<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
Premier Small Company Stock Fund
Class A and Class R Shares
December 19, 1994
PREMIER SMALL COMPANY STOCK FUND seeks to consistently exceed the total
return performance of the Russell 2500 Stock Index while maintaining a similar
level of risk.
THIS PROSPECTUS describes Premier Small Company Stock Fund (the "Fund"), an
open-end diversified management investment company of The Dreyfus/Laurel Funds,
Inc. (formerly The Laurel Funds, Inc.), that is part of The Premier Family of
Funds. This Prospectus describes two classes of Shares--Class A Shares and Class
R Shares (collectively, the "Shares")--of the Fund.
This Prospectus sets forth concisely the information about the Fund that a
prospective purchaser should consider before investing. Investors should read
this Prospectus and retain it for future reference. The Fund offers you four
methods of purchasing Fund shares, but only Class A and Class R shares are
offered by this Prospectus. SEE "ALTERNATIVE PURCHASE METHODS." Additional
information about the Fund is contained in a Statement of Additional Information
(the "SAI"), which has been filed with the Securities and Exchange Commission
(the "SEC") and is
.....................................
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. ALL MUTUAL
FUND SHARES INVOLVE CERTAIN RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE FEES TO WHICH THE FUND IS SUBJECT ARE SUMMARIZED IN THE "EXPENSE
SUMMARY" SECTION OF THE FUND'S PROSPECTUS. THE FUND PAYS MELLON BANK, N.A.
("MELLON BANK") OR ITS AFFILIATES TO BE ITS INVESTMENT MANAGER. MELLON BANK OR
AN AFFILIATE MAY BE PAID FOR PERFORMING OTHER SERVICES FOR THE FUND, SUCH AS
CUSTODIAN, TRANSFER AGENT OR FUND ACCOUNTANT SERVICES. THE FUND IS DISTRIBUTED
BY PREMIER MUTUAL FUND SERVICES, INC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
....................... 1 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
available upon request without charge by calling or writing to The Premier
Family of Funds. The SAI bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
In addition to the Fund, The Premier Family of Funds also offers other funds
that provide investment opportunities for you in equity and fixed income
markets. For more information about these additional investment opportunities,
call 1-800-548-2868.
.....................................
The Premier Family of Funds
P.O. Box 9692
Providence, Rhode Island 02940-9830
....................... 2 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Expense Summary........................................ 5
Alternative Purchase Methods........................... 7
Investment Objective and Policies...................... 9
Other Investment Policies and Risk Factors............. 10
HOW TO DO BUSINESS WITH US
Special Shareholder Services........................... 15
Investor Line.......................................... 15
How to Buy Fund Shares................................. 15
BY MAIL............................................... 16
BY TELEPHONE.......................................... 16
BY WIRE............................................... 17
BY AUTOMATIC MONTHLY INVESTMENTS...................... 17
BY DIRECT DEPOSIT..................................... 17
BY IN-KIND PURCHASES.................................. 17
WHEN SHARE PRICE IS DETERMINED........................ 21
ADDITIONAL INFORMATION ABOUT INVESTMENTS.............. 21
How to Exchange Your Investment From One Fund to
Another............................................... 22
BY TELEPHONE.......................................... 22
BY MAIL............................................... 22
ADDITIONAL INFORMATION ABOUT EXCHANGES................ 23
How to Redeem Shares................................... 23
BY TELEPHONE.......................................... 26
BY MAIL............................................... 26
BY AUTOMATED WITHDRAWAL PROGRAM....................... 26
REDEMPTION PROCEEDS................................... 27
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.............. 28
How To Use The Premier Family of Funds in a
Tax-Qualified Retirement Plan......................... 28
HOW TO TRANSFER AN INVESTMENT TO A PREMIER FAMILY OF
FUNDS' RETIREMENT PLAN............................... 28
</TABLE>
....................... 3 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
OTHER INFORMATION
Share Price............................................ 29
Performance Advertising................................ 29
Distributions.......................................... 31
Taxes.................................................. 32
Other Services......................................... 33
Further Information About The Funds.................... 34
THE DREYFUS/LAUREL FUNDS, INC......................... 34
MANAGEMENT............................................ 34
OTHER SERVICE PROVIDERS............................... 36
DISTRIBUTION PLANS (CLASS A PLAN AND CLASS B AND CLASS
C PLANS)............................................. 36
</TABLE>
.....................................
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE PREMIER FAMILY OF FUNDS OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE PREMIER
FAMILY OF FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT BE LAWFULLY MADE.
....................... 4 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES LOAD IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE) 4.50% NONE NONE NONE
MAXIMUM DEFERRED SALES CHARGE IMPOSED ON
REDEMPTIONS (AS A PERCENTAGE OF THE AMOUNT SUBJECT
TO CHARGE) NONE 4.00% 1.00% NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
MANAGEMENT FEE 1.25% 1.25% 1.25% 1.25%
12B-1 FEE* 0.25% 1.00% 1.00% NONE
OTHER EXPENSES** .00% .00% .00% .00%
------- --------- -------- -------
TOTAL FUND OPERATING EXPENSES 1.50% 2.25% 2.25% 1.25%
EXAMPLES
YOU WOULD PAY THE FOLLOWING EXPENSES ON A
$1,000 INVESTMENT, ASSUMING (1) A 5% 1 YEAR $ 60 $ 63/23+ $33/23+ $ 13
ANNUAL RETURN AND (2) EXCEPT WHERE NOTED, 3 YEARS 90 100/70+ 70 40
REDEMPTION AT THE END OF EACH TIME 5 YEARS 123 140/120+ 120 69
PERIOD: 10 YEARS 216 221 258 151
<FN>
* SEE "DISTRIBUTION PLANS" FOR A DESCRIPTION OF THE FUND'S DISTRIBUTION PLANS FOR CLASS A, B
AND C SHARES.
** DOES NOT INCLUDE FEES AND EXPENSES OF THE NON-INTERESTED DIRECTORS (INCLUDING COUNSEL). THE
INVESTMENT MANAGER IS CONTRACTUALLY REQUIRED TO REDUCE ITS MANAGEMENT FEE IN AN AMOUNT EQUAL
TO THE FUND'S ALLOCABLE PORTION OF SUCH FEES AND EXPENSES, WHICH ARE ESTIMATED TO BE .02% OF
THE FUND'S NET ASSETS. SEE "FURTHER INFORMATION ABOUT THE FUND--MANAGEMENT."
+ ASSUMING NO REDEMPTION OF SHARES.
</TABLE>
.....................................
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE SHOWN.
.....................................
The purpose of the foregoing table is to assist you in understanding the
various costs and expenses that investors will bear, directly or indirectly, the
payment of which will reduce investors' return on an annual basis. Other
Expenses and Total Fund Operating Expenses are based on estimated amounts for
the current fiscal year. Long-term investors in Class A, B or C shares could pay
more in 12b-1 fees that the economic equivalent of paying the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. ("NASD"). The information in the
foregoing table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. Certain Service Agents (as defined herein)
may charge their clients direct fees for effecting transactions in Fund shares;
such fees are not reflected in the foregoing table. SEE "FURTHER INFORMATION
ABOUT THE FUND--MANAGEMENT," "HOW TO BUY FUND SHARES" and "DISTRIBUTION PLANS."
....................... 5 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund understands that banks, brokers, dealers or other financial
institutions (including The Dreyfus Corporation (the "Manager") and its
affiliates) (collectively "Service Agents") may charge fees to their clients who
are owners of the Fund's Class A, B or C shares for various services provided in
connection with a client's account. These fees would be in addition to any
amounts received by a Service Agent under its Selling Agreement ("Agreement")
with Premier Mutual Fund Services, Inc. ("Premier"). The Agreement requires each
Service Agent to disclose to its clients any compensation payable to such
Service Agent by Premier and any other compensation payable by the client for
various services provided in connection with their accounts.
Financial Highlights are not included because the Fund had not commenced
operations at period ended April 30, 1994.
Additional Classes of shares--designated Class B and Class C--have been
added to the previously existing Class A (formerly Investor Class) and Class R
(formerly Trust Class) Shares of the Fund. Class A and Class R Shares are
offered by this Prospectus. Class B and Class C Shares are offered through a
servicing network associated with the Manager pursuant to a separate Prospectus.
Class A Shares are also offered through that network pursuant to a separate
Prospectus. For more information call 1-800-645-6561. Please read that
Prospectus carefully. Exchange and shareholder services vary depending upon the
network through which you purchase Fund Shares. See "HOW TO BUY FUND SHARES."
....................... 6 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREMIER SMALL COMPANY STOCK FUND
ALTERNATIVE PURCHASE METHODS
The Fund offers you four methods of purchasing Fund Shares, but only Class A and
Class R Shares are offered by this Prospectus. You may choose the Class of
Shares for which you are eligible that best suits your needs, given the amount
of your purchase, the length of time you expect to hold your Shares and any
other relevant circumstances. Each Fund Share represents an identical pro rata
interest in the Fund's investment portfolio.
Class A Shares are sold at net asset value per share ("NAV") plus a maximum
initial sales charge of 4.50% of the public offering price imposed at the time
of purchase. The initial sales charge may be reduced or waived for certain
purchases. See "HOW TO BUY FUND SHARES--CLASS A SHARES." These shares are
subject to an annual 12b-1 fee at the rate of 0.25 of 1% of the value of the
average daily net assets of Class A. See "DISTRIBUTION PLAN--CLASS A."
Class A Shares (and Class B and Class C Shares described below) are
primarily sold to retail investors by Service Agents that have entered into
Selling Agreements with Premier, except that full-time or part-time employees or
directors of the Manager or any of its affiliates or subsidiaries, Board members
of a fund advised by the Manager, including members of the Fund's Board, or the
spouse or minor child of any of the foregoing may purchase Class A Shares
directly through Premier. Subsequent purchases may be sent directly to the
Transfer Agent or your Service Agent.
Class R Shares generally may not be purchased directly by individuals,
although eligible institutions may purchase Class R Shares for accounts
maintained by individuals. Class R Shares are sold at NAV primarily to bank
trust departments and other financial service providers (including Mellon Bank
and its affiliates) acting on behalf of customers having a qualified trust or
investment account or similar relationship at such institution. Holders of Class
R Shares of the Fund who have held their Shares since April 4, 1994, may
continue to purchase Class R Shares of that Fund, whether or not they would
otherwise be eligible to do so. Class R Shares may be purchased for a retirement
plan only by a custodian, trustee, investment manager or other entity authorized
to act on behalf of such Plan. Institutions effecting transactions in Class R
Shares for the accounts of their clients may charge their clients direct fees in
connection with such transactions.
In addition to the classes of Shares offered by this Prospectus, the Fund
offers two other classes of Shares designated Class B and Class C available,
together with the Class A Shares offered by this Prospectus, through a servicing
network associated with the Manager. For more
....................... 7 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
information and a Prospectus relating to shares offered through that network,
call 1-800-645-6561. Please read that Prospectus carefully. Exchange and
shareholder services vary depending upon the network through which you purchase
Fund Shares.
Class B Shares are sold at NAV with no initial sales charge at the time of
purchase; as a result, the entire purchase price is immediately invested in the
Fund. Class B Shares are subject to a maximum 4% Contingent Deferred Sales
Charge ("CDSC"), which is assessed only if you redeem Class B shares within six
years of purchase. See "HOW TO BUY FUND SHARES--CLASS B SHARES" and "HOW TO
REDEEM FUND SHARES--CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES." These
Shares also are subject to an annual distribution fee at the rate of 0.75 of 1%
of the value of the average daily net assets of Class B. In addition, Class B
Shares are subject to an annual service fee at the rate of 0.25 of 1% of the
value of the average daily net assets of Class B. See "DISTRIBUTION AND SERVICE
PLANS--CLASS B AND C." The distribution fee paid by Class B will cause such
class to have a higher expense ratio and to pay lower dividends than Class A.
Approximately six years after the date of purchase, Class B Shares automatically
will convert to Class A Shares based on the relative NAV for Shares of each such
class, and will no longer be subject to the distribution fee. (Such conversion
is subject to suspension by the Fund's Board of Directors if adverse tax
consequences might result.) Class B Shares that have been acquired through the
reinvestment of dividends and distributions will be converted on a pro rata
basis together with other Class B Shares, in the proportion that a shareholder's
Class B Shares converting to Class A Shares bears to the total Class B Shares
not acquired through the reinvestment of dividends and distributions.
Class C Shares are subject to a 1% CDSC, which is assessed only if a
shareholder redeems Class C Shares within one year of purchase. See "HOW TO
REDEEM FUND SHARES--CLASS C SHARES." These Shares also are subject to an annual
distribution fee at the rate of 0.75 of 1% of the value of the average daily net
assets of Class C. Class C Shares are also subject to an annual service fee at
the rate of 0.25 of 1% of the value of the average daily net assets of Class C.
See "DISTRIBUTION PLANS--CLASS B AND C." The distribution fee paid by Class C
will cause such class to have a higher expense ratio and to pay lower dividends
than Class A.
The decision as to which class of Shares is more beneficial to an investor
depends on the amount and the intended length of his or her investment. An
investor should consider whether, during the anticipated life of his or her
investment in the Fund, the accumulated distribution fee and CDSC, if any, on
Class B or Class C Shares would be less than the initial sales charge on Class A
Shares purchased at the same time, and to what extent, if any, such differential
would be offset by the return of Class A Shares. Additionally, investors
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time might consider
....................... 8 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
purchasing Class A Shares because the accumulated continuing distribution fees
on Class B or Class C Shares may exceed the initial sales charge on Class A
Shares during the life of the investment. Finally, an investor should consider
the effect of the CDSC period and any conversion rights of the classes in the
context of his or her investment time frame. For example, while Class C Shares
have a shorted CDSC period than Class B Shares, Class C Shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution fee.
Thus, Class B Shares may be more attractive than Class C Shares to investors
with longer term investment outlooks. Generally, Class A Shares may be more
appropriate for investors who invest $1,000,000 or more in Fund Shares, but will
not be appropriate for investors who invest less than $50,000 in Fund Shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to consistently exceed the total return performance of the
Russell 2500 Stock Index while maintaining a similar level of risk. There can be
no assurance that the Fund will meet its investment objective. SEE "OTHER
INVESTMENT POLICIES AND RISK FACTORS" on page 10 for a detailed description of
risks and other Fund investment policies. See "OTHER INVESTMENT POLICIES AND
RISK FACTORS--LIMITING INVESTMENT RISKS" for a discussion of the Fund's
investment limitations.
The Fund pursues its investment objective by investing in a portfolio of
small to medium sized primarily domestic companies which offer above-average
growth potential. Small to medium sized companies will include those U.S. stocks
with market capitalization generally ranging in value from $100 million to $1.5
billion. Investments in small to medium sized companies may involve greater
risks because these companies generally have a limited track record and often
experience higher price volatility. The Fund will normally invest at least 65%
of its total assets in small to medium sized domestic companies. The Fund may
also invest in (1) securities of foreign companies, (2) American Depository
Receipts, (3) stock index futures and options contracts, (4) repurchase
agreements, (5) reverse repurchase agreements, (6) when-issued transactions, (7)
commercial paper and (8) initial public offerings. The Fund may for defensive
measures invest in foreign securities, which may include investment in
developing countries. (SEE "OTHER INVESTMENT POLICIES AND RISK FACTORS--FOREIGN
SECURITIES.")
