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. 27 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 27 [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 December 31, 2000 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.
----
Explanatory Note
This post-effective amendment no. 27 to the registration statement for Dreyfus
Variable Investment Fund (File No. 33-13690) (the "Amendment") includes a form
of prospectus which describes, among other things, a new Service share class
with a Rule 12b-1 distribution plan. This Amendment does not supersede or
replace the prospectus included in post-effective amendment no.25 to the
registration statement for the Dreyfus Variable Investment Fund filed with the
Securities and Exchange Commission on April 27, 2000 which remains in full
effect.
Dreyfus Variable Investment Fund
Appreciation Portfolio
Balanced 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
PROSPECTUS December 31, 2000
(reg.tm)
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]
[Page]
Dreyfus Variable Investment Fund
The Portfolios
Contents
The Portfolios
--------------------------------------------------------------------------------
Appreciation Portfolio 2
Balanced Portfolio 6
Disciplined Stock Portfolio 10
Growth and Income Portfolio 14
International Equity Portfolio 18
International Value Portfolio 22
Limited Term
High Income Portfolio 26
Money Market Portfolio 30
Quality Bond Portfolio 34
Small Cap Portfolio 38
Small Company Stock Portfolio 42
Special Value Portfolio 46
Management 50
Financial Highlights 53
Account Information
--------------------------------------------------------------------------------
Account Policies 65
Distributions and Taxes 66
Exchange Privilege 66
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 (except Money Market Portfolio) currently offers two classes of
shares: Initial shares and Service shares. VA contract holders and VLI
policyholders should consult the applicable prospectus of the separate account
of the participating insurance company to determine which class of fund shares
may be purchased by the separate account.
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.
The Fund
[Page 1]
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 primarily 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 typically 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 2]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. 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 periods, 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.
Appreciation Portfolio
[Page 3]
APPRECIATION PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the S&P 500((reg.tm)), a widely
recognized, unmanaged index of stock performance. Of course, past performance is
no guarantee of future results. As a new class, past performance information is
not available for Service shares as of the date of this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
3.04 33.52 25.56 28.05 30.22 11.46
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +20.77%
WORST QUARTER: Q3 '98 -10.69%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/99
Since
inception
1 Year 5 Years (4/5/93)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL SHARES 11.46% 25.52% 20.05%
S&P 500 21.03% 28.54% 21.63%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 3/31/93 IS USED AS THE
BEGINNING VALUE ON 4/5/93.
</TABLE>
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 4]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.03% 0.03%
--------------------------------------------------------------------------------
TOTAL 0.78% 1.03%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $80 $249 $433 $966
SERVICE SHARES $105 $328 $569 $1,259
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Appreciation Portfolio
[Page 5]
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:
* VALUE, or how a stock is priced relative to its perceived intrinsic
worth
* GROWTH, in this case the sustainability or growth of earnings
* 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 6]
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. While the
portfolio' s investments in value stocks may limit the overall downside risk of
the portfolio over time, they may produce smaller gains than riskier stocks.
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, even if earnings do increase.
Growth stocks also typically lack the dividend yield to cushion stock prices in
market downturns.
Prices of bonds tend to move inversely with changes in interest rates. Typically
a rise in rates will adversely affect bond prices and, accordingly, the
portfolio's share price. The longer the maturity and duration of the portfolio's
bond component, the more the portfolio' s share price is likely to react to
interest rates.
Failure of a bond issuer to make timely interest or principal payments, or a
decline or a perception of a decline in the credit quality of a bond, can cause
a bond's price to fall, potentially lowering the portfolio's share price.
The overall risk level of the bond component will depend on the market sectors
in which it is invested and the current interest rate, liquidity and credit
quality of such sectors unless there is no active trading market for specific
types of securities, and can become more difficult to sell or issue. In such a
market, the value of such securities and the portfolio's share price may fall
dramatically.
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 and economic
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 periods, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio may invest in derivative securities, such as options and futures
contracts, and certain mortgage-related and asset-backed securities. Derivatives
can be illiquid and their value can fall dramatically in response to rapid or
unexpected changes in their underlying instruments. A small investment in
certain derivatives can have a large impact on the portfolio's performance.
At times, the portfolio may also engage in short-term trading, which could
produce higher transaction costs and taxable distributions, lowering the
portfolio's after-tax performance.
The portfolio may buy securities on a forward commitment basis. This investment
strategy may have leveraging effect on the portfolio, thus potentially
increasing its overall volatility.
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.
Balanced Portfolio
[Page 7]
BALANCED PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the S&P 500((reg.tm)), the Lehman
Intermediate Index, and a hybrid index composed of 60% S&P 500((reg.tm)) and 40%
Lehman Intermediate Index. Of course, past performance is no guarantee of future
results. As a new class, past performance information is not available for
Service shares as of the date of this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
22.34 8.13
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +14.14%
WORST QUARTER: Q3 '98 -1.39%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
Since inception
1 Year (5/1/97)
--------------------------------------------------------------------------------
INITIAL SHARES 8.13% 18.33%
S&P 500 21.03% 27.36%*
LEHMAN
INTERMEDIATE INDEX -2.06% 5.78%*
HYBRID INDEX 12.78% 18.68%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF EACH INDEX ON 4/30/97 IS USED AS THE
BEGINNING VALUE ON 5/1/97.
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]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.11% 0.11%
--------------------------------------------------------------------------------
TOTAL* 0.86% 1.11%
* THE DREYFUS CORPORATION HAS UNDERTAKEN, UNTIL APRIL 30, 2001, TO WAIVE RECEIPT
OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF
NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES,
INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $88 $274 $477 $1,061
SERVICE SHARES $113 $353 $612 $1,352
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Balanced Portfolio
[Page 9]
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:
* VALUE, or how a stock is priced relative to its perceived intrinsic worth
* GROWTH, in this case the sustainability or growth of earnings
* 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 10]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. 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, even if earnings do increase. 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, either because the market fails to
recognize the companies' intrinsic worth, or the portfolio manager misgauged
that worth. They also may decline in price even though in theory they are
already underpriced. 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 periods, 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 may invest in derivatives, such as options and futures contracts.
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 11]
DISCIPLINED STOCK PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the S&P 500((reg.tm)). Of course, past
performance is no guarantee of future results. As a new class, past performance
information is not available for Service shares as of the date of this
prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
31.51 26.72 18.45
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +22.71%
WORST QUARTER: Q3 '98 -12.32%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
Since
inception
1 Year (5/1/96)
--------------------------------------------------------------------------------
INITIAL SHARES 18.45% 26.16%
S&P 500 21.03% 26.75%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/96 IS USED AS THE
BEGINNING VALUE ON 5/1/96.
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 12]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.06% 0.06%
--------------------------------------------------------------------------------
TOTAL* 0.81% 1.06%
* THE DREYFUS CORPORATION HAS UNDERTAKEN, UNTIL APRIL 30, 2001, TO WAIVE RECEIPT
OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF
NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES,
INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $83 $259 $450 $1,102
SERVICE SHARES $108 $337 $585 $1,294
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Disciplined Stock Portfolio
[Page 13]
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 employs a "bottom-up" approach focusing primarily on low and
moderately priced stocks with market capitalizations of $1 billion or more at
the time of purchase. The portfolio manager uses fundamental analysis to create
a broadly diversified, value-tilted portfolio typically with a weighted average
P/E ratio less than that of the S&P 500, and a long-term projected earnings
growth greater than that of the S&P 500. The manager also considers balance
sheet and income statement items, such as return on equity and debt-to-capital
ratios, as well as projected dividend growth rates. The portfolio looks for
companies with strong positions in their industries that have the potential for
something positive to happen, including above-average earnings growth or
positive changes in company management or the industry.
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 14]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. 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 they
may never reach what the portfolio manager believes is their full market value
either because the market fails to recognize the companies' intrinsic worth, or
the portfolio manager misgauged that worth. They may also decline in price even
though they are already underpriced. While the portfolio's investments in value
stocks also 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.
Typically, a rise in rates will adversely affect bond prices and, accordingly,
the portfolio's share price.
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 periods, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio may invest in derivatives, such as options and futures contracts.
The portfolio also may invest in foreign currencies and engage in short-selling.
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.
At times, the portfolio may engage in short-term trading, which could produce
higher transaction costs and taxable distributions, lowering the portfolio's
after-tax 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.
Growth and Income Portfolio
[Page 15]
GROWTH AND INCOME PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares 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. Of
course, past performance is no guarantee of future results. As a new class, past
performance information is not available for Service shares as of the date of
this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
61.89 20.75 16.21 11.81 16.88
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +18.58%
WORST QUARTER: Q3 '98 -11.45%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
inception
1 Year 5 Years (5/2/94)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL SHARES 16.88% 24.31% 20.90%
S&P 500 21.03% 28.54% 25.65%*
WILSHIRE LARGE
COMPANY VALUE INDEX -7.11% 18.33% 15.54%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF EACH INDEX ON 4/30/94 IS USED AS THE
BEGINNING VALUE ON 5/2/94.
</TABLE>
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 16]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.04% 0.04%
--------------------------------------------------------------------------------
TOTAL* 0.79% 1.04%
* THE DREYFUS CORPORATION HAS UNDERTAKEN, UNTIL APRIL 30, 2001, TO WAIVE RECEIPT
OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF
NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES,
INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $81 $252 $439 $978
SERVICE SHARES $106 $331 $574 $1,271
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Growth and Income Portfolio
[Page 17]
International Equity Portfolio
GOAL/APPROACH
The portfolio seeks capital growth. To pursue this goal, the portfolio invests
primarily in the stocks of foreign companies. The portfolio expects to invest
primarily in the stocks of companies located in developed countries. Typically,
the portfolio invests in at least 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 rather than on macroeconomic factors. 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
FOREIGN COMPANY: a company organized under the laws of a foreign country or for
which the principal trading market is in a foreign country; or a company
organized in the U.S. with a majority of its assets or business outside the U.S
GROWTH COMPANY: a company of any capitalization whose earnings are expected to
grow faster than the overall market. Often, growth stocks have relatively high
price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more
volatile than value stocks.
[Page 18]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. The
value of a shareholder's investment in the portfolio will go up and down, which
means that shareholders could lose money.
The portfolio's performance will be influenced by political, social and economic
factors affecting investments in foreign companies. Special risks associated
with investments in foreign companies include exposure to currency fluctuations,
less liquidity, less developed or less efficient trading markets, a lack of
comprehensive company information, political instability and differing auditing
and legal standards. Each of these risks could increase the portfolio's
volatility. The portfolio may invest in companies located in emerging markets,
which tend to be more volatile than the markets of more mature economies, and
generally have less diverse and less mature economic structures and less stable
political systems, than those of developed countries.
Because the stock prices of growth companies are based in part on future
expectations, these stocks may fall sharply if investors believe the prospects
for a stock, industry or the economy in general are weak, even if earnings do
increase. In addition, growth stocks typically lack the dividend yield that
could cushion stock prices in market downturns.
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 periods, 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 derivatives, such as options
and futures contracts. The portfolio also may invest 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.
At times, the portfolio may engage in short-term trading, which could produce
higher transaction costs and taxable distributions, lowering the portfolio's
after-tax performance.
International Equity Portfolio
[Page 19]
INTERNATIONAL EQUITY PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the Morgan Stanley Capital International
Europe, Australasia, Far East (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. Of course, past
performance is no guarantee of future results. As a new class, past performance
information is not available for Service shares as of the date of this
prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
7.39 11.61 9.61 4.49 59.76
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '99 +41.20%
WORST QUARTER: Q3 '98 -20.29%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/99
Since
inception
1 Year 5 Years (5/2/94)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL SHARES 59.76% 17.01% 14.45%
MSCI EAFE((reg.tm))
INDEX 26.96% 12.83% 11.21%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/94 IS USED AS THE
BEGINNING VALUE ON 5/2/94.
</TABLE>
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]
EXPENSES
Investors using the portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.27% 0.27%
--------------------------------------------------------------------------------
TOTAL 1.02% 1.27%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $104 $325 $563 $1,248
SERVICE SHARES $129 $403 $697 $1,534
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
International Equity Portfolio
[Page 21]
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:
* VALUE, or how a stock is valued relative to its intrinsic worth based
on traditional value measures
* BUSINESS HEALTH, or overall efficiency and profit-
ability as measured by return on assets and return on equity
* 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 22]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. The
value of a shareholder's investment in the portfolio will go up and down, which
means that shareholders could lose money.
The portfolio's performance will be influenced by political, social and economic
factors affecting investments in foreign companies. Special risks associated
with investments in foreign companies include exposure to currency fluctuations,
less liquidity, less developed or less efficient trading markets, a lack of
comprehensive company information, political instability and differing auditing
and legal standards. Each of these risks could increase the portfolio's
volatility. The portfolio may invest in companies located in emerging markets,
which tend to be more volatile than the markets of more mature economies, and
generally have less diverse and less mature economic structures and less stable
political systems, than those of developed countries.
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 and
midsize companies carry additional risks because their earnings tend to be less
predictable (and some companies may be experiencing significant losses), 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 periods, 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 derivatives, such as options
and futures contracts. The portfolio also may invest 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.
International Value Portfolio
[Page 23]
INTERNATIONAL VALUE PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the Morgan Stanley Capital International
Europe, Australasia, Far East (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. Of course, past
performance is no guarantee of future results. As a new class, past performance
information is not available for Service shares as of the date of this
prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
8.71 8.74 27.82
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +15.33%
WORST QUARTER: Q3 '98 -16.49%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
Since
inception
1 Year (5/1/96)
--------------------------------------------------------------------------------
INITIAL SHARES 27.82% 12.93%
MSCI EAFE INDEX 26.96% 12.74%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/96 IS USED AS THE
BEGINNING VALUE ON 5/1/96.
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 24]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under
their VA contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 1.00% 1.00%
Rule 12b-1 fee none 0.25%
Other expenses 0.35% 0.35%
--------------------------------------------------------------------------------
TOTAL* 1.35% 1.60%
* THE DREYFUS CORPORATION HAS UNDERTAKEN, UNTIL APRIL 30, 2001, TO WAIVE RECEIPT
OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF
NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES,
INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.40%.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $137 $428 $739 $1,624
SERVICE SHARES $163 $505 $871 $1,900
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
International Value Portfolio
[Page 25]
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 portfolio's duration, the more it will react to interest
rate fluctuations.
BOND RATING: a ranking of a bond's quality, based on its ability to pay interest
and repay principal. Bonds are rated from a high of "AAA" (highly unlikely to
default) through a low of "D" (companies already in default).
[Page 26]
MAIN RISKS
The portfolio' s principal risks are discussed below. The value of a
shareholder' s investment in the portfolio will go up and down, which means that
shareholders could lose money.
* CREDIT RISK. Failure of an issuer to make
timely interest or principal payments, or a decline or perception of a
decline in the credit quality of a bond, can cause a bond's price to fall,
potentially lowering the portfolio's share price. High yield bonds involve
greater credit risk, including the risk of default, than investment grade
bonds and are considered speculative. They tend to be more volatile in price
and less liquid and are considered speculative. The prices of high yield
bonds can fall dramatically in response to bad news about the issuer or its
industry, or the economy in general.
