transactions in derivatives. To maintain this required cover, the Portfolio
may have to sell portfolio securities at disadvantageous prices or times
since it may not be possible to liquidate a derivative position at a
reasonable price. In addition, the segregation of such assets will have the
effect of limiting a Portfolio's ability otherwise to invest those assets.
Specific Futures Transactions--The Balanced, Disciplined Stock, Growth and
Income, International Equity, International Value, Limited Term High Income,
Small Company Stock and Special Value Portfolios may purchase and sell stock
index futures contracts. A stock index future obligates the Portfolio to
pay or receive an amount of cash equal to a fixed dollar amount specified in
the futures contract multiplied by the difference between the settlement
price of the contract on the contract's last trading day and the value of
the index based on the stock prices of the securities that comprise it at
the opening of trading in such securities on the next business day.
The Growth and Income, International Equity, International Value,
Limited Term High Income, Small Company Stock and Special Value Portfolios
may purchase and sell currency futures. A foreign currency future obligates
the Portfolio to purchase or sell an amount of a specific currency at a
future date at a specific price.
The Growth and Income, International Equity, International Value,
Limited Term High Income, Special Value and Zero Coupon 2000 Portfolios may
purchase and sell interest rate futures contracts. An interest rate future
obligates the Portfolio to purchase or sell an amount of a specific debt
security at a future date at a specific price.
Interest Rate Swaps--(Limited Term High Income Portfolio) Interest rate
swaps involve the exchange by the Portfolio with another party of their
respective commitments to pay or receive interest (for example, an exchange
of floating rate payments for fixed-rate payments). The exchange
commitments can involve payments to be made in the same currency or in
different currencies. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio security
transactions. If the Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment
performance of the Portfolio would diminish compared with what it would have
been if these investment techniques were not used. Moreover, even if the
Manager is correct in its forecasts, there is a risk that the swap position
may correlate imperfectly with the price of the asset or liability being
hedged. There is no limit on the amount of interest rate swap transactions
that may be entered into by the Portfolio. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited
to the net amount of interest payments that the Portfolio is contractually
obligated to make. If the other party to an interest rate swap defaults,
the Portfolio's risk of loss consists of the net amount of interest payments
that the Portfolio contractually is entitled to receive.
Credit Derivatives--(Limited Term High Income Portfolio) The Portfolio may
engage in credit derivative transactions. There are two broad categories of
credit derivatives: default price risk derivatives and market spread
derivatives. Default price risk derivatives are linked to the price of
reference securities or loans after a default by the issuer or borrower,
respectively. Market spread derivatives are based on the risk that changes
in market factors, such as credit spreads, can cause a decline in the value
of a security, loan or index. There are three basic transactional forms for
credit derivatives: swaps, options and structured instruments. The use of
credit derivatives is a highly specialized activity which involves
strategies and risks different from those associated with ordinary portfolio
security transactions. If the Manager is incorrect in its forecasts of
default risks, market spreads or other applicable factors, the investment
performance of the Portfolio would diminish compared with what it would have
been if these techniques were not used. Moreover, even if the Manager is
correct in its forecasts, there is a risk that a credit derivative position
may correlate imperfectly with the price of the asset or liability being
hedged. There is no limit on the amount of credit derivative transactions
that may be entered into by the Portfolio. The Portfolio's risk of loss in
a credit derivative transaction varies with the form of the transaction.
For example, if the Portfolio purchases a default option on a security, and
if no default occurs with respect to the security, the Portfolio's loss is
limited to the premium it paid for the default option. In contrast, if
there is a default by the grantor of a default option, the Portfolio's loss
will include both the premium that it paid for the option and the decline in
value of the underlying security that the default option hedged.
Options-In General--(Balanced, Disciplined Stock, Growth and Income,
International Equity, International Value, Limited Term High Income, Small
Company Stock, Special Value and Zero Coupon 2000 Portfolios) Each of these
Portfolios may invest up to 5% of its assets, represented by the premium
paid, in the purchase of call and put options. A Portfolio may write (i.e.,
sell) covered call and put option contracts to the extent of 20% of the
value of its net assets at the time such option contracts are written. A
call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security or securities at the
exercise price at any time during the option period, or at a specific date.
Conversely, a put option gives the purchaser of the option the right to
sell, and obligates the writer to buy, the underlying security or securities
at the exercise price at any time during the option period.
A covered call option written by a Portfolio is a call option with
respect to which the Portfolio owns the underlying security or otherwise
covers the transaction by segregating cash or other securities. A put
option written by a Portfolio is covered when, among other things, cash or
liquid securities having a value equal to or greater than the exercise price
of the option are placed in a segregated account to fulfill the obligation
undertaken. The principal reason for writing covered call and put options
is to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. A Portfolio receives a
premium from writing covered call or put options which it retains whether or
not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen events,
at times have rendered certain of the clearing facilities inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible
to effect closing transactions in particular options. If, as a covered call
option writer, a Portfolio is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Specific Options Transactions--The Balanced, Disciplined Stock, Growth and
Income, International Equity, International Value, Small Company Stock and
Special Value Portfolios may purchase and sell call and put options in
respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or
traded in the over-the-counter market. An option on a stock index is
similar to an option in respect of specific securities, except that
settlement does not occur by delivery of the securities comprising the
index. Instead, the option holder receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price
of the option. Thus, the effectiveness of purchasing or writing stock index
options will depend upon price movements in the level of the index rather
than the price of a particular stock.
Each of the Growth and Income, International Equity, Limited Term High
Income, Small Company Stock and Special Value Portfolios may purchase and
sell call and put options on foreign currency. These options convey the
right to buy or sell the underlying currency at a price which is expected to
be lower or higher than the spot price of the currency at the time the
option is exercised or expires.
Each of the Disciplined Stock, Growth and Income, International Equity,
Small Company Stock and Special Value Portfolios may purchase cash-settled
options on equity index swaps and the Limited Term High Income Portfolio may
purchase cash-settled options on interest rate swaps in pursuit of its
investment objective. Equity index swaps involve the exchange by the
Portfolio with another party of cash flows based upon the performance of an
index or a portion of an index of securities which usually includes
dividends. A cash-settled option on a swap gives the purchaser the right,
but not the obligation, in return for the premium paid, to receive an amount
of cash equal to the value of the underlying swap as of the exercise date.
These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by a Portfolio of options will be subject to the ability
of the Manager (or, if applicable, the Portfolio's sub-investment adviser)
to predict correctly movements in the prices of individual stocks, the stock
market generally, foreign currencies or interest rates. To the extent such
predictions are incorrect, a Portfolio may incur losses.
Future Developments. (All Portfolios) A Portfolio may take advantage
of opportunities in the area of options and futures contracts and options on
futures contracts and any other derivatives which are not presently
contemplated for use by the Portfolio or which are not currently available
but which may be developed, to the extent such opportunities are both
consistent with the Portfolio's investment objective and legally permissible
for the Portfolio. Before entering into such transactions or making any
such investment on behalf of a Portfolio, the Fund will provide appropriate
disclosure in its Prospectus or Statement of Additional Information.
Forward Commitments. (All Portfolios) Each Portfolio may purchase or
sell securities on a forward commitment, when-issued or delayed delivery
basis, which means 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 Portfolio 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 Portfolio is not required to pay for these
securities until the delivery date, these risks are in addition to the risks
associated with the Portfolio's other investments. If the Portfolio is
fully or almost fully invested when forward commitment purchases are
outstanding, such purchases may result in a form of leverage. The Portfolio
intends to 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 Portfolio's
exposure to changes in interest rates and will increase the volatility of
its returns. The Portfolio will segregate permissible liquid assets at
least equal at all times to the amount of the Portfolio's purchase
commitments. At no time will the Portfolio have more than 33-1/3% of its
assets committed to purchase securities on a forward commitment basis.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest
rates rise) based upon the public's perception of the creditworthiness of
the issuer and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may expose
a Portfolio to risks because they may experience such fluctuations prior to
their actual delivery. Purchasing securities on a when-issued basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. Purchasing securities on a forward commitment or when-
issued basis when a Portfolio is fully or almost fully invested may result
in greater potential fluctuation in the value of the Portfolio's net assets
and its net asset value per share.
Portfolio Maturity. (Limited Term High Income Portfolio) Under normal
market conditions, the average effective portfolio maturity for the Limited
Term High Income Portfolio is expected to be four years or less. For
purposes of calculating average effective portfolio maturity, a security
that is subject to redemption at the option of the issuer on a particular
date (the "call date") which is prior to the security's stated maturity may
be deemed to mature on the call date rather than on its stated maturity
date. The call date of a security will be used to calculate average
effective portfolio maturity when the Manager reasonably anticipates, based
upon information available to it, that the issuer will exercise its right to
redeem the security. The Manager may base its conclusion on such factors as
the interest rate paid on the security compared to prevailing market rates,
the amount of cash available to the issuer of the security, events affecting
the issuer of the security, and other factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated
maturity.
Investment Considerations and Risks
Fixed Income Securities. (All Portfolios) Even though interest-
bearing securities are investments which promise a stable stream of income,
the prices of such securities generally are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Certain securities that may be purchased by a Portfolio, 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 Growth and Income, International Equity, Limited
Term High Income, Quality Bond and Special Value Portfolios, such as those
rated Baa or lower by Moody's and BBB or lower by S&P, Fitch IBCA, Inc.
("Fitch") and Duff & Phelps Credit Rating Co. ("Duff" and together with S&P,
Moody's and Fitch, the "Rating Agencies"), may be subject to such risk with
respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Once the
rating of a portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security.
Mortgage-Related Securities. (Growth and Income, Limited Term High
Income and Quality Bond Portfolios) 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.
Special Considerations Relating to Stripped Securities. (Zero Coupon
2000 Portfolio and, to a limited extent, all other Portfolios) A Stripped
Security is a debt obligation that does not entitle the holder to any
periodic payments of interest prior to maturity and therefore is issued and
traded at a discount from its face amount. The discount from face value at
which Stripped Securities are purchased varies depending on the time
remaining until maturity, prevailing interest rates, the liquidity of the
security and the perceived credit quality of the issuer. Because the
discount from face value is known at the time of investment, investors
holding Stripped Securities until maturity know the total amount of their
investment return at the time of investment. In contrast, a portion of the
total realized return from conventional interest-paying obligations comes
from the reinvestment of periodic interest. Since the rate to be earned on
these reinvestments may be higher or lower than the rate quoted on the
interest-paying obligations at the time of the original purchase, the
investment's total return is uncertain even for investors holding the
securities to their maturity. This uncertainty is commonly referred to as
reinvestment risk and can have a significant impact on total realized
investment return. With Stripped Securities, however, there are no cash
distributions to reinvest, so investors bear no reinvestment risk if they
hold the Stripped Securities to maturity.
Stripped Securities can be sold prior to their due date in the
secondary market at their then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing levels of interest
rates and the perceived credit quality of the issuer, which may be more or
less than the securities' value. The market prices of Stripped Securities
are generally more volatile than the market prices of securities that pay
interest periodically and, accordingly, are likely to respond to a greater
degree to changes in interest rates than do other debt obligations having
similar maturities and credit quality characteristics. As a result, the net
asset value of shares of the Zero Coupon 2000 Portfolio may fluctuate over a
greater range than shares of other mutual funds that invest in obligations
of the U.S. Government or corporations having similar maturities but that
make current distributions of interest.
As an open-end investment company, the Zero Coupon 2000 Portfolio will
be issuing new shares and will be required to redeem its shares upon the
request of any shareholder at the net asset value next determined after
receipt of the request. However, because of the price volatility of
Stripped Securities prior to maturity, a shareholder who redeems shares may
realize an amount that is less or greater than the entire amount initially
invested. Accordingly, the Zero Coupon 2000 Portfolio may not be
appropriate for investors that expect to have a current need for income from
the investment or wish to liquidate their investment prior to December 31,
2000.
Each year the Zero Coupon 2000 Portfolio will be required to accrue an
increasing amount of income on its Stripped Securities. To maintain its tax
status as a regulated investment company and to avoid impositions of excise
taxes, however, the Zero Coupon 2000 Portfolio and any other Portfolio that
invests in Stripped Securities will be required to distribute dividends
equal to substantially all of its net investment income, including the
accrued income, derived from its Stripped Securities for which it receives
no payments in cash prior to their maturity.
The Portfolio 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 Portfolio 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 Manager will monitor the Portfolio's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
Lower Rated Securities. (Growth and Income, Limited Term High Income,
Quality Bond, Special Value and, to a limited extent, Small Cap Portfolios)
The Limited Term High Income Portfolio invests primarily, and each other
such Portfolio may invest a portion of its assets, in higher yielding (and,
therefore, higher risk) debt securities (convertible debt securities with
respect to the Growth and Income Portfolio) such as those rated Ba by
Moody's or BB by S&P, Fitch or Duff, or as low as those rated B by a Rating
Agency in the case of the Quality Bond Portfolio, or as low as those rated
Caa by Moody's or CCC by S&P, Fitch or Duff in the case of the Growth and
Income Portfolio, or as low as the lowest rating assigned by a Rating Agency
in the case of the Limited Term High Income, Small Cap and Special Value
Portfolios. 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
Portfolio to sell certain securities or could result in lower prices than
those used in calculating the Portfolio's net asset value.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher rated
securities and will fluctuate over time. For example, during an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of these securities may experience financial stress. During such
periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations also may be affected adversely by specific corporate
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss
because of default by the issuer is significantly greater for the holders of
these securities because such securities generally are unsecured and often
are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and the Portfolio's ability to dispose of
particular issues when necessary to meet such Portfolio's liquidity needs or
in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid security market for
certain securities also may make it more difficult for the Portfolio to
obtain accurate market quotations for purposes of valuing the Portfolio's
portfolio and calculating its net asset value. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of these securities. In such cases,
judgment may play a greater role in valuation because less reliable,
objective data may be available.