The Russell 2500-TM- Index, published by Frank Russell Company, is comprised
of the bottom 500 companies in the Russell 1000-R- Index, as ranked by total
market capitalization, and all 2,000 stocks in the Russell 2000-R- Index. The
Russell 1000-R- Index consists of the 1,000 largest companies in the Russell
3000-R- Index. The Russell 2000-R- Index consists of the smallest 2,000
companies in the Russell 3000-R- Index, representing approximately 10% of the
Russell
....................... 9 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3000-R- Index total market capitalization. Russell 3000-R- Index is composed of
3,000 large U.S. companies, as determined by market capitalization. Market
capitalization of the stocks contained in the Russell 2500-TM- Index typically
range from $100 million to $1.5 billion.
OTHER INVESTMENT POLICIES AND RISK FACTORS
AMERICAN DEPOSITORY RECEIPTS. The Fund may invest in U.S. dollar-denominated
ADRs. ADRs typically are issued by an American bank or trust company and
evidence ownership of underlying securities issued by foreign companies. ADRs
are traded in the United States on national securities exchanges or in the
over-the-counter market. (SEE "FOREIGN SECURITIES.")
BORROWING. The Fund is authorized, within specified limits, to borrow money
for temporary administrative purposes and to pledge its assets in connection
with such borrowings.
COMMERCIAL PAPER. The Fund may invest in commercial paper. These instruments
are short-term obligations issued by banks and corporations that have maturities
ranging from 2 to 270 days. Each instrument may be backed only by the credit of
the issuer or may be backed by some form of credit enhancement, typically in the
form of a guarantee by a commercial bank. Commercial paper backed by guarantees
of foreign banks may involve additional risk due to the difficulty of obtaining
and enforcing judgments against such banks and the generally less restrictive
regulations to which such banks are subject. The Fund will only invest in
commercial paper of U.S. and foreign companies rated A-1 at the time of purchase
by Standard & Poor's Ratings Group, Prime-1 by Moody's Investors Service, Inc.,
F-1 by Fitch Investors Service, Inc., Duff 1 by Duff & Phelps, Inc. or A1 by
IBCA, Inc.
FOREIGN SECURITIES. The Fund may purchase securities of foreign issuers and
may invest in obligations of foreign branches of domestic banks and domestic
branches of foreign banks. Investment in foreign securities presents certain
risks, including those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future political and economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
Moreover, securities of many foreign issuers may be less liquid and their prices
more volatile than those of comparable domestic issuers. In addition, with
respect to certain foreign countries, there is the possibility of expropriation,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Fund, including withholding of dividends. Foreign securities may
be subject to foreign government taxes that would reduce the yield on such
securities.
....................... 10 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign governments, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Manager incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks is
contained in the SAI.
ILLIQUID SECURITIES. The Fund will not knowingly invest more than 15% of the
value of its net assets in illiquid securities, including time deposits and
repurchase agreements having maturities longer than seven days. Securities that
have readily available market quotations are not deemed illiquid for purposes of
this limitation (irrespective of any legal or contractual restrictions on
resale). The Fund may invest in commercial obligations issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended ("Section 4(2) paper"). The Fund
may also purchase securities that are not registered under the Securities Act of
1933, as amended, but which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A securities"). Liquidity
determinations with respect to Section 4(2) paper and Rule 144A securities will
be made by the Board of Directors as required. The Board will consider
availability of reliable price information and other relevant information in
making such determinations. Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to institutional
investors such as the Fund that agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or
....................... 11 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
with the assistance of the issuer or investment dealers who make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold to other qualified institutional buyers. If a particular investment
in Section 4(2) paper or Rule 144A securities is not determined to be liquid,
that investment will be included within the percentage limitation on investment
in illiquid securities. The ability to sell Rule 144A securities to qualified
institutional buyers is a recent development and it is not possible to predict
how this market will mature. Investing in Rule 144A securities could have the
effect of increasing the level of Fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
INITIAL PUBLIC OFFERINGS ("IPOS"). The Fund may invest in IPOs, a
corporation's first offering of stock to the public. Shares are given a market
value reflecting expectations for the corporation's future growth. Special rules
of the NASD apply to the distribution of IPOs. Corporations offering IPOs
generally have a limited track record and may involve greater risk.
OTHER INVESTMENT COMPANIES. The Fund may invest in securities issued by
other investment companies to the extent that such investments are consistent
with the Fund's investment objective and policies and permissible under the
Investment Company Act of 1940, as amended ("1940 Act"). As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A
repurchase agreement involves the purchase of a security by the Fund and a
simultaneous agreement (generally with a bank or broker-dealer) to repurchase
that security from the Fund at a specified price and date or upon demand. This
technique offers a method of earning income on idle cash. A risk associated with
repurchase agreements is the failure of the seller to repurchase the securities
as agreed, which may cause the Fund to suffer a loss if the market value of such
securities declines before they can be liquidated on the open market. Repurchase
agreements with a duration of more than seven days are considered illiquid
securities and are subject to the limit stated above.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of Fund securities
is deemed by the Manager to be disadvantageous. Under a reverse repurchase
agreement, the Fund: (i) transfers possession of fund securities to a bank or
broker-dealer in return for cash in an amount equal to a percentage of the
securities' market value; and (ii) agrees to repurchase the
....................... 12 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
securities at a future date by repaying the cash with interest. Cash or liquid
high-grade debt securities held by the Fund equal in value to the repurchase
price including any accrued interest will be maintained in a segregated account
while a reverse repurchase agreement is in effect.
SECURITIES LENDING. To increase return on Fund securities, the Fund may lend
its portfolio securities to broker-dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights to
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Manager to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks.
U.S. GOVERNMENT SECURITIES. The Fund may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government or backed by
the full faith and credit of the United States. In addition to direct
obligations of the U.S. Treasury, these include securities issued or guaranteed
by the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage Association,
General Services Administration and Maritime Administration. Investments may
also be made in U.S. Government obligations that do not carry the full faith and
credit guarantee, such as those issued by the Federal National Mortgage
Corporation, the Federal Home Loan Mortgage Association, or other
instrumentalities.
WHEN-ISSUED TRANSACTIONS. To secure advantageous prices or yields, the Fund
may purchase U.S. Government Securities on a when-issued basis or may purchase
or sell securities for delayed delivery. In such transactions, delivery of the
securities occurs beyond the normal settlement periods, but no payment or
delivery is made by the Fund prior to the actual delivery or payment by the
other party to the transaction. The purchase of securities on a when-issued or
delayed delivery basis involves the risk that, as a result of an increase in
yields available in the marketplace, the value of the securities purchased will
decline prior to the settlement date. The sale of securities for delayed
delivery involves the risk that the prices available in the market on the
delivery date may be greater than those obtained in the sale transaction. The
Fund will establish a segregated account consisting of cash, U.S. Government
Securities or other high-grade debt obligations in an amount equal to the
amounts of its when-issued and delayed delivery commitments.
MASTER/FEEDER OPTION. The Dreyfus/Laurel Funds, Inc. may in the future seek
to achieve the Fund's investment objective by investing all of the Fund's assets
in another investment company having the same investment objective and
substantially the same investment policies and
....................... 13 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
restrictions as those applicable to the Fund. Shareholders of the Fund will be
given at least 30 days' prior notice of any such investment. Such investment
would be made only if the Directors determine it to be in the best interest of
the Fund and its shareholders. In making that determination, the Directors will
consider, among other things, the benefits to shareholders and/ or the
opportunity to reduce costs and achieve operational efficiencies. Although the
Fund believes that the Directors will not approve an arrangement that is likely
to result in higher costs, no assurance is given that costs will be materially
reduced if this option is implemented.
PORTFOLIO TURNOVER. While securities are purchased for the Fund on the basis
of potential for capital appreciation and not for short-term trading profits,
the Fund's turnover rate may exceed 100%. A portfolio turnover rate of 100%
would occur, for example, if all the securities held by the Fund were replaced
once in a period of one year. A higher rate of portfolio turnover involves
correspondingly greater brokerage commissions and other expenses which must be
borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of short-term capital gains which, when distributed to the Fund's
shareholders, are taxable to them as ordinary income. (SEE "DISTRIBUTIONS" AND
"TAXES.") Nevertheless, security transactions for the Fund will be based only
upon investment considerations and will not be limited by any other
considerations when the Manager deems it appropriate to make changes in the
Fund's assets.
LIMITING INVESTMENT RISKS. The Fund is subject to a number of investment
limitations. Certain limitations are matters of fundamental policy and may not
be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding Shares. The SAI describes all of the Fund's fundamental and
non-fundamental restrictions.
The investment objective, policies, restrictions, practices and procedures
of the Fund, unless otherwise specified, may be changed without shareholder
approval. If the Fund's investment objective, policies, restrictions, practices
or procedures change, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current position and needs.
In order to permit the sale of the Fund's Shares in certain states, the Fund
may make commitments more restrictive than the investment policies and
restrictions described in this Prospectus and the SAI. Should the Fund determine
that any such commitment is no longer in the best interests of the Fund, it may
consider terminating sales of its Shares in the states involved.
....................... 14 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------
HOW TO DO BUSINESS WITH US
SPECIAL SHAREHOLDER SERVICES
You may establish one or more special services designed to provide an easy way
to do business with the Fund. By electing these services on your application or
by completing the appropriate forms, you may authorize:
-INVESTMENT BY PHONE.
-AUTOMATIC MONTHLY INVESTMENTS.
-EXCHANGES OR REDEMPTIONS BY PHONE.
By electing the service which enables you to exchange and redeem by phone,
you agree to indemnify the Fund, its transfer agent and its investment manager
from any loss, claim or expense you may incur as a result of their acting on
such instructions. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These include personal
identification procedures, recording of telephone conversations and providing
written confirmation of each transaction. A failure on the part of the Fund to
employ such procedures may subject it to liability for any loss due to
unauthorized or fraudulent instructions.
INVESTOR LINE
You may reach The Premier Family of Funds by calling our Investor Line at
1-800-548-2868. If you call on a rotary phone during normal business hours (9
a.m. to 5 p.m., Eastern time), you will reach a Premier Family of Funds
operator. If you call on a Touch-Tone phone, you will receive instructions on
how to: (1) request a current prospectus or information booklets about The
Premier Family of Funds' investment portfolios and services, (2) listen to net
asset values, yields and total return figures, and (3) talk with a customer
service representative during normal business hours. For more information about
direct access using a Touch-Tone phone, please contact The Premier Family of
Funds.
HOW TO BUY FUND SHARES
Premier serves as the Fund's distributor. Premier is a wholly-owned subsidiary
of Institutional Administration Services, Inc., a provider of mutual fund
administration services, the parent company of which is Boston Institutional
Group, Inc. Premier also serves as the Fund's sub-administrator and, pursuant to
a Sub-Administration Agreement, provides various administrative and corporate
secretarial services to the Fund.
....................... 15 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premier has established various procedures for purchasing Class R and Class
A Shares of the Fund. Class R Shares are sold primarily to bank trust
departments and other financial service providers (including Mellon Bank and its
affiliates) ("Banks") acting on behalf of customers having a qualified trust or
investment account or relationship at such institution. Class A Shares are
primarily sold to retail investors by Premier and by banks, securities brokers
or dealers and other financial institutions (including Mellon Bank and its
affiliates) ("Agents") that have entered into a Shareholder Servicing and Sales
Support Agreement with Premier. Once an investor has established an account,
additional purchases may, in certain cases, be made directly through the Fund's
transfer agent. If Shares of the Fund are held in an account at a Bank or with
an Agent, such Bank or Agent may require you to place all Fund purchase,
exchange and redemption orders through them. All Banks and Agents have agreed to
transmit your transaction requests to the Fund's transfer agent or to Premier.
You may diversify your investments by choosing a combination of investment
portfolios offered by The Premier Family of Funds.
You may invest in the following ways:
BY MAIL.
Send your application and check or money order to The Premier Family of
Funds, P.O. Box 9692, Providence, Rhode Island 02940-9830. Checks must be
payable in U.S. dollars and drawn on U.S. banks. When making subsequent
investments, enclose your check with the return remittance portion of the
confirmation of your previous investment. If the remittance portion is not
available, indicate on your check or a separate piece of paper your name,
address, the Fund and class of Shares of the Fund that you are buying and the
account number. Orders to purchase Shares are effective on the day the Fund
receives your check or money order. (SEE "WHEN SHARE PRICE IS DETERMINED.")
BY TELEPHONE.
Once your account is open, you may make investments by telephone by calling
1-800-548-2868 if you have elected the service authorizing the Fund to draw on
your bank account by check when you call with instructions. Investments made by
phone in any one account must be in an amount of at least $100 and are effective
two days after your call. (SEE "WHEN SHARE PRICE IS DETERMINED.")
....................... 16 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
BY WIRE.
You may make your initial or subsequent investments in the Fund by wiring
funds. To do so:
(1) Instruct your bank to wire funds to MELLON BANK (ABA routing number
0430-0026-1);
(2) Be sure to specify on the wire:
(A) The Premier Funds.
(B) The Fund name and the class of Shares of the Fund you are buying and
account number (if you have one).
(C) Your name.
(D) Your city and state.
In order for a wire purchase to be effective on the same day it is received
both the trading instructions and the wire must be received before 4 p.m.,
Eastern time. (SEE "WHEN SHARE PRICE IS DETERMINED.")
BY AUTOMATIC MONTHLY INVESTMENTS.
Once your account is open, you may make investments automatically by
electing the Automatic Investment Program, the service authorizing the Fund to
draw on your bank account regularly by paper or electronic draft. Such
investments must be in amounts of not less than $100 in any one account. You
should inquire at your bank whether it will honor a preauthorized paper or
electronic draft. Contact the Fund if your bank requires additional
documentation. Call 1-800-548-2868 or write The Premier Family of Funds, One
Exchange Place, Boston, Massachusetts 02109 for more information about the
Automatic Investment Program.
BY DIRECT DEPOSIT.
If your employer offers Direct Deposit, you may arrange to automatically
purchase Shares of the Fund (minimum $100) each pay period. Direct Deposit
investing may also be available to persons receiving regular payments from other
sources (including government pension or social security payments). Note that it
may not be appropriate to Direct Deposit your entire paycheck into the Fund
because it has a fluctuating NAV. Call 1-800-548-2868 or write The Premier
Family of Funds, One Exchange Place, Boston, Massachusetts 02109 for more
information or a Direct Deposit authorization form.
BY IN-KIND PURCHASES.
If the following conditions are satisfied, the Fund may at its discretion,
permit you to purchase Shares through an "in-kind" exchange of securities you
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The
....................... 17 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
market value of any securities exchanged, plus any cash, must be at least equal
to $25,000. Shares purchased in exchange for securities generally cannot be
redeemed for fifteen days following the exchange in order to allow time for the
transfer to settle.
The basis of the exchange will depend upon the relative NAV of the Shares
purchased and securities exchanged. Securities accepted by the Fund will be
valued in the same manner as the Fund values its assets. Any interest earned on
the securities following their delivery to the Fund and prior to the exchange
will be considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities becomes the property of
the Fund, along with the securities. Call 1-800-548-2868 or write The Premier
Family of Funds, One Exchange Place, Boston, Massachusetts 02109 for more
information about "in-kind" purchases.