* INTEREST RATE RISK. Prices of bonds tend to
move inversely with changes in interest rates. Typically, a rise in rates
will adversely affect bond prices and, accordingly, the portfolio's share
price. The longer the portfolio's maturity and effective duration, the more
its share price is likely to react to interest rates.
* MARKET RISK. The portfolio's overall risk level
will depend on the market sectors in which the portfolio is invested and the
current interest rate, liquidity and credit quality of such sectors.
* ILLIQUIDITY. When there is no active trading
market for specific securities, it can become more difficult to sell the
securities. In such a market, the value of such securities and the fund's
share price may fall dramatically.
* PREPAYMENT AND EXTENSION RISK. When interest
rates fall, the principal on mortgage-backed and certain asset-backed
securities may be prepaid. The loss of higher-yielding, underlying mortgages
and the reinvestment of proceeds at lower interest rates can reduce the
portfolio' s potential price gain in response to falling interest rates,
reduce the portfolio's yield, or cause the portfolio's share price to fall.
When interest rates rise, the portfolio's maturity may lengthen in response
to a drop in mortgage prepayments. This would increase the portfolio's
sensitivity to rising rates and its potential for price declines.
* FOREIGN RISK. The prices and yields of foreign
bonds can be affected by political and economic instability or changes in
currency exchange rates. The bonds of issuers located in emerging markets can
be more volatile and less liquid than those of issuers in more mature
economies.
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 periods, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio may invest in derivatives, such as options and futures contracts,
and mortgage-related and asset-backed securities. Derivatives can be illiquid
and their value can fall dramatically in response to rapid or unexpected changes
in their underlying instruments. A small investment in certain derivatives can
have a large impact on the portfolio's performance. The portfolio also can
invest in foreign currencies.
At times, the portfolio may engage in short-term trading, which could produce
higher transaction costs and taxable distributions, and lower the portfolio's
after-tax performance.
The portfolio may buy securities on a forward commitment basis. This investment
strategy may have a leveraging effect on the portfolio, thus potentially
increasing its overall volatility.
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.
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.
Limited Term High Income Portfolio
[Page 27]
LIMITED TERM HIGH INCOME PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares 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, and to a Customized Limited Term
High Yield Index*. Of course, past performance is no guarantee of future
results. As a new class, past performance information is not available for
Service shares as of the date of this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
0.29 -1.54
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '98 +3.90%
WORST QUARTER: Q3 '98 -5.46%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
Since
inception
1 Year (4/30/97)
--------------------------------------------------------------------------------
INITIAL SHARES -1.54% 3.01%
MERRILL LYNCH HIGH YIELD
MASTER II INDEX 2.51% 6.05%
CUSTOMIZED LIMITED TERM
HIGH YIELD INDEX* 5.23% 6.71%
*THIS INDEX IS COMPOSED OF FOUR SUB-INDEXES OF THE MERRILL LYNCH HIGH YIELD
MASTER II INDEX. THESE SUB-INDEXES, BLENDED AND MARKET WEIGHTED, ARE (I)
BB-RATED 1-3 YEARS, (II) B-RATED 1-3 YEARS, (III) BB-RATED 3-5 YEARS, AND (IV)
B-RATED 3-5 YEARS. UNLIKE THE CUSTOMIZED LIMITED TERM HIGH YIELD INDEX, WHICH IS
COMPOSED OF BONDS RATED NO LOWER THAN "B", THE PORTFOLIO CAN INVEST IN BONDS
WITH LOWER CREDIT RATINGS THAN "B" AND AS LOW AS "D".
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 28]
EXPENSES
Investors using the portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.65% 0.65%
Rule 12b-1 fee none 0.25%
Other expenses 0.19% 0.19%
--------------------------------------------------------------------------------
TOTAL* 0.84% 1.09%
* THE DREYFUS CORPORATION HAS UNDERTAKEN, UNTIL APRIL 30, 2001, TO WAIVE RECEIPT
OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF
NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES,
INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 0.90%.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $86 $268 $466 $1,037
SERVICE SHARES $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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Limited Term High Income Portfolio
[Page 29]
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:
* securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities
* certificates of deposit, time deposits,
bankers' acceptances and other short-term securities issued by U.S. or
foreign banks or their subsidiaries or branches
* repurchase agreements
* asset-backed securities
* domestic and dollar-denominated foreign
commercial paper, and other short-term corporate and bank obligations of U.S.
and foreign issuers
* 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:
* maintain an average dollar-weighted portfolio maturity of 90 days or
less
* buy individual securities that have remaining maturities of 13 months or
less
* invest only in high-quality dollar-denominated obligations
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.
[Page 30]
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:
* interest rates could rise sharply, causing the
value of the portfolio's securities, and share price, to drop
* any of the portfolio's holdings could have its
credit rating downgraded or could default
* 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
* 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 interes
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.
Money Market Portfolio
[Page 31]
MONEY MARKET PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the portfolio's performance from
year to year. The table shows average annual total return over time. Both tables
assume the reinvestment of dividends and distributions. Of course, past
performance is no guarantee of future results.
--------------------------------------------------------------------------------
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 4.78
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '91 +1.57%
WORST QUARTER: Q2 '93 +0.78%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/99
Since
inception
1 Year 5 Years (8/31/90)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.78% 5.17% 4.94%
For the portfolio's current yield, call toll-free:
1-800-645-6561.
</TABLE>
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]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under
their VA contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
ANNUAL PORTFOLIO OPERATING EXPENSES
AS A % OF AVERAGE DAILY NET ASSETS
Management fees 0.50%
Other expenses 0.08%
--------------------------------------------------------------------------------
TOTAL 0.58%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$59 $186 $324 $726
</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.
Money Market Portfolio
[Page 33]
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 corporate bonds, 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:
* high grade commercial paper of U.S. issuers
* certificates of deposit, time deposits and bankers' acceptances
* fixed-income securities rated lower than A (but not lower than B) or
the unrated equivalent as determined by Dreyfus
* 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.
CMO (COLLATERALIZED MORTGAGE OBLIGATION): a security that pools together
mortgages and separates them into short-, medium-, and long-term positions
(called tranches). Tranches pay different rates of interest depending on their
maturity and cash flow predictability.
BOND RATING: a ranking of a bond's quality, based on its ability to pay interest
and repay principal. Bonds are rated from a high of "AAA" (highly unlikely to
default) through a low of "D" (companies already in default).
[Page 34]
MAIN RISKS
The portfolio' s principal risks are discussed below. The value of a
shareholder' s investment in the portfolio will go up and down, which means that
shareholders could lose money.
* INTEREST RATE RISK. Prices of bonds tend to move inversely with changes
in interest rates. Typically, a rise in rates will adversely affect bond prices
and, accordingly, the portfolio' s share price. The longer the portfolio's
maturity and duration, the more its share price is likely to react to interest
rates.
* CREDIT RISK. Failure of an issuer to make timely interest or principal
payments, or a decline or perception of a decline in the credit quality of a
bond, can cause a bond's price to fall, potentially lowering the portfolio's
share price. High yield bonds involve greater credit risk, including the risk of
default, than investment grade bonds and are considered speculative. The prices
of high yield bonds can fall dramatically in response to bad news about the
issuer or its industry, or the economy in general.
* MARKET RISK. The portfolio' s overall risk level will depend on the
market sectors in which the portfolio is invested and the current interest rate,
liquidity and credit quality of such sectors.
* ILLIQUIDITY. When there is no active trading market for specific
securities, it can become more difficult to sell the securities. In such a
market, the value of such securities and the portfolio's share price may fall
dramatically.
* PREPAYMENT AND EXTENSION RISK. When interest rates fall, the principal
on mortgage-backed and certain asset-backed securities may be prepaid. The loss
of higher yielding underlying mortgages and the reinvestment of proceeds at
lower interest rates can reduce the portfolio's potential price gain in response
to falling interest rates, reduce the portfolio' s yield, or cause the
portfolio' s share price to fall. When interest rates rise, the portfolio's
maturity may lengthen in response to a drop in mortgage prepayments. This would
increase the portfolio's sensitivity to rising rates and its potential for price
declines.
* FOREIGN RISK. The prices and yields of foreign bonds can be affected by
political and economic instability or changes in currency exchange rates. The
bonds of issuers located in emerging markets can be more volatile and less
liquid than those of issuers in more mature economies.
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 periods, 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 may invest in derivatives, such as options and futures, and
mortgage-related and asset-backed securities. Derivatives can be illiquid and
their value can fall dramatically in response to rapid or unexpected changes in
their underlying instruments. A small investment in certain derivatives can have
a large impact on the portfolio's performance.
At times, the fund may engage in short-term trading, which could produce higher
transaction costs and taxable distributions, and lower the portfolio's after-tax
performance.
The portfolio may buy securities on a forward commitment basis and may enter
into reverse repurchase agreements. Those investment strategies may have a
leveraging effect on the portfolio, thus potentially increasing its overall
volatility.
Quality Bond Portfolio
[Page 35]
QUALITY BOND PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the Lehman Brothers Aggregate Bond
Index, an unmanaged index of corporate, U.S. government and agency debt
instruments, and mortgage-backed and asset-backed securities, and the Merrill
Lynch Domestic Master Index (Subindex D010) , an unmanaged index of U.S.
government, mortgage and corporate securities rated A or better. Of course past
performance is no guarantee of future results. As a new class, past performance
information is not available for Service shares as of the date of this
prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
14.12 12.08 15.33 -4.59 20.42 3.13 9.42 5.49 0.18
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q3 '92 +7.99%
WORST QUARTER: Q1 '94 -4.57%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/99
Since
inception
1 Year 5 Years (8/31/90)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL SHARES 0.18% 7.50% 8.10%
LEHMAN BROTHERS
AGGREGATE BOND INDEX* -0.82% 7.73% 7.94%
MERRILL LYNCH
DOMESTIC MASTER
INDEX (SUBINDEX D010) -0.96% 7.70% 7.96%
* LEHMAN BROTHERS AGGREGATE BOND INDEX IS THE PORTFOLIO'S PRIMARY INDEX BECAUSE
SUCH INDEX PROVIDES MORE FREQUENT STATISTICAL INFORMATION.
</TABLE>
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 36]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.65% 0.65%
Rule 12b-1 fee none 0.25%
Other expenses 0.09% 0.09%
--------------------------------------------------------------------------------
TOTAL 0.74% 0.99%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $76 $237 $411 $918
SERVICE SHARES $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 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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Quality Bond Portfolio
[Page 37]
Small Cap Portfolio
GOAL/APPROACH
The portfolio seeks to maximize capital appreciation. To pursue this goal, the
portfolio primarily invests in small-cap companies with total market values of
less than $1.5 billion at the time of purchase. The portfolio may continue to
hold the securities of companies as their market capitalizations grow and, thus,
at any given time, a substantial portion of the portfolio's holdings may have
market capitalizations in excess of $1.5 billion. The investments may include
common stocks, preferred stocks and convertible securities, including those
issued in initial public offerings.
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 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 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, or when the stock is fully valued by the market
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,
price-to-book and price-to-sales 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 38]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. The
value of a shareholder's investment in the portfolio will go up and down, which
means that shareholders could lose money.
Small companies carry additional risks because their earnings are less
predictable (and some companies may be experiencing significant losses), their
share prices more volatile and their securities less liquid than larger, more
established companies. Small companies may have limited product lines, markets,
or financial resources, or may depend on a limited management group. 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.
Securities of companies within specific sectors of the economy can perform
differently than the overall market. Because the portfolio may overweight
certain market sectors, the portfolio's performance may be more sensitive to
developments that affect those sectors emphasized by the portfolio.
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. 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 they
may never reach what the manager believes is their full market value, either
because the market fails to recognize the companies' intrinsic worth or the
manager misgauged that worth. They also may decline in price, even though in
theory they are already undervalued. 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.
Other potential risks
The portfolio may purchase securities of companies in initial public offerings
("IPOs"). The prices of securities purchased in IPOs can be very volatile. The
effect of IPOs on the portfolio's performance depends on a variety of factors,
including the number of IPOs the portfolio invests in, whether and to what
extent a security purchased in an IPO appreciates in value, and the asset base
of the portfolio. As a portfolio's asset base increases, IPOs often have a
diminished effect on such portfolio's performance.
At times, the fund will engage in short-term trading, which could produce higher
brokerage costs and taxable distributions and lower the fund's after-tax
performance accordingly.
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 periods, 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.
Small Cap Portfolio
[Page 39]
SMALL CAP PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the Russell 2000 Index, a widely
recognized, unmanaged index of smaller capitalization common stocks. Of course,
past performance is no guarantee of future results. As a new class, past
performance information is not available for Service shares as of the date of
this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
159.73 71.28 68.31 7.75 29.38 16.60 16.75 -3.44 23.15
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q3 '91 +32.09%
WORST QUARTER: Q3 '98 -23.45%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
inception
1 Year 5 Years (8/31/90)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL SHARES 23.15% 15.93% 35.65%
RUSSELL 2000 INDEX 21.26% 16.69% 16.57%
</TABLE>
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 40]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.03% 0.03%
--------------------------------------------------------------------------------
TOTAL 0.78% 1.03%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $80 $249 $433 $966
SERVICE SHARES $105 $328 $569 $1,259
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Small Cap Portfolio
[Page 41]
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 $500 million and $5 billion at the time of purchase. However, since the
portfolio can continue to hold its securities as their market capitalizations
grow, a substantial portion of the portfolio' s holdings can have market
capitalizations in excess of $5 billion at any given time. 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:
* VALUE, or how a stock is priced relative to its perceived intrinsic
worth
* GROWTH, in this case the sustainability or growth of earnings
* 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 42]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. 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 (and some companies may be experiencing significant losses),
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, even if earnings do increase. Growth stocks also typically
lack the dividend yield that could cushion stock prices in market downturns.
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 companies' intrinsic worth, or the portfolio manager misgauged
that worth. They also may decline in price even though in theory they are
already undervalued. 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 periods, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio, at times, may invest in derivatives, such as options and futures
contracts. 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.
Small Company Stock Portfolio
[Page 43]
SMALL COMPANY STOCK PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the Russell 2500 Index, a widely
recognized, unmanaged index of small-cap and mid-cap stock performance. Of
course, past performance is no guarantee of future results. As a new class, past
performance information is not available for Service shares as of the date of
this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
21.77 -5.97 10.60
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +16.44%
WORST QUARTER: Q3 '98 -21.84%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
Since
inception
1 Year (5/1/96)
--------------------------------------------------------------------------------
INITIAL SHARES 10.60% 9.11%
RUSSELL 2500 24.15% 14.91%*
* FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/96 IS USED AS THE
BEGINNING VALUE ON 5/1/96.
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 44]
EXPENSES
Investors using this portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.22% 0.22%
--------------------------------------------------------------------------------
TOTAL 0.97% 1.22%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $99 $309 $536 $1,190
SERVICE SHARES $124 $387 $670 $1,477
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Small Company Stock Portfolio
[Page 45]
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, including those purchased in initial public offerings. 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:
* new products or markets
* opportunities for greater market share
* more effective management
* positive changes in corporate structure or market perception
* 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 46]
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price depending on the performance of the companies that
issued them, general market and economic conditions and investor confidence. 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 companies' intrinsic worth or the portfolio manager misgauged that
worth. They also may decline in price, even though in theory they are already
undervalued. 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).