These securities may be particularly susceptible to economic downturns.
It is likely that any economic recession would disrupt severely the market
for such securities and have an adverse impact on the value of such
securities, and could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon, which would increase
the incidence of default for such securities.
The Portfolio may acquire these securities during an initial offering.
Such securities may involve special risks because they are new issues. The
Portfolio has no arrangement with any persons concerning the acquisition of
such securities, and the Manager (or, if applicable, the Portfolio's sub-
investment adviser) will review carefully the credit and other
characteristics pertinent to such new issues.
The ratings of the Rating Agencies 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 Manager also
will evaluate these securities and the ability of the issuers of such
securities to pay interest and principal.
With respect to Limited Term High Income, the average distribution of
investments of the Portfolio in corporate bonds (excluding convertible
preferred stocks and convertible bonds) by ratings for the fiscal year ended
December 31, 1998, calculated monthly on a dollar weighted basis, was as
follows:
Limited Term High Income
Moody's or S&P, Fitch or Percentage
Duff
Aaa AAA 2.2%
A A 1.3%
Baa BBB 1.0%
Ba BB 11.2%
B B 70.4%
Caa CCC 5.8%
Ca CC .4%
NR NR 7.6%*
99.9%**
* Of these unrated securities, 4.2% have been determined by the Manager to
be of comparable quality to securities rated B and 3.4% have been
determined by the Manager to be of comparable quality to securities rated
Caa/CCC.
**The Portfolio also owns 1.8% convertible preferred stocks rated Caa/CCC
and 2.4% convertible bonds rated B. Approximately (-4.1%) of the Fund's
assets were invested in cash or cash equivalents.
The credit risk factors pertaining to lower rated securities also apply
to lower rated Stripped Corporate Securities in which each Portfolio other
than the Quality Bond Portfolio may invest and pay-in-kind bonds in which
each Portfolio may invest up to 5% of its total assets. Stripped Corporate
Securities are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity or a specified cash payment
date when the securities begin paying current interest (the "cash payment
date") and therefore are issued and traded at a discount from their face
amounts or par value. The discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of
the security and perceived credit quality of the issuer. The discount, in
the absence of financial difficulties of the issuer, decreases as the final
maturity or cash payment date of the security approaches.
The market prices of Stripped Corporate Securities generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a greater degree
than do non-zero coupon securities having similar maturities and credit
quality. Such Stripped Corporate Securities, pay-in-kind or delayed
interest bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the relevant Portfolio will
realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Portfolio may obtain no
return at all on its investment. See "Dividends, Distributions and Taxes."
Foreign Securities. (All Portfolios) 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 Portfolio 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 Portfolio have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have adverse effects on the economies and securities markets of
certain of these countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The percentage of a Portfolio's assets which may be invested in foreign
securities as noted above is not a fundamental policy and may be changed at
any time without shareholder approval.
Foreign Currency Transactions. (Capital Appreciation, Growth and
Income, International Equity, International Value, Limited Term High Income,
Small Cap, Small Company Stock and Special Value Portfolios) Currency
exchange rates may fluctuate significantly over short periods of time. They
generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad.
Bank Securities. (Money Market Portfolio) To the extent the Money
Market Portfolio's investments are concentrated in the banking industry, the
Portfolio will have correspondingly greater exposure to the risk factors
which are characteristic of such investments. Sustained increases in
interest rates can adversely affect the availability or liquidity and cost
of capital funds for a bank's lending activities, and a deterioration in
general economic conditions could increase the exposure to credit losses.
In addition, the value of and the investment return on the Money Market
Portfolio's shares could be affected by economic or regulatory developments
in or related to the banking industry, and competition within the banking
industry as well as with other types of financial institutions. The Money
Market Portfolio, however, will seek to minimize its exposure to such risks
by investing only in debt securities which are determined to be of high
quality.
Municipal Lease/Purchase Obligations. (Growth and Income, Limited Term
High Income and Quality Bond Portfolios) Certain municipal lease/purchase
obligations in which the Portfolio 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 Manager will consider, on an ongoing basis, a number of factors
including the likelihood that the issuing municipality will discontinue
appropriating funding for the leased property.
Portfolio Turnover. (All Portfolios) No Portfolio will consider
portfolio turnover to be a limiting factor in making investment decisions.
Under normal market conditions, the portfolio turnover rates are anticipated
to exceed 100% for the Limited Term High Income, Small Cap and Special Value
Portfolios, to be less than 100% for the Balanced (for both common stock and
bond portions of its portfolio), Disciplined Stock and Small Company Stock
Portfolios, to be less than 150% for the International Equity, International
Value and Zero Coupon 2000 Portfolios and to be less than 300% for the
Growth and Income and Quality Bond Portfolios. Because the Capital
Appreciation Portfolio invests for long-term growth rather than short-term
profits, its 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 Capital Appreciation Portfolio
will be based only upon investment considerations and will not be limited to
other considerations when Sarofim deems it appropriate to make changes in
the Portfolio's portfolio securities. A turnover rate of 100% is equivalent
to the Portfolio 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 Money Market Portfolio may
have a high portfolio turnover, but that should not adversely affect the
Portfolio since it (as is the case for the Quality Bond and Zero Coupon 2000
Portfolios) usually does not pay brokerage commissions when it purchases
short-term debt obligations.
State Insurance Regulation. (All Portfolios) 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 future contracts and
short sales of securities, among other techniques. If applied to a
Portfolio, the Portfolio may be limited in its ability to engage in such
techniques and to manage its portfolio with the flexibility provided herein.
It is the Fund's intention that each Portfolio operate in material
compliance with current insurance laws and regulations, as applied, in each
jurisdiction in which the Portfolio is offered.
Simultaneous Investments. (All Portfolios) Investment decisions for
each Portfolio are made independently from those of the other Portfolios and
investment companies managed by the Manager (and, where applicable, the
Portfolio's sub-investment adviser). If, however, such other Portfolios or
investment companies desire to invest in, or dispose of, the same securities
as the Portfolio, available investments or opportunities for sales will be
allocated equitably to each. In some cases, this procedure may adversely
affect the size of the position obtained for or disposed of by a Portfolio
or the price paid or received by a Portfolio.
Investment Restrictions
Each Portfolio's investment objective is a fundamental policy, which
cannot be changed without approval by the holders of a majority (as defined
in the 1940 Act) of the Portfolio's outstanding voting shares. In addition,
the Portfolios have adopted certain investment restrictions as fundamental
policies and certain other investment restrictions as non-fundamental
policies, as described below.
Capital Appreciation, Money Market, Quality Bond, Small Cap, Special
Value and Zero Coupon 2000 Portfolios. Each of these Portfolios (except as
noted below) has adopted investment restrictions numbered 1 through 14 as
fundamental policies. However, the amendment of these restrictions to add
an additional Portfolio, which amendment does not substantively affect the
restrictions with respect to an existing Portfolio, will not require
approval by the holders of a majority (as defined in the 1940 Act) of the
Portfolio's outstanding voting shares. Investment restrictions numbered 15
and 16 are not fundamental policies and may be changed, as to a Portfolio,
by a vote of a majority of the Fund's Board members at any time. With
respect to the Capital Appreciation Portfolio, investment restrictions
numbered 2 and 3, 10 through 12 and 14 are not fundamental policies and may
be changed, as to that Portfolio, by a vote of a majority of the Fund's
Board members at any time. Except where otherwise expressly stated, none of
these Portfolios may:
1. Borrow money, except, with respect to each Portfolio other
than the Money Market Portfolio, to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Portfolio's total assets); the Money Market Portfolio may borrow money
only (i) from banks for temporary or emergency (not leveraging) purposes in
an amount up to 15% of the value of its total assets (including the amount
borrowed) based on the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made and (ii) in
connection with the entry into reverse repurchase agreements to the extent
described in the Prospectus. While borrowings under (i) above exceed 5% of
a Portfolio's total assets, the Portfolio will not make any additional
investments.
2. Sell securities short or purchase securities on margin,
except that the Small Cap and Special Value Portfolios may engage in short
sales and each Portfolio may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities.
3. Purchase or write puts and calls or combinations thereof,
except as described in the Prospectus and Statement of Additional
Information.
4. Act as an underwriter of securities of other issuers.
5. Purchase or sell real estate or real estate investment trust
securities, but each Series may purchase and sell securities that are
secured by real estate and may purchase and sell securities issued by
companies that invest or deal in real estate.
6. Invest in commodities, except that the Capital Appreciation,
Special Value and Zero Coupon 2000 Portfolios may invest in futures
contracts, including those related to indices, and options on futures
contracts or indices, and commodities underlying or related to any such
futures contracts as well as invest in forward contracts and currency
options.
7. Lend any funds or other assets, except through the purchase
of bonds, debentures or other debt securities, or the purchase of bankers'
acceptances, commercial paper of corporations, and repurchase agreements.
However, each Portfolio may lend its portfolio securities to the extent set
forth in the Prospectus. Any portfolio securities will be loaned according
to guidelines established by the Securities and Exchange Commission and the
Fund's Board.
8. Invest more than 5% of its assets in the obligations of any
one issuer, except that up to 25% of the value of the Portfolio's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities may be purchased, without
regard to any such limitations. Notwithstanding the foregoing, to the
extent required by the rules of the Securities and Exchange Commission, the
Money Market Portfolio will not invest more than 5% of its assets in the
obligations of any one bank.
9. Purchase the securities of any issuer if such purchase would
cause the Portfolio to hold more than 10% of the voting securities of such
issuer. This restriction applies only with respect to 75% of such
Portfolio's total assets.
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Portfolio will vote the securities
it owns as a shareholder in accordance with its views.
11. Purchase or retain the securities of any issuer if the
officers or Board members of the Fund or the officers or Directors of the
Manager (and, with respect to the Capital Appreciation Portfolio, the
officers or Directors of Sarofim) individually own beneficially more than
1/2% of the securities of such issuer or together own beneficially more than
5% of the securities of such issuer.
12. Purchase securities of any company having less than three
years' continuous operations (including operations of any predecessors) if
such purchase would cause the value of its investments in all such companies
to exceed 5% of the value of its total assets.
13. Invest, except in the case of the Money Market Portfolio,
more than 25% of its total assets in the securities of issuers in any single
industry; provided that for temporary defensive purposes, there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Money Market Portfolio
may not invest less than 25% of its assets in obligations issued by banks
under normal market conditions.
14. Purchase warrants, except each of the Capital Appreciation,
Small Cap and Special Value Portfolios may purchase warrants not to exceed
2% of its respective net assets. For purposes of this restriction, such
warrants shall be valued at the lower of cost or market, except that
warrants acquired by the Portfolio in units or attached to securities shall
not be included within this 2% restriction.
15. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to the extent necessary to secure permitted borrowings. The
Capital Appreciation, Small Cap, Special Value and Zero Coupon 2000
Portfolios' entry into collateral arrangements with respect to options,
currency options, futures contracts, including those related to indices, and
options on futures contracts or indices and arrangements with respect to
initial or variation margin for futures contracts or options will not be
deemed to be pledges of such Portfolio's assets.
16. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are illiquid
if, in the aggregate, more than 15% (10% with respect to the Money Market
Portfolio) of the value of the Portfolio's net assets would be so invested.
* * *
Balanced, Disciplined Stock, Growth and Income, International Equity,
International Value, Limited Term High Income and Small Company Stock
Portfolios. Each of these Portfolios has adopted investment restrictions
numbered 1 through 8 as fundamental policies, and each of the Balanced,
Disciplined Stock, International Value, Limited Term High Income and Small
Company Stock Portfolios has adopted investment restrictions numbered 16 and
17 as additional fundamental policies. However, the amendment of these
restrictions to add an additional Portfolio, which amendment does not
substantively effect the restrictions with respect to an existing Portfolio,
will not require approval by the holders of a majority (as defined in the
1940 Act) of the Portfolio's outstanding shares. Investment restrictions
numbered 9 through 15 are not fundamental policies and may be changed, as to
a Portfolio, by a vote of a majority of the Fund's Board members at any
time. None of these Portfolios may:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Invest in commodities, except that a Portfolio may purchase
and sell options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.
3. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but a Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
4. Borrow money, except to the extent permitted under the 1940
Act (which currently limits borrowing to no more than 33-1/3% of the value
of the Portfolio's total assets). For purposes of this Investment
Restriction, the entry into options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices shall not constitute borrowing.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, a Portfolio
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board.
6. Act as an underwriter of securities of other issuers, except
to the extent a Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 2, 4, 11 and 12 may be deemed to give rise to a
senior security.
8. Purchase securities on margin, but a Portfolio may make
margin deposits in connection with transactions in options, forward
contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices.
9. Purchase securities of any company having less than three
years' continuous operations (including operations of any predecessor) if
such purchase would cause the value of its investments in all such companies
to exceed 5% of the value of its total assets.