OFFERING PRICE
CLASS A SHARES. The public offering price of Class A Shares is the NAV of
that Class plus a sales load as shown below:
<TABLE>
<CAPTION>
Total Sales Load
---------------------------------
Dealers'
Reallowance
As a % of As a % of as a
Offering Net Asset % of
Price Value Offering
Amount of Transaction Per Share Per Share Price
----------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Less than $50,000.................. 4.50 4.70 4.25
$50,000 TO LESS THAN $100,000...... 4.00 4.20 3.75
$100,000 TO LESS THAN $250,000..... 3.00 3.10 2.75
$250,00 TO LESS THAN $500,000...... 2.50 2.60 2.25
$500,000 TO LESS THAN $1,000,000... 2.00 2.00 1.75
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more of Class
A Shares. However, if you purchase Class A Shares without an initial sales
charge as part of an investment of at least $1,000,000 and redeem all or a
portion of those shares within two years after purchase, a CDSC of 1.00% will be
imposed at the time of redemption. The terms contained in the section of the
Fund's Prospectus entitled "How to Redeem Fund Shares--Contingent Deferred Sales
Charge--Class B" (other than the amount of the CDSC and its time periods) are
applicable to the Class A Shares subject to a CDSC. Letter of Intent and Right
of Accumulation apply to such purchases of Class A Shares.
Full-time employees of NASD member firms and full-time employees of other
financial institutions which have entered into an agreement with Premier
pertaining to the sale of Fund Shares (or which otherwise have a brokerage
related or clearing arrangement with an NASD member firm or financial
institution with respect to the sale of such shares) may purchase Class A Shares
for themselves directly or pursuant to an employee benefit plan or other
program,
....................... 18 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
or for their spouses or minor children, at NAV, provided that they have
furnished Premier with such information as it may request time to time in order
to verify eligibility for this privilege. This privilege also applies to
full-time employees of financial institutions affiliated with NASD member firms
whose full-time employees are eligible to purchase Class A Shares at NAV. In
addition, Class A Shares are offered at NAV to full-time or part-time employees
or directors of the Manager or any of its affiliates or subsidiaries, Board
members of a fund advised by the Manager, including members of the Fund's Board,
or the spouse or minor child of any of the foregoing.
Class A Shares will be offered at net asset value without a sales load to
employees participating in certain eligible benefit plans. Class A Shares may be
purchased at NAV through certain broker-dealers and other financial institutions
which have entered into an agreement with Premier, which includes a requirement
that such shares be sold for the benefit of clients participating in a "wrap
account" or a similar program under which such clients pay a fee to such
broker-dealer or other financial institution. Holders of accounts with Class A
Shares of the Fund as of December 19, 1994, may also purchase additional Class A
Shares of the Fund in the same account at NAV.
The dealer reallowance may be changed from time to time but will remain the
same for all dealers. Premier, at its expense, may provide additional
promotional incentives to dealers that sell shares of funds advised by the
Manager which are sold with a sales load, such as Class A Shares. In some
instances, those incentives may be offered only to certain dealers who have sold
or may sell significant amounts of shares. Dealers receive a larger percentage
of the sales load from Premier than they receive for selling most other funds.
CLASS R SHARES. The public offering for Class R Shares is the NAV per share
of that class.
CLASS B SHARES. The public offering price for Class B Shares is the NAV of
that class. No initial sales charge is imposed at the time of purchase. A CDSC
is imposed, however, on certain redemptions of Class B Shares as described under
"How to Redeem Fund Shares--Contingent Deferred Sales Charge--Class B Shares."
Premier compensates certain Service Agents for selling Class B Shares at the
time of purchase from Premier's own assets. The proceeds of the CDSC and the
distribution fee, in part, are used to defray these expenses.
CLASS C SHARES. The public offering price for Class C Shares is the NAV of
that class. No initial sales charge is imposed at the time of purchase. A CDSC,
however, is imposed on redemptions of Class C Shares made within the first year
of purchase. See "HOW TO REDEEM FUND SHARES--CONTINGENT DEFERRED SALES
CHARGES--CLASS C SHARES."
RIGHT OF ACCUMULATION--CLASS A SHARES. Reduced sales loads apply to any
purchase of Class A Shares, shares of other funds in the Premier Family of
Funds, shares of certain other funds advised by the Manager which are sold with
a sales load, and shares acquired by a
....................... 19 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
previous exchange of such shares (hereinafter referred to as "Eligible Funds"),
by you and any related "purchaser" as defined in the SAI, where the aggregate
investment, including such purchase, is $50,000 or more. If, for example, you
previously purchased and still hold Class A Shares, or shares of any other
Eligible Fund or combination thereof, with an aggregate current market value of
$40,000 and subsequently purchase Class A Shares or shares of an Eligible Fund
having a current value of $20,000, the sales load applicable to the subsequent
purchase would be reduced at 4% of the offering price. All present holdings of
Eligible Funds may be combined to determine the current offering price of the
aggregate investment in ascertaining the sales load applicable to each
subsequent purchase.
To qualify for reduced sales loads, at the time of purchase of you or your
Service Agent must notify Premier if orders are made by wire, or the transfer
agent if orders are made by mail. The reduced sales is subject to confirmation
of your holdings through a check of appropriate records.
LETTER OF INTENT--CLASS A SHARES. By signing a Letter of Intent form,
available from Premier, you become eligible for the reduced sales load
applicable to the total number of Eligible Fund shares purchased in a 13-month
period pursuant to the terms and conditions set forth in the Letter of Intent. A
minimum initial purchase of $5,000 is required. To compute the applicable sales
load, the offering price of shares you hold (on the date of submission of the
Letter of Intent) in any Eligible Fund that may be used toward "Right of
Accumulation" benefits described above may be used as a credit toward completion
of the Letter of Intent. However, the reduced sales load will be applied only to
new purchases.
The transfer agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if you do not purchase the
full amount indicated in the Letter of Intent. The escrow will be released when
you fulfill the terms of the Letter of Intent by purchasing the specified
amount. If your purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect your total purchase at the end of 13 months. If
total purchases are less than the amount specified, you will be requested to
remit an amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If such
remittance is not received within 20 days, the transfer agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A Shares of the Fund held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase, or the
Fund to sell, the full amount indicated at the sales load in effect at the time
of signing, but you must complete the intended purchase to obtain the reduced
sales load. At the time you purchase Class A Shares, you must indicate your
intention to do so under a Letter of Intent.
....................... 20 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
WHEN SHARE PRICE IS DETERMINED.
NAV is determined on each day that the New York Stock Exchange ("NYSE") is
open (a "business day"). Investments and requests to exchange or redeem Shares
received by the Fund before the close of business on the NYSE (usually 4 p.m.,
Eastern time) are effective on, and will receive the price determined on that
day (except investments made by electronic funds transfer which are effective
two business days after your call). Investment, exchange or redemption requests
received after the close of the NYSE are effective on, and receive the Share
price determined on the next business day.
ADDITIONAL INFORMATION ABOUT INVESTMENTS.
Once you have mailed or otherwise transmitted your investment instructions
to the Fund, they may not be modified or canceled. The Fund reserves the right
to reject any application or investment. The Fund reserves the right to make
exceptions to the minimum initial investment and account minimum amount from
time to time.
The minimum initial investment to establish a new account in the Fund is
$1,000, except for Individual Retirement Accounts ("IRAs"), retirement plans,
and Uniform Transfers (Gifts) to Minors Act accounts, for which the minimum
initial investment is $500. The Fund may suspend the offering of Shares of any
class of the Fund and reserves the right to vary initial and subsequent
investment minimums. Subsequent investments to purchase additional Shares in the
Fund must be in an amount of $100 or more.
The Fund intends, upon 60 days' prior notice, to involuntarily redeem Shares
in any account if the total value of the Shares is less than a specified minimum
unless you have established an automatic monthly investment to purchase
additional Shares. The Premier Family of Funds reserves the right to change such
minimum from time to time. Any time the Shares of the Fund held in an account
have a value of less than $1,000 ($500 for Uniform Gifts/Transfers to Minors
Acts accounts), unless the deficiency amount is the result of a decrease in NAV,
a notification may be sent advising you of the need to either make an investment
to bring the value of the Shares held in the account up to $1,000 ($500) or to
establish an automatic monthly investment to purchase additional Shares. If the
investment is not made or the automatic monthly investment is not established
within 60 days from the date of notification, the Shares held in the account
will be redeemed and the proceeds from the redemption will be sent by check to
your address of record.
The automatic redemption of Shares will not apply to IRAs, custodial
accounts under Section 403(b) of the Internal Revenue Code of 1986, as amended
("the Code") ("403(b) accounts") and other types of tax-deferred retirement plan
accounts.
....................... 21 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW TO EXCHANGE YOUR INVESTMENT
FROM ONE FUND TO ANOTHER
You may exchange your Fund Shares for shares of the same class of certain other
funds advised by the Manager and that were previously advised by Mellon Bank. As
noted below, exchanges from any one fund account may be limited in any one
calendar year. In addition, the Shares being exchanged and the Shares of the
fund being acquired must have a current value of at least $100 and otherwise
meet the minimum investment requirement of the fund being acquired. Call the
Investor Line for additional information and a prospectus describing other
investment portfolios offered by The Premier Family of Funds.
Shares will be exchanged at the next determined NAV; however, a sales load
may be charged with respect to exchanges of Class A shares into funds sold with
a sales load. No CDSC will be imposed on Class B or C shares at the time of an
exchange; however, Class B or C shares acquired through an exchange will be
subject to the higher CDSC applicable to the exchanged or acquired shares. The
CDSC applicable on redemption of the acquired Class B or C shares will be
calculated from the date of the initial purchase of the Class B or C shares
exchanged, as the case may be. If you are exchanging Class A shares into a fund
that charges a sales load, you may qualify for share prices which do not include
the sales load or which reflect a reduced sales load, if the shares of the fund
from which you are exchanging were: (a) purchased with a sales load, (b)
acquired by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect to
the foregoing categories of shares. To qualify, at the time of the exchange your
Service Agent must notify Premier. Any such qualification is subject to
confirmation of your holdings through a check of appropriate records. No fees
currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal fee in accordance with rules
promulgated by the SEC. The Fund reserves the right to reject any exchange
request in whole or in part.
BY TELEPHONE.
You may exchange your Shares by calling 1-800-548-2868 if you have
authorized the Fund to accept telephone instructions.
BY MAIL.
You may direct the Fund to exchange your Shares by writing to The Premier
Family of Funds, P.O. Box 9692, Providence, Rhode Island 02940-9830. The request
should be signed by each person in whose name the Shares are registered. All
signatures should be exactly as the name appears in the registration; for
example, if an owner's name is registered as John Robert Jones, he should sign
that way and not as John R. Jones.
....................... 22 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT EXCHANGES.
(1) In an exchange from one account to another account, the Shares being
sold and the new Shares being purchased must have a current value of at
least $100.
(2) Exchanges from any one fund account may be limited in any one calendar
year. The Fund reserves the right to make exceptions to an exchange
limitation from time to time. An exchange limitation will not apply to
the exchange of the Shares of any of the funds exchanged pursuant to an
Automatic Withdrawal Program, and to Shares held in 403(b) accounts.
(3) The Shares being acquired must be qualified for sale in your state of
residence.
(4) If the Shares are represented by a negotiable stock certificate, the
certificate must be returned before the exchange can be effected.
(5) Once you have telephoned or mailed your exchange request, it is
irrevocable and may not be modified or canceled.
(6) An exchange is based on the next calculated NAV of each fund after
receipt of your exchange order.
(7) Shares may not be exchanged unless you have furnished the Fund with your
taxpayer identification number, certified as prescribed by the Code and
regulations thereunder. (SEE "TAXES.")
(8) Exchange of Fund Shares is, for federal income tax purposes, a sale of
the Shares on which you may realize a taxable gain or loss.
(9) If the request is made by a corporation, partnership, trust, fiduciary,
agent, estate, guardian, pension plan, profit sharing plan or
unincorporated association, the Fund may require evidence satisfactory
to it of the authority of the individual signing the request.
Shareholders will be given sixty days' notice prior to any material changes
in the exchange privilege.
HOW TO REDEEM SHARES
The Fund will redeem or "buy back" your Shares at any time at their NAV. (BEFORE
REDEEMING, PLEASE READ "ADDITIONAL INFORMATION ABOUT REDEMPTIONS.") Your
redemption proceeds may be delayed if you have owned your Shares less than 10
days. (SEE "REDEMPTION PROCEEDS.")
If an investor fails to specify the class of Shares to be redeemed or if he
or she owns fewer shares of the class than specified to be redeemed, the
redemption request may be delayed until the Transfer Agent receives further
instructions from the investor or his or her Service Agent.
....................... 23 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund imposes no charges (other than any applicable CDSC) when shares are
redeemed directly through Premier. Service Agents or other institutions may
charge their clients a nominal fee for effecting redemptions of Fund shares.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A CDSC payable to Premier
is imposed on any redemption of Class B Shares which reduces the current NAV of
your Class B Shares to an amount which is lower than the dollar amount of all
payments by you for the purchase of Class B Shares of the Fund held by you at
the time of redemption. No CDSC will be imposed to the extent that the NAV of
the Class B Shares redeemed does not exceed (i) the current NAV of Class B
Shares acquired through reinvestment of dividends or capital gain distributions,
plus (ii) increases in the NAV of your Class B Shares above the dollar amount of
all your payments for the purchase of Class B Shares held by you at the time of
redemption.
If the aggregate value of Class B Shares redeemed has declined below their
original cost as a result of the Fund's performance, a CDSC may be applied to
the then-current NAV rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge will
depend on the number of years from the time you purchased the Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of Class B
Shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates of
the CDSC:
<TABLE>
<CAPTION>
CDSC as a
% of Amount
Year Since Invested or
Purchase Payment Redemption
Was Made Proceeds
- ------------------ ---------------
<S> <C>
First.......................................................... 4.00
Second......................................................... 4.00
Third.......................................................... 3.00
Fourth......................................................... 3.00
Fifth.......................................................... 2.00
Sixth.......................................................... 1.00
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV of Class B Shares above the total
amount of payments for the purchase of Class B Shares made during the preceding
six
....................... 24 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
years; then of amounts representing the cost of shares purchased six years prior
to the redemption; and finally, of amounts representing the cost of shares held
for the longest period of time within the applicable six-year period.
For example, assume an investor purchased 100 shares at $10 share for a cost
of $1,000. Subsequently, the shareholder acquired five additional shares through
dividend reinvestment. During the second year after the purchase the investor
decided to redeem $500 of his or her investment. Assuming at the time of the
redemption the net asset value had appreciated to $12 per share, the value of
the investor's shares would be $1,260 (105 shares at $12 per share). The CDSC
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4% (the
applicable rate in the second year after purchase) for a total CDSC of $9.60.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A CDSC of 1% payable to
Premier is imposed on any redemption of Class C Shares within one year of the
date of purchase. The basis for calculating the payment of any such CDSC will be
the method used in calculating the CDSC for Class B Shares. SEE "CONTINGENT
DEFERRED SALES CHARGE--CLASS B SHARES" ABOVE.