Securities of companies within specific sectors of the economy can perform
differently than the overall market. Because the portfolio may overweight
certain market sectors, the portfolio's performance may be more sensitive to
developments that affect those sectors emphasized by the portfolio.
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 (and some companies may be experiencing significant losses), 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 periods, the portfolio may not achieve its investment
objective.
Other potential risks
The portfolio may purchase securities of companies in initial public offerings
("IPOs"). The prices of securities purchased in IPOs can be very volatile. The
effect of IPOs on the portfolio's performance depends on a variety of factors,
including the number of IPOs the portfolio invests in, whether and to what
extent a security purchased in an IPO appreciates in value, and the asset base
of the portfolio. As a portfolio's asset base increases, IPOs often have a
diminished effect on such portfolio's performance.
The portfolio may invest in derivatives, such as options and futures contracts.
The portfolio also may invest in foreign currencies and engage in short-selling.
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 transaction costs and taxable distributions, and lower the portfolio's
after-tax performance.
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 47]
SPECIAL VALUE PORTFOLIO (CONTINUED)
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in the
portfolio. The bar chart shows the changes in the performance of the portfolio's
Initial shares from year to year. The table compares the average annual total
return of the Initial shares to that of the Russell 1000 Value Index, an
unmanaged index that measures the performance of those Russell 1000 companies
with lower price-to-book ratios and lower forecasted growth values; 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. Of course, past performance is no guarantee of future results. As a new
class, past performance information is not available for Service shares as of
the date of this prospectus.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
INITIAL SHARES
10.60 1.07 28.69 -1.56 -0.26 -3.62 23.14 15.69 7.27
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q4 '98 +17.23%
WORST QUARTER: Q3 '99 -10.11%
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
inception
1 Year 5 Years (8/31/90)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL SHARES 7.27% 8.00% 8.37%
RUSSELL 1000
VALUE INDEX* 7.35% 23.07% 18.23%
S&P 500 21.03% 28.54% 20.49%
WILSHIRE MIDCAP
VALUE INDEX -8.53% 13.58% 15.59%
*THE RUSSELL 1000 VALUE INDEX IS THE PORTFOLIO'S PRIMARY INDEX BECAUSE OF THE
PORTFOLIO'S AND THE INDEX'S LARGE-CAP VALUE ORIENTATION.
</TABLE>
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 48]
EXPENSES
Investors using the portfolio to fund a VA contract or VLI policy will 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 under their VA
contracts or VLI policies.
--------------------------------------------------------------------------------
Fee table
Initial Service
shares shares
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.75% 0.75%
Rule 12b-1 fee none 0.25%
Other expenses 0.11% 0.11%
--------------------------------------------------------------------------------
TOTAL* 0.86% 1.11%
* THE DREYFUS CORPORATION HAS UNDERTAKEN, UNTIL APRIL 30, 2001, TO WAIVE RECEIPT
OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF
NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES,
INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INITIAL SHARES $88 $274 $477 $1,061
SERVICE SHARES $113 $353 $612 $1,352
</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.
RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing
Service shares, for advertising and marketing related to Service shares, and for
providing account service and maintenance for holders of Service shares. The
distributor may pay all or part of this fee to participating insurance companies
and the broker-dealer acting as principal underwriter for their variable
insurance products. Because this fee is paid on an ongoing basis out of
portfolio assets attributable to Service shares, over time it will increase the
cost of an investment in Service shares which could be more than that payable
with respect to other types of sales charges.
OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as
transfer agency, custody, professional and registration fees. Other expenses for
Service shares are based on other expenses for Initial shares for the past
fiscal year.
Special Value Portfolio
[Page 49]
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 $154 billion in over 190
mutual fund portfolios. Dreyfus is the primary mutual fund business of Mellon
Financial Corporation, a global financial services company with approximately
$2.8 trillion of assets under management, administration or custody, including
approximately $540 billion under management. Mellon provides wealth management,
global investment services and a comprehensive array of banking services for
individuals, businesses and institutions. Mellon is headquartered in Pittsburgh,
Pennsylvania.
APPRECIATION PORTFOLIO -- During the past fiscal year, the portfolio paid an
aggregate investment advisory fee at the annual rate of 0.75% 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Dreyfus asset management philosophy is based on the belief that discipline
and consistency are important to investment success. For each fund, Dreyfus
seeks to establish clear guidelines for portfolio management and to be
systematic in making decisions. This approach is designed to provide each fund
with a distinct, stable identity.
[Page 50]
Portfolio managers
The primary portfolio managers of the portfolios are as follows:
APPRECIATION PORTFOLIO -- Fayez Sarofim, president and chairman of Fayez Sarofim
& Co., has been the portfolio's primary portfolio manager since its inception in
April 1993. Fayez Sarofim & Co., Two Houston Center, Suite 2907, Houston, Texas
77010, serves as the portfolio' s sub-investment adviser. Sarofim managed
approximately $48.5 billion in discretionary separate accounts and provided
investment advisory services for five other investment companies having
aggregate assets of approximately $3.4 billion as of December 31, 1999.
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.
DISCIPLINED STOCK PORTFOLIO -- Bert Mullins. Mr. Mullins has managed the
portfolio since its 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.
GROWTH AND INCOME PORTFOLIO -- Douglas D. Ramos, CFA. Mr. Ramos 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.
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.
INTERNATIONAL VALUE PORTFOLIO -- Sandor Cseh. Mr. Cseh 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., and was a securities analyst with several
banks.
LIMITED TERM HIGH INCOME PORTFOLIO -- Roger King. Mr. King 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.
Management
[Page 51]
MANAGEMENT (CONTINUED)
QUALITY BOND PORTFOLIO -- The Dreyfus taxable fixed income team, which consists
of sector specialists, collectively makes investment decisions for the
portfolio. The team' s specialists focus on, and monitor conditions in, the
different sectors of the fixed income market. Once different factors have been
analyzed, the sector specialists then decide on allocation weights for the
portfolio and recommend securities for investment.
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.
SMALL COMPANY STOCK PORTFOLIO -- Anthony Galise and James Wadsworth. Mr. Galise
has been a portfolio manager of the portfolio since its inception. He has been a
portfolio manager with Dreyfus since April 1996 and also is a portfolio manager
at Laurel Capital Advisors, an affiliate of Dreyfus. Mr. Galise is a vice
president and portfolio manager at Mellon. He joined Mellon in 1993 with over 20
years of equity investment experience. Mr. Wadsworth has managed the portfolio
since its inception. In addition to being a portfolio manager with Dreyfus, Mr.
Wadsworth 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.
SPECIAL VALUE PORTFOLIO -- Timothy M. Ghriskey. Mr. Ghriskey 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.
The fund, Dreyfus, Fayez Sarofim (with respect to Appreciation Portfolio only)
and Dreyfus Service Corporation (the fund's distributor) each has adopted a code
of ethics that permits its personnel, subject to such code, to invest in
securities, including securities that may be purchased or held by the fund. The
Dreyfus code of ethics restricts the personal securities transactions of its
employees, and requires portfolio managers and other investment personnel to
comply with the code' s preclearance and disclosure procedures. Its primary
purpose is to ensure that personal trading by Dreyfus or Sarofim employees does
not disadvantage any Dreyfus-managed fund.
[Page 52]
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following tables describe the performance of each portfolio's Initial shares
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 (other than
those for the six-month period ended June 30, 2000) 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. Since Service shares are new, financial highlights information is not
available for that class as of the date of this prospectus.
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
APPRECIATION PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period 39.87 36.11 27.91 21.98 17.71 13.44
Investment operations: Investment income -- net .12(1) .25(1) .20 .22 .23 .23
Net realized and unrealized
gain (loss) on investments .99 3.88 8.21 5.95 4.30 4.27
Total from investment operations 1.11 4.13 8.41 6.17 4.53 4.50
Distributions: Dividends from investment
income -- net (.00)(2) (.22) (.20) (.22) (.23) (.23)
Dividends from net realized gain
on investments -- (.01) (.01) (.02) (.03) --
Dividends in excess of net realized
gain on investments -- (.14) -- -- -- --
Total distributions -- (.37) (.21) (.24) (.26) (.23)
Net asset value, end of period 40.98 39.87 36.11 27.91 21.98 17.71
Total return (%) 2.79(3) 11.46 30.22 28.05 25.56 33.52
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of operating expenses to average net assets (%) .38(3) .78 .80 .80 .84 .85
Ratio of interest expense and loan commitment fees
to average net assets (%) .00(3,4) .00(4) .01 -- -- --
Ratio of net investment income to average net assets (%) .29(3) .64 .84 1.08 1.46 2.08
Decrease reflected in above expense ratios due to
actions by Dreyfus (%) -- -- -- -- -- .02
Portfolio turnover rate (%) 1.26(3) 3.87 1.34 1.69 2.47 2.81
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,024,408 1,027,797 673,835 247,011 103,745 46,930
(1) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(2) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(3) NOT ANNUALIZED.
(4) AMOUNT REPRESENTS LESS THAN .01%.
Financial Highlights
[Page 53]
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
BALANCED PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997(1)
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 16.02 15.94 14.04 12.50
Investment operations: Investment income -- net .27(2) .47(2) .43 .25
Net realized and unrealized gain (loss) on investments (.40) .80 2.67 2.06
Total from investment operations (.13) 1.27 3.10 2.31
Distributions: Dividends from investment income -- net (.26) (.46) (.43) (.25)
Dividends from net realized gain on investments (.09) (.73) (.77) (.52)
Total distributions (.35) (1.19) (1.20) (.77)
Net asset value, end of period 15.54 16.02 15.94 14.04
Total return (%) (.81)(3) 8.13 22.34 18.48(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .42(3) .86 .87 .67(3)
Ratio of net investment income to average net assets (%) 1.72(3) 2.94 2.98 1.91(3)
Portfolio turnover rate (%) 47.17(3) 98.61 111.75 45.78(3)
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 94,102 90,130 59,841 41,144
(1) FROM MAY 1, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997.
(2) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(3) NOT ANNUALIZED.
[Page 54]
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
DISCIPLINED STOCK PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 26.92 22.95 18.30 14.79 12.50
Investment operations: Investment income -- net .06(2) .11(2) .08 .08 .07
Net realized and unrealized gain (loss)
on investments .02 4.12 4.80 4.53 2.29
Total from investment operations .08 4.23 4.88 4.61 2.36
Distributions: Dividends from investment income -- net (.00)(3) (.10) (.09) (.08) (.07)
Dividends from net realized gain
on investments -- (.16) (.14) (1.02) --
Total distributions -- (.26) (.23) (1.10) (.07)
Net asset value, end of period 27.00 26.92 22.95 18.30 14.79
Total return (%) .31(4) 18.45 26.72 31.51 18.86(4,5)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .40(4) .81 .88 1.02 .80(4)
Ratio of net investment income to average net assets (%) .23(4) .45 .53 .68 .72(4)
Decrease reflected in above expense ratios due to
actions by Dreyfus (%) -- -- -- -- .16(4)
Portfolio turnover rate (%) 29.05(4) 48.95 56.28 79.74 30.62(4)
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 227,868 214,296 140,897 53,317 17,722
(1) FROM APRIL 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996.
(2) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(3) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(4) NOT ANNUALIZED.
(5) CALCULATED BASED ON NET ASSET VALUE ON THE CLOSE OF BUSINESS ON MAY 1, 1996
(COMMENCEMENT OF INITIAL OFFERING) TO DECEMBER 31, 1996.
[Page 55]
Financial Highlights
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
GROWTH AND INCOME PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 25.48 22.63 20.78 19.55 18.33 11.98
Investment operations: Investment income -- net .07(1) .16(1) .21 .28 .36 .28
Net realized and unrealized
gain (loss) on investments (.29) 3.64 2.23 2.79 3.43 7.07
Total from investment operations (.22) 3.80 2.44 3.07 3.79 7.35
Distributions: Dividends from investment
income -- net (.07) (.15) (.20) (.28) (.35) (.27)
Dividends from net realized gain
on investments (.01) (.70) (.39) (1.56) (2.22) (.73)
Dividends in excess of net realized
gain on investments -- (.10) -- -- -- --
Total distributions (.08) (.95) (.59) (1.84) (2.57) (1.00)
Net asset value, end of period 25.18(2) 25.48 22.63 20.78 19.55 18.33
Total return (%) (.89)(2) 16.88 11.81 16.21 20.75 61.89
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .39(2) .79 .78 .80 .83 .92
Ratio of net investment income to average net assets (%) .27(2) .67 1.00 1.37 1.96 2.21
Decrease reflected in above expense ratios due to
actions by Dreyfus (%) -- -- -- -- -- .03
Portfolio turnover rate (%) 29.78(2) 96.26 126.18 180.73 237.44 255.42
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 461,601 461,392 430,702 369,832 225,935 71,161
(1) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(2) NOT ANNUALIZED.
[Page 56]
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
INTERNATIONAL EQUITY PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 22.34 14.50 14.02 13.76 12.82 12.02
Investment operations: Investment income -- net .05(1) .06(1) .15 .05 .10 .15
Net realized and unrealized
gain (loss) on investments (.37) 8.58 .48 1.27 1.16 .74
Total from investment operations (.32) 8.64 .63 1.32 1.26 .89
Distributions: Dividends from investment
income -- net -- (.06) (.15) (.07) (.09) (.08)
Dividends in excess of investment
income -- net -- -- -- -- -- (.01)
Dividends from net realized
gain on investments (1.85) (.74) -- (.34) (.39) --
Dividends in excess of net realized
gain on investments -- -- -- (.65) (.06) --
Total distributions (1.85) (.80) (.15) (1.06) (.54) (.09)
Capital contribution from an affiliate of the adviser -- -- -- -- .22 --
Net asset value, end of period 20.17 22.34 14.50 14.02 13.76 12.82
Total return (%) (1.94)(3) 59.76 4.49 9.61 11.61(2) 7.39
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .49(3) 1.02 .99 1.06 1.28 1.59
Ratio of net investment income to average net assets (%) .23(3) .38 1.04 .38 .92 1.13
Decrease reflected in above expense ratios due to
actions by Dreyfus (%) -- -- -- -- -- .45
Portfolio turnover rate (%) 115.98(3) 261.64 204.50 165.75 181.13 70.22
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 74,619 69,208 45,811 39,388 24,355 7,672
(1) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(2) 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%.
(3) NOT ANNUALIZED.
[Page 57]
Financial Highlights
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
INTERNATIONAL VALUE PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 15.67 13.45 13.45 12.80 12.50
Investment operations: Investment income -- net .11(2) .13(2) .14 .07 .08
Net realized and unrealized gain (loss)
on investments (.34) 3.52 1.01 1.03 .34
Total from investment operations (.23) 3.65 1.15 1.10 .42
Distributions: Dividends from investment income -- net (.01) (.13) (.12) (.07) (.08)
Dividends from net realized gain
on investments (.33) (1.30) (1.03) (.30) (.04)
Dividends in excess of net realized
gain on investments -- -- -- (.08) --
Total distributions (.34) (1.43) (1.15) (.45) (.12)
Net asset value, end of period 15.10 15.67 13.45 13.45 12.80
Total return (%) (1.45)(3) 27.82 8.74 8.71 3.41(3,4)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .69(3) 1.35 1.29 1.42 1.01(3)
Ratio of net investment income to average net assets (%) .76(3) .90 .94 .74 .76(3)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- -- -- .34(3)
Portfolio turnover rate (%) 20.41(3) 41.90 42.14 25.67 24.48(3)
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 26,374 27,386 20,680 19,016 8,027
(1) FROM APRIL 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996.