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Portfolio will vote the securities
it owns as a shareholder in accordance with its views.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to
the purchase of securities on a when-issued or forward commitment basis and
the deposit of assets in escrow in connection with writing covered put and
call options and collateral and initial or variation margin arrangements
with respect to options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices.
12. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Prospectus and Statement of Additional
Information.
13. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are illiquid,
if, in the aggregate, more than 15% of the value of its net assets would be
so invested.
14. Purchase securities of other investment companies, except to
the extent permitted under the 1940 Act.
15. Purchase warrants in excess of 5% of its net assets. For
purposes of this restriction, such warrants shall be valued at the lower of
cost or market, except that warrants acquired by a Portfolio in units or
attached to securities shall not be included within this restriction.
The following investment restrictions numbered 16 and 17 apply only to
the Balanced, Disciplined Stock, International Value, Limited Term High
Income and Small Company Stock Portfolios. None of these Portfolios may:
16. Invest more than 5% of its assets in the obligations of any
single issuer, except that up to 25% of the value of the Portfolio's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities may be purchased, without
regard to any such limitation.
17. Hold more than 10% of the outstanding voting securities of
any single issuer. This Investment Restriction applies only with respect to
75% of the Portfolio's total assets.
* * *
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
In addition, each Portfolio has adopted the following policies as non-
fundamental policies. Each Portfolio intends (i) to comply with the
diversification requirements prescribed in regulations under Section 817(h)
of the Code, and (ii) to comply in all material respects with insurance laws
and regulations that the Fund has been advised are applicable to investments
of separate accounts of Participating Insurance Companies. In addition,
each Portfolio, except the Growth and Income and International Equity
Portfolios, has agreed not to invest more than 10% of its total assets in
the obligations of any one issuer (excluding U.S. Government securities)
and to purchase no more than 10% of an issuer's outstanding securities. As
non-fundamental policies, these policies may be changed by vote of a
majority of the Board members at any time.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of
each Portfolio. The Board approves all significant agreements with those
companies that furnish services to the Fund. These companies are as
follows:
The Dreyfus Corporation Investment Adviser
Fayez Sarofim & Co. Sub-Investment Adviser for
the Capital Appreciation
Portfolio
Premier Mutual Fund Distributor
Services, Inc.
Dreyfus Transfer, Inc. Transfer Agent
The Bank of New York Custodian for the
International Equity,
International Value, Money
Market and Special Value
Portfolios
Mellon Bank, N.A. Custodian for the Balanced,
Capital Appreciation,
Disciplined Stock, Growth and
Income, Limited Term High
Income, Quality Bond, Small
Cap, Small Company Stock and
Zero Coupon 2000 Portfolios
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below.
Board Members of the Fund
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. He is also
a director of The Noel Group, Inc., a venture capital company (for
which, from February 1995 until November 1997, he was Chairman of the
Board, The Muscular Dystrophy Association, HealthPlan Services
Corporation, a provider of marketing, administrative and risk
management services to health and other benefit programs, Carlyle
Industries, Inc. (formerly Belding Heminway Company, Inc.), a button
packager and distributor, Career Blazers, Inc. (formerly, Staffing
Resources, Inc.), a temporary placement agency, and Century Business
Services, Inc., a provider of various outsourcing functions for small
and medium sized companies. For more than five years prior to January
1995, he was President, a director and, until August 1994, Chief
Operating Officer of the Manager and Executive Vice President and a
director of Dreyfus Service Corporation, a wholly-owned subsidiary of
the Manager and, until August 24, 1994, the Fund's distributor. From
August 1994 until December 31, 1994, he was a director of Mellon Bank
Corporation. He is 55 years old and his address is 200 Park Avenue,
New York, New York 10166.
DAVID P. FELDMAN, Board Member. A director of several mutual funds in the
59 Wall Street Mutual Funds Group and The Jeffrey Company, a private
investment company. He was employed by AT&T Investment Management
Corporation, from July 1961 until his retirement in May 1997, most
recently serving as Chairman and Chief Executive Officer. He is 59
years old and his address is 466 Lexington Avenue, New York, New York
10017.
JOHN M. FRASER, JR., Board Member. Retired president of Fraser Associates,
a service company. From September 1975 to June 1978, he was Executive
Vice President of Flagship Cruises, Ltd. Prior thereto, he was Senior
Vice President and Resident Director of the Swedish-American Line for
the United States and Canada. He is 77 years old and his address is
133 East 64th Street, New York, New York 10021.
ROBERT R. GLAUBER, Board Member. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University since January 1992. He was Under Secretary of the Treasury
for Finance at the U.S. Treasury Department from May 1989 to January
1992. For more than five years prior thereto, he was a Professor of
Finance at the Graduate School of Business Administration of Harvard
University and, from 1985 to 1989, Chairman of its Advanced Management
Program. He is chairman of The Measurisk Group, a risk measurement
advisory and software development firm, co-chairman of the Investment
Committee, Massachusetts Statement Retirement Fund, and is also a
director of The Dun & Bradstreet Corp., Exel Limited, a Bermuda-based
insurance company, Cooke and Bieler, Inc., investment counselors,
National Association of Securities Dealers, Inc., NASD Regulation, Inc.
and the Federal Reserve Bank of Boston. He is 60 years old and his
address is 79 John F. Kennedy Street, Cambridge, Massachusetts 02138.
JAMES F. HENRY, Board Member. President of the CPR Institute for Dispute
Resolution, a non-profit organization principally engaged in the
development of alternatives to business litigation. He was a partner
of the law firm of Lovejoy, Wasson & Ashton from January 1977 to
September 1979. He was President and a director of the Edna McConnell
Clark Foundation, a philanthropic organization, from September 1971 to
December 1976. He is 68 years old and his address is c/o CPR Institute
for Dispute Resolution, 366 Madison Avenue, New York, New York 10017.
ROSALIND GERSTEN JACOBS, Board Member. Merchandise and marketing
consultant. From 1977 to 1998 director of Merchandise and Marketing
for Corporate Property Investors, a real estate investment company.
From 1974 to 1976, she was owner and manager of a merchandise and
marketing consulting firm. Prior to 1974, she was a Vice President of
Macy's, New York. She is 73 years old and her address is c/o Corporate
Property Investors, 305 East 47th Street, New York, New York 10017.
IRVING KRISTOL, Board Member. John M. Olin Distinguished Fellow of the
American Enterprise Institute for Public Policy Research, co-editor of
The Public Interest magazine, and an author or co-editor of several
books. From May 1981 to December 1994, he was a consultant to the
Manager on economic matters; from 1969 to 1988, he was Professor of
Social Thought at the Graduate School of Business Administration, New
York University; from September 1969 to August 1979, he was Henry R.
Luce Professor of Urban Values at New York University; from 1975 to
1990, he was a director of Lincoln National Corporation, an insurance
company; and from 1977 to 1990, he was a director of Warner-Lambert
Company, a pharmaceutical and consumer products company. He is 79
years old and his address is c/o The Public Interest, 1112 16th Street,
N.W., Suite 530, Washington, D.C. 20036.
DR. PAUL A. MARKS, Board Member. President and Chief Executive Officer of
Memorial Sloan-Kettering Cancer Center. He is also a director emeritus
of Pfizer, Inc., a pharmaceutical company, where he served as a
director from 1978 to 1996; a director of Tularik, Inc., a
biotechnology company; and Genos, Inc., a genomics company. He was
Vice President for Health Sciences and Director of the Cancer Center at
Columbia University from 1973 to 1980; Professor of Medicine and of
Human Genetics and Development at Columbia University from 1968 to
1982. He was a director of Life Technologies, Inc., a life science
company producing products for cell and molecular biology and
microbiology, from 1986 to 1996. He is 72 years old and his address is
c/o Memorial Sloan-Kettering Cancer Center, 1275 York Avenue, New York,
New York 10021.
DR. MARTIN PERETZ, Board Member. Editor-in-Chief of The New Republic
magazine and a lecturer in Social Studies at Harvard University, where
he has been a member of the faculty since 1965. He is a trustee of The
Center for Blood Research at the Harvard Medical School and of the
Academy for Liberal Education, an accrediting agency for colleges and
universities certified by the U.S. Department of Education; and a
director of LeukoSite Inc., a biopharmaceutical company. Dr. Peretz is
also a Co-Chairman of TheStreet.com, a financial daily on the Web and a
director of the Electronic Newstand, a distributor of magazines on the
Web. From 1988 to 1989, he was a director of Bank Leumi Trust Company
of New York, and from 1988 to 1991, he was a director of Carmel
Container Corporation. He is 59 years old and his address is c/o The
New Republic, 1220 19th Street, N.W., Washington, D.C. 20036.
BERT W. WASSERMAN, Board Member. Financial Consultant. He is also a
director of Malibu Entertainment International, Inc., the Lillian
Vernon Corporation and Winstar Communications, Inc. From January 1990
to March 1995, Executive Vice President and Chief Financial Officer,
and, from January 1990 to March 1993, a director of Time Warner Inc.
From 1981 to 1990, he was a member of the office of the President and a
director of Warner Communications, Inc. He is 66 years old and his
address is 126 East 56th Street, Suite 12 North, New York, New York
10022-3613.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund, and by all funds in the
Dreyfus Family of Funds for which such person was a Board member (the number
of which is set forth in parenthesis next to each Board member's total
compensation*) during the year ended December 31, 1998, were as follows:
Total
Aggregate Compensation From
Name of Board Member Compensation Fund and Fund
From Fund** Complex Paid to
Board Member
Joseph S. DiMartino $5,000 $619,660 (187)
David P. Feldman $3,750 $106,750 (58)
John M. Fraser, Jr. $3,750 $ 75,750 (42)
Robert R. Glauber $3,750 $ 88,250 (43)
James F. Henry $4,000 $ 54,250 (28)
Rosalind Gersten Jacobs $3,750 $ 84,000 (44)
Irving Kristol $4,000 $ 50,000 (28)
Dr. Paul A. Marks $3,750 $ 50,000 (28)
Dr. Martin Peretz $4,000 $ 54,250 (28)
Bert W. Wasserman $4,000 $ 54,250 (28)
_________________
* Represents the number of separate portfolios comprising the investment
companies in the Fund complex, including the Fund, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $3,603 for all Board members as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor and
Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 41 years old.
MARGARET W. CHAMBERS, Vice President and Secretary. Senior Vice President
and General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
August 1996 to March 1998, she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July
1996, she was an associate with the law firm of Ropes & Gray. She is
39 years old.
STEPHANIE D. PIERCE, Vice President, Assistant Secretary and Assistant
Treasurer. Vice President and Client Development Manager of Funds
Distributor, Inc., and an officer of other investment companies advised
or administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August
1995 to April 1997, she was an Assistant Vice President with Hudson
Valley Bank, and from September 1990 to August 1995, she was Second
Vice President with Chase Manhattan Bank. She is 30 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of
the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
September 1989 to July 1994, she was an Assistant Vice President and
Client Manager for The Boston Company, Inc. She is 34 years old.
GEORGE A. RIO, Vice President and Assistant Treasurer. Executive Vice
President and Client Service Director of Funds Distributor, Inc., and
an officer of other investment companies advised or administered by the
Manager. From June 1995 to March 1998, he was Senior Vice President
and Senior Key Account Manager for Putnam Mutual Funds. From May 1994
to June 1995, he was Director of Business Development for First Data
Corporation. From September 1983 to May 1994, he was Senior Vice
President and Manager of Client Services and Director of Internal Audit
at The Boston Company, Inc. He is 44 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 36 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. He is 30 years old.
CHRISTOPHER J. KELLEY, Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of Funds Distributor,
Inc., and an officer of other investment companies advised or
administered by the Manager. From April 1994 to July 1996, he was
Assistant Counsel at Forum Financial Group. He is 34 years old.
KATHLEEN K. MORRISEY, Vice President and Assistant Secretary. Manager of
Treasury Services Administration of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From July 1994 to November 1995, she was a Fund Accountant
for Investors Bank & Trust Company. She is 26 years old.
ELBA VASQUEZ, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
March 1990 to May 1996, she was employed by U.S. Trust Company of New
York where she held various sales and marketing positions. She is 37
years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1%
of each Portfolio's shares outstanding on March 31, 1999.
The following shareholders are known by the Fund to own of record 5% or
more of the indicated Portfolio's shares outstanding on March 31, 1999:
Shareholder Portfolio Percentage of
Shares
Transamerica Occidental Balanced 57.81%
Life Insurance Company Capital
Separate Account VA-2L Appreciation 38.68%
Accounting Department Disciplined Stock 64.60%
P.O. Box 33849 Growth and Income 49.24%
Charlotte, NC 28233- International
3849 Equity 84.65%
International
Value 82.54%
Limited Term High
Income 84.41%
Money Market 69.81%
Quality Bond 66.16%
Small Cap 13.42%
Small Company
Stock 71.79%
Special Value 69.43%
Zero Coupon 2000 53.46%
First Transamerica Life Balanced 21.04%
Insurance Company Capital
Separate Account VA - Appreciation 11.45%
2LNY Disciplined Stock 29.75%
Accounting Department Growth and Income 13.90%
P.O. Box 33849 International
Charlotte, NC 28233- Equity 15.33%
3849 International
Value 15.25%
Limited Term High
Income 15.59%
Money Market 22.57%
Quality Bond 16.79%
Small Cap 5.02%
Small Company
Stock 19.94%
Special Value 29.11%
Zero Coupon 2000 22.60%
Nationwide Life Capital
Insurance Appreciation 24.87%
Nationwide NWVA-II Growth and Income 18.26%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Quality Bond 5.47%
Insurance Small Cap 6.16%
Nationwide Multi -
Felix (NEA)
CO - 48 c/o IPO
Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Capital
Insurance Appreciation 10.72%
NWVA - 9
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
MBCIC Balanced 21.15%
c/o Mellon Bank, N.A.