WAIVER OF CDSC. The CDSC applicable to Class B and Class C Shares will be
waived in connection with (a) redemptions made within one year after the death
or disability, as defined in Section 72(m)(7) of the Code, of the shareholder,
(b) redemptions by employees participating in certain eligible benefit plans,
(c) redemptions as a result of a combination of any investment company with the
Fund by merger, acquisition of assets or otherwise, (d) a distribution following
retirement under a tax-deferred retirement plan or upon attaining age 70 1/2 in
the case of an IRA or Keogh plan or custodial account pursuant to Section 403(b)
of the Code, and (e) redemptions by such shareholders as the SEC or its staff
may permit. If the Fund's Directors determine to discontinue the waiver of the
CDSC, the disclosure in the Fund's Prospectus will be revised appropriately. Any
Fund Shares subject to a CDSC which were purchased prior to the termination of
such waiver will have the CDSC which were purchased prior to the termination of
such waiver will have the CDSC waived as provided in the Fund's Prospectus at
the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption an investor
must notify the Transfer Agent or his or her Service Agent must notify Premier.
Any such qualification is subject to confirmation of the investor's entitlement.
....................... 25 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY TELEPHONE.
If you have authorized the Fund to accept telephone instructions, you may
redeem your Shares by calling 1-800-548-2868. Once made, your telephone request
may not be modified or canceled. (BEFORE CALLING, READ "ADDITIONAL INFORMATION
ABOUT REDEMPTIONS" AND "WHEN SHARE PRICE IS DETERMINED.")
BY MAIL.
Your written instructions to redeem Shares may be in any one of the
following forms:
-A LETTER TO THE PREMIER FAMILY OF FUNDS.
-AN ASSIGNMENT FORM OR STOCK POWER.
-AN ENDORSEMENT ON THE BACK OF YOUR NEGOTIABLE STOCK CERTIFICATE, IF YOU
HAVE ONE.
Once mailed to The Premier Family of Funds, P.O. Box 9692, Providence, Rhode
Island 02940-9830 the redemption request is irrevocable and may not be modified
or canceled. A letter of instruction should state the number of Shares or the
dollar amount to be redeemed. The letter must include your account number, and,
for redemptions in an amount in excess of $25,000, a signature guarantee of each
owner. The redemption request must be signed by each person in whose name the
Shares are registered; for example, in the case of joint ownership, each owner
must sign. All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as John Robert
Jones, he should sign that way and not as John R. Jones. Signature guarantees
can be obtained from commercial banks, credit unions if authorized by state
laws, savings and loans institutions, trust companies, members of a recognized
stock exchange, or from other eligible guarantors who are members of the
Securities Transfer Agents Medallion Program ("STAMP") or any other industry
recognized program approved by the Securities Transfer Association. (BEFORE
WRITING, SEE "ADDITIONAL INFORMATION ABOUT REDEMPTIONS.")
BY AUTOMATED WITHDRAWAL PROGRAM.
The Fund's Automated Withdrawal Program automatically redeems enough Shares
each month to provide you with a check for an amount which you specify (with a
minimum of $100). To set up an Automated Withdrawal Program, call the Fund at
1-800-548-2868 for instructions. Only shareholders with an account balance of
$10,000 or more may participate in this program. Shares will be redeemed on the
15th day or 30th day of each month or the next business day, and your check will
be mailed the next day. If your monthly checks exceed the dividends, interest
and capital appreciation on your Shares, the payments will deplete your
investment. Amounts paid
....................... 26 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
to you by Automated Withdrawals are not a return on your investment. They are
derived from the redemption of Shares in your account, and you must report on
your income tax return any gains or losses that you realize.
You may specify an Automated Withdrawal Program when you make your first
investment. If you would like to establish an Automated Withdrawal Program
thereafter, the request for the Automated Withdrawal Program must be signed by
all owners, with their signatures guaranteed.
When you make your first investment you may request that Automated
Withdrawals be sent to an address other than the address of record. Thereafter,
a request to send Automated Withdrawals to an address other than the address of
record must be signed by all owners, with their signatures guaranteed.
The Fund may terminate the Automated Withdrawal Program at any time, upon
notice to you, and you likewise may terminate it or change the amount of the
Automated Withdrawal Program, by notice to the Fund in writing or by telephone.
Termination or change will become effective within five days following receipt
of your instruction. Your Automated Withdrawal Program plan may begin any time
after you have owned your Shares for 10 days.
REDEMPTION PROCEEDS.
Redemption proceeds may be sent to you:
BY MAIL. If your redemption check is mailed, it is usually mailed by the
second business day after receipt of your redemption request, but not later than
seven days afterwards. When a redemption occurs shortly after a recent purchase,
the Fund may hold the redemption proceeds beyond seven days but only until the
purchase check clears, which may take up to 10 days or more. No dividend is paid
on the redemption proceeds after the redemption and before the check is mailed.
If you anticipate redemptions soon after you purchase your Shares, you are
advised to wire funds to avoid delay.
BY WIRE AND ELECTRONIC FUNDS TRANSFER. You may authorize the Fund to
transmit redemption proceeds by wire or electronic funds transfer. Proceeds from
the redemption of Fund Shares will normally be transmitted on the first business
day, but not later than the seventh day, following the date of redemption. Your
bank usually will receive wired funds the day they are transmitted.
Electronically transferred funds will ordinarily be received within two business
days after transmission. Once the funds are transmitted, the time of receipt and
the availability of the funds are not within the Fund's control. If your bank
account changes, you must send a new "voided" check preprinted with the bank
registration with written instructions signed by all owners (with their
signatures guaranteed), including tax identification number.
....................... 27 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
(1) Redemptions specifying a certain date or price cannot be accepted and
will be returned.
(2) If the Shares being redeemed are represented by a negotiable stock
certificate, the certificate must be returned before the redemption can
be effected.
(3) All redemptions are made and the price is determined on the day when all
documentation is received in good order.
(4) If the request to redeem is made by a corporation, partnership, trust,
fiduciary, agent, estate, guardian, pension plan, profit sharing plan,
or unincorporated association, the Fund may require evidence
satisfactory to it of the authority of the individual signing the
request. Please call or write the Fund for further information.
(5) A request to redeem Shares in an IRA or 403(b) account must be
accompanied by an IRS Form W4-P and a reason for withdrawal as specified
by the Internal Revenue Service.
HOW TO USE THE PREMIER FAMILY OF FUNDS
IN A TAX-QUALIFIED RETIREMENT PLAN
The Premier Family of Funds' investment portfolios are available for your
tax-deferred retirement plan. Call 1-800-548-2868 or write The Premier Family of
Funds, P.O. Box 9692, Providence, Rhode Island 02940-9830 and request the
appropriate forms for:
-IRAS.
- 403(B) ACCOUNTS FOR EMPLOYEES OF PUBLIC SCHOOL SYSTEMS AND NON-PROFIT
ORGANIZATIONS.
- PROFIT-SHARING PLANS AND PENSION PLANS FOR CORPORATIONS AND OTHER
EMPLOYERS.
HOW TO TRANSFER AN INVESTMENT TO A PREMIER FAMILY OF FUNDS' RETIREMENT PLAN.
It is easy to transfer your tax-deferred plan to The Premier Family of Funds
from another custodian. Call 1-800-548-2868 or write The Premier Family of
Funds, P.O. Box 9692, Providence, Rhode Island 02940-9830 for a request to
transfer form. If you direct The Premier Family of Funds to transfer funds from
an existing non-retirement Premier Family of Funds account into a retirement
account, the Shares in your non-retirement account will be redeemed. The
redemption proceeds will be invested in your Premier Family of Funds IRA or
other tax-qualified retirement plan. The redemption is a taxable event resulting
in a taxable gain or loss.
....................... 28 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------
OTHER INFORMATION
SHARE PRICE
An investment portfolio's NAV refers to the worth of one Share. The NAV for
Class A and Class R Shares of the Fund is computed by adding with respect to
each class of Shares the value of all the class' investments, cash, and other
assets, deducting liabilities and dividing the result by number of Shares of
that class outstanding. The valuation of assets for determining NAV for the Fund
may be summarized as follows:
The portfolio securities of the Fund, except as otherwise noted, listed or
traded on a stock exchange, are valued at the latest sale price. If no sale is
reported, the mean of the latest bid and asked prices is used. Securities traded
over-the-counter are priced at the mean of the latest bid and asked prices but
will be valued at the last sale price if required by regulations of the SEC.
International securities traded principally over-the-counter and international
securities listed on an exchange are valued on the basis of the last sale price.
When market quotations are not readily available, securities and other assets
are valued at fair value as determined in good faith in accordance with
procedures established by the Board of Directors.
Bonds are valued through valuations obtained from a commercial pricing
service or at the most recent mean of the bid and asked prices provided by
investment dealers in accordance with procedures established by the Board of
Directors.
Pursuant to a determination by The Dreyfus/Laurel Funds, Inc.'s Board of
Directors that such value represents fair value, the debt securities with
maturities of 60 days or less held by the Fund are valued at amortized cost.
When a security is valued at amortized cost, it is valued at its cost when
purchased, and thereafter by 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.
The NAV of each class of Shares of most of The Premier Family of Funds'
investment portfolios (other than money market funds) is published in leading
newspapers daily. The yield of each class of Shares of most of The Premier
Family of Funds' money market funds is published weekly in leading financial
publications and in many local newspapers. The NAV of the Fund may also be
obtained by calling The Premier Family of Funds.
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise the yield and total return on a class
of Shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of Shares of the Fund may be calculated on an
....................... 29 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
average annual total return basis or a cumulative total return basis. Average
annual total return refers to the average annual compounded rates of return on a
class of Shares over one-, five-, and ten-year periods or the life of the Fund
(as stated in the advertisement) that would equate an initial amount invested at
the beginning of a stated period to the ending redeemable value of the
investment, assuming the reinvestment of all dividends and capital gains
distributions. Cumulative total return reflects the total percentage change in
the value of the investment over the measuring period, again assuming the
reinvestment of all dividends and capital gains distributions.
The Fund's "yield" is calculated by dividing a class of Shares' annualized
net investment income per Share during a recent 30-day (or one month) period by
the maximum public offering price per class of such Share on the last day of
that period. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a class of Shares with bank deposits, savings accounts,
and similar investment alternatives which often provide an agreed-upon or
guaranteed fixed yield for a stated period of time.
Total return and yield quotations will be computed separately for each class
of the Fund's Shares. Because of the difference in the fees and expenses borne
by Class R and Class A Shares of the Fund, the return and yield on Class R
Shares will generally be higher than the return and yield on Class A Shares. Any
fees charged by a Bank or Agent directly to its customers' account in connection
with investments in the Fund will not be included in calculations of total
return or yield. The Fund's annual report and semi-annual report contain
additional performance information and is available upon request without charge
from the Fund's distributor or your Bank or Agent.
The Fund may compare the performance of its Class R and Class A Shares with
various industry standards of performance including Lipper Analytical Services,
Inc. ratings, Standard & Poor's 500 Composite Stock Price Index, Russell 2500
Stock Index, CDA Technologies indexes, indexes created by Lehman Brothers, the
Consumer Price Index, and the Dow Jones Industrial Average. Performance rankings
as reported in CHANGING TIMES, BUSINESS WEEK, INSTITUTIONAL INVESTOR, THE WALL
STREET JOURNAL, MUTUAL FUND FORECASTER, NO LOAD INVESTOR, MONEY MAGAZINE,
MORNINGSTAR MUTUAL FUND VALUES, U.S. NEWS AND WORLD REPORT, FORBES, FORTUNE,
BARRON'S and similar publications may also be used in comparing the Fund's
performance. Furthermore, the Fund may quote its Class R and Class A Shares'
total returns and yields in advertisements or in shareholder reports. The Fund
may also advertise non-standardized performance information, such as total
return for periods other than those required to be shown or cumulative
performance data. The Fund may advertise a quotation of yield or other similar
quotation demonstrating the income earned or distributions made by the Fund.
....................... 30 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTIONS
The Fund declares and pays dividends (on the first business day of the following
month) four times yearly, at the beginning of May, August, November and in
mid-December, from its net investment income, if any, and distributes any net
long-term capital gains on an annual basis. The Board of Directors may elect not
to distribute capital gains in whole or in part to take advantage of capital
loss carryovers.
Unless you choose to receive dividend and/or capital gain distributions in
cash, your distributions will be automatically reinvested in additional Shares
of the Fund at the NAV. You may change the method of receiving distributions at
any time by writing to the Fund. Checks which are sent to shareholders who have
requested distributions to be paid in cash and which are subsequently returned
by the United States Postal Service as not deliverable or which remain uncashed
for six months or more will be reinvested in additional Fund Shares in the
shareholder's account at the then current NAV. Subsequent Fund distributions
will be automatically reinvested in additional Fund Shares in the shareholder's
account.
Distributions paid by the Fund with respect to one class of Shares may be
greater or less per Share than those paid with respect to another class of
Shares due to the different expenses of the different classes.
Shares purchased on a day on which the Fund calculates its NAV will not
begin to accrue dividends until the following day. Redemption orders effected on
any particular day will receive all dividends declared through the day of
redemption.
You may elect to have distributions on Shares held in an IRA and 403(b)
account paid in cash only if you are at least 59 1/2 years old or are
permanently and totally disabled. Distribution checks normally are mailed within
seven days after the record date.
Any dividend and/or capital gain distribution paid by the Fund will reduce
each Share's NAV by the amount of the distribution. Shareholders are subject to
taxes with respect to any such distribution. At any given time, the value of the
Fund's Shares includes the undistributed net gains, if any, realized by the Fund
on the sale of portfolio securities, and undistributed dividends and interest
received, less the Fund's expenses. Because such gains and income are included
in the value of your Shares, when they are distributed the value of your Shares
is reduced by the amount of the distribution. Accordingly, if your distribution
is reinvested in additional Shares, the distribution has no effect on the value
of your investment; while you own more Shares, the value of each Share has been
reduced by the amount of the distribution. Likewise, if you take your
distribution in cash, the value of your Shares immediately after the
distribution plus the cash received is equal to the value of the Shares
immediately before the distribution. For example, if you own a Fund Share that
immediately before a distribution has a value of $10, including $2 in
undistributed dividends and capital gains realized by the Fund during the year,
and if the $2 is
....................... 31 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
distributed, the value of the Share will decline to $8. If the $2 is reinvested
at $8 per Share, you will receive .250 Shares, so that, after the distribution,
you will have 1.250 Shares at $8 per Share, or $10, the same as before.
TAXES
The Fund intends to qualify for treatment as a regulated investment company
under the Code so that it will be relieved of Federal income tax on that part of
its investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain) and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) that is
distributed to its shareholders.
Dividends from the Fund's investment company taxable income are taxable to
you as ordinary income, to the extent of the Fund's earnings and profits.
Distributions by the Fund of net capital gain, when designated as such, are
taxable to you as long-term capital gains, regardless of the length of time you
have owned your Shares.