(2) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(3) NOT ANNUALIZED.
(4) CALCULATED BASED ON NET ASSET VALUE ON THE CLOSE OF BUSINESS ON MAY 1, 1996 (COMMENCEMENT OF
INITIAL OFFERING) TO DECEMBER 31, 1996.
[Page 58]
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
LIMITED TERM HIGH INCOME PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997(1)
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 10.44 11.80 12.88 12.50
Investment operations: Investment income -- net .59 1.21 1.14 .78
Net realized and unrealized gain (loss) on investments (.88) (1.38) (1.08) .41
Total from investment operations (.29) (.17) .06 1.19
Distributions: Dividends from investment income -- net (.62) (1.19) (1.14) (.77)
Dividends from net realized gain on investments -- -- -- (.04)
Total distributions (.62) (1.19) (1.14) (.81)
Net asset value, end of period 9.53 10.44 11.80 12.88
Total return (%) (5.66)(2) (1.54) .29 14.27(2)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of operating expenses to average net assets (%) .76(2) .73 .77 .89(2)
Ratio of interest expense to average net assets (%) .32(2) .11 .32 .20(2)
Ratio of net investment income to average net assets (%) 10.86(2) 10.53 10.10 10.27(2)
Decrease reflected in above expense ratios due to actions by Dreyfus (%) -- -- -- .05(2)
Portfolio turnover rate (%) 8.32(3) 52.08 50.18 37.98(3)
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 50,910 66,357 83,418 31,454
(1) FROM APRIL 30, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997.
(2) ANNUALIZED.
(3) NOT ANNUALIZED.
[Page 59]
Financial Highlights
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
MONEY MARKET PORTFOLIO 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 1.00 1.00 1.00 1.00 1.00 1.00
Investment operations: Investment income -- net .028 .047 .050 .050 .050 .055
Distributions: Dividends from investment
income -- net (.028) (.047) (.050) (.050) (.050) (.055)
Net asset value, end of period 1.00 1.00 1.00 1.00 1.00 1.00
Total return (%) 5.64(1) 4.78 5.12 5.19 5.10 5.66
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .59(1) .58 .56 .61 .62 .62
Ratio of net investment income to average net assets (%) 5.56(1) 4.69 5.01 5.08 4.96 5.51
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- -- -- -- .03
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 95,848 102,727 89,025 64,628 56,186 45,249
(1) ANNUALIZED.
[Page 60]
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
QUALITY BOND PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 10.89 11.50 11.73 11.50 11.81 10.53
Investment operations: Investment income -- net .33 .62 .67 .73 .66 .68
Net realized and unrealized
gain (loss) on investments .05 (.61) (.04) .32 (.31) 1.42
Total from investment operations .38 .01 .63 1.05 .35 2.10
Distributions: Dividends from investment
income -- net (.28) (.62) (.68) (.73) (.66) (.69)
Dividends from net realized gain
on investments -- -- (.18) (.09) -- (.13)
Total distributions (.28) (.62) (.86) (.82) (.66) (.82)
Net asset value, end of period 10.99 10.89 11.50 11.73 11.50 11.81
Total return (%) 7.06(1) .18 5.49 9.42 3.13 20.42
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of operating expenses to average net assets (%) .71(1) .74 73 .75 .79 .81
Ratio of interest expense to average net assets (%) -- -- -- .02 -- --
Ratio of net investment income to average net assets (%) 6.01(1) 5.66 5.74 6.27 5.86 6.13
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- -- -- -- .04
Portfolio turnover rate (%) 253.92(2) 521.51 244.95 374.76 258.36 263.53
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 131,064 135,822 121,461 88,292 60,936 37,447
(1) ANNUALIZED.
(2) NOT ANNUALIZED.
Financial Highlights
[Page 61]
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
SMALL CAP PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 66.34 53.91 57.14 52.08 46.13 36.52
Investment operations: Investment income -- net .05(1) .04(1) .04 .07 .10 .16
Net realized and unrealized
gain (loss) on investments 9.71 12.43 (2.21) 8.49 7.53 10.54
Total from investment operations 9.76 12.47 (2.17) 8.56 7.63 10.70
Distributions: Dividends from investment
income -- net (.05) (.04) (.00)(2) (.07) (.10) (.18)
Dividends from net realized
gain on investments -- -- (1.06) (3.43) (1.51) (.91)
Dividends in excess of net realized
gain on investments -- -- -- -- (.07) --
Total distributions (.05) (.04) (1.06) (3.50) (1.68) (1.09)
Net asset value, end of period 76.05 66.34 53.91 57.14 52.08 46.13
Total return (%) 14.71(3) 23.15 (3.44) 16.75 16.60 29.38
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .39(3) .78 .77 .78 .79 .83
Ratio of net investment income to average net assets (%) .07(3) .07 .07 .12 .24 .54
Portfolio turnover rate (%) 21.32(3) 40.60 75.04 79.00 89.10 99.02
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,471,189 1,295,698 1,246,804 1,274,292 960,365 543,281
(1) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(2) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(3) NOT ANNUALIZED.
[Page 62]
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
SMALL COMPANY STOCK PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 16.69 15.09 16.13 13.52 12.50
Investment operations: Investment income -- net .00(2,3) .04(2) .04 .05 .05
Net realized and unrealized
gain (loss) on investments .86 1.56 (.99) 2.89 1.03
Total from investment operations .86 1.60 (.95) 2.94 1.08
Distributions: Dividends from investment
income -- net (.03) -- (.04) (.04) (.05)
Dividends from net realized
gain on investments -- -- (.05) (.29) (.01)
Total distributions (.03) -- (.09) (.33) (.06)
Net asset value, end of period 17.52 16.69 15.09 16.13 13.52
Total return (%) 5.17(4) 10.60 (5.97) 21.77 8.73(4,5)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .47(4) .97 .98 1.12 .75(4)
Ratio of net investment income to average net assets (%) .03(4) .24 .26 .53 .39(4)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- -- -- .19(4)
Portfolio turnover rate (%) 52.28(4) 47.01 45.09 34.48 35.68(4)
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 33,597 32,530 34,857 28,154 8,148
(1) FROM APRIL 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996.
(2) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(3) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(4) NOT ANNUALIZED.
(5) CALCULATED BASED ON NET ASSET VALUE ON THE CLOSE OF BUSINESS ON MAY 1, 1996
(COMMENCEMENT OF INITIAL OFFERING) TO DECEMBER 31, 1996.
[Page 63]
Financial Highlights
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
SPECIAL VALUE PORTFOLIO -- INITIAL SHARES 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 14.64 14.93 12.99 10.60 11.70 12.37
Investment operations: Investment income -- net .10(1) .11(1) .10 .06 .63 .51
Net realized and unrealized
gain (loss) on investments (.68) .95 1.94 2.40 (1.05) (.54)
Total from investment operations (.58) 1.06 2.04 2.46 (.42) (.03)
Distributions: Dividends from investment
income -- net (.02) (.10) (.10) (.01) (.56) (.64)
Dividends in excess of investment
income -- net -- -- -- (.00)(2) (.06) --
Dividends from net realized
gain on investments (.06) (1.25) -- (.06) -- --
Paid-in capital -- -- -- -- (.06) --
Total distributions (.08) (1.35) (.10) (.07) (.68) (.64)
Net asset value, end of period 13.98 14.64 14.93 12.99 10.60 11.70
Total return (%) (4.05)(3) 7.27 15.69 23.14 (3.62) (.26)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .45(3) .86 .83 .99 .93 .94
Ratio of dividends on securities sold short
to average net assets (%) -- -- -- .02 -- --
Ratio of net investment income to average net assets (%) .73(3) .70 .67 .38 4.12 3.56
Portfolio turnover rate (%) 63.35(3) 171.41 252.24 188.57 124.19 53.88
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 48,132 57,099 63,264 52,981 21,101 25,272
(1) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(2) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(3) NOT ANNUALIZED.
</TABLE>
[Page 64]
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 net asset value per share (NAV) of the
relevant class, 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/ share
class) , 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.
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 and SPECIAL
VALUE 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 65]
DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO -- declares dividends from net investment income daily
and pays dividends monthly.
QUALITY BOND PORTFOLIO -- 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.
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.
EACH SHARE CLASS WILL GENERATE a different dividend because each has different
expenses. Distributions will be reinvested in the relevant portfolio unless the
participating insurance company instructs otherwise.
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.
EXCHANGE PRIVILEGE
EACH PORTFOLIO OTHER THAN MONEY MARKET PORTFOLIO -- Shareholders can exchange
shares of a class for shares of the same class of any other fund/portfolio
managed by Dreyfus that is offered only to separate accounts established by
insurance companies to fund VA contracts and VLI policies, or for shares of any
such fund/portfolio offered without a separate class designation or which makes
available only one class, subject to the terms and conditions relating to
exchanges of the applicable insurance company prospectus. Owners of VA contracts
or VLI policies should refer to the applicable insurance company prospectus for
more information on exchanging portfolio shares.
MONEY MARKET PORTFOLIO -- Shareholders of the Money Market Portfolio can
exchange portfolio shares for shares of any other fund/portfolio managed by
Dreyfus offered only to separate accounts established by insurance companies to
fund VA contracts and VLI policies, subject to the terms and conditions relating
to exchanges of the applicable insurance company prospectus. Owners of VA
contracts or VLI policies should refer to the applicable insurance company
prospectus for more information on exchanging portfolio shares.
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 NAV.
[Page 66]
NOTES
[Page]
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(s) 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 certain fund documents can be viewed
online or downloaded from: http://www.sec.gov
You can also obtain copies, after paying a duplicating fee, by visiting the
SEC's Public Reference Room in Washington, DC (for information, call
1-202-942-8090) or by E-mail request to [email protected], or by writing to the
SEC's Public Reference Section, Washington, DC 20549-0102.
(c) 2000 Dreyfus Service Corporation
-----------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND
APPRECIATION PORTFOLIO
BALANCED 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
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 2000
FOR INITIAL SHARES AND SERVICE SHARES
------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Appreciation, Balanced, Disciplined Stock, Growth and Income, International
Equity, International Value, Limited Term High Income, Money Market, Quality
Bond, Small Cap, Small Company Stock and Special Value Portfolios, each dated
December 31, 2000 (each, a "Portfolio," and collectively, the "Portfolios") of
Dreyfus Variable Investment Fund (the "Fund"), dated December 31, 2000, as each
may be revised from time to time. To obtain a copy of the relevant Portfolio's
Prospectus, Annual Report or Semi-Annual Report, please write to the Fund at 144
Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call 1-800-554-4611
or 516-338-3300.
Portfolio shares are offered only to variable annuity and variable life
insurance separate accounts established by insurance companies ("Participating
Insurance Companies") to fund variable annuity contracts "VA contracts" and
variable life insurance policies ("VLI policies" and together with VA contracts
the ("Policies"). VA contracts and VLI Policies are described in the separate
prospectuses issued by the Participating Insurance Companies.
Each Portfolio (except the Money Market Portfolio) currently offers two
classes of shares: Initial shares and Service shares. VA contract holders and
VLI policy holders should consult the applicable prospectus of the separate
account of the Participating Insurance Company to determine which class of
Portfolio shares may be purchased by the separate account.
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-41
How to Buy Shares.........................................................B-48
Distribution Plan (Service Shares Only)...................................B-49
How to Redeem Shares......................................................B-50
Exchange Privilege........................................................B-51
Determination of Net Asset Value..........................................B-51
Dividends, Distributions and Taxes........................................B-53
Portfolio Transactions....................................................B-56
Yield And Performance Information.........................................B-61
Information About the Fund and Portfolios.................................B-66
Counsel and Independent Auditors..........................................B-67
Appendix..................................................................B-68
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 Appreciation,
Balanced, Disciplined Stock, International Value, Limited Term High Income,
Money Market, Quality Bond, Small Cap, Small Company Stock and Special Value
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 nor hold more than 10% of the
outstanding voting securities of any single issue. 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 Appreciation Portfolio. Sarofim
provides day-to-day management of the Fund's investments, subject to the
supervision of the Manager.
Dreyfus Service Corporation ("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. 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. A security
backed by the U.S. Treasury or the full faith and credit of the United States is
guaranteed only as to timely payment of interest and principal when held to
maturity. Neither the market value of such securities nor the Portfolio's share
price is guaranteed.
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 segregate 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.
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. 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.
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. (Appreciation, Balanced, 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 provide for a stable stream of income with
generally higher yields than common stocks, but 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 generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
Warrants. (Appreciation, Balanced, 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 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 is, in the opinion
of bond counsel to the issuer, 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 full 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. Each of these Portfolios 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. See "Investment Considerations and Risks"
below.
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 Inflation-Protection Securities. (Quality Bond Portfolio)
U.S. Treasury securities include Treasury Inflation-Protection Securities
("TIPS"), which are 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. (All 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 and Quality Bond 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 each of these Portfolios will bear ratings comparable to
non-stripped corporate obligations that may be purchased by such Portfolio.
These Portfolios also may invest in debt securities which do not pay interest
for a specified period of time and then pay interest at a series of different
rates, such as step-up coupon bonds. In addition to the risks associated with
the credit rating of the issuers, these securities are subject to the volatility
risk of zero coupon bonds for the period when no interest is paid. 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. 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" and "Dividends, Distributions
and Taxes" from page B-2.
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. (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. A short position 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.
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. Money borrowed will be subject to interest costs. While such
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 (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 (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 segregate custodial 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. Reverse repurchase
agreements may be preferable to a regular sale and later repurchase of the
securities because it avoids certain market risks and transaction costs. Such
transactions, however, may increase the risk of potential fluctuations in the
market value of the Portfolio's assets. In addition, interest costs on the cash
received may exceed the return on the securities purchased.
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.
A Portfolio will not sell securities 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 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 Portfolio and 10% with respect to
the 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 and Special Value 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, a Portfolio may not
invest in such contracts and options for other purposes if the sum of the amount
of initial margin deposits and premiums paid for unexpired options with respect
to such contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the 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 variation margin system 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 and Special Value Portfolios) Each of these Portfolios may
enter into futures contracts in U.S. domestic markets or on exchanges located
outside the United States. 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 currency
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 and options with respect thereto 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
securities 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 and Special Value 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.
Successful use by a Portfolio of futures contracts 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, the Portfolio may incur losses.
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 and Special Value 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 permissible liquid assets. A put option written by a
Portfolio is covered when, among other things, the Portfolio segregates
permissible liquid assets having a value equal to or greater than the exercise
price of the option 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 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.
Certain Investment Considerations and Risks
Equity Securities. (Balanced, Appreciation, Disciplined Stock, Growth and
Income, International Equity, International Value, Small Cap, Small Company
Stock and Special Value Portfolios) Equity securities, including common stock,
preferred stock, convertible securities and warrants, fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
such fluctuations can be pronounced. Changes in the value of the Portfolio's
investments will result in changes in the value of its shares and thus the
Portfolio's total return to investors.