919 North Market Street
Wilmington, DE 19801-
3023
Provident Mutual Life & Zero Coupon 2000 19.57%
Annuity Company of
America
P.O. Box 1717
Valley Forge, PA
19482-1717
Kemper Investors Life Money Market
Insurance Co. Portfolio 5.86%
One Kemper Drive
Long Grove, IL 60049
VALIC Separate Account A Small Cap 63.77%
Division 18
2929 Allen Parkway L7-01
Houston, Texas
77019-2197
Lincoln National Life Small Cap 5.51%
Insurance
Mutual Fund Accounting-4C-01
1300, 9 Clinton Street
Fort Wayne, IN 46802-
3506
Peoples Benefit Life Growth and Income 5.08%
Insurance Co. Quality Bond 6.45%
Aegon USA
FMO Accounting 4410
4333 Edgewood Road NE
Cedar Rapids, IA 52499
A shareholder that beneficially owns, directly or indirectly, more than
25% of the Fund's voting securities may be deemed to be a "control person"
(as defined in the 1940 Act) of the Fund.
MANAGEMENT ARRANGEMENTS
Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company
incorporated under Pennsylvania law in 1971 and registered under the Federal
Bank Holding Company Act of 1956, as amended. Mellon provides a
comprehensive range of financial products and services in domestic and
selected international markets. Mellon is among the twenty-five largest
bank holding companies in the United States based on total assets.
The Manager provides advisory services pursuant to the Investment
Advisory Agreement (the "Agreement") with the Fund dated August 24, 1994, as
amended January 31, 1997. As to each Portfolio, the Agreement is subject to
annual approval by (i) the Fund's Board or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such
Portfolio, provided that in either event the continuance also is approved by
a majority of the Board members who are not "interested persons" (as defined
in the 1940 Act) of the Fund or the Manager, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Agreement
was approved by shareholders of each Portfolio (other than the Balanced,
Disciplined Stock, Growth and Income, International Equity, International
Value, Limited Term High Income, Small Company Stock and Special Value
Portfolios) on August 22, 1994, by the shareholders of the Growth and Income
and International Equity Portfolios on August 2, 1994, and by the
shareholders of the Special Value Portfolio on January 31, 1997. The
Agreement was last approved by the Fund's Board, including a majority of the
Board members who are not "interested persons" of any party to the
Agreement, at a meeting held on March 8, 1999. As to each Portfolio, the
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of the holders of a majority of the shares of such
Portfolio, or, upon not less than 90 days' notice, by the Manager. The
Agreement will terminate automatically, as to the relevant Portfolio, in the
event of its assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a director; Thomas F. Eggers, Vice Chairman-Institutional and a
director; Lawrence S. Kash, Vice Chairman and a director; Ronald P. O'Hanley
III, Vice Chairman; J. David Officer, Vice Chairman and a director; William
T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice President,
General Counsel and Secretary; Diane P. Durnin, Vice President - Product
Development; Patrice M. Kozlowski, Vice President-Corporate Communications;
Mary Beth Leibig, Vice President-Human Resources; Andrew S. Wasser, Vice
President-Information Systems; Theodore A. Schachar, Vice President; Wendy
Strutt, Vice President; Richard Terres, Vice President; William H. Maresca,
Controller; James Bitetto, Assistant Secretary; Steven F. Newman, Assistant
Secretary; and Mandell L. Berman, Burton C. Borgelt, Steven G. Elliott,
Martin C. McGuinn, Richard W. Sabo and Richard F. Syron, directors.
With respect to the Capital Appreciation Portfolio, the Fund has
entered into a Sub-Investment Advisory Agreement (the "Sarofim Sub-Advisory
Agreement") with Fayez Sarofim & Co. dated August 17, 1992. As to such
Portfolio, the Sarofim Sub-Advisory Agreement is subject to annual approval
by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting securities, provided that in
either event the continuance also is approved by a majority of the Board
members who are not "interested persons" (as defined in the 1940 Act) of the
Fund or Sarofim, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Sarofim Sub-Advisory Agreement was last
approved by the Fund's Board, including a majority of the Board members who
are not "interested persons" of any party to the Sarofim Sub-Advisory
Agreement, at a meeting held on March 8, 1999. The Sarofim Sub-Advisory
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of the holders of a majority of the Portfolio's outstanding
voting securities, or, upon not less than 90 days' notice, by Sarofim. The
Sarofim Sub-Advisory Agreement will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of Sarofim: Fayez
S. Sarofim, Chairman of the Board, President and a director; Raye G. White,
Executive Vice President, Secretary, Treasurer and a director; Russell M.
Frankel, Russell B. Hawkins, William K. McGee, Jr., Charles E. Sheedy and
Ralph B. Thomas, Senior Vice Presidents; and Nancy V. Daniel and James A.
Reynolds, III, Vice Presidents.
The Manager manages the Fund's portfolios of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. With respect to the Capital Appreciation Portfolio, Sarofim provides
day-to-day management of such Portfolio's portfolio of investments, subject
to the supervision of the Manager and the Fund's Board. The Portfolio's
adviser is responsible for investment decisions, and provides the Fund with
portfolio managers who are authorized by the Fund's Board to execute
purchases and sales of securities. The Portfolio's portfolio managers are:
Portfolio Portfolio Manager
Balanced Laurie Carroll
Ron Gala
Capital Appreciation Fayez S. Sarofim
Russell B. Hawkins
Catherine P. Crain
Disciplined Stock Bert Mullins
Growth and Income Timothy Ghriskey
Douglas D. Ramos
International Equity Douglas A. Loeffler
International Value Sandor Cseh
Limited Term High Income Michael Hoeh
Quality Bond Roger King
Zero Coupon 2000 John Koeber
C. Matthew Olson
Gerald E. Thunelius
Money Market Bernard W. Kiernan, Jr.
Patricia A. Larkin
Thomas Riordan
Small Cap Hilary R. Woods
Paul Kandel
Small Company Stock James Wadsworth
Anthony J. Galise
Special Value Timothy M. Ghriskey
Douglas D. Ramos
The Manager and Sarofim maintain research departments with professional
portfolio managers and securities analysts who provide research services for
the Fund and for other funds advised by the Manager or Sarofim. All
purchases and sales of each Portfolio are reported for the Board's review at
the meeting subsequent to such transactions.
Dreyfus has a personal securities trading policy (the "Policy") which
restricts the personal securities transactions of its employees. Its
primary purpose is to ensure that personal trading by Dreyfus employees does
not disadvantage any Dreyfus-managed fund. Under the Policy, Dreyfus
employees must preclear personal transactions in securities not exempt under
the Policy. In addition, Dreyfus employees must report their personal
securities transactions and holdings, which are reviewed for compliance with
the Policy. In that regard, Dreyfus portfolio managers and other investment
personnel also are subject to the oversight of Mellon's Investment Ethics
Committee. Dreyfus portfolio managers and other investment personnel who
comply with the Policy's preclearance and disclosure procedures, and the
requirements of the Committee, may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager (or, if
applicable, the Portfolio's sub-investment adviser). The expenses borne by
the Fund include: organizational costs, taxes, interest, loan commitment
fees, dividends and interest on securities sold short, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager or any sub-investment adviser or any affiliates thereof,
Securities and Exchange Commission fees, state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's existence,
costs of independent pricing services, costs attributable to investor
services (including, without limitation, telephone and personnel expenses),
costs of shareholders' reports and meetings, costs of preparing and printing
prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, and any
extraordinary expenses. Expenses attributable to a particular Portfolio are
charged against the assets of that Portfolio; other expenses of the Fund are
allocated among the Portfolios on the basis determined by the Fund's Board,
including, but not limited to, proportionately in relation to the net assets
of each Portfolio.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager, 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 Portfolios
and/or to purchasers of VA contracts or VLI policies. The Manager also may
make such advertising or promotional expenditures, using its own resources,
as it from time to time deems appropriate.
As compensation for its services, the Fund has agreed to pay the
Manager a monthly fee at the annual rate set forth below as a percentage of
the relevant Portfolio's average daily net assets. The effective annual
rate of the monthly investment advisory fee the Fund paid the Manager
pursuant to any undertaking in effect for the fiscal year ended December 31,
1998 as a percentage of the relevant Portfolio's average daily net assets
also is set forth below:
Effective
Annual
Annual Rate Rate of
of Investment Investment
Name of Portfolio Advisory Advisory
Fee Payable Fee Paid
Balanced Portfolio .75% .75%
Capital Appreciation Portfolio .48%
0 to $150 million of average daily net assets .55%
$150 million to $300 million of
average daily net assets .50%
$300 million or more of average daily
net assets .375%
Disciplined Stock Portfolio .75% .75%
Growth and Income Portfolio .75% .75%
International Equity Portfolio .75% .75%
International Value Portfolio 1.00% 1.00%
Limited Term High Income Portfolio .65% .65%
Money Market Portfolio .50% .50%
Quality Bond Portfolio .65% .65%
Small Cap Portfolio .75% .75%
Small Company Stock Portfolio .75% .75%
Special Value Portfolio .75% .75%
Zero Coupon 2000 Portfolio .45% .45%
The fees paid by the Fund to the Manager with respect to each Portfolio
for the fiscal years ended December 31, 1996, 1997 and 1998 (to the extent
the Portfolio was operational) were as follows:
Fee Paid For
Year Ended
December 31, 1996
Portfolio Advisory Fee Reduction in Net Fee
Payable Fee Paid
Capital Appreciation $ 398,748 $ 0 $ 398,748
Disciplined Stock* 55,091 17,101 37,990
Growth and Income 1,135,998 0 1,135,998
International Equity 130,616 0 130,616
International Value* 43,069 21,498 21,571
Money Market 258,755 0 258,755
Quality Bond 330,181 0 330,181
Small Cap 5,766,905 0 5,766,905
Small Company Stock* 36,492 13,463 23,029
Special Value 92,396 0 92,396
Zero Coupon 2000 128,717 0 128,717
_________________
* From April 30, 1996 (commencement of operations) through December 31,
1996.
Fee Paid For
Year Ended
December 31, 1997
Portfolio Advisory Fee Reduction in Net Fee
Payable Fee Paid
Balanced* $ 164,386 $ 0 $ 164,386
Capital Appreciation 944,004 0 944,004
Disciplined Stock 243,138 0 243,138
Growth and Income 2,254,248 0 2,254,248
International Equity 246,938 0 246,938
International Value 136,687 0 136,687
Limited Term High Income** 88,699 6,291 82,408
Money Market 304,681 0 304,681
Quality Bond 467,635 0 467,635
Small Cap 8,317,539 0 8,317,539
Small Company Stock 113,161 0 113,161
Special Value 250,293 0 250,293
Zero Coupon 2000 147,516 0 147,516
_________________
* From May 1, 1997 (commencement of operations) through December 31,
1997.
** From April 30, 1997 (commencement of operations) through December 31,
1997.
Fee Paid For
Year Ended
December 31, 1998
Portfolio Advisory Fee Reduction Net Fee
Payable in Fee Paid
Balanced $ 413,719 $ 0 $ 413,719
Capital Appreciation 2,057,782 0 2,057,782
Disciplined Stock 712,844 0 712,844
Growth and Income 3,030,241 0 3,030,241
International Equity 343,496 0 343,496
International Value 225,035 0 225,035
Limited Term High Income 397,273 0 397,273
Money Market 371,422 0 371,422
Quality Bond 673,601 0 673,601
Small Cap 9,335,756 0 9,335,756
Small Company Stock 249,468 0 249,468
Special Value 450,888 0 450,888
Zero Coupon 2000 162,716 0 162,716
As compensation for Sarofim's services, the Fund has agreed to pay
Sarofim a monthly sub-advisory fee at the annual rate set forth below as a
percentage of the Capital Appreciation Portfolio's average daily net assets.
The effective annual rate of the monthly sub-investment advisory fee the
Fund paid Sarofim for the fiscal year ended December 31, 1998, as a
percentage of the Capital Appreciation Portfolio's average daily net assets
also is set forth below:
Effective
Annual Rate
Of Sub-
Annual Rate of Investment
Capital Appreciation Portfolio Sub-Investment Advisory
Advisory Fee Paid in
Fee Payable 1998
.27%
0 to $150 million of average daily
net assets .20%
$150 million to $300 million of
average daily net assets .25%
$300 million or more of average daily
net assets .375%
The fees payable by the Fund to Sarofim with respect to the Capital
Appreciation Portfolio for fiscal years ended December 31, 1996, 1997 and
1998 amounted to $145,000, $365,954 and $1,171,093, respectively.
The Manager (and, with respect to the Capital Appreciation Portfolio,
Sarofim) has agreed that if, in any fiscal year, the aggregate expenses of
the Fund, exclusive of taxes, brokerage, interest on borrowings and (with
the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the advisory fees, exceed the expense
limitation of any state having jurisdiction over the Fund, the Fund may
deduct from the payment to be made to the Manager (and, with respect to the
Capital Appreciation Portfolio, Sarofim), or the Manager (and, with respect
to the Capital Appreciation Portfolio, Sarofim) will bear, such excess
expense to the extent required by state law. Such deduction or payment, if
any, will be estimated daily, and reconciled and effected or paid, as the
case may be, on a monthly basis.