All or a portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by the Fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
Dividends and other distributions are taxable to you regardless of whether
they are received in cash or reinvested in additional Fund Shares, even if the
value of your Shares is below your cost. If you purchase Shares shortly before a
taxable distribution, you must pay income taxes on the distribution, even though
the value of your investment (plus cash received, if any) remains the same. In
addition, the Share price at the time you purchase Shares may include unrealized
gains in the securities held in the Fund. If these portfolio securities are
subsequently sold and the gains are realized, they will, to the extent not
offset by capital losses, be paid to you as a capital gain distribution and will
be taxable to you.
Dividends paid by the Fund to qualified retirement plans ordinarily will not
be subject to taxation until the proceeds are distributed from the retirement
plans. The Fund will not report to the IRS dividends paid to such plans.
Generally, distributions from qualified retirement plans, except those
representing returns of non-deductible contributions thereto, will be taxable as
ordinary income and, if made prior to the time the participant reaches age
59 1/2, generally will be subject to an additional tax equal to 10% of the
taxable portion of the distribution. If the distribution from such a retirement
plan (other than certain governmental or church plans) for any taxable year
following the year in which the participant reaches age 70 1/2 is less than the
....................... 32 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
"minimum required distribution" for that taxable year, an excise tax equal to
50% of the deficiency may be imposed by the IRS. The administrator, trustee or
custodian of such a retirement plan will be responsible for reporting such
distributions from such plans to the IRS. Moreover, certain contributions to a
qualified retirement plan in excess of the amounts permitted by law may be
subject to an excise tax.
In January of each year, the Fund will send you a Form 1099-DIV notifying
you of the status for Federal income tax purposes of your distributions for the
preceding year.
You must furnish the Fund with your taxpayer identification number ("TIN")
and state whether you are subject to withholding for prior under-reporting,
certified under penalties of perjury as prescribed by the Code and the
regulations thereunder. Unless previously furnished, investments received
without such a certification will be returned. The Fund is required to withhold
a portion of all dividends, capital gain distributions and redemption proceeds
payable to any individuals and certain other non-corporate shareholders who do
not provide the Fund with a correct TIN; withholding from dividends and capital
gain distributions also is required for such shareholders who otherwise are
subject to backup withholding.
The Fund will be subject to a 4% nondeductible excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
taxable ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
The Fund expects to make such distributions as are necessary to avoid the
imposition of this tax.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Fund and its shareholders; see the SAI for a further
discussion. There may be other federal, state or local tax considerations
applicable to a particular investor. You therefore are urged to consult your own
tax adviser.
OTHER SERVICES
At least twice a year you will receive the financial statements of the Fund with
a summary of its investments and performance. The Fund will send you a
confirmation statement after every transaction (except with regard to the
reinvestment of dividends and other distributions) that affect your Fund
account. In addition, an account statement will be mailed to you quarterly or
monthly depending on the Fund's reporting schedule. You may also request a
statement of your account activity at any time. Carefully review such
confirmation statements and account statements and notify the Fund immediately
if there is an error. From time to time, to reduce expenses, only one copy of
the Fund's shareholder reports (such as the Fund's annual report) may be mailed
to your household. Please call the Fund if you need additional copies.
....................... 33 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No later than January 31 of each year, the Premier Family of Funds will send
you the following reports, which you may use in completing your Federal income
tax return:
Form 1099-DIV Reports taxable distributions (and returns of capital, if any)
during the preceding year.
Form 1099-B Reports proceeds paid on redemptions during the preceding year.
Form 1099-R Reports distributions from IRAs and 403(b) accounts during the
preceding year.
At such time as prescribed by law, the Fund will send you a Form 5498, which
reports contributions to your IRA for the previous calendar year. In addition,
the Fund may send you other relevant tax-related forms.
FURTHER INFORMATION ABOUT THE FUNDS
THE DREYFUS/LAUREL FUNDS, INC.
The Laurel Funds, Inc. was incorporated in Maryland on August 6, 1987 and
changed its name to The Dreyfus/Laurel Funds, Inc. on October 17, 1994. The
Dreyfus/Laurel Funds, Inc. is registered with the SEC under the 1940 Act as a
diversified, open-end management investment company. The Dreyfus/Laurel Funds,
Inc. has an authorized capitalization of 25 billion Shares of $0.001 par value
stock with equal voting rights. The Articles of Incorporation permit the
Directors to create an unlimited number of investment portfolios (each a
"fund"). The Directors of The Dreyfus/Laurel Funds, Inc. have authorized Shares
of the Fund to be issued in four classes-- Class A, Class R, Class B and Class
C.
Each Share (regardless of class) has one vote. All Shares of a fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
funds or classes, in which case only the shareholders of the affected fund or
classes are entitled to vote, each as a separate class. At your written request,
the Fund will issue negotiable stock certificates.
At December 6, 1994, Mellon Bank Corporation, the investment manager's
parent, owned of record through its direct and indirect subsidiaries more than
25% of the Company's outstanding voting shares, and is deemed, under the 1940
Act, to be a controlling shareholder.
MANAGEMENT.
THE BOARD OF DIRECTORS. The business affairs of The Dreyfus/Laurel Funds,
Inc. are managed under the direction of its Directors. The SAI contains the
names and general background information concerning the Directors and officers
of The Dreyfus/Laurel Funds, Inc.
....................... 34 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT MANAGER. The Manager is located at 200 Park Avenue, New York, New
York 10166. As of November 30, 1994, the Manager managed or administered
approximately $71 billion in assets for more than 1.9 million investor accounts
nationwide. The Manager is a wholly-owned subsidiary of Mellon Bank (One Mellon
Bank Center, Pittsburgh, Pennsylvania 15258), the Fund's prior investment
manager. Pursuant to an Investment Management Agreement, transferred from Mellon
Bank to the Manager effective as of October 17, 1994, the Manager provides, or
arranges for one or more third parties to provide, investment advisory,
administrative, custody, fund accounting and transfer agency services to the
Fund. As investment manager, the Manager manages the Fund by making investment
decisions based on the Fund's investment objective, policies and restrictions,
and is paid a fee.
Under the Investment Management Agreement, the Fund pays a fee computed
daily, and paid monthly, at the annual rate of 1.25% of the Fund's average daily
net assets less certain expenses described below. The Manager pays all of the
expenses of the Fund except taxes, interest, fees, expenses of the
non-interested Directors (including counsel fees) and extraordinary expenses.
Although the Manager does not pay for the fees and expenses of the
non-interested Directors (including counsel fees), the Manager is contractually
required to reduce its investment management fee in an amount equal to the
Fund's allocable share of such expenses. In order to compensate the Manager for
paying virtually all of the Fund's expenses, the Fund's investment management
fee is higher than the investment advisory fees paid by most investment
companies. Most if not all, such companies also pay for additional
non-investment advisory expenses that are not paid by such companies' investment
adviser. From time to time, the Manager may waive (either voluntarily or
pursuant to applicable state limitations) additional investment management fees
payable by the Fund.
The Manager is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Manager or
which have sold Shares of the Fund, if the Manager believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which Mellon Bank has a lending relationship.
Mellon Bank is a subsidiary of Mellon Bank Corporation. At June 30, 1994,
Mellon Bank Corporation was the 24th largest bank holding company in the United
States in terms of total assets. Through its bank subsidiaries, it operates 631
domestic retail banking locations including 432 branch offices. Mellon Bank
Corporation has 25 domestic representative offices. There are international
branches in Grand Cayman, British West Indies, and London, England, and two
....................... 35 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
international representative offices in Tokyo, Japan, and Hong Kong. Mellon Bank
has a banking subsidiary, Mellon Bank Canada, in Toronto. Mellon Bank is a
registered municipal securities dealer.
The Glass-Steagall Act of 1933 prohibits a national bank from engaging in
the business of issuing, underwriting, selling or distributing certain
securities. The activities of Mellon Bank and the Manager may raise issues under
these provisions. However, Mellon Bank has been advised by its counsel that
these activities are consistent with these statutory and regulatory obligations.
For more information on the Glass-Steagall Act of 1933, see "FEDERAL LAW
AFFECTING MELLON BANK" in the SAI.
The Fund is managed by James Wadsworth. Mr. Wadsworth is Vice President and
Director of Investment Research for Laurel Capital Advisers and Vice President
and Director of Investment Research for Mellon Bank. Mr. Wadsworth is a
portfolio manager at the Manager and has been employed by the Manager since
October 17, 1994. Mr. Wadsworth has been employed by Mellon Bank since 1977.
OTHER SERVICE PROVIDERS.
Under a Custody and Fund Accounting Agreement, Mellon Bank acts as custodian
and fund accountant, maintaining possession of the Fund's investment securities
and providing certain accounting and related services.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, serves as transfer agent ("Transfer Agent") for the Fund's Shares.
The Transfer Agent is located at One American Express Plaza, Providence, Rhode
Island 02903.
Shares of the Fund are sold on a continuous basis by Premier, as the Fund's
sponsor and distributor. Premier is a registered broker-dealer with principal
offices at One Exchange Place, Boston, Massachusetts 02109. The Fund has entered
into a distribution agreement with Premier which provides that Premier has the
exclusive right to distribute Shares of the Fund. Premier may pay service and/or
distribution fees to Agents that assist customers in purchasing and servicing of
Shares of the Funds. (SEE "INVESTOR SHARES' DISTRIBUTION PLAN.")
DISTRIBUTION PLANS (CLASS A PLAN AND CLASS B AND C PLANS).
Class A Shares are subject to a Distribution Plan adopted pursuant to Rule
12b-1 under the 1940 Act ("Rule 12b-1"). Class B and C shares are subject to a
Distribution Plan, each adopted pursuant to Rule 12b-1. Potential investors
should read this Prospectus in light of the terms governing Agreements with
their Service Agents. A Service Agent entitled to receive compensation for
selling and servicing the Fund's shares may receive different compensation with
respect to one class of Shares over another.
....................... 36 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R O S P E C T U S
------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION PLAN--CLASS A. The holders of the Class A Shares of the Fund
bear some of the cost of selling those Shares under the Distribution Plan (the
"Plan"). The Plan allows the Fund to spend annually up to 0.25% of its average
daily net assets attributable to Class A Shares to compensate Dreyfus Service
Corporation, an affiliate of the Manager, for shareholder servicing activities
and Premier for shareholder servicing activities and for activities or expenses
primarily intended to result in the sale of Class A Shares of the Fund. The Plan
allows Premier to make payments from the Rule 12b-1 fees it collects from the
Fund to compensate Service Agents that have entered into Agreements with
Premier. Under the Agreements, the Service Agents are obligated to provide
distribution related services with regard to the Fund and/or shareholder
services to the Service Agent's clients that own Class A Shares of the Fund.
The Fund and Premier may suspend or reduce payments under the Plan at any
time, and payments are subject to the continuation of the Fund's Plan and the
Agreements described above. From time to time, the Service Agents, Premier and
the Fund may agree to voluntarily reduce the maximum fees payable under the
Plan. See the SAI for more details on the Plan.
DISTRIBUTION AND SERVICE PLANS--CLASS B AND C. Under a Distribution Plan
adopted pursuant to Rule 12b-1, the Fund pays Premier for distributing the
Fund's Class B and C Shares, at an aggregate annual rate of .75 or 1% of the
value of the average daily net assets of Class B and C. Under a Service Plan
adopted pursuant to Rule 12b-1, the Fund pays Dreyfus Service Corporation or
Premier for the provision of certain services to the holders of Class B and C
Shares a fee at the annual rate of .25 of 1% of the value of the average daily
net assets of Class B and C. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and providing
services related to the maintainance of such shareholder accounts. With regard
to such services; each Service Agent is required to disclose to its clients any
compensation payable to it by the Fund and any other compensation payable by
their clients in connection with the investment of their assets in Class B and C
Shares. Premier may pay one or more Service Agents in respect of distribution
and other services for these Classes of shares. Premier determines the amounts,
if any, to be paid to Service Agents under the Distribution Plans and the basis
on which such payments are made. The fees payable under the Distribution Plans
are payable without regard to actual expenses incurred.
....................... 37 .......................
- --------------------------------------------------------------------------------
<PAGE>
P R E M I E R S M A L L C O M P A N Y S T O C K F U N D
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------
FOR MORE INFORMATION
FUND INFORMATION AND PROSPECTUSES
Call 1-800-548-2868
Please read the prospectus before you invest or send money.
TO INVEST, REDEEM AND EXCHANGE
Call 1-800-548-2868 (for overseas, call collect (401) 455-3476)
9:00 a.m. to 5:00 p.m., Eastern time
Monday through Friday
Or Write: The Premier Family of Funds
P.O. Box 9692
Providence, Rhode Island 02940-9830
YIELD AND SHARE PRICE INFORMATION
1-800-548-2868
24 hours a day, 7 days a week
The Premier Family of Funds
One Exchange Place
Boston, Massachusetts 02109
....................... 38 .......................
- --------------------------------------------------------------------------------
---------------------------------------------------------------------
PREMIER LIMITED TERM INCOME FUND
CLASS A, CLASS B, CLASS C AND CLASS R SHARES
PREMIER BALANCED FUND
CLASS A, CLASS B, CLASS C AND CLASS R SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
December 19, 1994
--------------------------------------------------------------------
This Statement of Additional Information ("SAI"), which
is not a prospectus, supplements and should be read in conjunction with
the current Prospectuses of the Premier Limited Term Income Fund (formerly
the Laurel Intermediate Income Fund) and the Premier Balanced Fund
(formerly the Laurel Balanced Fund) (the "Funds"), dated December 19,
1994, as they may be revised from time to time. The Funds are separate
portfolios of the Dreyfus/Laurel Funds, Inc. (formerly The Laurel Funds,
Inc.), an open-end, diversified management investment company (the
"Company"), known as a mutual fund. To obtain a copy of a Funds'
Prospectuses, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
On Long Island -- Call 794-5452
The Dreyfus Corporation ("Dreyfus") serves as the Funds'
investment manager.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Funds' shares.
1
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Objective and Management Policies . . . . . . . . . . . . B-3
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . B-12
Management Arrangements . . . . . . . . . . . . . . . . . . . . . . . B-17
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . B-19
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . B-22
Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-23
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . B-26
Dividends, Other Distributions and Taxes . . . . . . . . . . . . . . B-26
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . B-30
Performance Information . . . . . . . . . . . . . . . . . . . . . . . B-31
Information About the Funds . . . . . . . . . . . . . . . . . . . . . B-34
Custodian, Transfer and Dividend Disbursing Agent, Counsel
and Independent Auditors . . . . . . . . . . . . . . . . . . . . . B-35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-35
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled
"Description of the Fund."
Portfolio Securities
--------------------
Floating Rate Securities (Premier Limited Term Income Fund Only).
A floating rate security is one whose terms provide for the automatic
adjustment of interest rates whenever a specified interest rate changes.
The interest on floating rate securities is ordinarily tied to and is a
percentage of the prime rate of a specified bank or some similar objective
standard such as the 90-day U.S. Treasury bill rate and may change daily.
Generally, changes in interest rates on floating rate securities will
reduce changes in the security's market value from the original purchase
price resulting in the potential for capital appreciation or capital
marker depreciation being less than for fixed income obligations with a
fixed interest rate.