The Small Cap Portfolio typically invests at least 65% of its assets in
the securities of small capitalization companies to maximize capital
appreciation. The stock prices of these companies may be subject to more abrupt
or erratic market movements than larger, more established companies because they
typically are traded in lower volume and the issuers typically are more subject
to changes in earnings and prospects.
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 Investor Service, Inc. ("Moody's") and BBB or lower by Standard
& Poors Ratings Services ("S&P") and Fitch IBCA, Duff & Phelps, ("Fitch" and
together with S&P and Moody's, 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. Although certain
mortgage-related securities are guaranteed by a third party (such as a U.S.
Government agency or instrumentality with respect to government-related
mortgage-backed securities) or otherwise similarly secured, the market value of
the security, which may fluctuate, is not secured. If a mortgage-related
security is purchased at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting from
changes in interest rates or prepayments on the underlying mortgage collateral.
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. (All 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.
To maintain its tax status as a regulated investment company and to avoid
impositions of excise taxes, however, any 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 or
Fitch, 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 or Fitch
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. An
economic recession could adversely affect the ability of the issuers of lower
rated securities to repay principal and pay interest thereon, which would
increase the incidence of default for such securities. It is likely that any
economic recession also would disrupt severely the market for such securities
and have an adverse impact on their value.
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 Portfolio, 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, 1999, calculated monthly on a dollar weighted basis, was
as follows:
Limited Term High Income Portfolio
Moody's or S&P or Fitch Percentage
Aaa AAA 3.0%
Baa BBB 1.3%
Ba BB 18.9%
B B 57.4%
Caa CCC 7.4%
Ca CC 1.0%
NR NR 2.9%*
----
91.9%**
=====
* These unrated securities have been determined by the Manager to be of
comparable quality to securities rated as follows: BBB (.2%), B (.7%) and CCC
(2.0%).
** The Portfolio also owns preferred stocks rated BB (1.4%), and CCC (1.3%), and
convertible bonds rated A (.8%) and B (5.3%).
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.
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, including depositary receipts, foreign government
obligations and securities of supranational entities, 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.
Additionally, the risk foreign securities includes a lack of comprehensive
company information.
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 Small Cap 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 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. (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 and International Value Portfolios and to
be less than 300% for the Growth and Income and Quality Bond Portfolios. Because
the 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 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 Portfolio) 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.
Appreciation, Money Market, Quality Bond, Small Cap and Special Value
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 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 Appreciation and Special
Value 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 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 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 Appreciation,
Small Cap and Special Value 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
Appreciation Portfolio
Dreyfus Service Corporation....... Distributor
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,
Appreciation, Disciplined Stock,
Growth and Income, Limited Term
High Income, Quality Bond, Small
Cap and Small Company Stock
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 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, Century Business Services, Inc., a provider of various
outsourcing functions for small and medium sized companies, The Newark
Group, a privately held company providing a national network of paper
recovery facilities, paperboard mills and paperboard converting plants,
and QuikCAT.com, Inc., a private company engaged in the development of
high speed movement, routing, storage and encryption of data across cable,
wireless, and all other modes of data transport. 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 the Distributor. From August 1994 to December 31, 1994,
he was a director of Mellon Financial Corporation. He is 57 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 60 years
old and his address is 466 Lexington Avenue, New York, New York 10017.
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 69 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 74
years old and her address is c/o Corporate Property Investors, 305 East
47th Street, New York, New York 10017.
DR. PAUL A. MARKS, Board Member. President-Emeritus of Memorial
Sloan-Kettering Cancer Center. From 1980 to 1999, Dr. Marks was
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; and a director of Tularik, Inc., a biotechnology 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 and a director of Genos, Inc., a
genomics company from 1996 to 1999. He is 73 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 Academy for
Liberal Education, an accrediting agency for colleges and universities
certified by the U.S. Department of Education. Dr. Peretz is a Co-Chairman
of TheStreet.com, a financial daily on the Web. He is a director of the
Electronic Newstand, a distributor of magazines on the Web and Digital
Learning Group, LLC, an online publisher of college textbooks. He was a
director of Bank Leumi Trust Company of New York and Carmel Container
Corporation from 1988 to 1991, and LeukoSite Inc., a biopharmaceutical
company, from 1993 to 1999. He is 60 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 67 years old and his
address is 126 East 56th Street, Suite 12 North, New York, New York
10022-3613.
The Fund has a standing nominating committee comprised of its Board
members who are not "interested persons" of the Fund, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Fund for election to the
Fund's Board.
Currently, the Fund pays its Board members its allocated portion of an
annual retainer of $40,000 and a fee of $6,000 per meeting ($500 per telephone
meeting) attended for the Fund and eight other funds (comprised of 26
portfolios) in the Dreyfus Family of Funds, and reimburses them for their
expenses. The Chairman of the Board receives an additional 25% of such
compensation. Emeritus Board members, if any, 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 Portfolio's of such funds is set forth in
parenthesis next to each Board member's total compensation)* during the year
ended December 31, 1999, pursuant to the compensation schedule then in effect,
were as follows:
Total Compensation From
Aggregate Compensation Fund and Fund Complex
Name of Board Member From Fund** Paid to Board Member
Joseph S. DiMartino $5,000 $642,177 (189)
David P. Feldman $4,000 $118,875 (56)
John M. Fraser, Jr.+ $4,000 $ 78,000 (41)
James F. Henry $3,750 $ 53,750 (28)
Rosalind Gersten Jacobs $4,000 $ 92,250 (44)
Irving Kristol++ $3,750 $ 50,250 (28)
Dr. Paul A. Marks $4,000 $ 53,750 (28)
Dr. Martin Peretz $4,000 $ 54,500 (28)
Bert W. Wasserman $3,750 $ 53,750 (28)
------------------------------------------------------------------------------
* Represents the number of separate portfolios comprising the investment
companies in the Fund complex, including the Portfolios, for which the
Board member serves.
** Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $7,633 for all Board members as a group.
+ Emeritus Board member since May 24, 2000.
++ Emeritus Board member since January 1, 2000.
Officers of the Fund
STEPHEN E. CANTER, President. President, Chief Operating Officer, Chief
Investment Officer of the Manager, and an officer of 93 other investment
companies (comprised of 183 portfolios) managed by the Manager. Mr. Canter
also is a Director or an Executive Committee Member of the other
investment management subsidiaries of Mellon Financial Corporation, each
of which is an affiliate of the Manager. He is 55 years old.
MARK N. JACOBS, Vice President. Vice President, Secretary, and General
Counsel of the Manager, and an officer of 106 other investment
companies (comprised of 196 portfolios) managed by the Manager. He is
54 years old.
JOSEPH CONNOLLY, Vice President and Treasurer. Director - Mutual Fund Accounting
of the Manager, and an officer 106 of other investment companies
(comprised of 196 portfolios) managed by the Manager. He is 43 years old.
MICHAEL A. ROSENBERG, Secretary. Associate General Counsel of the Manager,
and an officer of 93 other investment companies (comprised of 183
portfolios) managed by the Manager. He is 40 years old.
STEVEN F. NEWMAN, Assistant Secretary. Associate General Counsel and
Assistant Secretary of the Manager, and an officer of 106 other
investment companies (comprised of 196 portfolios) managed by the
Manager. He is 51 years old.
ROBERT R. MULLERY, Assistant Secretary. Assistant General Counsel of the
Manager, and an officer of (9) other investment companies (comprised of
25 portfolios) managed by the Manager. He is 48 years old.
MICHAEL CONDON, Assistant Treasurer. Senior Treasury Manager of the Manager, and
an officer of 33 other investment companies (comprised of 74 portfolios)
managed by the Manager. He is 38 years old.
WILLIAM MCDOWELL, Assistant Treasurer. Senior Accounting Manager - Taxable Fixed
Income of the Manager, and an officer of 30 other investment companies
(comprised of 72 portfolios) managed by the Manager. He is 41 years old.
JAMES WINDELS, Assistant Treasurer. Senior Treasury Manager of the Manager, and
an officer of 25 other investment companies (comprised of 86 portfolios)
managed by the Manager. He is 42 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 December 15, 2000.
The following shareholders are known by the Fund to own of record 5% or
more of the indicated Portfolio's shares outstanding on December 15, 2000:
Shareholder Portfolio Percentage of Shares
Transamerica Occidental Appreciation 30.94%
Life Insurance Company Balanced 78.86%
Separate Account VA-2L Disciplined Stock 58.62%
Accounting Department Growth and Income 46.90%
P.O. Box 33849 International Equity 82.47%
Charlotte, NC 28233-3849 International Value 73.84%
Limited Term High Income 84.41%
Money Market 62.34%
Quality Bond 50.96%
Small Cap 26.07%
Small Company Stock 65.38%
Special Value 69.02%
First Transamerica Life Appreciation 9.58%
Insurance Company Balanced 21.14%
Separate Account VA-2LNY Disciplined Stock 25.67%
Accounting Department Growth and Income 13.32%
P.O. Box 33849 International Equity 15.78%
Charlotte, NC 28233-3849 International Value 15.91%
Limited Term High Income 15.59%
Money Market 21.70%
Quality Bond 15.24%
Small Cap 17.92%
Small Company Stock 30.88%
Special Value 10.40%
Travelers Fund U Small Cap 8.86%
5MS Bob Iagrossi
One Tower Square
Hartford, CT 06183-6100
Nationwide Life Insurance Appreciation 17.66%
NWVA-9
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Appreciation 14.11%
NWVA-II
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
PFL Life Variable Annuity Disciplined Stock 7.33%
Acct A
4333 Edgewood Rd NE
Cedar Rapids, IA 52499-0001
Nationwide Life Insurance Growth and Income 19.90%
Nationwide NWVA-II
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Conseco Variable Insurance Co. International Value 9.00%
Attn: Carla Higgs Dept
Separate A
11825 N Pennsylvania St.
Carmel, NY
Annuity Investors Life Insurance Money Market 8.34%
Attn: Lynn Laswell
P.O. Box 5423
Cincinnati, OH 45201-5423
American General Life Quality Bond 14.63%
Insurance Co.
Signature II A
C/O Variable Product
A/C 5-36
P.O. Box 1591
Houston, TX 77251-1591
AIG Life Insurance Co. Small Company Stock 5.24%
Separate Account I
Variable Accounting
Attn: Ed Bacon
P.O. Box 8718
Wilmington, DE 19899-8718
Nationwide Multi-Flex (NEA) Small Cap 13.70%
CO 48 C/O IPO
P.O. Box 182029
Columbus, OH 43218-2029
Lincoln National Life Small Cap 11.93%
Insurance Mutual Fund
Accounting - 4C-01
1300 S. Clinton Street
Fort Wayne, IN 46802-3518
Travelers Insurance CO Small Cap 10.92%
Attn: Shareholder Accounting
6M-One Tower Square
Hartford ,CT 06183-0002
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 Financial Corporation
("Mellon"). Mellon is a global multibank financial 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 largest bank holding companies in the United States
based on total assets.
The Manager provides advisory services pursuant to an Investment Advisory
Agreement (the "Agreement") between the Fund and the Manager. 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. 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; J. David Officer, Vice Chairman
and a director; Ronald P. O'Hanley III, Vice Chairman; William T. Sandalls,
Jr., Executive Vice President; Stephen R. Byers, Senior Vice President;
Patrice M. Kozlowski, Senior Vice President-Corporate Communications; Mark N.
Jacobs, Vice President, General Counsel and Secretary; Diane P. Durnin, Vice
President - Product Development; Mary Beth Leibig, Vice President-Human
Resources; Ray Van Cott, Vice President-Information Systems; Theodore A.
Schachar, Vice President-Tax; Wendy Strutt, 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 G. McGuinn, Richard W. Sabo and Richard F. Syron, directors.
With respect to the Appreciation Portfolio, the Fund has entered into a
Sub-Investment Advisory Agreement (the "Sarofim Sub-Advisory Agreement") with
Fayez Sarofim & Co. 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 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, William K. McGee, Jr., Charles E. Sheedy and Ralph B. Thomas, Senior
Vice Presidents; 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 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
Appreciation Fayez S. Sarofim
Charles E. Sheedy
Christopher B. Sarofim
Catherine P. Crain
Balanced Laurie Carroll
Ron Gala
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
John Koeber
Gerald E. Thunelius
Money Market Bernard W. Kiernan, Jr.
Patricia A. Larkin
Thomas Riordan
Small Cap Hilary R. Woods
Paul Kandel
Small Company Stock Anthony J. Galise
James Wadsworth
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.
Mellon Bank, N.A., the Manager's parent, and its affiliates may have
deposit, loan and commercial banking or other relationships with the issuers of
securities purchased by a Portfolio. The Manager has informed the Fund that in
making its investment decisions it does not obtain or use material inside
information that Mellon Bank, N.A. or its affiliates may possess with respect to
such issuers.
The Fund, Dreyfus, Sarofim and Dreyfus Service Corporation (the fund's
distributor) each have adopted a code of ethics. The Manager's Code of Ethics
subjects its employees' personal securities transactions to various restrictions
to ensure that such trading does not disadvantage any fund advised by the
Manager. In that regard, portfolio managers and other investment personnel of
the Manager must preclear and report their personal securities transactions and
holdings, which are reviewed for compliance with the Code of Ethics, and are
also subject to the oversight of Mellon's Investment Ethics Committee. Portfolio
managers and other investment personnel who comply with the preclearance and
disclosure procedures of the Code of Ethics 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:
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. In
addition, each Portfolio's Service shares are subject to an annual distribution
fee. See "Distribution Plan (Service Shares Only)." 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, 1999 as a percentage of the
relevant Portfolio's average daily net assets also is set forth below:
Effective
Annual Rate
Annual Rate of
of Investment Investment
Advisory Advisory
Name of Portfolio Fee Payable Fee Paid
Appreciation Portfolio .43%
0 to $150 million of average daily net assets .55%
$150 million to $300 million of average daily .50%
net assets
$300 million or more of average daily net assets .375%
Balanced Portfolio .75% .75%
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%
The fees paid by the Fund to the Manager with respect to each Portfolio
for the fiscal years ended December 31, 1997, 1998 and 1999 (to the extent the
Portfolio was operational) were as follows:
FEES PAID FOR
YEAR ENDED
DECEMBER 31, 1997
Name of Portfolio Advisory Fee Payable Reduction in Fee Net Fee Paid
Appreciation $ 944,004 $ 0 $ 944,004
Balanced* 164,386 0 164,386
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
--
* From May 1, 1997 (commencement of operations) through December 31, 1997.
** From April 30, 1997 (commencement of operations) through December 31,
1997.