The aggregate of the fees payable to the Manager (other than for the
Capital Appreciation Portfolio) is not subject to reduction as the value of
a Portfolio's assets increases.
The Distributor. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the Fund's distributor on a best efforts
basis pursuant to an agreement which is renewable annually. The Distributor
also acts as distributor for the other funds in the Dreyfus Family of Funds
and for certain other investment companies.
Transfer and Dividend Disbursing Agent and Custodian. Dreyfus
Transfer, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the
Manager, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Fund's
transfer and dividend agent. Under a transfer agency agreement with the
Fund, the Transfer Agent arranges for maintenance of shareholder account
records for the Fund, the handling of certain communications between
shareholders and the Fund and the payment of dividends and distributions
payable by the fund. For these services, the Transfer Agent receives a
monthly fee computed on the basis of the number of shareholder accounts it
maintains for the Fund during the month, and is reimbursed for certain out-
of-pocket expenses.
The Bank of New York, 90 Washington Street, New York, New York 10286,
serves as custodian of the Fund's investments with respect to International
Equity, International Value, Money Market and Special Value Portfolios. The
Bank of New York has no part in determining the investment policies of the
Fund or which securities are to be purchased or sold by the Fund.
Mellon Bank, N.A., the Manager's parent, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, serves as the Fund's custodian with respect
to the Balanced, Capital Appreciation, Disciplined Stock, Growth and Income,
Limited Term High Income, Quality Bond, Small Cap, Small Company Stock and
Zero Coupon 2000 Portfolios. Under a custody agreement with the Fund,
Mellon Bank, N.A. holds each such Portfolio's securities and keeps all
necessary accounts and records. For its custody services, Mellon Bank, N.A.
receives a monthly fee based on the market value of each Portfolio's assets
held in custody and receives certain securities transaction charges.
HOW TO BUY SHARES
Fund shares currently are offered only to separate accounts of
Participating Insurance Companies. Individuals may not place purchase
orders directly with the Fund.
Separate accounts of the Participating Insurance Companies place orders
based on, among other things, the amount of premium payments to be invested
pursuant to VA contracts and VLI policies. See the prospectus of the
separate account of the Participating Insurance Company for more information
on the purchase of Fund shares and with respect to the availability for
investment in specific portfolios of the Fund. The Fund does not issue
share certificates.
Purchase orders from separate accounts based on premiums and
transaction requests received by the Participating Insurance Company on a
given business day in accordance with procedures established by the
Participating Insurance Company will be effected at the net asset value of
the applicable Portfolio determined on such business day if the orders are
received by the Fund in proper form and in accordance with applicable
requirements on the next business day and Federal Funds (monies of member
banks within the Federal Reserve System which are held on deposit at a
Federal Reserve Bank) in the net amount of such orders are received by the
Fund on the next business day in accordance with applicable requirements.
It is each Participating Insurance Company's responsibility to properly
transmit purchase orders and Federal Funds in accordance with applicable
requirements. VA contract holders and VLI policy holders should refer to
the prospectus for their contracts or policies in this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures will be valued 15 minutes after the close of
trading on floor of the New York Stock Exchange. Net asset value per share
is computed by dividing the value of the net assets of each Portfolio (i.e.,
the value of its assets less liabilities) by the total number of such
Portfolio's shares outstanding. The Limited Term High Income, Quality Bond
and Zero Coupon 2000 Portfolios' investments are valued each business day by
an independent pricing service approved by the Fund's Board and are valued
at fair value as determined by the pricing service. The pricing service's
procedures are reviewed under the general supervision of the Fund's Board.
The Money Market Portfolio uses the amortized cost method of valuing its
investments. The Balanced, Capital Appreciation, Disciplined Stock,
International Equity, International Value, Growth and Income, Small Cap,
Small Company Stock and Special Value Portfolios' investments are valued
based on market value, or where market quotations are not readily available,
based on fair value as determined in good faith by the Fund's Board. For
further information regarding the methods employed in valuing each
Portfolio's investments, see "Determination of Net Asset Value."
HOW TO REDEEM SHARES
Portfolio shares may be redeemed at any time by the separate accounts
of the Participating Insurance Companies. Individuals may not place
redemption orders directly with the Fund. Redemption requests from separate
accounts based on premiums and transaction requests received by the
Participating Insurance Company on a given business day in accordance with
procedures established by the Participating Insurance Company will be
effected at the net asset value of the applicable Portfolio 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 Portfolio's
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.
Redemption Commitment. The Fund has committed to pay in cash all
redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of a
Portfolio's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission and is a fundamental policy, as to a Portfolio, which may not be
changed without shareholder approval of such Portfolio. In the case of
requests for redemption in excess of such amount, the Fund's Board reserves
the right to make payments in whole or part in securities or other assets of
the Portfolio in case of an emergency or any time a cash distribution would
impair the liquidity of the Portfolio to the detriment of the existing
shareholders. In such event, the securities would be valued in the same
manner as the Portfolio's portfolio is valued. If the recipient sold such
securities, brokerage charges might be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
Money Market Portfolio. The valuation of the Money Market Portfolio's
securities is based upon their amortized cost which does not take into
account unrealized capital gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price
the Portfolio would receive if it sold the instrument.
The Fund's Board has established, as a particular responsibility within
the overall duty of care owed to the Money Market Portfolio's shareholders,
procedures reasonably designed to stabilize the Portfolio's price per share
as computed for the purpose of purchases and redemptions at $1.00. Such
procedures include review of the Portfolio's portfolio holdings by the
Fund's Board, at such intervals as it deems appropriate, to determine
whether the Portfolio's net asset value per share calculated by using
available market quotations or market equivalents deviates from $1.00 per
share based on amortized cost. In such review, investments for which market
quotations are readily available will be valued at the most recent bid price
or yield equivalent for such securities or for securities of comparable
maturity, quality and type, as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets will
be valued at fair value as determined in good faith by the Fund's Board.
The extent of any deviation between the Money Market Portfolio's net
asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost will be examined by the Fund's
Board. If such deviation exceeds 1/2%, the Board members promptly will
consider what action, if any, will be initiated. In the event the Board
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, it has agreed to
take such corrective action as it regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by
using available market quotations or market equivalents.
Limited Term High Income, Quality Bond and Zero Coupon 2000 Portfolios.
Substantially all of each Portfolio's investments are valued each business
day by an independent pricing service (the "Service") approved by the Fund's
Board. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of
the market, these investments are valued at the mean between the quoted bid
prices (as obtained by the Service from dealers in such securities) and
asked prices (as calculated by the Service based upon its evaluation of the
market for such securities). Other investments are carried at fair value as
determined by the Service, based on methods which include consideration of:
yields or prices of municipal bonds of comparable quality, coupon, maturity
and type; indications as to values from dealers; and general market
conditions. The Service's procedures are reviewed by the Fund's officers
under the general supervision of the Board. Short-term investments are not
valued by the Service and are carried at amortized cost, which approximates
value. Other investments that are not valued by the Service are valued at
the average of the most recent bid and asked prices in the market in which
such investments are primarily traded, or at the last sales price for
securities traded primarily on an exchange. In the absence of reported
sales of investments traded primarily on an exchange, the average of the
most recent bid and asked prices is used. Bid price is used when no asked
price is available. Investments traded in foreign currencies are translated
to U.S. dollars at the prevailing rates of exchange. Expenses and fees of a
Portfolio, including the advisory fee (reduced by the expense limitation, if
any), are accrued daily and taken into account for the purpose of
determining the net asset value of shares.
Balanced, Capital Appreciation, Disciplined Stock, Growth and Income,
International Equity, International Value, Small Cap, Small Company Stock
and Special Value Portfolios. Each Portfolio's portfolio securities are
valued at the last sale price on the securities exchange or national
securities market on which such securities are primarily traded. Securities
not listed on an exchange or national securities market, or securities in
which there were no transactions, are valued at the average of the most
recent bid and asked prices, except in the case of open short positions
where the asked price is used for valuation purposes. Bid price is used
when no asked price is available. Market quotations for foreign securities
in foreign currencies are translated into U.S. dollars at the prevailing
rates of exchange. Because of the need to obtain prices as of the close of
trading on various exchanges throughout the world, the calculation of net
asset value may not take place contemporaneously with the determination of
prices of many of the Portfolio's portfolio securities. Short-term
investments are carried at amortized cost, which approximates value. Any
securities or other assets for which recent market quotations are not
readily available are valued at fair value as determined in good faith by
the Fund's Board. Expenses and fees, including the advisory fees (reduced
by the expense limitation, if any), are accrued daily and taken into account
for the purpose of determining the net asset value of shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Fund's Board, are valued at fair value as determined
in good faith by the Fund's Board. The Fund's Board will review the method
of valuation on a current basis. In making their good faith valuation of
restricted securities, the Board members generally will take the following
factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a
public market exists usually will be valued at market value less the same
percentage discount at which purchased. This discount will be revised
periodically by the Fund's Board if the Board members believe that it no
longer reflects the value of the restricted securities. Restricted
securities not of the same class as securities for which a public market
exists usually will be valued initially at cost. Any subsequent adjustment
from cost will be based upon considerations deemed relevant by the Fund's
Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that each Portfolio has qualified as a "regulated
investment company" under the Code for the fiscal year ended December 31,
1998. Each Portfolio intends to continue to so qualify if such
qualification is in the best interests of its shareholders. As a regulated
investment company, each Portfolio will pay no Federal income tax on net
investment income and net realized securities gains to the extent that such
income and gains are distributed to shareholders in accordance with
applicable provisions of the Code. To qualify as a regulated investment
company, the Portfolio must distribute at least 90% of its net income
(consisting of net investment income and net short-term capital gain) to its
shareholders, and meet certain asset diversification and other requirements.
If a Portfolio did not qualify as a regulated investment company, it would
be treated for tax purposes as an ordinary corporation subject to Federal
income tax. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any
government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the
cost of the investment. Such a dividend or distribution would be a return
of investment in an economic sense, although taxable as stated under
"Dividends and Taxes" in the Prospectus. In addition, the Code provides
that if a shareholder holds shares of the Portfolio for six months or less
and has received a capital gain distribution with respect to such shares,
any loss incurred on the sale of such shares will be treated as long-term
capital loss to the extent of the capital gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, all or a portion of the
gain or loss realized from the disposition of foreign currency, non-U.S.
dollar denominated debt instruments, and certain financial futures and
options, may be treated as ordinary income or loss under Section 988 of the
Code. In addition, all or a portion of the gain realized from the
disposition of certain market discount bonds will be treated as ordinary
income under Section 1276 of the Code. Finally, all or a portion of the
gain realized from engaging in "conversion transactions" may be treated as
ordinary income under Section 1258 of the Code. "Conversion transactions"
are defined to include certain forward, futures, option and straddle
transactions, transactions marketed or sold to produce capital gains, or
transactions described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss realized by a Portfolio
from certain financial futures and options transactions (other than those
taxed under Section 988 of the Code) will be treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. Gain or loss
will arise upon the exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures or options
remaining unexercised at the end of the Portfolio's taxable year will be
treated as sold for their then fair market value, resulting in additional
gain or loss to the Portfolio as described above.
Offsetting positions held by a Portfolio involving financial futures
and options transactions may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of straddles is
governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 988 and 1256 of
the Code. As such, all or a portion of any short- or long-term capital gain
from certain "straddle" transactions may be recharacterized as ordinary
income.
If a Portfolio were treated as entering into straddles by reason of its
engaging in futures or options transactions, such straddles could be
characterized as "mixed straddles" if the futures or options transactions
comprising such straddles were governed by Section 1256 of the Code. The
Portfolio may make one or more elections with respect to "mixed straddles."
Depending upon which election is made, if any, the results to the Portfolio
may differ. If no election is made and the straddle rules apply to
positions established by the Portfolio, losses realized by the Portfolio
will be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized
as long-term capital loss, and long-term capital gain may be recharacterized
as short- term capital gain or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short
sale, futures or forward contract, offsetting notional principal contract or
other transaction described in Treasury regulations to be issued in the
future (collectively, a "Contract") with respect to the same or
substantially identical property or (2) holds an appreciated financial
position that is a Contract and then acquires property that is the same as,
or substantially identical to, the underlying property. In each instance,
with certain exceptions, the Fund generally will be taxed as if the
appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.
Investment by a Portfolio in securities issued at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could, under special tax rules, affect the amount,
timing and character of distributions to shareholders by causing a Portfolio
to recognize income prior to the receipt of cash payments. For example, the
Portfolio could be required to recognize annually a portion of the discount
(or deemed discount) at which such securities were issued and to distribute
an amount equal to such income in order to maintain its qualification as a
regulated investment company. In such case, the Portfolio may have to
dispose of securities which it might otherwise have continued to hold in
order to generate cash to satisfy these distribution requirements.
Under the Code, each Portfolio of the Fund is treated as a separate
entity for purposes of qualification and taxation as a regulated investment
company. Each Portfolio will make distributions from net realized
securities gains, if any, once a year, but may make distributions on a more
frequent basis to comply with the distribution requirements of the Code, in
all events in a manner consistent with the provisions of the 1940 Act. No
Portfolio will make distributions from net realized securities gains unless
capital loss carryovers, if any, have been utilized or have expired.