ECDs, ETDs, and Yankee CDs (Each Fund). The Funds may purchase
Eurodollar certificates of deposit ("ECDs"), which are U.S. dollar-
denominated certificates of deposit issued by foreign branches of domestic
banks, Eurodollar time deposits ("ETDs"), which are U.S. dollar
denominated deposits in a foreign branch of a domestic bank or foreign
bank, and Yankee-Dollar certificates of deposit ("Yankee CDs") which are
certificates of deposit issued by a domestic branch of a foreign bank
denominated in U.S. dollars and held in the United States. ECDs, ETDs,
and Yankee CDs are subject to somewhat different risks than domestic
obligations of domestic banks. These risks are discussed in each Fund's
Prospectus.
Government Obligations (Each Fund). Each Fund may invest in a
variety of U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance: (a) U.S. Treasury bills have a
maturity of one year or less, (b) U.S. Treasury notes have maturities of
one to ten years, and (c) U.S. Treasury bonds generally have maturities of
greater than ten years.
In addition to U.S. Treasury obligations, each Fund may invest in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the
full faith and credit of the U.S. Treasury (such as Government National
Mortgage Association ("GNMA") participation certificates), (b) the right
of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Treasury, (c) discretionary authority of the U.S. Government
agency or instrumentality, or (d) the credit of the instrumentality.
(Examples of agencies and instrumentalities are: Federal Land Banks,
Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Central Bank for Cooperatives, Federal
B-3
<PAGE>
Intermediate Credit Banks, Federal Home Loan Banks, General Services
Administration, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Inter-American Development Bank, Asian-
American Development Bank, Student Loan Marketing Association,
International Bank for Reconstruction and Development and Federal National
Mortgage Association ("FNMA")). No assurance can be given that the U.S.
Government will provide financial support to such U.S. Government agencies
or instrumentalities described in (b), (c) and (d) in the future, other
than as set forth above, since it is not obligated to do so by law.
Repurchase Agreements (Each Fund). The Funds may enter into
repurchase agreements with U.S. Government securities dealers recognized
by the Federal Reserve Board, with member banks of the Federal Reserve
System, or with such other brokers or dealers that meet the credit
guidelines of the Board of Directors. In a repurchase agreement, the Fund
buys a security from a seller that has agreed to repurchase the same
security at a mutually agreed upon date and price. A Fund's resale price
will be in excess of the purchase price, reflecting an agreed upon
interest rate. This interest rate is effective for the period of time the
Fund is invested in the agreement and is not related to the coupon rate on
the underlying security. Repurchase agreements may also be viewed as a
fully collateralized loan of money by the Fund to the seller. The period
of these repurchase agreements will usually be short, from overnight to
one week, and at no time will a Fund invest in repurchase agreements for
more than one year. A Fund will always receive as collateral securities
whose market value including accrued interest is, and during the entire
term of the agreement remains, at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for
such securities only upon physical delivery or upon evidence of book entry
transfer to the account of the Custodian. If the seller defaults, the Fund
might incur a loss if the value of the collateral securing the repurchase
agreement declines and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of a security which is the subject of
a repurchase agreement, realization upon the collateral by the Fund may be
delayed or limited. Dreyfus seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligors
under repurchase agreements, in accordance with the credit guidelines of
the Company's Board of Directors.
Reverse Repurchase Agreements (Each Fund). A Fund may enter into
reverse repurchase agreements to meet redemption requests where the
liquidation of portfolio securities is deemed by Dreyfus to be
inconvenient or disadvantageous. A reverse repurchase agreement is a
transaction whereby a Fund transfers possession of a portfolio security to
a bank or broker-dealer in return for a percentage of the portfolio
security's market value. The Fund retains record ownership of the security
involved including the right to receive interest and principal payments.
At an agreed upon future date, the Fund repurchases the security by paying
an agreed upon purchase price plus interest. Cash or liquid high-grade
debt obligations of the Fund equal in value to the repurchase price
B-4
<PAGE>
including any accrued interest will be maintained in a segregated account
while a reverse repurchase agreement is in effect.
When-Issued Securities (Each Fund). New issues of U.S. Treasury
and Government securities are often offered on a when-issued basis. This
means that delivery and payment for the securities normally will take
place approximately 7 to 15 days after the date the buyer commits to
purchase them. The payment obligation and the interest rate that will be
received on securities purchased on a when-issued basis are each fixed at
the time the buyer enters into the commitment. Each Fund will make
commitments to purchase such securities only with the intention of
actually acquiring the securities, but the Fund may sell these securities
or dispose of the commitment before the settlement date if it is deemed
advisable as a matter of investment strategy. Cash or marketable high-
grade debt securities equal to the amount of the above commitments will be
segregated on each Fund's records. For the purpose of determining the
adequacy of these securities the segregated securities will be valued at
market. If the market value of such securities declines, additional cash
or securities will be segregated on the Fund's records on a daily basis so
that the market value of the account will equal the amount of such
commitments by the Fund.
Securities purchased on a when-issued basis and the securities
held by each Fund are subject to changes in market value based upon the
public's perception of changes in the level of interest rates. Generally,
the value of such securities will fluctuate inversely to changes in
interest rates -- i.e., they will appreciate in value when interest rates
decline and decrease in value when interest rates rise. Therefore, if in
order to achieve higher interest income each Fund remains substantially
fully invested at the same time that it has purchased securities on a
"when-issued" basis, there will be a greater possibility of fluctuation in
the Fund's net asset value.
When payment for when-issued securities is due, each Fund will
meet its obligations from then-available cash flow, the sale of segregated
securities, the sale of other securities or, and although it would not
normally expect to do so, from the sale of the when-issued securities
themselves (which may have a market value greater or less than the Fund's
payment obligation). The sale of securities to meet such obligations
carries with it a greater potential for the realization of capital gains,
which are subject to federal income taxes.
Commercial Paper (Each Fund). The Funds may invest in commercial
paper issued in reliance on the so-called "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act of 1933
("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the federal securities laws and generally is sold to investors who
agree that they are purchasing the paper for an investment and not with a
view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper is normally resold to other
investors through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2) paper, thus providing liquidity.
B-5
<PAGE>
Pursuant to guidelines established by the Company's Board of Directors,
Dreyfus may determine that Section 4(2) paper is liquid for the purposes
of complying with the Fund's investment restriction relating to
investments in illiquid securities.
Management Policies
-------------------
The Funds engage, except as noted, in the following practices in
furtherance of their investment objectives.
Loans of Fund Securities (Each Fund). Each Fund has authority to
lend its portfolio securities provided (1) the loan is secured
continuously by collateral consisting of U.S. Government securities or
cash or cash equivalents adjusted daily to make a market value at least
equal to the current market value of these securities loaned; (2) the Fund
may at any time call the loan and regain the securities loaned; (3) the
Fund will receive any interest or dividends paid on the loaned securities;
and (4) the aggregate market value of securities loaned will not at any
time exceed one-third of the total assets of the Fund. In addition, it is
anticipated that a Fund may share with the borrower some of the income
received on the collateral for the loan or that it will be paid a premium
for the loan. In determining whether to lend securities, Dreyfus considers
all relevant factors and circumstances including the creditworthiness of
the borrower.
Futures Contracts and Options (Each Fund). For the purpose of
creating market exposure for uncommitted cash balances, reducing
transaction costs associated with rebalancing a Fund, facilitating trading
or seeking higher investment returns when a futures contract is priced
more attractively than the underlying security or each index of the above-
referenced Funds may enter into futures contracts, options, and options on
futures contracts with respect to securities in which the Funds may invest
and indices comprised of such securities.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security or
securities index at a specified future time and at a specified price.
Where the underlying security is an index, no physical transfer of
securities takes place; rather, upon expiration of the contract, the
parties settle by exchanging cash in an amount equal to the difference
between the contract price and the closing value of the index at
expiration, net of variation margin previously paid. Futures contracts
that are standardized as to maturity date and underlying interest are
traded on national futures exchanges.
Futures traders are required to make a good faith margin deposit
in cash or government securities with a broker or custodian to initiate
and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of
the underlying security) if it is not terminated prior to the specified
B-6
<PAGE>
delivery date. Minimal initial margin requirements are established by the
futures exchange and may be changed. Brokers may establish deposit
requirements which are higher than the exchange minimums.
After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract price changes
to the extent that the margin on deposit does not satisfy margin
requirements, payment of additional "variation" margin will be required.
Conversely, change in the contract value may reduce the required margin,
resulting in a repayment of excess margin to the contract holder.
Variation margin payments are made to and from the futures broker for as
long as the contract remains open. Each Fund expects to earn interest
income on its margin deposits.
Options are of two basic types, either call or put options, and
may relate to a single security or a securities index or a futures
contract. A call option on a security permits the holder of the option to
purchase the underlying security at a specified price ("strike price") at
any time during the term of the option. Thus, in exchange for the premium
paid to the writer, the purchaser obtains the right to profit from any
appreciation in the value of the underlying security above the strike
price. A put option permits the holder to sell the underlying security to
the writer at the strike price at any time during the term of the
contract. Thus, in exchange for the premium paid to the writer, the
purchaser is relieved of the risk of a decline in the value of the
underlying security below the strike price. An option on a securities
index gives the holder the right to receive cash from the writer in an
amount equal to the difference between the strike price of the option and
the value of the underlying index multiplied by a factor established by
the exchange upon which the option is traded. An option on a futures
contract gives the holder, in return for the premium paid to the writer,
the right to assume a position in the underlying futures contract at a
specified price at any time during the term of the option.
Although futures and options contracts by their terms call for
actual delivery or acceptance of the underlying securities, in most cases
the contracts are closed out before the settlement date without the making
or taking of delivery. Closing out an open futures position is done by
taking an opposite position ("buying" a contract which has previously been
"sold," or "selling" a contract previously purchased) in an identical
contract to terminate the position. An option purchased may be closed out
by selling the option. An option written is closed out by purchasing an
option identical to that written. Brokerage commissions are incurred when
futures and options contracts are bought and sold.
Restrictions on the Use of Futures Contracts and Options (Each
Fund). Neither Fund will enter into futures contracts to the extent that
its outstanding obligations under these contracts would exceed 25% of the
Fund's total assets. To the extent that a Fund enters into futures
contracts and options on futures positions that are not for bona fide
hedging purposes (as defined by the Commodity Futures Trading Commission),
the aggregate initial margin and premiums on these positions (excluding
B-7
<PAGE>
the amount by which options are "in-the-money") may not exceed 5% of the
Fund's net assets.
Transactions using options and futures contracts (other than
options that the Fund has purchased) expose the Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities or other
options or futures contracts or (2) cash, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund will comply
with Securities and Exchange Commission ("SEC") guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash,
U.S. Government securities or other liquid, high-grade debt securities in
a segregated account with its custodian in the prescribed amount.
All options purchased or written by a Fund must be listed on a
national securities or futures exchange or traded in the over-the-counter
("OTC") market. A Fund will not purchase or write OTC options if, as a
result of such transaction, the sum of (i) the market value of outstanding
OTC options purchased by the Fund, (ii) the market value of the underlying
securities covered by outstanding OTC call options written by the Fund,
and (iii) the market value of all other assets of the Fund that are
illiquid or are not otherwise readily marketable, would exceed 15% of the
net assets of the Fund, taken at market value. However, if an OTC option
is sold by a Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price
less the amount by which the option is "in-the-money" (the difference
between current market value of the underlying security and the option's
strike price). The repurchase price with primary dealers is typically a
formula price which is generally based on a multiple of the premium
received for the option plus the amount by which the option is
"in-the-money."
Each Fund may write only covered options. A call option is
covered if the Fund owns the underlying security or a call option on the
same security with a lower strike price. A put option is covered if the
Fund segregates cash and/or short-term debt securities in an amount
necessary to pay the strike price of the option or purchases a put option
on the same underlying security with a higher strike price.
Each Fund will not purchase puts, calls, straddles, spreads or
any combination thereof, if as a result of such purchase the value of the
Fund's aggregate investment in such securities would exceed 5% of the
Fund's total assets.
Risk Factors in Futures and Options Transactions (Each Fund).
There can be no assurance that a liquid secondary market will exist for
any particular futures or option contract at any specific time. Thus, it
may not be possible to close a futures or option position. In the event of
B-8
<PAGE>
adverse price movements, each Fund would continue to be required to make
daily cash payments to maintain its required margin with respect to open
futures or written options positions. In such a situation, if the Fund has
insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, a Fund may be required to make or take delivery of the
securities underlying futures contracts that it holds and options
contracts that it has written.
Each Fund will seek to minimize the risk that it will be unable
to close out a futures contract by entering into only those futures
contracts that are listed on national futures exchanges and for which
there appears to be a liquid secondary market. Likewise, each Fund will
enter into only those option contracts that are listed on a national
securities exchange or traded in the OTC market for which there appears to
be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies
can be substantial, due both to the low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. As a
result, a relatively small price movement in a futures contract may result
in immediate and substantial loss (as well as gain) to the investor. For
example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of
the futures contract would result in a total loss of margin deposit,
before any deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150% if the
original margin deposit for the contract were closed out. Thus, a purchase
or sale of a futures contract may result in losses in excess of the amount
invested in the contract. Options transactions are subject to similar
risks. However, because the Fund will not engage in futures or options
transactions for speculative purposes, Dreyfus believes that a Fund's risk
of loss is less than the risk of loss associated with speculative
transactions. Moreover, in the foregoing example, the Fund would
presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying security and sold it after the
decline.
Utilization of futures contracts and options transactions by each
Fund does involve the risk of imperfect or no correlation where the
securities underlying futures and options contracts are different from the
portfolio securities being hedged. It is also possible that the Fund could
both lose money on futures and options contracts and also experience a
decline in value of its portfolio securities. There is also the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or option
thereon.
Most futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end
B-9
<PAGE>
of a trading session. Once the daily limit has been reached in a
particular type of contract, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions.
Futures contract prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.
Futures and options contracts involve special tax considerations.
See "Dividends, Other Distributions and Taxes" for further information.
Investment Restrictions
-----------------------
The following limitations have been adopted by each Fund. A Fund
may not change any of these fundamental investment limitations without the
consent of: (a) 67% or more of the shares present at a meeting of
shareholders duly called if the holders of more than 50% of the
outstanding shares of a Fund are present or represented by proxy; or (b)
more than 50% of the outstanding shares of a Fund, whichever is less. Each
Fund may not:
1. Purchase any securities which would cause more than 25% of the
value of a Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting
their principal activities in the same industry. (For purposes of
this limitation, U.S. Government securities, and state or
municipal governments and their political subdivisions are not
considered members of any industry. ln addition, this limitation
does not apply to investments in domestic banks, including U.S.
branches of foreign banks and foreign branches of U.S. banks).
2. Borrow money or issue senior securities as defined in the 1940
Act except that (a) a Fund may borrow money in an amount not
exceeding one-third of the Fund's total assets at the time of
such borrowings, and (b) a Fund may issue multiple classes of
shares. The purchase or sale of futures contracts and related
options shall not be considered to involve the borrowing of money
or issuance of senior securities.
3. Purchase with respect to 75% of a Fund's total assets securities
of any one issuer (other than securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if, as a
result, (a) more than 5% of a Fund's total assets would be
invested in the securities of that issuer, or (b) a Fund would
hold more than 10% of the outstanding voting securities of that
issuer.
4. Make loans or lend securities, if as a result thereof more than
one-third of the Fund's total assets would be subject to all such
B-10
<PAGE>
loans. For purposes of this limitation debt instruments and
repurchase agreements shall not be treated as loans.
5. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent a Fund from investing in securities or other instruments
backed by real estate, including mortgage loans, or securities of
companies that engage in real estate business or invest or deal
in real estate or interests therein).
6. Underwrite securities issued by any other person, except to the
extent that the purchase of securities and later disposition of
such securities in accordance with the Fund's investment program
may be deemed an underwriting.
7. Purchase or sell commodities except that each Fund may enter into
futures contracts and related options, forward currency contacts
and other similar instruments.
Each Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its investable assets in securities of
a single open-end management investment company with substantially the
same investment objectives, policies and limitations as the Fund.
Each Fund has adopted the following additional non-fundamental
restrictions. These non-fundamental restrictions may be changed without
shareholder approval, in compliance with applicable law and regulatory
policy.
1. No Fund shall sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amounts to the
securities sold short, and provided that transactions in futures
contracts are not deemed to constitute selling short.
2. No Fund shall purchase securities on margin, except that a Fund
may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
3. No Fund shall purchase oil, gas or mineral leases.
4. Each Fund will not purchase or retain the securities of any
issuer if the officers, Directors of the Fund, its advisers, or
managers, owning beneficially more than one half of one percent
of the securities of such issuer, together own beneficially more
than 5% of such securities.
5. No Fund will purchase securities of issuers (other than
securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof), including their
predecessors, that have been in operation for less than three
B-11
<PAGE>
years, if by reason thereof, the value of such Fund's investment
in securities would exceed 5% of such Fund's total assets. For
purposes of this limitation, sponsors, general partners,
guarantors and originators of underlying assets may be treated as
the issuer of a security.
6. No Fund will invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days, time deposits with
maturities in excess of seven days and other securities which are
not readily marketable. For purposes of this limitation, illiquid
securities shall not include Section 4(2) Paper and securities
which may be resold under Rule 144A under the Securities Act of
1933, provided that the Board of Directors, or its delegate,
determines that such securities are liquid based upon the trading
markets for the specific security.
7. No Fund may invest in securities of other investment companies,
except as they may be acquired as part of a merger, consolidation
or acquisition of assets and except to the extent otherwise
permitted by the 1940 Act.
8. No Fund shall purchase any security while borrowings representing
more than 5% of the Fund's total assets are outstanding.
9. No Fund will purchase warrants if at the time of such purchase:
(a) more than 5% of the value of such Fund's assets would be
invested in warrants, or (b) more than 2% of the value of the
Fund's assets would be invested in warrants that are not listed
on the New York or American Stock Exchange (for purposes of this
undertaking, warrants acquired by a Fund in units or attached to
securities will be deemed to have no value).
10. No Fund will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its
aggregate investment in such classes of securities will exceed 5%
of its total assets except that: (a) this limitation shall not
apply to standby commitments, and (b) this limitation shall not
apply to a Fund's transactions in futures contracts and related
options.
As an operating policy, the Funds will not invest more than 25%
of the value of the Fund's total assets, at the time of such purchase in
domestic banks, including U.S. branches of foreign banks and foreign
branches of U.S. banks. The Company's Board of Directors may change this
policy without shareholder approval. Notice will be given to shareholders
if this policy is changed by the Board of Directors.
B-12
<PAGE>
MANAGEMENT OF THE FUND
CONTROLLING SHAREHOLDERS
Mellon Bank Corporation, a Pennsylvania corporation registered as
a bank holding company under the Bank Holding Company Act of 1956, as
amended, owned of record, through its direct and indirect subsidiaries,
79% of the issued and outstanding voting shares of the Company, as of
November 30, 1994, and is, as a consequence, deemed to be a controlling
shareholder of the Company as that term is defined under the 1940 Act. The
address of Mellon Bank Corporation is: Mellon Bank Corporation, Mutual
Fund Department, 3 Mellon Bank Center, Pittsburgh, PA 15259.
PRINCIPAL SHAREHOLDERS
The following shareholder(s) owned 5% or more of the outstanding
voting shares of the Funds at November 30, 1994:
Limited Term Income Fund: Mac & Co. 97A-W00, Mellon Bank, N.A., as Nominee
for Trust Custodian, Mutual Funds, P.O. Box 320, Pittsburgh, PA
15230-0320, 12% record; Investnet Corporation, Two Mellon Bank Center,
Pittsburgh, PA 15259-0001, 11% record; Patterson & Co., PNB Personal
Trust, P.O. Box 7829, Philadelphia, PA 19010-7829, 6% record.
Balanced Fund: Mac & Co. 853-924, Mellon Bank, N.A., as Nominee for Trust
Custodian, Mutual Funds, P.O. Box 320, Pittsburgh, PA 15230-0320, 28%
record; Bank of New York Trustee, The Penn Central Master Trust, One Wall
Street MT/MC - 7th Floor, New York, NY 10286, 24% record; Mac & Co.
97A-W02, Mellon Bank, N.A., as Nominee for Trust Custodian, Mutual Funds,
P.O. Box 320, Pittsburgh, PA 15230-0320, 15% record; Mac & Co 180-174,
Mellon Bank, N.A., as Nominee for Trust Custodian, Mutual Funds, P.O. Box
320, Pittsburgh, PA 15230-0320, 8% record.
FEDERAL LAW AFFECTING MELLON BANK
The Glass-Steagall Act of 1933 prohibits national banks from
engaging in the business of underwriting, selling or distributing
securities and prohibits a member bank of the Federal Reserve System from
having certain affiliations with an entity engaged principally in that
business. The activities of Mellon Bank in informing its customers of,
and performing, investment and redemption services in connection with the
Funds, and in providing services to the Funds as custodian and fund
accountant, as well as Dreyfus' investment advisory activities, may raise
issues under these provisions. Mellon Bank has been advised by counsel
that these activities contemplated under these arrangements are consistent
with its statutory and regulatory obligations.
Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of such future statutes and regulations, could prevent
Mellon Bank or Dreyfus from continuing to perform all or a part of the
B-13
<PAGE>
above services for its customers and/or a Fund. If Mellon Bank or Dreyfus
were prohibited from serving a Fund in any of its present capacities, the
Board of Directors would seek an alternative provider(s) of such services.
DIRECTORS AND OFFICERS
The Company has a Board composed of twelve Directors which
supervises the Company's investment activities and reviews contractual
arrangements with companies that provide the Funds with services. The
following lists the Directors and officers and their positions with the
Company and their present and principal occupations during the past five
years. Each Director who is an "interested person" of the Company (as
defined in the Investment Company Act of 1940, as amended (the "Act")) is
indicated by an asterisk. Each of the Directors also serves as a Trustee
of The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Investment Series
and The Dreyfus/Laurel Tax-Free Municipal Funds (collectively "The Dreyfus
Family of Funds").
o + RUTH MARIE ADAMS. Director of The Dreyfus/Laurel Funds, Inc.;
Professor of English and Vice President Emeritus, Dartmouth
College; Senator, United Chapters of Phi Beta Kappa; Trustee,
Woods Hole Oceanographic Institution. Address: 1026 Kendal Lyme
Road, Hanover, New Hampshire 03755.
o + FRANCIS P. BRENNAN. Chairman of the Board of Directors and
Assistant Treasurer of The Dreyfus/Laurel Funds, Inc.; Director
and Chairman, Massachusetts Business Development Corp.; Director,
Boston Mutual Insurance Company; Director and Vice Chairman of
the Board, Home Owners Federal Savings and Loan (prior to May
1990). Address: Massachusetts Business Development Corp., One
Liberty Square, Boston, Massachusetts 02109.
o + JAMES M. FITZGIBBONS. Director of The Dreyfus/Laurel Funds,
Inc.; President and Director, Amoskeag Company; Chairman, Howes
Leather Company, Inc.; Director, Fiduciary Trust Company;
Chairman, CEO and Director, Fieldcrest-Cannon Inc.; Director,
Lumber Mutual Insurance Company; Director, Barrett Resources,
Inc. Address: 40 Norfolk Road, Brookline, Massachusetts 02167.
o * J. TOMLINSON FORT. Director of The Dreyfus/Laurel Funds, Inc.;
Partner, Reed, Smith, Shaw & McClay (law firm). Address: 204
Woodcock Drive, Pittsburgh, Pennsylvania 15215.
o + ARTHUR L. GOESCHEL. Director of The Dreyfus/Laurel Funds, Inc.;
Director, Chairman of the Board and Director, Rexene Corporation;
Director, Calgon Carbon Corporation; Director, National Picture
Frame Corporation; Chairman of the Board and Director, Tetra
Corporation 1991-1993; Director, Medalist Corporation 1992-1993;
From 1988-1989 Director, Rexene Corporation. Address: Way
Hallow Road and Woodland Road, Sewickley, Pennsylvania 15143.
o + KENNETH A. HIMMEL. Director of The Dreyfus/Laurel Funds, Inc.;
Director, The Boston Company, Inc. and Boston Safe Deposit and
B-14
<PAGE>
Trust Company; President and Chief Executive Officer, Himmel &
Co., Inc.; Vice Chairman, Sutton Place Gourmet, Inc. and Florida
Hospitality Group; Managing Partner, Himmel/MKDG, Franklin
Federal Partners, Reston Town Center Associates and Grill 23 &
Bar. Address: Himmel and Company, Inc., 101 Federal Street, 22nd
Floor, Boston, Massachusetts 02110.
o + ARCH S. JEFFERY. Director of The Dreyfus/Laurel Funds, Inc.;
Financial Consultant. Address: 1817 Foxcroft Lane, Allison
Park, Pennsylvania 15101.
o+ STEPHEN J. LOCKWOOD. Director of The Dreyfus/Laurel Funds, Inc.;
President and CEO, LDG Management Company Inc.; CEO, LDG
Reinsurance Underwriters, SRRF Management Inc. and Medical
Reinsurance Underwriters Inc. Address: 401 Edgewater Place,
Wakefield, Massachusetts 01880.
o + ROBERT D. MCBRIDE. Director of The Dreyfus/Laurel Funds, Inc.;
Director, Chairman and CEO, McLouth Steel; Director, Salem
Corporation. Director, SMS/Concast, Inc. (1983-1991). Address:
15 Waverly Lane, Grosse Pointe Farms, Michigan 48236.
o + JOHN L. PROPST. Director of The Dreyfus/Laurel Funds, Inc.; Of
Counsel, Reed, Smith, Shaw & McClay (law firm). Address: 5521
Dunmoyle Street, Pittsburgh, Pennsylvania 15217.
o + JOHN J. SCIULLO. Director of The Dreyfus/Laurel Funds, Inc.;
Dean Emeritus and Professor of Law, Duquesne University Law
School; Director, Urban Redevelopment Authority of Pittsburgh.
Address: 321 Gross Street, Pittsburgh, Pennsylvania 15224
o + ROSLYN M. WATSON. Director of The Dreyfus/Laurel Funds, Inc.;
Principal, Watson Ventures, Inc., prior to February, 1993; Real
Estate Development Project Manager and Vice President, The Gunwyn
Company. Address: 25 Braddock Park, Boston, Massachusetts 02116-
5816.
# MARIE E. CONNOLLY. President and Treasurer of The Dreyfus/Laurel
Funds, Inc., The Dreyfus/Laurel Investment Series, The
Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free
Municipal Funds (since September 1994); Vice President of The
Dreyfus/Laurel Funds, Inc. (March 1994 to September 1994);
President, Funds Distributor, Inc. (since 1992); Treasurer, Funds
Distributor, Inc. (July 1993 to April 1994); COO, Funds
Distributor, Inc. (since April 1994); Director, Funds
Distributor, Inc. (since July 1992); President, COO and Director,
Premier Mutual Fund Services, Inc. (since April 1994); Senior
Vice President and Director of Financial Administration, The
Boston Company Advisors, Inc. (December 1988 to May 1993).
Address: One Exchange Place, Boston, Massachusetts 02109.
B-15
<PAGE>
# FREDERICK C. DEY. Vice President of The Dreyfus/Laurel Funds,
Inc., The Dreyfus/Laurel Investment Series, The Dreyfus/Laurel
Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds
(since September 1994); Senior Vice President, Premier Mutual
Fund Services, Inc. (since August 1994); Vice President, Funds
Distributor, Inc. (since August 1994); Fundraising Manager, Swim
Across America (October 1993 to August 1994); General Manager,
Spring Industries (August 1988 to October 1993). Address: Premier
Mutual Fund Services, Inc., 200 Park Avenue New York, New York
10166.
# ERIC B. FISCHMAN. Vice President of The Dreyfus/Laurel Funds,
Inc., The Dreyfus/Laurel Investment Series, The Dreyfus/Laurel
Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds
(since September 1994); Vice President and Associate General
Counsel, Premier Mutual Fund Services, Inc. (Since August 1994);
Vice President and Associate General Counsel, Funds Distributor,
Inc. (since August 1994); Staff Attorney, Federal Reserve Board
(September 1992 to June 1994); Summer Associate, Venture
Economics (May 1991 to September 1991); Summer Associate, Suffolk
County District Attorney (June 1990 to August 1990). Address:
Premier Mutual Fund Services, Inc., 200 Park Avenue, New York,
New York 10166.
RICHARD W. HEALEY. Vice President of The Dreyfus/Laurel Funds
Inc., The Dreyfus/Laurel Investment Series, The Dreyfus/Laurel
Tax-Free Municipal Funds Trust and The Dreyfus/Laurel Funds Trust
(since March 1994); Senior Vice President, Funds Distributor,
Inc. (since March 1993); Vice President, The Boston Company Inc.,
(March 1993 to May 1993); Vice President of Marketing, Calvert
Group (1989 to March 1993); Fidelity Investments (prior to 1989).
Address: One Exchange Place, Boston, Massachusetts 02109.
# JOHN E. PELLETIER. Vice President and Secretary of The
Dreyfus/Laurel Funds, Inc.; The Dreyfus/Laurel Investment Series,
The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free
Municipal Funds (since September 1994); Senior Vice President,
General Counsel and Secretary, Funds Distributor, Inc. (since
April 1994); Senior Vice President, General Counsel and
Secretary, Premier Mutual Fund Services, Inc. (since August
1994); Counsel, The Boston Company Advisors, Inc. (February 1992
to March 1994); Associate, Ropes & Gray (August 1990 to February
1992); Associate, Sidley & Austin (June 1989 to August 1990).
Address: One Exchange Place, Boston, Massachusetts 02109.
____________________________
* "Interested person" of Dreyfus/Laurel Funds, Inc., as defined in
the 1940 Act.
o Member of the Audit Committee.
+ Member of the Nominating Committee.
# Officer also serves as an officer for other investment companies
advised by The Dreyfus Corporation.
B-16
<PAGE>
The officers and Directors of the Company as a group owned
beneficially less than 1% of the total shares of each Fund outstanding as
of December 1, 1994.