FEES PAID FOR
YEAR ENDED
DECEMBER 31, 1998
Name of Portfolio Advisory Fee Payable Reduction in Fee Net Fee Paid
----------------- -------------------- ---------------- ------------
Appreciation $2,057,782 $ 0 $2,057,782
Balanced 413,719 0 413,719
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
FEES PAID FOR
YEAR ENDED
DECEMBER 31, 1999
Name of Portfolio Advisory Fee Payable Reduction in Fee Net Fee Paid
----------------- -------------------- ---------------- ------------
Appreciation $3,788,264 $ 0 $3,788,264
Balanced 574,439 0 574,439
Disciplined Stock 1,329,297 0 1,329,297
Growth and Income 3,244,091 0 3,244,091
International Equity 360,746 0 360,746
International Value 218,142 0 218,142
Limited Term High Income 516,571 0 516,571
Money Market 512,034 0 512,034
Quality Bond 839,257 0 839,257
Small Cap 8,915,955 0 8,915,955
Small Company Stock 240,369 0 240,369
Special Value 455,777 0 455,777
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 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, 1999, as a percentage of the Appreciation Portfolio's
average daily net assets also is set forth below:
Effective Annual
Annual Rate of Rate
Sub-Investment of Sub-Investment
Advisory Fee Advisory
Appreciation Portfolio Payable Fee Paid in 1999
---------------------- ------- -----------------
.32%
0 to $150 million of average daily net assets .20%
$150 million to $300 million of average daily .25%
net assets
$300 million or more of average daily net .375%
assets
The fees payable by the Fund to Sarofim with respect to the Appreciation
Portfolio for fiscal years ended December 31, 1997, 1998 and 1999 amounted to
$365,954, $1,171,093 and $2,888,264, respectively.
The Manager (and, with respect to the 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 Appreciation Portfolio,
Sarofim), or the Manager (and, with respect to the 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
Appreciation Portfolio) is not subject to reduction as the value of a
Portfolio's assets increases.
The Distributor. The Distributor, a wholly-owned subsidiary of the Manager
located at 200 Park Avenue, New York, New York 10166, serves as the Fund's
distributor on a best efforts basis pursuant to an agreement with the Company
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, 100 Church 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 Appreciation, Balanced, Disciplined Stock, Growth and Income, Limited Term
High Income, Quality Bond, Small Cap and Small Company Stock 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
Each Portfolio (except the Money Market Portfolio) offers two classes of
shares--Initial shares and Service shares. The classes are identical, except as
to the expenses borne by each class, which may affect performance.
See "Distribution Plan (Service Shares Only)."
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 classes of the Portfolios and 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.
Portfolio 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 of each class
of shares is computed by dividing the value of a Portfolio's net assets
represented by such Class (i.e., the value of its assets less liabilities) by
the total number of such Portfolio's shares outstanding. The Limited Term High
Income and Quality Bond Portfolios' investments are valued each business day by
an independent pricing service approved by the Fund's Board and are valued at
fair value as determined by the pricing service. The pricing service's
procedures are reviewed under the general supervision of the Fund's Board. The
Money Market Portfolio uses the amortized cost method of valuing its
investments. The Appreciation, Balanced, 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."
DISTRIBUTION PLAN
(SERVICE SHARES ONLY)
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission
under the 1940 Act provides, among other things, that an investment company may
bear expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Board has adopted such a Plan (the "Plan"),
with respect to Service shares of each Portfolio (except the Money Market
Portfolio), pursuant to which the Distributor at an annual rate of 0.25% of the
value of the average daily net assets of the Portfolio's Service shares for
distributing Service shares, for advertising and marketing related to Service
shares and for servicing and/or maintaining accounts of Service class
shareholders. Under the Plan, the Distributor may make payments to Participating
Insurance Companies and the brokers and dealers acting as principal underwriter
for their variable insurance products. The fees payable under the Plan are
payable without regard to actual expenses incurred. The Fund's Board believes
that there is a reasonable likelihood that the Fund's Plan will benefit each
Portfolio for which the Plan was adopted and the holders of its Service shares.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Board
for its review. In addition, the Plan provides that it may not be amended to
increase materially the costs which holders of Service shares may bear pursuant
to the Plan without the approval of the holders of such shares and that other
material amendments of the Plan must be approved by the Board, and by the Board
members who are not "interested persons" (as defined in the 1940 Act) of the
Fund and have no direct or indirect financial interest in the operation of the
Plan or in any agreements entered into in connection with the Plan, by vote cast
in person or at a meeting called for the purpose of considering such amendment.
The Plan is subject to annual approval by such vote of the Board members cast in
person at a meeting called for the purpose of voting on the Plan. As to each
Portfolio, the Plan may be terminated at any time by vote of a majority of the
Board members who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Plan or in any agreements entered
into in connection with the Plan or by vote of the holders of a majority of such
Portfolio's Service shares.
No payments were made pursuant to the Plan for the fiscal year ended
December 31, 1999 for any Portfolio since neither Service shares nor the Plan
were in existence during that time period.
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 prospectus 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. 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 sells 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.
EXCHANGE PRIVILEGE
Investors can exchange shares of a class for shares of the same class of
any other fund/portfolio managed by the Manager that is offered only to separate
accounts established by Participating Insurance Companies to fund Policies, or
for shares of any such fund/portfolio offered without a separate class
designation, subject to the terms and conditions set forth in the applicable
Participating Insurance Companies prospectus. Policy owners should refer to the
applicable Participating Insurance Company prospectus for more information on
exchanging Portfolio shares. The Fund reserves the right to modify or
discontinue its exchange program at any time upon 60 days' notice to the
Participating Insurance Companies.
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 and Quality Bond 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.
Appreciation, Balanced, 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), and fees pursuant to the Distribution Plan, with
respect to each Portfolio's (except the Money Market Portfolio) Service shares,
are accrued daily and taken into account for the purpose of determining the net
asset value of the relevant Portfolios' 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, 1999.
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, a portion of the gain or loss
realized from the disposition of foreign currency and non-U.S. dollar
denominated securities (including debt instruments and certain financial futures
and options) may be treated as ordinary income or loss. In addition, all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds will be treated as ordinary income. Finally, all or a
portion of the gain realized from engaging in "conversion transactions"
(generally including certain transactions designed to convert ordinary income
into capital gain) may be treated as ordinary income.
Gain or loss, if any, realized by a Portfolio from certain financial
futures and options transactions ("Section 1256 contracts") 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 Section 1256 contracts as well
as from closing transactions. In addition, any Section 1256 contracts 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 certain futures or
forward contracts or options transactions with respect to actively traded
personal property may be considered, for tax purposes, to constitute
"straddles." To the extent the straddle rules apply to positions established by
a Portfolio, losses realized by the Portfolio may be deferred to the extent of
unrealized gain in the offsetting position. In addition short-term capital loss
on straddle positions may be recharacterized as long-term capital loss, and
long-term capital gains on straddle positions may be treated as short-term
capital gains or ordinary income. Certain of the straddle positions held by a
Portfolio may constitute "mixed straddles". The Portfolio may make one or more
elections with respect to the treatment of "mixed straddles," resulting in
different tax consequences. In certain circumstances, the provisions governing
the tax treatment of straddles override or modify certain of the provisions
discussed above.
If a Portfolio 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, the Portfolio 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.
If the Portfolio enters into certain derivatives (including forward
contracts, long positions under notional principal contracts, and related puts
and calls) with respect to equity interests in certain pass-thru entities
(including other regulated investment companies, real estate investment trusts,
partnerships, real estate mortgage investment conduits and certain trusts and
foreign corporations), long-term capital gain with respect to the derivative may
be recharacterized as ordinary income to the extent it exceeds the long-term
capital gain that would have been realized had the interest in the pass-thru
entity been held directly by the Portfolio during the term of the derivative
contract. Any gain recharacterized as ordinary income will be treated as
accruing at a constant rate over the term of the derivative contract and may be
subject to an interest charge. The Treasury has authority to issue regulations
expanding the application of these rules to derivatives with respect to debt
instruments and/or stock in corporations that are not pass-thru entities.
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 Policy owners,
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 Policies. For
information concerning the Federal income tax consequences to such holders, see
the prospectuses for such Policies.
PORTFOLIO TRANSACTIONS
General (All Funds). The Manager (and, if applicable, the Portfolio's
sub-investment adviser) assumes general supervision over the placement of
securities buy and sell orders on behalf of the funds it manages. In choosing
brokers, the Manager (and, if applicable, the Portfolio's sub-investment
adviser) evaluates the ability of the broker to execute the particular
transaction (taking into account the market for the stock and the size of the
order) at the best combination of price and quality of execution. In selecting
brokers no factor is necessarily determinative, and seeking to obtain best
execution for all trades takes precedence over all other considerations. Brokers
are selected after a review of all relevant criteria, including: the actual
price to be paid for the shares; the broker's knowledge of the market for the
particular stock; the broker's reliability; the broker's integrity or ability to
maintain confidentiality; the broker's research capability; commission rates;
the broker's ability to ensure that the shares will be delivered on settlement
date; the broker's ability to handle specific orders of various size and
complexity; the broker's financial condition; the broker's willingness to commit
capital; and the sale by the broker of funds managed by the Manager. At various
times and for various reasons, certain factors will be more important than
others in determining which broker to use.
The Manager (and, if applicable, the Portfolio's sub-investment adviser)
has adopted written trade allocation procedures for its equity and fixed income
trading desks. Under the procedures, portfolio managers and the trading desks
ordinarily will seek to aggregate (or "bunch") orders that are placed or
received concurrently for more than one account. In some cases, this policy may
adversely affect the price paid or received by an account, or the size of the
position obtained or liquidated. Generally, bunched trades will be allocated
among the participating accounts based on the number of shares designated for
each account on the trade order. If securities available are insufficient to
satisfy the requirements of the participating accounts, available securities
generally are allocated among accounts pro rata, based on order sizes. In the
case of debt securities, the pro rata allocation is based on the accounts' asset
sizes. In allocating trades made on a combined basis, the trading desks seeks to
achieve the same net unit price of the securities for each participating
account. Because a pro rata allocation may not always adequately accommodate all
facts and circumstances, the trade allocation procedures allow the allocation of
securities on a basis other than pro rata. For example, adjustments may be made
to eliminate de minimis positions, to give priority to accounts with specialized
investment policies and objectives or to consider the unique characteristics of
certain accounts (e.g., available cash, industry or issuer concentration,
duration, credit exposure).
Certain funds are managed by dual employees of Dreyfus and an affiliated
entity in the Mellon organization. Funds managed by dual employees use the
research and trading facilities, and are subject to the internal policies and
procedures, of the affiliated entities. While the policies and procedures of the
affiliated entities are different than those of the Manager, they are based on
the same principles, and are substantially similar.
The Manager may deem it appropriate for one of its accounts to sell a
security while another of its accounts is purchasing the same security. Under
such circumstances, the Manager may arrange to have the purchase and sale
transaction effected directly between its accounts ("cross transactions"). Cross
transactions will be effected pursuant to procedures adopted under Rule 17a-7
under the 1940 Act.
The Company 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
("DISC") and Dreyfus Brokerage Services, Inc. ("DBS"). The Company'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.
Money Market and Quality Bond 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, 1997, 1998 and 1999. There were no concessions on principal transactions for
the fiscal years ended December 31, 1997 and 1998 and 1999.
In connection with its portfolio securities transactions for the fiscal
years ended December 31, 1997, 1998 and 1999 (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>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name of Portfolio Brokerage Commissions Paid Concessions on Principal Transactions
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
Balanced $36,932(1) $ 46,422 $ 51,888 $ 5,005 $ 810 $ 0
Appreciation 106,432 245,599 266,551(2) 9,391 20,193 79,724
Disciplined Stock 71,669(3) 168,290(4) 199,781(5) 0 0 0
Growth and Income 72,388 1,065,967 851,094(6) 928,323 452,048 161,915
International Equity 27,207 489,171 547,510 78,064 17,496 0
International Value 47,303 47,733 49,648 0 0 0
Small Cap 1,722,729 2,002,330 407,162(7) 3,192,427 1,685,130 410,882
Small Company Stock 39,015 53,298 42,309 0 0 0
Special Value 308,466 359,805 226,756(8) 56,309 85,449 58,874
</TABLE>
------------------------------------------------------------------------------
(1) From May 1, 1997 (commencement of operations) through December 31, 1997.
(2) $29,725 was paid to Dreyfus Brokerage Services, a wholly-owned subsidiary
of Mellon Financial Corporation. This amount represented approximately 11%
of the aggregate brokerage commissions paid by the Portfolio for
transactions involving approximately 15% 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 Financial 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) $51,195 was paid to Dreyfus Investment Services Corporation, a subsidiary
of Mellon Financial 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.
(5) $16,255 was paid to Dreyfus Investment Services Corporation, a subsidiary
of Mellon Financial Corporation. This amount represented approximately 41%
of the aggregate brokerage commissions paid by the Portfolio for
transactions involving approximately 15% of the aggregate dollar value of
transactions for which the Portfolio paid brokerage commissions.
(6) $17,900 was paid to Dreyfus Brokerage Services, a wholly-owned subsidiary
of Mellon Financial Corporation. This amount represented approximately 2%
of the aggregate brokerage commissions paid by the Portfolio for
transactions involving approximately 4% of the aggregate dollar value of
transactions for which the Portfolio paid brokerage commissions.
(7) $13,000 was paid to Dreyfus Brokerage Services, a wholly-owned subsidiary
of Mellon Financial Corporation. This amount represented approximately 1%
of the aggregate brokerage commissions paid by the Portfolio for
transactions involving approximately 2% of the aggregate dollar value of
transactions for which the Portfolio paid brokerage commissions.
(8) $5,433 was paid to Dreyfus Brokerage Services, a wholly-owned subsidiary
of Mellon Financial Corporation. This amount represented approximately 2%
of the aggregate brokerage commissions paid by the Portfolio for
transactions involving approximately 5% of the aggregate dollar value of
transactions for which the Portfolio paid brokerage commissions.
IPO Allocations (All Funds). Under the Manager's special trade allocation
procedures applicable to domestic and foreign initial and secondary public
offerings and Rule 144A transactions (collectively herein "IPOs"), all portfolio
managers seeking to participate in an IPO must use reasonable efforts to
indicate their interest in the IPO, by account and in writing, to the Equity
Trading Desk at least 24 hours prior to the pricing of a deal. Except upon prior
written authorization from the Director of Investments or his designee, an
indication of interest submitted on behalf of any account must not exceed an
amount based on the account's approximate median position size.
Portfolio managers may specify by account the minimum number of shares
deemed to be an adequate allocation. Portfolio managers may not decline any
allocation in excess of the minimum number of shares specified on the ground
that too few shares are available, and will not receive an allocation of fewer
than the minimum number of shares specified. If a portfolio manager does not
specify a minimum number of shares deemed to be an adequate allocation, a
"default minimum" equal to ten percent of the requested number of shares is
assumed. De minimis adjustments may result in larger accounts participating in
IPOs to a lesser extent than smaller accounts.
Based on the indications of interest received by the Equity Trading Desk,
the Chief Investment Officer's designee prepares an IPO Allocation Worksheet
indicating an appropriate order size for each account, taking into consideration
(i) the number of shares requested for each account; (ii) the relative size of
each account; (iii) each account's investment objectives, style and portfolio
composition, and (iv) any other factors that may lawfully be considered in
allocating IPO shares among accounts.
If there are insufficient securities to satisfy all orders as reflected on
the IPO Allocation Worksheet, the Manager's allocation generally will be
distributed among participating accounts pro rata on the basis of each account's
order. Allocations may deviate from a strict pro rata allocation if the Chief
Investment Officer or his designee determines that it is fair and equitable to
allocate on other than a pro rata basis.
Funds managed by dual employees of Dreyfus and an affiliated entity are
subject to the IPO procedures of the affiliated entities. While the IPO policies
and procedures may differ from those of the Manager, they are based on the same
principles and are substantially similar.