Dividends are automatically reinvested in additional shares at net asset
value unless payment in cash is elected 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 a Portfolio satisfies certain conditions, a segregated
asset account owning shares of the Portfolio will be treated as owning
multiple investments consisting of the account's proportionate share of each
of the assets of the Portfolio. Each Portfolio intends to satisfy the
requisite conditions so that the shares of the Portfolio owned by a
segregated asset account of a Participating Insurance Company will be
treated as multiple investments. By meeting these and other requirements,
the Participating Insurance Companies, rather than VA contract holders or
VLI holders, should be subject to tax on distributions received with respect
to Portfolio shares. The tax treatment on distributions made to a
Participating Insurance Company will depend on the Participating Insurance
Company's tax status.
Since shareholders of the Fund will be the separate accounts of
Participating Insurance Companies, no discussion is included herein as to
the Federal income tax consequences at the level of the holders of the VA
contracts or VLI policies. For information concerning the Federal income
tax consequences to such holders, see the prospectuses for such VA contracts
or VLI policies.
PORTFOLIO TRANSACTIONS
General. Transactions are allocated to various dealers by the Fund's
portfolio managers in their best judgment. The primary consideration is
prompt and effective execution of orders at the most favorable price.
Subject to that primary consideration, dealers may be selected for research,
statistical or other services to enable the Manager (and, if applicable, the
Portfolio's sub-investment adviser) to supplement its own research and
analysis with the views and information of other securities firms and may be
selected based upon their sales of shares of funds advised by the Manager or
its affiliates.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager (or, if applicable, the
Portfolio's sub-investment adviser) in advising other funds or accounts and,
conversely, research services furnished to the Manager (or, if applicable,
the Portfolio's sub-investment adviser) by brokers in connection with other
funds or accounts may be used in advising a Portfolio. Although it is not
possible to place a dollar value on these services, it is the opinion of the
Manager (and, if applicable, the Portfolio's sub-investment adviser) that
the receipt and study of such services should not reduce the overall
research department expenses.
The Fund contemplates that, consistent with the policy of obtaining the
most favorable net price, brokerage transactions may be conducted through
the Manager or its affiliates, including Dreyfus Investment Services
Corporation. The Fund's Board has adopted procedures, in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to the Manager or its affiliates are reasonable and fair.
The overall reasonableness of brokerage commissions paid is evaluated
based upon knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
A Portfolio may pay commission rates in excess of those another broker or
dealer would have charged for effecting the same transaction, if the Manager
determines in good faith that the commission paid is reasonable in relation
to the value of the brokerage and research services provided.
Money Market, Quality Bond and Zero Coupon 2000 Portfolios. Purchases
and sales of portfolio securities usually are principal transactions.
Portfolio securities ordinarily are purchased directly from the issuer or
from an underwriter or market maker. Usually no brokerage commissions are
paid by the Portfolio for such purchases and sales. The prices paid to
underwriters of newly-issued securities usually include a concession paid by
the issuer to the underwriter, and purchases of securities from market
makers may include the spread between the bid and asked price. No brokerage
commissions were paid for the fiscal years ended December 31, 1996, 1997 and
1998. There were no concessions on principal transactions for the fiscal
years ended December 31, 1996, 1997 and 1998.
Balanced, Capital Appreciation, Disciplined Stock, Growth and Income,
International Equity, International Value, Limited Term High Income, Small
Cap, Small Company Stock and Special Value Portfolios. Brokers also will be
selected because of their ability to handle special executions such as are
involved in large block trades or broad distributions, provided the primary
consideration is met. Large block trades may, in certain cases, result from
two or more funds in the Dreyfus Family of Funds being engaged
simultaneously in the purchase or sale of the same security. Certain of the
Portfolio's transactions in securities of foreign issuers may not benefit
from the negotiated commission rates available for transactions in
securities of domestic issuers. Higher portfolio turnover rates are likely
to result in comparatively greater brokerage expenses.
In connection with its portfolio securities transactions for the fiscal
years ended December 31, 1996, 1997 and 1998 (except as otherwise
indicated), each Portfolio indicated below paid brokerage commissions and,
where determinable, concessions on principal transactions, none of which was
paid to the Distributor, in the following amounts:
<TABLE>
Name of Portfolio Brokerage Commissions Paid Concessions on Principal Transactions
1996 1997 1998 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Balanced Capital $ N/A $ 36,932(4) $ 46,422 N/A $ 5,005 $ 810
Appreciation 44,129 106,432 245,599 $ 5,460 9,391 20,193
Disciplined Stock 20,541(1,2) 71,669(3) 168,290(5) 0(1) 0 0
Growth and Income 897,148 172,388 1,065,967 2,330,734 928,323 452,048
International Equity 240,958 327,207 489,171 47,150 78,064 17,496
International Value 35,327(1) 47,303 47,733 0(1) 0 0
Small Cap 1,990,723 1,722,729 2,002,330 6,498,223 3,192,427 1,685,130
Small Company Stock 12,888(1) 39,015 53,298 519(1) 0 0
Special Value 78,823 308,466 359,805 0 56,309 85,449
_________________
(1) From April 30, 1996 (commencement of operations) through December 31,
1996.
(2) $7,143 was paid to Dreyfus Investment Services Corporation, a
subsidiary of Mellon Bank Corporation. This amount represents
approximately 35% of the aggregate brokerage commissions paid by the
Portfolio for transactions involving approximately 37% of the aggregate
dollar value of transactions for which the Portfolio paid brokerage
commissions.
(3) $29,358 was paid to Dreyfus Investment Services Corporation, a
subsidiary of Mellon Bank Corporation. This amount represented
approximately 41% of the aggregate brokerage commissions paid by the
Portfolio for transactions involving approximately 47% of the aggregate
dollar value of transactions for which the Portfolio paid brokerage
commissions
(4) From May 1, 1997 (commencement of operations) through December 31,
1997.
</TABLE>
(5) $51,195 was paid to Dreyfus Investment Services Corporation, a
subsidiary of Mellon Bank Corporation. This amount represented
approximately 30% of the aggregate brokerage commissions paid by the
Portfolio for transactions involving approximately 36% of the aggregate
dollar value of transactions for which the Portfolio paid brokerage
commissions.
The aggregate amount of transactions during the last fiscal year in
securities effected on an agency basis through a broker for, among other
things, research services, and the commissions and concessions related to
such transactions were as follows:
Portfolio Transaction Amount Commissions and
Concessions
Capital Appreciation $80,028,858 $ 60,472
Growth and Income 94,311,802 87,789
Small Cap 27,819,164 104,270
Special Value 35,100,769 40,064
YIELD AND PERFORMANCE INFORMATION
The performance figures shown below do not reflect the separate charges
applicable to Policies offered by Participating Insurance Companies.
The yield and effective yield for the seven-day period ended December
31, 1998 for the following Portfolio was:
Portfolio Yield Effective
Yield
Money Market 4.62% 4.73%
Yield is computed in accordance with a standardized method which
involves determining the net change in the value of a hypothetical pre-
existing Money Market Portfolio account having a balance of one share at the
beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with
dividends declared on the original share and any such additional shares and
fees that may be charged to shareholder accounts, in proportion to the
length of the base period and the Portfolio's average account size, but does
not include realized gains and losses or unrealized appreciation and
depreciation. Effective annualized yield is computed by adding 1 to the
base period return (calculated as described above), raising that sum to a
power equal to 365 divided by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. You should remember that yield is a function of the type and
quality of the instruments in the portfolio, portfolio maturity and
operating expenses. Your principal in the Fund is not guaranteed. See
"Determination of Net Asset Value" for a discussion of the manner in which
the Portfolio's price per share is determined.
The current yields for the 30-day period ended December 31, 1998 for
each of the following Portfolios was:
Portfolio Current Yield
Quality Bond 5.57%
Zero Coupon 2000 4.40%
The current yield for the 30-day period ended December 31, 1998 for the
following Portfolio was:
Portfolio Current Yield
Limited Term High Income 11.78%
Current yield is computed pursuant to a formula which operates as
follows: The amount of the relevant Portfolio's expenses accrued for the 30-
day period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned (computed in accordance with regulatory
requirements) by such Portfolio during the period. That result is then
divided by the product of: (a) the average daily number of such Portfolio's
shares outstanding during the period that were entitled to receive
dividends, and (b) the net asset value per share on the last day of the
period less any undistributed earned income per share reasonably expected to
be declared as a dividend shortly thereafter. The quotient is then added to
1, and that sum is raised to the 6th power, after which 1 is subtracted.
The current yield is then arrived at by multiplying the result by 2.
The average annual total return for the periods indicated for each of
the following Portfolios was:
1-year period 5-year period 8.34 year period
Portfolio ended December ended December ended December
31, 1998 31, 1998 31, 1998
Quality Bond 5.49% 6.46% 9.09%
Small Cap -3.44% 12.88% 37.23%
Special Value 15.69% 6.16% 8.50%
Zero Coupon 7.27% 5.94% 9.59%
2000
1-year period 5.75-year period
ended 5-year period ended
December 31, ended December December 31,
1998 31, 1998 1998
Capital Appreciation 30.22% 23.56% 21.61%
1-year period 4.67-year period
ended December 31, ended December, 31
1998 1998
Growth and Income 11.81% 21.77%
International Equity 4.49% 6.56%
1-year period 2.67-year period
ended December 31, ended December 31,
1998 1998
Disciplined Stock 26.72% 29.18%
International Value 8.74% 7.81%
Small Company Stock -5.97% 8.55%
1-year period 1.67-year period
ended December 31, ended December 31,
1998 1998
Balanced 22.34% 24.89%
Limited Term High Income 0.29% 5.84%
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result. Computations of
average annual total return for periods of less than one year represent an
annualization of the Portfolio's actual total return.
Total return for each of the following Portfolios for the period
indicated was:
Portfolio August 31, 1990 (commencement of investment operations)
to December 31, 1998
Quality Bond 106.60%
Small Cap 1300.84%
Special Value 97.53%
Zero Coupon 2000 114.58%
April 5, 1993 (commencement of investment operations)
to December 31, 1998
Capital Appreciation 207.44%
May 2, 1994 (commencement of investment operations) to
December 31, 1998
Growth and Income 150.93%
International Equity 34.52%
May 1, 1996 (commencement of investment operations) to
December 31, 1998
Disciplined Stock 98.09%
International Value 22.24%
Small Company Stock 24.49%
April 30, 1997 (commencement of investment operations)
to December 31, 1998
Limited Term 9.94%
High Income
May 1, 1997 (commencement of investment operations) to
December 31, 1998
Balanced 44.94%
Total return is calculated by subtracting the amount of the relevant
Portfolio's net asset value per share at the beginning of a stated period
from the net asset value per share at the end of the period (after giving
effect to the reinvestment of dividends and distributions during the
period), and dividing the result by the net asset value per share at the
beginning of the period.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember
that performance is a function of portfolio management in selecting the type
and quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance
information of any Portfolio 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
Policies. The effective yield and total return for a Portfolio 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 Portfolio's yield or performance information may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
Comparative performance information may be used from time to time in
advertising a Portfolio's shares, including data from the Consumer Price
Index, Lipper Analytical Services, Inc., IBC's Money Fund ReportT, Money
Magazine, Bank Rate MonitorT, N. Palm Beach, Fla. 33408, Standard & Poor's
500 Composite Stock Price Index, Standard & Poor's MidCap 400 Index, Russell
2500T Index, Morgan Stanley Capital International World Index, the Dow Jones
Industrial Average, Moody's Bond Survey Bond Index, Lehman Brothers
Intermediate Government/Corporate Bond Index, Morningstar, Inc., Value Line
Mutual Fund Survey and other industry publications.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic or financial conditions, developments
and/or events. Advertising materials for the Fund also may refer to
Morningstar ratings and related analyses supporting the rating, and may
refer to, or include, commentary by the Fund's portfolio managers relating
to their investment strategy, asset growth of the Portfolio, current or past
business, political, economic or financial conditions and other matters of
general interest to shareholders.
INFORMATION ABOUT THE FUND
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However,
the Fund's Trust Agreement ("Trust Agreement") disclaims shareholder
liability for acts or obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or a Trustee. The Trust Agreement provides for
indemnification from the Portfolio's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Portfolio.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the Portfolio
itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by
the Portfolio, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Portfolio. The Fund intends to
conduct its operations in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Portfolio.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for a Portfolio to hold annual meetings of shareholders. As a
result, shareholders may not consider each year the election of Board
members or the appointment of auditors. However, the holders of at least
10% of the shares outstanding and entitled to vote may require the Fund to
hold a special meeting of shareholders for purposes of removing a Board
member from office. Shareholders may remove a Board member by the
affirmative vote of two-thirds of the Fund's outstanding voting shares. In
addition, the Board will call a meeting of shareholders for the purpose of
electing Board members if, at any time, less than a majority of the Board
members then holding office have been elected by shareholders.
The Fund is 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 Portfolios
of shares. All consideration received by the Fund for shares of one of the
Portfolios, and all assets in which such consideration is invested, will
belong to that Portfolio (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 Portfolio would be treated
separately from those of the other Portfolios. The Fund has the ability to
create, from time to time, new series without shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of any
investment company, such as the Fund, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical or that the matter does not affect any interest of such series.