Soft Dollars (All Funds). Subject to the policy of seeking the best combination
of price and execution, a Fund may execute transactions with brokerage firms
that provide, along with brokerage services, research services and products, as
defined in Section 28(e) of the Securities Exchange Act of 1934. Section 28(e)
provides a "safe harbor" to investment managers who use commission dollars of
their advised accounts to obtain investment research and brokerage services and
products. These arrangements are often called soft dollar arrangements. Research
and brokerage services and products that provide lawful and appropriate
assistance to the manager in performing investment decision-making
responsibilities fall within the safe harbor.
The services and products provided under these arrangements permit the
Manager to supplement its own research and analysis activities, and provide it
with information from individuals and research staffs of many securities firms.
Some of the research products or services received by the Manager may have
both a research function and a non-research administrative function (a "mixed
use"). If the Manager determines that any research product or service has a
mixed use, the Manager will allocate in good faith the cost of such service or
product accordingly. The portion of the product or service that the Manager
determines will assist it in the investment decision-making process may be paid
for in soft dollars. The non-research portion is paid for by the Manager in hard
dollars. Any such allocation may create a conflict of interest for the Manager.
Certain funds are managed by dual employees of Dreyfus and an affiliated
entity in the Mellon organization. The affiliated entity effects trades for
funds managed by these dual employees. Because those funds may benefit from the
research products and services the affiliated entity receives from brokers,
commissions generated by those funds may be used to help pay for research
products and services used by the affiliated entity.
The Manager generally considers the amount and nature of research,
execution and other services provided by brokerage firms, as well as the extent
to which such services are relied on, and attempts to allocate a portion of the
brokerage business of its clients on the basis of that consideration. Neither
the research services nor the amount of brokerage given to a particular
brokerage firm are made pursuant to any agreement or commitment with any of the
selected firms that would bind the Manager to compensate the selected brokerage
firm for research provided. The Manager endeavors to direct sufficient
commissions to broker/dealers that have provided it with research to ensure
continued receipt of research the Manager believes is useful. Actual brokerage
commissions received by a broker/dealer may be more or less than the suggested
allocations.
The Manager may receive a benefit from the research services and products
that is not passed on to a Fund in the form of a direct monetary benefit.
Further, research services and products may be useful to the Manager in
providing investment advice to any of the Funds or clients it advises. Likewise,
information made available to the Manager from brokerage firms effecting
securities transactions for a Fund may be utilized on behalf of another Fund or
client. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular Fund or client and the indirect benefits
received by that Fund or client.
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:
Name of Portfolio Transaction Amount Commissions and
Concessions
Appreciation $49,275,709 $42,696
Growth and Income 92,908,528 95,955
International Equity 468,682 335
Small Cap 11,859,435 38,468
Special Value 26,334,473 28,524
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 June 30, 2000
for the following Portfolio was:
Name of Portfolio Yield Effective Yield
Money Market 6.08% 6.26%
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 June 30, 2000 for the
Initial shares of the following Portfolios was:
Name of Portfolio Current Yield
Limited Term High Income 13.14%
Quality Bond 6.17%
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 the Initial
Shares of the following Portfolios was:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of 1-year period ended 5-year period ended 9.84-year period ended
-------
Portfolio/Class June 30, 2000 June 30, 2000 June 30, 2000
--------------- ------------- ------------- -------------
Quality Bond 5.24% 5.63% 8.06%
-Initial shares ---- ---- ----
Small Cap - 25.73% 15.90% 35.48%
Initial shares ----- ----- -----
Special Value - -5.29% 7.28% 7.49%
Initial shares ----- ---- ----
Name of 1-year period ended 5-year period ended 7.24-year period ended
-------
Portfolio/Class June 30, 2000 June 30, 2000 June 30, 2000
--------------- ------------- ------------- -------------
Appreciation - 6.56% 22.29% 18.99%
Initial shares ---- ----- -----
Name of 1-year period ended 5-year period ended 6.17-year period ended
-------
Portfolio/Class June 30, 2000 June 30, 2000 June 30, 2000
--------------- ------------- ------------- -------------
Growth and Income 4.28% 16.92% 18.88%
- Initial shares ---- ----- -----
International 46.18% 16.22% 12.84%
Equity - Initial ----- ----- -----
shares
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name of 1-year period 4.17-year period
-------
Portfolio/Class ended June 30, 2000 ended June 30, 2000
--------------- ------------------- -------------------
Disciplined Stock - Initial 7.56% 22.78%
shares ---- -----
International Value - Initial 14.86% 10.91%
shares ----- -----
Small Company Stock - Initial 13.53% 9.28%
shares ----- ----
Name of 1-year period 3.17-year period
-------
Portfolio/Class ended June 30, 2000 ended June 30, 2000
--------------- ------------------- -------------------
Balanced - Initial shares 2.84% 14.93%
---- -----
Limited Term High Income - -4.51% 1.61%
Initial Shares ----- ----
</TABLE>
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 Initial shares of the following Portfolios for the
period indicated was:
<TABLE>
<CAPTION>
<S> <C> <C>
Name of
Portfolio/Class August 31, 1990 (commencement of investment operations) to June 30, 2000
------------------------------------------------------------------------
Quality Bond - Initial 114.25%
shares ------
Small Cap - Initial 1,878.84%
shares --------
Special Value - Initial 103.32%
shares --------
Name of
Portfolio/Class April 5, 1993 (commencement of investment operations) to June 30, 2000
----------------------------------------------------------------------
Appreciation - Initial 252.22%
shares ------
Name of Portfolio/Class
May 2, 1994 (commencement of investment operations) to June 30, 2000
--------------------------------------------------------------------
Growth and Income - 190.68%
Initial shares ------
International Equity - 110.75%
Initial shares ------
Name of
Portfolio/Class May 1, 1996 (commencement of investment operations) to June 30, 2000
--------------------------------------------------------------------
Disciplined Stock - 135.35%
Initial shares ------
International Value - 53.98%
Initial shares -----
Small Company Stock - 44.80%
Initial shares -----
Name of
Portfolio/Class April 30, 1997 (commencement of investment operations) to June 30, 2000
-----------------------------------------------------------------------
Limited Term High 5.19%
Income - Initial ----
shares
Name of
Portfolio/Class May 1, 1997 (commencement of investment operations) to June 30, 2000
--------------------------------------------------------------------
Balanced - Initial 55.46%
shares -----
</TABLE>
No performance data has been provided for Service shares of the Fund since
they were not offered as of June 30, 2000.
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. 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 Report(TM), Money Magazine, Bank
Rate Monitor(TM), Standard & Poor's 500 Composite Stock Price Index, Standard &
Poor's MidCap 400 Index, Russell 2500(TM) 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 a Portfolio may refer to or
discuss then-current or past economic or financial conditions, developments
and/or events. Advertising materials for a Portfolio also may refer to
Morningstar ratings and related analyses supporting the rating, and may refer
to, or include, commentary by the Portfolio'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. From time to time, advertising materials may
refer to studies performed by The Dreyfus Corporation or its affiliates, such as
"The Dreyfus Tax Informed Investing Study" or "The Dreyfus Gender Investment
Comparison Study (1996-1997)" or such other studies.
INFORMATION ABOUT THE FUND AND PORTFOLIOS
Each Portfolio's shares (except Money Market Portfolio) are classified
into two classes. Each Portfolio share has one vote and shareholders will vote
in the aggregate and not by class, except as otherwise required by law or with
respect to any matter which affects only one class. Each Portfolio share, 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 twelve 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
Rating Categories
Description of certain ratings assigned by Standard & Poor's Ratings
Services ("S&P"), Moody's Investors Service ("Moody's"), Fitch IBCA, Duff &
Phelps ("Fitch") and Thompson Financial BankWatch ("BankWatch"):
S&P
Long-term
AAA
An obligation rated 'AAA' has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, AND C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C
A subordinated debt or preferred stock obligation rated 'C' is currently highly
vulnerable to nonpayment. The 'C' rating may be used to cover a situation where
a bankruptcy petition has been filed or similar action taken, but payments on
this obligation are being continued. A 'C' also will be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but that is
currently paying.
D
An obligation rated 'D' is in payment default. The 'D' rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
R
The symbol 'r' is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R.
The designation 'N.R.' indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not rate
a particular obligation as a matter of policy.
Note: The ratings from 'AA' to 'CCC' may be modified by the addition of a plus
(+) or minus (-) sign designation to show relative standing within the major
rating categories.
Short-term
A-1
A short-term obligation rated 'A-1' is rated in the highest category by S&P. The
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are given a plus sign (+) designation.
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
A-2
A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3
A short-term obligation rated 'A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B
A short-term obligation rated 'B' is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet is financial
commitment on the obligation.
C
A short-term obligation rated 'C' is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D
A short-term obligation rated 'D' is in payment default. The 'D' rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
MOODY'S
Long-term
AAA
Bonds 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 edged."
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 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 risk appear somewhat larger than the 'Aaa' securities.
A
Bonds 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 some time in the future.
BAA
Bonds 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 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 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 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 rated 'Ca' represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C
Bonds 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from 'Aa' through 'Caa'. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Prime rating system (short-term)
Issuers rated PRIME-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
FITCH
Long-term investment grade
AAA
HIGHEST CREDIT QUALITY. 'AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA
VERY HIGH CREDIT QUALITY. 'AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A
HIGH CREDIT QUALITY. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB
GOOD CREDIT QUALITY. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Long-term speculative grade
BB
SPECULATIVE. 'BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B
HIGHLY SPECULATIVE. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C
HIGH DEFAULT RISK. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments. 'CC' ratings indicate that default of some kind appears probable.
'C' ratings signal imminent default.
DDD, DD, D
DEFAULT. The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. 'DDD' obligations have the highest potential for recovery,
around 90% - 100% of outstanding amounts and accrued interest. 'DD' ratings
indicate potential recoveries in the range of 50% - 90% and 'D' the lowest
recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated 'D' have a
poor prospect of repaying all obligations.
Short-term
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1
HIGHEST CREDIT QUALITY. Indicates the strongest capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.
F2
GOOD CREDIT QUALITY. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3
FAIR CREDIT QUALITY. The capacity for timely payment of financial commitment is
adequate; however, near-term adverse changes could result in a reduction
non-investment grade.
B
SPECULATIVE. Minimal capacity for timely payment of financial commitments
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C
HIGH DEFAULT RISK. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
D
DEFAULT. Denotes actual or imminent payment default.
'NR' indicates that Fitch does not rate the issuer or issue in question.
Notes to long-term and short-term ratings: A plus (+) or minus (-) sign
designation may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the 'AAA' long-term rating
category, to categories below 'CCC', or to short-term ratings other than 'F1.'
BANKWATCH
(OBLIGATIONS OF FINANCIAL INSTITUTIONS)
Long-term investment grade
AAA
A rating of 'AAA' indicates that the ability to repay principal and interest on
a timely basis is extremely high.
AA
A rating of 'AA' indicates a very strong ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in the
highest category.
A
A rating of 'A' indicates the ability to repay principal and interest is strong.
Issues rated 'A' could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
BBB
The rating of 'BBB' is the lowest investment grade category. This rating
indicates an acceptable capacity to repay principal and interest. 'BBB' issues
are more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Short-term
TBW-1
'TBW-1' is the highest category and indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2
'TBW-2' is the second-highest category. While the degree of safety for these
issues regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated 'TBW-1.'
TBW-3
'TBW' is the lowest investment grade category and indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4
'TBW-4' is the lowest rating category. This rating is regarded as non-investment
grade and therefore speculative.
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 (l) 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
Exhibit (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 and Forms of Service Agreements is
incorporated by reference to Exhibit (e) of Post-Effective Amendment
No. 25 to the Registration Statement on Form N-1A, filed on
April 27, 2000.
(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.
(m) Distribution (12b-1) Plan is incorporated by reference to Post-
Effective Amendment No. 26 to the Registration Statement on Form
N-1A, filed on October 31, 2000.
(o) Rule 18f-3 Plan is incorporated by reference to Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A, filed
on October 31, 2000.
(p) Code of Ethics adopted by Registrant and its investment adviser and
principal underwriter.
(p)(2) Code of Ethics adopted by the Sub-Investment Adviser to Registrant's
of Appreciation Portfolio.
Item 23. Exhibits. - List (continued)
------- -----------------------------
Other Exhibits
--------------
(a) Powers of Attorney of the Board members and officers.
(b) Certificate of Assistant Secretary.
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 Board member, 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 Board member, officer,
affiliated person or underwriter for their own protection, is
incorporated by reference to Item 23(b) of Part C of Post-Effective
Amendment No. 20 to the Registration Statement on From N-1A, filed
on September 20, 1997.
Reference is also made to the Distribution Agreement as incorporated
by Exhibit (e) of Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A filed on April 27, 2000.
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 and distributor of other investment companies advised
and administered by Dreyfus. Dreyfus Investment Advisors, Inc.,
another wholly-owned subsidiary, provides investment management
services to various pension plans, institutions and individuals.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ITEM 26. Business and Other Connections of Investment Adviser (continued)
----------------------------------------------------------------------------------
Officers and Directors of Investment Adviser
Name and Position
With Dreyfus Other Businesses Position Held Dates
CHRISTOPHER M. CONDRON Franklin Portfolio Associates, Director 1/97 - Present
Chairman of the Board and LLC*
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
Director 4/95 - 1/98
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 Financial Corporation+ Chief Operating Officer 1/99 - Present
President 1/99 - Present
Director 1/98 - Present
Vice Chairman 11/94 - 1/99
Founders Asset Management, Chairman 12/97 - Present
LLC**** Director 12/97 - Present
The Boston Company, Inc.* Vice Chairman 1/94 - Present
Director 5/93 - Present
Laurel Capital Advisors, LLP+ Executive 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 - 1/97
Strategies, Inc. * Director 6/89 - 1/97
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 Financial 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, Director 2/99 - Present
LLC*
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***
Founders Asset Management, Member, Board of 12/97 - Present
LLC**** Managers
Acting Chief Executive 7/98 - 12/98
Officer
The Dreyfus Trust Company+++ Director 6/95 - Present
Chairman 1/99 - Present
President 1/99 - Present
Chief Executive Officer 1/99 - Present
THOMAS F. EGGERS Dreyfus Service Corporation++ Chief Executive Officer 3/00 - Present
Vice Chairman - Institutional and Chairman of the
and Director Board
Executive Vice President 4/96 - 3/00
Director 9/96 - Present
Founders Asset Management, Member, Board of 2/99 - Present
LLC**** Managers
Dreyfus Investment Advisors, Inc. Director 1/00 - Present
Dreyfus Service Organization, Director 3/99 - Present
Inc.++
Dreyfus Insurance Agency of Director 3/99 - Present
Massachusetts, Inc. +++
Dreyfus Brokerage Services, Inc. Director 11/97 - 6/98
401 North Maple Avenue
Beverly Hills, CA.
STEVEN G. ELLIOTT Mellon Financial 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 Executive Officer 8/87 - Present
Director 8/87 - Present
President 8/87 - Present
Mellon Overseas Investments Director 4/88 - Present
Corporation+
Mellon Financial Services Treasurer 12/87 - Present
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 - 12/99
Vice Chairman Advisors, Inc.++
Dreyfus Brokerage Services, Inc. Chairman 11/97 - 2/99
401 North Maple Ave. Chief Executive Officer 11/97 - 2/98
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 - 3/99
Organization, Inc.++ President 1/97 - 3/99
Seven Six Seven Agency, Inc. ++ Director 1/97 - 4/99
Dreyfus Insurance Agency of Chairman 5/97 - 3/99
Massachusetts, Inc.++++ President 5/97 - 3/99
Director 5/97 - 3/99
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 - 6/99
Corporation++ President 5/97 - 6/99
Director 12/94 - 6/99
Founders Asset Management, Member, Board of 12/97 - 12/99
LLC**** Managers
The Boston Company Advisors, Chairman 12/95 - 1/99
Inc. Chief Executive Officer 12/95 - 1/99
Wilmington, DE President 12/95 - 1/99
The Boston Company, Inc.* Director 5/93 - 1/99
President 5/93 - 1/99
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
Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98
Chairman 9/93 - 1/98
President and CEO 12/91 - 1/98
Boston Group Holdings, Inc.* Director 5/93 - Present
President 5/93 - Present
Boston Safe Deposit and Trust Director 6/93 - 1/99
Company+ Executive Vice President 6/93 - 4/98
MARTIN G. MCGUINN Mellon Financial 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
J. DAVID OFFICER Dreyfus Service Corporation++ President 3/00 - Present
Vice Chairman Executive Vice President 5/98 - 3/00
and Director Director 3/99 - Present
Dreyfus Service Organization, Director 3/99 - Present
Inc.++
Dreyfus Insurance Agency of Director 5/98 - Present
Massachusetts, Inc.++++
Dreyfus Brokerage Services, Inc. Chairman 3/99 - Present
401 North Maple Avenue
Beverly Hills, CA
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 - 1/99
Corporation*
RECO, Inc.* President 11/96 - Present
Director 11/96 - Present
The Boston Company Financial President 8/96 - 6/99
Services, Inc.* Director 8/96 - 6/99
Boston Safe Deposit and Trust Director 7/96 - Present
Company* President 7/96 - 1/99
Mellon Trust of New York Director 6/96 - Present
1301 Avenue of the Americas
New York, NY 10019
Mellon Trust of California Director 6/96 - Present
400 South Hope Street
Suite 400
Los Angeles, CA 90071
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, President 12/98 - Present
Director LLC**** Chief Executive Officer 12/98 - Present
Prudential Securities Senior Vice President 07/91 - 11/98
New York, NY Regional Director 07/91 - 11/98
RICHARD F. SYRON Thermo Electron President 6/99 - Present
Director 81 Wyman Street Chief Executive Officer 6/99 - Present
Waltham, MA 02454-9046
American Stock Exchange Chairman 4/94 - 6/99
86 Trinity Place Chief Executive Officer 4/94 - 6/99
New York, NY 10006
RONALD P. O'HANLEY Franklin Portfolio Holdings, Inc.* Director 3/97 - Present
Vice Chairman
Franklin Portfolio Associates, Director 3/97 - Present
LLC*
Boston Safe Deposit and Trust Executive Committee 1/99 - Present
Company* Member
Director 1/99 - Present
The Boston Company, Inc.* Executive Committee 1/99 - Present
Member 1/99 - Present
Director
Buck Consultants, Inc.++ Director 7/97 - Present
Newton Asset Management LTD Executive Committee 10/98 - Present
(UK) Member
London, England Director 10/98 - Present
Mellon Asset Management Non-Resident Director 11/98 - Present
(Japan) Co., LTD
Tokyo, Japan
TBCAM Holdings, Inc.* Director 10/97 - Present
The Boston Company Asset Director 1/98 - Present
Management, LLC*
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 2/97 -Present
Corporation***
Certus Asset Advisors Corp.** Director 2/97 - Present
Mellon Bond Associates, LLP+ Trustee 1/98 - Present
Chairman 1/98 - Present
Mellon Equity Associates, LLP+ Trustee 1/98 - Present
Chairman 1/98 - Present
Mellon-France Corporation+ Director 3/97 - Present
Laurel Capital Advisors+ Trustee 3/97 - Present
STEPHEN R. BYERS Dreyfus Service Corporation++ Senior Vice President 3/00 - Present
Director of Investments and
Senior Vice President
Gruntal & Co., LLC Executive Vice President 5/97 - 11/99
New York, NY Partner 5/97 - 11/99
Executive Committee 5/97 - 11/99
Member
Board of Directors 5/97 - 11/99
Member
Treasurer 5/97 - 11/99
Chief Financial Officer 5/97 - 6/99
PATRICE M. KOZLOWSKI None
Senior Vice President - Corporate
Communications
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 - 3/99
Organization, Inc.++
WILLIAM H. MARESCA The Dreyfus Trust Company+++ Chief Financial Officer 3/99 - Present
Controller Treasurer 9/98 - Present
Director 3/97 - Present
Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present
Director 8/00 - 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 Treasurer 3/99 - Present
Organization, Inc.++ Assistant Treasurer 3/93 - 3/99
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 - 8/00
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
Dreyfus-Lincoln, Inc. Director 12/96 - Present
4500 New Linden Hill Road President 1/97 - Present
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
The Dreyfus Trust Company +++ Director 1/96 - Present
Dreyfus Service Organization, Treasurer 10/96 - 3/99
Inc.++
Dreyfus Insurance Agency of Director 5/97 - 3/99
Massachusetts, Inc.++++ Treasurer 5/97 - 3/99
Executive Vice President 5/97 - 3/99
DIANE P. DURNIN Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99
Vice President - Product Marketing and Advertising
Development Division
MARY BETH LEIBIG None
Vice President -
Human Resources
THEODORE A. SCHACHAR Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present
Vice President - Tax
The Dreyfus Consumer Credit Chairman 6/99 - Present
Corporation ++ President 6/99 - Present
Dreyfus Investment Advisors, Vice President - Tax 10/96 - Present
Inc.++
Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98
Dreyfus Service Organization, Vice President - Tax 10/96 - Present
Inc.++
WENDY STRUTT None
Vice President
RAYMOND J. VAN COTT Mellon Financial Corporation+ Vice President 7/98 - Present
Vice President -
Information Systems
Computer Sciences Corporation Vice President 1/96 - 7/98
El Segundo, CA
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 2930 East Third Avenue, Denver, Colorado 80206.
+ 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) Dreyfus A Bonds Plus, Inc.
2) Dreyfus Appreciation Fund, Inc.
3) Dreyfus Balanced Fund, Inc.
4) Dreyfus BASIC GNMA Fund
5) Dreyfus BASIC Money Market Fund, Inc.
6) Dreyfus BASIC Municipal Fund, Inc.
7) Dreyfus BASIC U.S. Government Money Market Fund
8) Dreyfus California Intermediate Municipal Bond Fund
9) Dreyfus California Tax Exempt Bond Fund, Inc.
10) Dreyfus California Tax Exempt Money Market Fund
11) Dreyfus Cash Management
12) Dreyfus Cash Management Plus, Inc.
13) Dreyfus Connecticut Intermediate Municipal Bond Fund
14) Dreyfus Connecticut Municipal Money Market Fund, Inc.
15) Dreyfus Florida Intermediate Municipal Bond Fund
16) Dreyfus Florida Municipal Money Market Fund
17) Dreyfus Founders Funds, Inc.
18) The Dreyfus Fund Incorporated
19) Dreyfus Global Bond Fund, Inc.
20) Dreyfus Global Growth Fund
21) Dreyfus GNMA Fund, Inc.
22) Dreyfus Government Cash Management Funds
23) Dreyfus Growth and Income Fund, Inc.
24) Dreyfus Growth and Value Funds, Inc.
25) Dreyfus Growth Opportunity Fund, Inc.
26) Dreyfus Debt and Equity Funds
27) Dreyfus Index Funds, Inc.
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Preferred Money Market Fund
30) Dreyfus Institutional Short Term Treasury Fund
31) Dreyfus Insured Municipal Bond Fund, Inc.
32) Dreyfus Intermediate Municipal Bond Fund, Inc.
33) Dreyfus International Funds, Inc.
34) Dreyfus Investment Grade Bond Funds, Inc.
35) Dreyfus Investment Portfolios
36) The Dreyfus/Laurel Funds, Inc.
37) The Dreyfus/Laurel Funds Trust
38) The Dreyfus/Laurel Tax-Free Municipal Funds
39) Dreyfus LifeTime Portfolios, Inc.
40) Dreyfus Liquid Assets, Inc.
41) Dreyfus Massachusetts Intermediate Municipal Bond Fund
42) Dreyfus Massachusetts Municipal Money Market Fund
43) Dreyfus Massachusetts Tax Exempt Bond Fund
44) Dreyfus MidCap Index Fund
45) Dreyfus Money Market Instruments, Inc.
46) Dreyfus Municipal Bond Fund, Inc.
47) Dreyfus Municipal Cash Management Plus
48) Dreyfus Municipal Money Market Fund, Inc.
49) Dreyfus New Jersey Intermediate Municipal Bond Fund
50) Dreyfus New Jersey Municipal Bond Fund, Inc.
51) Dreyfus New Jersey Municipal Money Market Fund, Inc.
52) Dreyfus New Leaders Fund, Inc.
53) Dreyfus New York Municipal Cash Management
54) Dreyfus New York Tax Exempt Bond Fund, Inc.
55) Dreyfus New York Tax Exempt Intermediate Bond Fund
56) Dreyfus New York Tax Exempt Money Market Fund
57) Dreyfus U.S. Treasury Intermediate Term Fund
58) Dreyfus U.S. Treasury Long Term Fund
59) Dreyfus 100% U.S. Treasury Money Market Fund
60) Dreyfus U.S. Treasury Short Term Fund
61) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
62) Dreyfus Pennsylvania Municipal Money Market Fund
63) Dreyfus Premier California Municipal Bond Fund
64) Dreyfus Premier Equity Funds, Inc.
65) Dreyfus Premier International Funds, Inc.
66) Dreyfus Premier GNMA Fund
67) Dreyfus Premier Opportunity Funds
68) Dreyfus Premier Worldwide Growth Fund, Inc.
69) Dreyfus Premier Municipal Bond Fund
70) Dreyfus Premier New York Municipal Bond Fund
71) Dreyfus Premier State Municipal Bond Fund
72) Dreyfus Premier Value Equity Funds
73) Dreyfus Short-Intermediate Government Fund
74) Dreyfus Short-Intermediate Municipal Bond Fund
75) The Dreyfus Socially Responsible Growth Fund, Inc.
76) Dreyfus Stock Index Fund
77) Dreyfus Tax Exempt Cash Management
78) The Dreyfus Premier Third Century Fund, Inc.
79) Dreyfus Treasury Cash Management
80) Dreyfus Treasury Prime Cash Management
81) Dreyfus Variable Investment Fund
82) Dreyfus Worldwide Dollar Money Market Fund, Inc.
83) General California Municipal Bond Fund, Inc.
84) General California Municipal Money Market Fund
85) General Government Securities Money Market Funds, Inc.
86) General Money Market Fund, Inc.
87) General Municipal Bond Fund, Inc.
88) General Municipal Money Market Funds, Inc.
89) General New York Municipal Bond Fund, Inc.
90) General New York Municipal Money Market Fund
(b)
<TABLE>
Positions and
Name and principal offices with
business address Positions and offices with the Distributor Registrant
---------------- ------------------------------------------ ----------
<S> <C> <C>
Thomas F. Eggers * Chief Executive Officer and Chairman of the None
Board
J. David Officer * President and Director None
Stephen Burke * Executive Vice President None
Charles Cardona * Executive Vice President and Director None
Anthony DeVivio ** Executive Vice President and Director None
Michael Millard ** Executive Vice President and Director None
David K. Mossman ** Executive Vice President and Director None
Jeffrey N. Nachman *** Executive Vice President and Chief Operations None
Officer
William T. Sandalls, Jr. * Executive Vice President None
William H. Maresca * Chief Financial Officer and Director None
James Book **** Senior Vice President None
Ken Bradle ** Senior Vice President None
Stephen R. Byers * Senior Vice President None
Joseph Connolly * Senior Vice President Vice President
and Treasurer
Joseph Eck + Senior Vice President None
William Glenn * Senior Vice President None
Bradley Skapyak * Senior Vice President None
Jane Knight * Chief Legal Officer and Secretary None
Stephen Storen * Chief Compliance Officer None
Jeffrey Cannizzaro * Vice President - Compliance None
John Geli ** Vice President None
Maria Georgopoulos * Vice President - Facilities Management None
William Germenis ** Vice President - Compliance None
Walter T. Harris * Vice President None
Janice Hayles * Vice President None
Hal Marshall * Vice President - Compliance None
Paul Molloy * Vice President None
B.J. Ralston ** Vice President None
Theodore A. Schachar * Vice President - Tax None
James Windels * Vice President Assistant
Treasurer
James Bitetto * Assistant Secretary None
Ronald Jamison * Assistant Secretary None
</TABLE>
* Principal business address is 200 Park Avenue, New York, NY 10166.
** Principal business address is 144 Glenn Curtiss Blvd., Uniondale, NY
11556-0144.
*** Principal business address is 401 North Maple Avenue, Beverly Hills,
CA 90210.
**** Principal business address is One Mellon Bank Center, Pittsburgh,
PA 15258
+ Principal business address is One Boston Place, Boston, MA 02108
Item 28. Location of Accounts and Records
------- --------------------------------
1. Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
2. Bank of New York
100 Church Street
New York, New York 10166
3. Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, Rhode Island 02940-9671
4. 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 Amendment to the Registration
Statement pursuant to 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 29th day of December, 2000.
DREYFUS VARIABLE INVESTMENT FUND
BY: /s/ Stephen E. Canter*
------------------
Stephen E. Canter, 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 date indicated.
Signatures Title Date
/s/ Stephen E. Canter* President 12/29/00
-------------------------------- (Principal Executive Officer)
Stephen E. Canter
/s/ Joseph Connolly* Vice President and Treasurer 12/29/00
-------------------------------- (Principal Financial and
Joseph Connolly Accounting Officer)
/s/ Joseph S. DiMartino* Chairman of the Board of 12/29/00
-------------------------------- Trustees
Joseph S. DiMartino
/s/ David P. Feldman* Trustee 12/29/00
--------------------------------
David P. Feldman
/s/ James F. Henry* Trustee 12/29/00
--------------------------
James F. Henry
/s/ Rosalind G. Jacobs* Trustee 12/29/00
--------------------------
Rosalind G. Jacobs
/s/ Paul A. Marks* Trustee 12/29/00
--------------------------
Paul A. Marks
/s/ Martin Peretz* Trustee 12/29/00
--------------------------
Martin Peretz
/s/ Bert W. Wasserman* Trustee 12/29/00
--------------------------
Bert W. Wasserman
*BY: /s/ Robert R. Mullery
--------------------
Robert R. Mullery
Attorney-in-Fact
INDEX OF EXHIBITS
Exhibits
(j) Consent of Independent Auditors..............................
(p)(1) Code of Ethics adopted by the Registrant.....................
(p)(2) Code of Ethics adopted by the Sub-Investment Adviser to
Registrant's of Appreciation Portfolio.......................
Other Exhibits
(a) Powers of Attorney dated December 11, 2000...................
Powers of Attorney dated March 22, 2000......................
(b) Certificate of Assistant Secretary...........................