However, the rule exempts the selection of independent accountants and the
election of Board members from the separate voting requirements of the rule.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Portfolios' Prospectuses.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as independent auditors of the
Fund.
APPENDIX
Description of certain ratings:
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned to a debt obligation.
Capacity to pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade bonds. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
CC
The rating CC is typically applied to bonds subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to bonds subordinated to senior debt
which is assigned an actual or implied CCC- rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major ratings
categories, except in the AAA (Prime Grade) category.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Issues assigned an A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
This designation indicates the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in the categories below B. The modifier 1 indicates a rating for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or
principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by ample
asset protection. Risk factors are minor.
DREYFUS VARIABLE INVESTMENT FUND
PART C. OTHER INFORMATION
_________________________
Item 23. Exhibits
_______ __________
(a) Registrant's Agreement and Declaration of Trust and Articles
of Amendment are incorporated by reference to Exhibit (1) of Post-
Effective Amendment No. 13 to the Registration Statement on Form N-
1A, filed on April 19, 1995.
(b) Registrant's By-Laws, as amended, are incorporated by reference to
Exhibt (2) of Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A, filed on September 20, 1997.
(d) Investment Advisory Agreement is incorporated by reference to Exhibit
(5)(a) of Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A, filed on April 17, 1997.
(d)(2) Sub-Investment Advisory Agreement is incorporated by reference to
Exhibit (5)(c) of Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A, filed on April 19, 1995.
(e) Distribution Agreement, as revised, is incorporated by reference to
Exhibit (6) of Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A, filed on April 17, 1997.
(g)(1) Custody Agreement between the Registrant and The Bank of New York is
incorporated by reference to Exhibit 8(a) of Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A, filed on April 19,
1995.
(g)(2) Custody Agreement between the Registrant and Mellon Bank, N.A. is
incorporated by reference to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A, filed on October 25, 1996.
(i) Opinion and consent of Registrant's counsel is incorporated by
reference to Exhibit (10) of Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A, filed on April 19, 1995.
(j) Consent of Independent Auditors.
(n) Financial Data Schedule.
Item 23. Exhibits. - List (continued)
_______ _____________________________________________________
Other Exhibits
______________
(a) Powers of Attorney of the Board members
and officers are incorporated by reference to Other
Exhibits of Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 25, 1999.
(b) Certificate of Secretary is incorporated
by reference to Other Exhibits of Post-Effective
Amendment No. 23 to the Registration Statement, filed on
February 25, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
_______ ______________________________________________________________
Not Applicable
Item 25. Indemnification
_______ _______________
The Statement as to the general effect of any contract,
arrangements or statute under which a director, officer,
underwriter or affiliated person of the Registrant is insured or
indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own
protection, is incorporated by reference to Item 27 of Part II of
Pre-Effective Amendment No. 7 to the Registration Statement on Form
N-1A, filed on July 10, 1990.
Reference is also made to the Distribution Agreement which is
incorporated by reference to Exhibit (6) of Post-Effective
Amendment No. 18 to the Registration Statement on Form N-1A, filed
on April 17, 1997.
Item 26. Business and Other Connections of Investment Adviser.
_______ ____________________________________________________
The Dreyfus Corporation ("Dreyfus") and subsidiary companies
comprise a financial service organization whose business
consists primarily of providing investment management services
as the investment adviser and manager for sponsored investment
companies registered under the Investment Company Act of 1940
and as an investment adviser to institutional and individual
accounts. Dreyfus also serves as sub-investment adviser to
and/or administrator of other investment companies. Dreyfus
Service Corporation, a wholly-owned subsidiary of Dreyfus,
serves primarily as a registered broker-dealer. Dreyfus
Investment Advisors, Inc., another wholly-owned subsidiary,
provides investment management services to various pension
plans, institutions and individuals.
<TABLE>
<CAPTION>
ITEM 26. Business and Other Connections of Investment Adviser (continued)
Officers and Directors of Investment Adviser
<S> <C> <C> <C>
Name and Position
With Dreyfus Other Businesses Position Held Dates
Christopher M. Condron Franklin Portfolio Associates, LLC* Director 1/97 - Present
Chairman of the Board and
Chief Executive Officer
TBCAM Holdings, Inc.* Director 10/97 - Present
President 10/97 - 6/98
Chairman 10/97 - 6/98
The Boston Company Director 1/98 - Present
Asset Management, LLC* Chairman 1/98 - 6/98
President 1/98 - 6/98
The Boston Company President 9/95 - 1/98
Asset Management, Inc.* Chairman 4/95 - 1/98
Pareto Partners Partner Representative 11/95 - 5/97
271 Regent Street
London, England W1R 8PP
Franklin Portfolio Holdings, Inc.* Director 1/97 - Present
Certus Asset Advisors Corp.** Director 6/95 -Present
Mellon Capital Management Director 5/95 -Present
Corporation***
Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Bond Associates+ Trustee 5/95 -1/98
Mellon Equity Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Equity Associates+ Trustee 5/95 - 1/98
Boston Safe Advisors, Inc.* Director 5/95 - Present
President 5/95 - Present
Mellon Bank, N.A. + Director 1/99 - Present
Chief Operating Officer 3/98 - Present
President 3/98 - Present
Vice Chairman 11/94 - 3/98
Mellon Bank Corporation+ Chief Operating Officer 1/99 - Present
President 1/99 - Present
Director 1/98 - Present
Vice Chairman 11/94 - 1/99
Christopher M. Condron The Boston Company, Inc.* Vice Chairman 1/94 - Present
Chairman and Chief Director 5/93 - Present
Executive Officer
(Continued) Laurel Capital Advisors, LLP+ Exec. Committee 1/98 - 8/98
Member
Laurel Capital Advisors+ Trustee 10/93 - 1/98
Boston Safe Deposit and Trust Director 5/93 -Present
Company*
The Boston Company Financial President 6/89 - Present
Strategies, Inc. * Director 6/89 - Present
Mandell L. Berman Self-Employed Real Estate Consultant, 11/74 - Present
Director 29100 Northwestern Highway Residential Builder and
Suite 370 Private Investor
Southfield, MI 48034
Burton C. Borgelt DeVlieg Bullard, Inc. Director 1/93 - Present
Director 1 Gorham Island
Westport, CT 06880
Mellon Bank Corporation+ Director 6/91 - Present
Mellon Bank, N.A. + Director 6/91 - Present
Dentsply International, Inc. Director 2/81 - Present
570 West College Avenue
York, PA
Quill Corporation Director 3/93 - Present
Lincolnshire, IL
Stephen E. Canter Dreyfus Investment Chairman of the Board 1/97 - Present
President, Chief Operating Advisors, Inc.++ Director 5/95 - Present
Officer, Chief Investment President 5/95 - Present
Officer, and Director
Newton Management Limited Director 2/99 - Present
London, England
Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present
Member
Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present
Member
Franklin Portfolio Associates, LLC* Director 2/99 - Present
Franklin Portfolio Holdings, Inc.* Director 2/99 - Present
The Boston Company Asset Director 2/99 - Present
Management, LLC*
TBCAM Holdings, Inc.* Director 2/99 - Present
Mellon Capital Management Director 1/99 - Present
Corporation***
Stephen E. Canter Founders Asset Management, LLC Member, Board of 12/97 - Present
President, Chief Operating 2930 East Third Ave. Managers
Officer, Chief Investment Denver, CO 80206 Acting Chief Executive 7/98 - 12/98
Officer, and Director Officer
(Continued)
The Dreyfus Trust Company+++ Director 6/ 95 - Present
Thomas F. Eggers Dreyfus Service Corporation++ Executive Vice President 4/96 - Present
Vice Chairman - Institutional Director 9/96 - Present
and Director
Founders Asset Management, LLC Member, Board of 2/99 - Present
2930 East Third Avenue Managers
Denver, CO 80206
Steven G. Elliott Mellon Bank Corporation+ Senior Vice Chairman 1/99 - Present
Director Chief Financial Officer 1/90 - Present
Vice Chairman 6/92 - 1/99
Treasurer 1/90 - 5/98
Mellon Bank, N.A.+ Senior Vice Chairman 3/98 - Present
Vice Chairman 6/92 - 3/98
Chief Financial Officer 1/90 - Present
Mellon EFT Services Corporation Director 10/98 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Mellon Financial Services Director 1/96 - Present
Corporation #1 Vice President 1/96 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Boston Group Holdings, Inc.* Vice President 5/93 - Present
APT Holdings Corporation Treasurer 12/87 - Present
Pike Creek Operations Center
4500 New Linden Hill Road
Wilmington, DE 19808
Allomon Corporation Director 12/87 - Present
Two Mellon Bank Center
Pittsburgh, PA 15259
Collection Services Corporation Controller 10/90 - 2/99
500 Grant Street Director 9/88 - 2/99
Pittsburgh, PA 15258 Vice President 9/88 - 2/99
Treasurer 9/88 - 2/99
Mellon Financial Company+ Principal Exec. Officer 1/88 - Present
Chief Financial Officer 8/87 - Present
Director 8/87 - Present
President 8/87 - Present
Mellon Overseas Investments Director 4/88 - Present
Corporation+ Chairman 7/89 - 11/97
President 4/88 - 11/97
Chief Executive Officer 4/88 - 11/97
Mellon International Investment Director 9/89 - 8/97
Corporation+
Steven G. Elliott Mellon Financial Services Treasurer 12/87 - Present
Director (Continued) Corporation # 5+
Mellon Financial Markets, Inc.+ Director 1/99 - Present
Mellon Financial Services Director 1/99 - Present
Corporation #17
Fort Lee, NJ
Mellon Mortgage Company Director 1/99 - Present
Houston, TX
Mellon Ventures, Inc. + Director 1/99 - Present
Lawrence S. Kash Dreyfus Investment Director 4/97 - Present
Vice Chairman Advisors, Inc.++
And Director
Dreyfus Brokerage Services, Inc. Chairman 11/97 - Present
401 North Maple Ave. Chief Executive Officer 11/97 - Present
Beverly Hills, CA
Dreyfus Service Corporation++ Director 1/95 - 2/99
President 9/96 - 3/99
Dreyfus Precious Metals, Inc.++ + Director 3/96 - 12/98
President 10/96 - 12/98
Dreyfus Service Director 12/94 - Present
Organization, Inc.++ President 1/97 - Present
Seven Six Seven Agency, Inc. ++ Director 1/97 - Present
Dreyfus Insurance Agency of Chairman 5/97 - Present
Massachusetts, Inc.++++ President 5/97 - Present
Director 5/97 - Present
The Dreyfus Trust Company+++ Chairman 1/97 - 1/99
President 2/97 - 1/99
Chief Executive Officer 2/97 - 1/99
Director 12/94 - Present
The Dreyfus Consumer Credit Chairman 5/97 - Present
Corporation++ President 5/97 - Present
Director 12/94 - Present
Founders Asset Management, LLC Member, Board of 12/97 - Present
2930 East Third Avenue Managers
Denver, CO. 80206
The Boston Company Advisors, Chairman 12/95 - Present
Inc. Chief Executive Officer 12/95 - Present
Wilmington, DE President 12/95 - Present
The Boston Company, Inc.* Director 5/93 - Present
President 5/93 - Present
Mellon Bank, N.A.+ Executive Vice President 6/92 - Present
Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98
Executive Committee 1/98 - 8/98
Member
Chief Executive Officer 1/98 - 8/98
President 1/98 - 8/98
Lawrence S. Kash Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98
Vice Chairman Chairman 9/93 - 1/98
And Director (Continued) President and CEO 12/91 - 1/98
Boston Group Holdings, Inc.* Director 5/93 - Present
President 5/93 - Present
Martin G. McGuinn Mellon Bank Corporation+ Chairman 1/99 - Present
Director Chief Executive Officer 1/99 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 1/99
Mellon Bank, N. A. + Chairman 3/98 - Present
Chief Executive Officer 3/98 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 3/98
Mellon Leasing Corporation+ Vice Chairman 12/96 - Present
Mellon Bank (DE) National Director 4/89 - 12/98
Association
Wilmington, DE
Mellon Bank (MD) National Director 1/96 - 4/98
Association
Rockville, Maryland
Mellon Financial Vice President 9/86 - 10/97
Corporation (MD)
Rockville, Maryland
J. David Officer Dreyfus Service Corporation++ Executive Vice President 5/98 - Present
Vice Chairman Director 3/99 - Present
And Director
Dreyfus Insurance Agency of Director 5/98 - Present
Massachusetts, Inc.++++
Seven Six Seven Agency, Inc.++ Director 10/98 - Present
Mellon Residential Funding Corp. + Director 4/97 - Present
Mellon Trust of Florida, N.A. Director 8/97 - Present
2875 Northeast 191st Street
North Miami Beach, FL 33180
Mellon Bank, NA+ Executive Vice President 7/96 - Present
The Boston Company, Inc.* Vice Chairman 1/97 - Present
Director 7/96 - Present
Mellon Preferred Capital Director 11/96 - Present
Corporation*
RECO, Inc.* President 11/96 - Present
Director 11/96 - Present
The Boston Company Financial President 8/96 - Present
Services, Inc.* Director 8/96 - Present
Boston Safe Deposit and Trust Director 7/96 - Present
Company* President 7/96 - 1/99
J. David Officer Mellon Trust of New York Director 6/96 - Present
Vice Chairman and 1301 Avenue of the Americas
Director (Continued) New York, NY 10019
Mellon Trust of California Director 6/96 - Present
400 South Hope Street
Suite 400
Los Angeles, CA 90071
Mellon Bank, N.A.+ Executive Vice President 2/94 - Present
Mellon United National Bank Director 3/98 - Present
1399 SW 1st Ave., Suite 400
Miami, Florida
Boston Group Holdings, Inc.* Director 12/97 - Present
Dreyfus Financial Services Corp. + Director 9/96 - Present
Dreyfus Investment Services Director 4/96 - Present
Corporation+
Richard W. Sabo Founders Asset Management LLC President 12/98 - Present
Director 2930 East Third Avenue Chief Executive Officer 12/98 - Present
Denver, CO. 80206
Prudential Securities Senior Vice President 07/91 - 11/98
New York, NY Regional Director 07/91 - 11/98
Richard F. Syron American Stock Exchange Chairman 4/94 - Present
Director 86 Trinity Place Chief Executive Officer 4/94 - Present
New York, NY 10006
Ronald P. O'Hanley Franklin Portfolio Holdings, Inc.* Director 3/97 - Present
Vice Chairman
TBCAM Holdings, Inc.* Chairman 6/98 - Present
Director 10/97 - Present
The Boston Company Asset Chairman 6/98 - Present
Management, LLC* Director 1/98 - 6/98
The Boston Company Asset Director 2/97 - 12/97
Management, Inc. *
Boston Safe Advisors, Inc.* Chairman 6/97 - Present
Director 2/97 - Present
Pareto Partners Partner Representative 5/97 - Present
271 Regent Street
London, England W1R 8PP
Mellon Capital Management Director 5/97 -Present
Corporation***
Certus Asset Advisors Corp.** Director 2/97 - Present
Mellon Bond Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon Equity Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon-France Corporation+ Director 3/97 - Present
Ronald P. O'Hanley Laurel Capital Advisors+ Trustee 3/97 - Present
Vice Chairman (Continued)
Mark N. Jacobs Dreyfus Investment Director 4/97 - Present
General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98
Vice President, and
Secretary The Dreyfus Trust Company+++ Director 3/96 - Present
The TruePenny Corporation++ President 10/98 - Present
Director 3/96 - Present
Dreyfus Service Director 3/97 - Present
Organization, Inc.++
William H. Maresca The Dreyfus Trust Company+++ Director 3/97 - Present
Controller
Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present
Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 -Present
Dreyfus Investment Treasurer 10/98 - Present
Advisors, Inc. ++
Dreyfus-Lincoln, Inc. Vice President 10/98 - Present
4500 New Linden Hill Road
Wilmington, DE 19808
The TruePenny Corporation++ Vice President 10/98 - Present
Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98
The Trotwood Corporation++ Vice President 10/98 - Present
Trotwood Hunters Corporation++ Vice President 10/98 - Present
Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present
Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present
One American Express Plaza,
Providence, RI 02903
Dreyfus Service Assistant Treasurer 3/93 - Present
Organization, Inc.++
Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present
Massachusetts, Inc.++++
William T. Sandalls, Jr. Dreyfus Transfer, Inc. Chairman 2/97 - Present
Executive Vice President One American Express Plaza,
Providence, RI 02903
Dreyfus Service Corporation++ Director 1/96 - Present
Executive Vice President 2/97 - Present
Chief Financial Officer 2/97-12/98
Dreyfus Investment Director 1/96 - Present
Advisors, Inc.++ Treasurer 1/96 - 10/98
William T. Sandalls, Jr. Dreyfus-Lincoln, Inc. Director 12/96 - Present
Executive Vice President 4500 New Linden Hill Road President 1/97 - Present
(Continued) Wilmington, DE 19808
Seven Six Seven Agency, Inc.++ Director 1/96 - 10/98
Treasurer 10/96 - 10/98
The Dreyfus Consumer Director 1/96 - Present
Credit Corp.++ Vice President 1/96 - Present
Treasurer 1/97 - 10/98
Dreyfus Partnership President 1/97 - 6/97
Management, Inc.++ Director 1/96 - 6/97
Dreyfus Service Organization, Director 1/96 - 6/97
Inc.++ Executive Vice President 1/96 - 6/97
Treasurer 10/96- Present
Dreyfus Insurance Agency of Director 5/97 - Present
Massachusetts, Inc.++++ Treasurer 5/97- Present
Executive Vice President 5/97 - Present
Diane P. Durnin Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99
Vice President - Product Marketing and Advertising
Development Division
Patrice M. Kozlowski None
Vice President - Corporate
Communications
Mary Beth Leibig None
Vice President -
Human Resources
Theodore A. Schachar Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present
Vice President - Tax
Dreyfus Investment Advisors, Inc.++ Vice President - Tax 10/96 - Present
Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98
Dreyfus Service Organization, Inc.++ Vice President - Tax 10/96 - Present
Wendy Strutt None
Vice President
Richard Terres None
Vice President
Andrew S. Wasser Mellon Bank Corporation+ Vice President 1/95 - Present
Vice-President -
Information Systems
James Bitetto The TruePenny Corporation++ Secretary 9/98 - Present
Assistant Secretary
Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present
Dreyfus Investment Assistant Secretary 7/98 - Present
Advisors, Inc.++
Dreyfus Service Assistant Secretary 7/98 - Present
Organization, Inc.++
Steven F. Newman Dreyfus Transfer, Inc. Vice President 2/97 - Present
Assistant Secretary One American Express Plaza Director 2/97 - Present
Providence, RI 02903 Secretary 2/97 - Present
Dreyfus Service Secretary 7/98 - Present
Organization, Inc.++ Assistant Secretary 5/98 - 7/98
_______________________________
* The address of the business so indicated is One Boston Place, Boston, Massachusetts, 02108.
** The address of the business so indicated is One Bush Street, Suite 450, San Francisco, California 94104.
*** The address of the business so indicated is 595 Market Street, Suite 3000, San Francisco, California 94105.
+ The address of the business so indicated is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258.
++ The address of the business so indicated is 200 Park Avenue, New York, New York 10166.
+++ The address of the business so indicated is 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144.
++++ The address of the business so indicated is 53 State Street, Boston, Massachusetts 02109.
</TABLE>
Item 27. Principal Underwriters
________ ______________________
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or
exclusive distributor:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management Funds
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Debt and Equity Funds
28) Dreyfus Index Funds, Inc.
29) Dreyfus Institutional Money Market Fund
30) Dreyfus Institutional Preferred Money Market Fund
31) Dreyfus Institutional Short Term Treasury Fund
32) Dreyfus Insured Municipal Bond Fund, Inc.
33) Dreyfus Intermediate Municipal Bond Fund, Inc.
34) Dreyfus International Funds, Inc.
35) Dreyfus Investment Grade Bond Funds, Inc.
36) Dreyfus Investment Portfolios
37) The Dreyfus/Laurel Funds, Inc.
38) The Dreyfus/Laurel Funds Trust
39) The Dreyfus/Laurel Tax-Free Municipal Funds
40) Dreyfus LifeTime Portfolios, Inc.
41) Dreyfus Liquid Assets, Inc.
42) Dreyfus Massachusetts Intermediate Municipal Bond Fund
43) Dreyfus Massachusetts Municipal Money Market Fund
44) Dreyfus Massachusetts Tax Exempt Bond Fund
45) Dreyfus MidCap Index Fund
46) Dreyfus Money Market Instruments, Inc.
47) Dreyfus Municipal Bond Fund, Inc.
48) Dreyfus Municipal Cash Management Plus
49) Dreyfus Municipal Money Market Fund, Inc.
50) Dreyfus New Jersey Intermediate Municipal Bond Fund
51) Dreyfus New Jersey Municipal Bond Fund, Inc.
52) Dreyfus New Jersey Municipal Money Market Fund, Inc.
53) Dreyfus New Leaders Fund, Inc.
54) Dreyfus New York Insured Tax Exempt Bond Fund
55) Dreyfus New York Municipal Cash Management
56) Dreyfus New York Tax Exempt Bond Fund, Inc.
57) Dreyfus New York Tax Exempt Intermediate Bond Fund
58) Dreyfus New York Tax Exempt Money Market Fund
59) Dreyfus U.S. Treasury Intermediate Term Fund
60) Dreyfus U.S. Treasury Long Term Fund
61) Dreyfus 100% U.S. Treasury Money Market Fund
62) Dreyfus U.S. Treasury Short Term Fund
63) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
64) Dreyfus Pennsylvania Municipal Money Market Fund
65) Dreyfus Premier California Municipal Bond Fund
66) Dreyfus Premier Equity Funds, Inc.
67) Dreyfus Premier International Funds, Inc.
68) Dreyfus Premier GNMA Fund
69) Dreyfus Premier Worldwide Growth Fund, Inc.
70) Dreyfus Premier Municipal Bond Fund
71) Dreyfus Premier New York Municipal Bond Fund
72) Dreyfus Premier State Municipal Bond Fund
73) Dreyfus Premier Value Fund
74) Dreyfus Short-Intermediate Government Fund
75) Dreyfus Short-Intermediate Municipal Bond Fund
76) The Dreyfus Socially Responsible Growth Fund, Inc.
77) Dreyfus Stock Index Fund, Inc.
78) Dreyfus Tax Exempt Cash Management
79) The Dreyfus Third Century Fund, Inc.
80) Dreyfus Treasury Cash Management
81) Dreyfus Treasury Prime Cash Management
82) Dreyfus Variable Investment Fund
83) Dreyfus Worldwide Dollar Money Market Fund, Inc.
84) Founders Funds, Inc.
85) General California Municipal Bond Fund, Inc.
86) General California Municipal Money Market Fund
87) General Government Securities Money Market Fund, Inc.
88) General Money Market Fund, Inc.
89) General Municipal Bond Fund, Inc.
90) General Municipal Money Market Funds, Inc.
91) General New York Municipal Bond Fund, Inc.
92) General New York Municipal Money Market Fund
(b)
Positions and
Name and principal Positions and offices with offices with
business address the Distributor Registrant
__________________ ___________________________ _____________
Marie E. Connolly+ Director, President, Chief President and
Executive Officer and Chief Treasurer
Compliance Officer
Joseph F. Tower, III+ Director, Senior Vice President, Vice President
Treasurer and Chief Financial and Assistant
Officer Treasurer
Mary A. Nelson+ Vice President Vice President
and Assistant
Treasurer
Jean M. O'Leary+ Assistant Vice President, None
Assistant Secretary and
Assistant Clerk
William J. Nutt+ Chairman of the Board None
Patrick W. McKeon+ Vice President None
Joseph A. Vignone+ Vice President None
________________________________
+ Principal business address is 60 State Street, Boston, Massachusetts
02109.
++ Principal business address is 200 Park Avenue, New York, New York
10166.
Item 28. Location of Accounts and Records
_______ ________________________________
1. First Data Investor Services Group, Inc.,
a subsidiary of First Data Corporation
P.O. Box 9671
Providence, Rhode Island 02940-9671
2. Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
3. The Bank of New York
90 Washington Street
New York, New York 10286
4. Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, Rhode Island 02940-9671
5. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Item 29. Management Services
_______ ___________________
Not Applicable
Item 30. Undertakings
_______ ____________
None
SIGNATURES
____________
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this registration statement under
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State
of New York on the 27th day of April, 1999.
DREYFUS VARIABLE INVESTMENT FUND
BY: /s/Marie E. Connolly*
_____________________________
Marie E. Connolly, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signatures Title Date
__________________________ _______________________________ _________
/s/Marie E. Connolly*
President and Treasurer (Principal 4/27/99
______________________________ Executive, Financial and
Marie E. Connolly Accounting Officer)
/s/Joseph S. DiMartino* Trustee 4/27/99
______________________________
Joseph S. DiMartino
/s/David P. Feldman* Trustee 4/27/99
______________________________
David P. Feldman
/s/John M. Fraser, Jr.* Trustee 4/27/99
______________________________
John M. Fraser, Jr.
/s/Robert R. Glauber* Trustee 4/27/99
______________________________
Robert R. Glauber
/s/James F. Henry* Trustee 4/27/99
______________________________
James F. Henry
/s/Rosalind Gersten Jacobs* Trustee 4/27/99
______________________________
Rosalind Gersten Jacobs
/s/Irving Kristol* Trustee 4/27/99
______________________________
Irving Kristol
/s/Dr. Paul A. Marks* Trustee 4/27/99
______________________________
Dr. Paul A. Marks
/s/Dr. Martin Peretz* Trustee 4/27/99
______________________________
Dr. Martin Peretz
/s/Bert W. Wasserman* Trustee 4/27/99
______________________________
Bert W. Wasserman
*BY: Stephanie Pierce
______________________
Stephanie Pierce,
Attorney-in-Fact
INDEX OF EXHIBITS
(j) Consent of Independent Auditors
(n) Financial Data Schedule
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Counsel and Independent Auditors" and to the use of our
reports dated February 4, 1999, for Balanced Portfolio, Capital Appreciation
Portfolio, Disciplined Stock Portfolio, Growth and Income Portfolio,
International Equity Portfolio, International Value Portfolio, Limited Term
High Income Portfolio, Money Market Portfolio, Quality Bond Portfolio, Small
Cap Portfolio, Small Company Stock Portfolio, Special Value Portfolio and Zero
Coupon 2000 Portfolio which is incorporated by reference, in this
Registration Statement (Form N-1A No. 33-13690) of Dreyfus Variable
Investment Fund.
ERNST & YOUNG LLP
New York, New York
April 26, 1999
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