No officer or employee of TSSG or Premier (or of any parent or
subsidiary thereof) receives any compensation from each Fund for serving
as an officer or Director of the Fund. In addition, no officer or employee
of Dreyfus (or of any parent or subsidiary thereof) serves as an officer
or Director of each Fund. The Dreyfus Family of Funds pays each
Trustee/Director who is not an officer or employee of Premier or any of
its affiliates, $27,000 per annum (and an additional $75,000 for the
Chairman of the Board of Directors/Trustees of the DREYFUS FAMILY OF
FUNDS). In addition, the DREYFUS FAMILY of Funds pays each
Trustee/Director $ 1,000 per joint Dreyfus Family of Funds meeting
attended, plus $750 per joint DREYFUS FAMILY of Funds Audit Committee
meeting attended, and reimburses each Trustee/Director for travel and
out-of-pocket expenses. For the fiscal year ended December 31, 1993 the
fees for meetings and expenses totaled $79,598.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
Management Agreement. Dreyfus serves as the investment manager
for the Fund pursuant to an Investment Management Agreement with the
Company dated April 4, 1994 ("Management Agreement"), transferred to
Dreyfus as of October 17, 1994. Pursuant to the Management Agreement,
Dreyfus provides, or arranges for one or more third parties to provide
investment advisory, administrative, custody, fund accounting and transfer
agency services to each Fund. As investment manager, Dreyfus manages the
Fund by making investment decisions based on each Fund's investment
objectives, policies and restrictions. The Management Agreement is subject
to review and approval at least annually by the Board of Directors.
The current Management Agreement with Dreyfus provides for a
"unitary fee." Under the unitary fee structure, Dreyfus pays all expenses
of the Funds except: (i) brokerage commissions, (ii) taxes, interest,
fees and expenses of the non-interested Directors (including counsel
expenses), and extraordinary expenses (which are expected to be minimal),
and (iii) the Rule 12b-1 fees described in this Statement of Additional
Information. Under the unitary fee, Dreyfus provides, or arranges for one
or more third parties to provide, investment advisory, administrative,
custody, fund accounting and transfer agency services to each Fund. For
the provision of such services directly, or through one or more third
parties, Dreyfus receives as full compensation for all services and
facilities provided by it, a fee computed daily and paid monthly at the
annual rate set forth in each Fund's Prospectus, applied to the average
daily net assets of the Fund's investment portfolio, less the accrued fees
and expenses (including counsel fees) of the non-interested Directors of
the Company. Previously, the payments to the investment manager covered
B-17
<PAGE>
merely the provision of investment advisory services (and payment for sub-
advisory services) and certain specified administrative services. Under
this previous arrangement, each Fund also paid for additional non-
investment advisory expenses, such as custody and transfer agency
services, that were not paid by the investment adviser.
The Management Agreement will continue from year to year provided
that a majority of the Directors who are not interested persons of
Dreyfus/Laurel and either a majority of all Directors or a majority of the
shareholders of the Fund approve their continuance. Dreyfus/Laurel may
terminate the Agreement, without prior notice to Dreyfus, upon the vote of
a majority of the Board of Directors or upon the vote of a majority of the
outstanding voting securities of the Fund on 60 days written notice to
Dreyfus. Dreyfus may terminate the Management Agreement upon written
notice to Dreyfus/Laurel. The Management Agreement will terminate
immediately and automatically upon its assignment.
The following persons are officers and/or directors of Dreyfus:
Howard Stein, Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board; Joseph S. DiMartino, President and a
director; W. Keith Smith, Chief Operating Officer and a director; Paul H.
Snyder, Vice President and Chief Financial Officer; Daniel C. Maclean,
Vice President and General Counsel; Barbara E. Casey. Vice President--
Retirement Services; Robert F. Dubuss, Vice President; Henry D. Gottmann,
Vice President--Retail; Elie M. Genadry, Vice President--Wholesale; Mark
N. Jacobs, Vice President--Fund Legal and Compliance; Jeffery N. Nachman,
Vice President--Mutual Fund Accounting; Diane M. Coffey, Vice President--
Corporate Communications; Jay R. DeMartine, Vice President--Marketing;
Kirk V. Stumpp, Vice President--New Product Development; Lawrence S. Kash,
Vice Chairman--Distribution; Philip L. Toia, Vice Chairman--Operations and
Administration; Katherine C. Wickham, Vice President--Human Resources;
Maurice Bendrihem, Controller; and Mandell L. Berman, Frank V. Cahouet,
Alvin E. Friedman, Lawrence M. Greene and David B. Truman, directors.
For the last three fiscal years, each Fund had the following
expenses:
For the Fiscal Years Ended October 31,
--------------------------------------
1993 1992 1991
____ ____ ____
Limited Term Income
------------------
Advisory fees (gross of waiver) $118,161 $58,933 $7,856 (1)
Expense reimbursement from Adviser 142,319 161,200 53,730 (1)
Advisory fees waived -- 8,972 7,856 (1)
Balanced
--------
Advisory fees (gross of waiver) $22,519 (2) -- --
Expense reimbursement from Adviser 31,076 (2) -- --
Advisory fees waived -- (2) -- --
B-18
<PAGE>
(1) For the period July 11, 1991 (commencement of operations) to
October 31, 1991.
(2) For the period September 15, 1993 (commencement of operations) to
October 31, 1993.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Funds'
distributor pursuant to an agreement which is renewable annually. The
Distributor also acts as distributor for the other funds in the Premier
Family of Funds, for funds in the Dreyfus Family of Funds and for certain
other investment companies.
Sales Loads--Class A. The scale of sales loads applies to
purchases of Class A shares made by any "purchaser," which term includes
an individual and/or spouse purchasing securities for his, her or their
own account or for the account of any minor children, or a trustee or
other fiduciary purchasing securities for a single trust estate or a
single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section
401 of the Internal Revenue Code of 1986, as amended ("Code") although
more than one beneficiary is involved; or a group of accounts established
by or on behalf of the employees of an employer or affiliated employers
pursuant to an employee benefit plan or other program (including accounts
established pursuant to Sections 403(b), 408(k), and 457 of the Code); or
an organized group which has been in existence for more than six months,
provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the
purchases are made through a central administration or a single dealer, or
by other means which result in economy of sales effort or expense.
Set forth below is an example of the method of computing the
offering price of the Class A shares for each fund. The example assumes a
purchase of Class A shares for each aggregating less than $100,000 subject
to the schedule of sales charges set forth in the Prospectus at a price
based upon the net asset value of the Class A shares for each fund.
For Premier Balanced Fund:
Net Asset Value per Share $12.50
Per Share Sales Charge - 4.5%
of offering price (4.7% of
net asset value per share) $ 0.59
Per Share Offering Price to
the Public $13.09
B-19
<PAGE>
For Premier Limited Term Government Securities Fund:
Net Asset Value per Share $12.50
Per Share Sales Charge - 3.0%
of offering price (3.1% of
net asset value per share) $0.39
Per Share Offering Price to
the Public $12.89
TeleTransfer Privilege--All Classes, except Class R.
TeleTransfer purchase orders may be made between the hours of 8:00 a.m.
and 4:00 p.m., New York time, on any business day that The Shareholder
Services Group, Inc., the Fund's transfer and dividend disbursing agent
(the "Transfer Agent"), and the New York Stock Exchange ("NYSE") are open.
Such purchases will be credited to the shareholder's Fund account on the
next bank business day. To qualify to use the TELETRANSFER Privilege, the
initial payment for purchase of shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on the
Account Application or Shareholder Services Form on file. If the proceeds
of a particular redemption are to be wired to an account at any other
bank, the request must be in writing and signature-guaranteed. See
"Redemption of Fund Shares--TELETRANSFER Privilege--All Classes, except
Class R."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
DISTRIBUTION AND SERVICE PLANS
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled
"Distribution and Service Plans."
Class A, B and C shares are subject to annual fees for
distribution and shareholder services.
Distribution Plan--Class A Shares. The SEC has adopted Rule
12b-1 under the 1940 Act ("Rule") regulating the circumstances under which
investment companies such as the Company may, directly or indirectly, bear
the expenses of distributing their shares. The Rule defines distribution
expenses to include expenditures for "any activity which is primarily
intended to result in the sale of fund shares." The Rule, among other
things, provides that an investment company may bear such expenses only
pursuant to a plan adopted in accordance with the Rule. With respect to
the Class A shares of each Fund, the Company has adopted a Distribution
Plan ("Class A Plan"), and may enter into Selling Agreements with Service
Agents pursuant to the Class A Plan.
B-20
<PAGE>
Under the Class A Plan, Class A shares of a Fund may spend
annually up to 0.25% of the average of its net asset values for costs and
expenses incurred in connection with the distribution of, and shareholder
servicing with respect to Fund shares.
The Class A Plan provides that a report of the amounts expended
under the Class A Plan, and the purposes for which such expenditures were
incurred, must be made to the Company's Directors for their review at
least quarterly. In addition, the Class A Plan provides that it may not
be amended to increase materially the costs which a Fund may bear for
distribution pursuant to the Class A Plan without approval of a Fund's
shareholders, and that other material amendments of the Class A Plan must
be approved by the vote of a majority of the Directors and of the
Directors who are not "interested persons" of the Company (as defined in
the 1940 Act) and who do not have any direct or indirect financial
interest in the operation of the Class A Plan, cast in person at a meeting
called for the purpose of considering such amendments. The Class A Plan is
subject to annual approval by the entire Board of Directors and by the
Directors who are neither interested persons nor have any direct or
indirect financial interest in the operation of the Class A Plan, by vote
cast in person at a meeting called for the purpose of voting on the Plan.
The Class A Plan is terminable, as to a Fund's class of shares, at any
time by vote of a majority of the Directors who are not interested persons
and have no direct or indirect financial interest in the operation of the
Plan or by vote of the holders of a majority of the outstanding shares of
such class of the Fund.
Distribution and Service Plans -- Class B and C Shares. In
addition to the above described Class A Plan for Class A shares, the
Company's Board of Directors has adopted a Service Plan (the "Service
Plan") under the Rule for Class B and Class C shares, pursuant to which
the Fund pays the Distributor and Dreyfus Service Corporation, an
affiliate of Dreyfus, for the provision of certain services to the holders
of Class B and Class C shares. The Company's Board of Directors has also
adopted a Distribution Plan pursuant to the Rule with respect to Class B
and Class C shares (the "Distribution Plan"). The Funds' Board of
Directors believes that there is a reasonable likelihood that the
Distribution and Service Plans (the "Plans") will benefit the Fund and the
holders of Class B and Class C shares.
A quarterly report of the amounts expended under each Plan, and
the purposes for which such expenditures were incurred, must be made to
the Directors for their review. In addition, each Plan provides that it
may not be amended to increase materially the cost which holders of
Class B or C shares may bear pursuant to the Plan without the approval of
the holders of such Classes and that other material amendments of the Plan
must be approved by the Board of Directors and by the Directors who are
not interested persons 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 at a
meeting called for the purpose of considering such amendments. The Plan
is subject to annual approval by such vote of the Directors cast in person
at a meeting called for the purpose of voting on the Plan. Each Plan was
so approved by the Directors at a meeting held on September 23, 1994.
Each Plan may be terminated at any time by vote of a majority of the
B-21
<PAGE>
Directors 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 Class B and C shares.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled "How to
Redeem Fund Shares."
Stock Certificates; Signatures. Any certificates representing
Fund shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing
agencies and savings associations as well as from participants in the NYSE
Medallion Signature Program, the Securities Transfer Agents Medallion
Program ("STAMP") and the Stock Exchanges Medallion Program. Guarantees
must be signed by an authorized signatory of the guarantor and "Signature-
Guaranteed" must appear with the signature. The Transfer Agent may
request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call one of the telephone numbers listed on the cover.
TeleTransfer Privilege--All Classes, except Class R. Investors
should be aware that if they have selected the TELETRANSFER Privilege, any
request for a wire redemption will be effected as a TELETRANSFER
transaction through the Automated Clearing House system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Fund Shares--TELETRANSFER Privilege--All Classes, except Class R."
Redemption Commitment. Each Fund has committed itself to pay in
cash all redemption requests by any shareholder of record of the Fund,
limited in amount during any 90-day period to the lesser of $250,000 or 1%
of the value of the Fund's net assets at the beginning of such period.
Such commitment is irrevocable without the prior approval of the SEC. In
the case of requests for redemption in excess of such amount, the Board of
Directors reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of
the existing shareholders. In this event, the securities would be valued
in the same manner as each Fund's portfolio is valued. If the recipient
sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be
suspended or the date of payment postponed (a) during any period when the
B-22
<PAGE>
NYSE is closed (other than customary weekend and holiday closings), (b)
when trading in the markets a Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the SEC so that disposal of a
Fund's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the SEC by order
may permit to protect a Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Fund Exchanges. Shares of any Class of a Fund may be exchanged
for shares of the respective Class of certain other funds advised or
administered by Dreyfus. Shares of the same Class of such funds purchased
by exchange will be purchased on the basis of relative net asset value per
share as follows:
A. Exchanges for shares of funds that are offered without a
sales load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be
exchanged without a sales load for shares of other funds
sold without a sales load.
D. Shares of funds purchased with a sales load, shares of
funds acquired by a previous exchange from shares
purchased with a sales load and additional shares
acquired through reinvestment of dividends or other
distributions of any such funds (collectively referred to
herein as "Purchased Shares") may be exchanged for shares
of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum
sales load that could have been imposed in connection
with the Purchased Shares (at the time the Purchased
Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.
E. Shares of funds subject to a contingent deferred sales
charge ("CDSC") that are exchanged for shares of another
fund will be subject to the higher applicable CDSC of the
two funds, and for purposes of calculating CDSC rates and
conversion periods, if any, will be deemed to have been
held since the date the shares being exchanged were
initially purchased.
To accomplish an exchange under item D above, shareholders must
notify the Transfer Agent of their prior ownership of fund shares and
their account number.
B-23
<PAGE>
Exchanges of Class R shares held by a Retirement Plan may be made
only between the investor's Retirement Plan account in one fund and such
investor's Retirement Plan account in another fund.
To establish a personal retirement plan by exchange, shares of
the fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh Plans, IRAs and SEP-IRAs with only one
participant, the minimum initial investment is $750. To exchange shares
held in Corporate Plans, 403(b)(7) Plans and IRAs set up under a
Simplified Employee Pension Plan ("SEP-IRAs") with more than one
participant, the minimum initial investment is $100 if the plan has at
least $2,500 invested among the funds in the Premier Family of Funds or
the Dreyfus Family of Funds. To exchange shares held in a personal
retirement plan account, the shares exchanged must have a current value of
at least $100.
Auto-Exchange Privilege. The Auto-Exchange Privilege permits an
investor to purchase, in exchange for shares of a Fund, shares of the same
Class of another fund in the Premier Family of Funds or the Dreyfus Family
of Funds. This privilege is available only for existing accounts. With
respect to Class R shares held by a Retirement Plan, exchanges may be made
only between the investor's Retirement Plan account in one fund and such
investor's Retirement Plan account in another fund. Shares will be
exchanged on the basis of relative net asset value as described above
under "Exchange Privilege." Enrollment in or modification or cancellation
of this privilege is effective three business days following notification
by the investor. An investor will be notified if the investor's account
falls below the amount designated to be exchanged under this privilege.
In this case, an investor's account will fall to zero unless additional
investments are made in excess of the designated amount prior to the next
Auto-Exchange transaction. Shares held under IRA and other retirement
plans are eligible for this privilege. Exchanges of IRA shares may be
made between IRA accounts and from regular accounts to IRA accounts, but
not from IRA accounts to regular accounts. With respect to all other
retirement accounts, exchanges may be made only among those accounts.
Fund exchanges and Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds
may be obtained from the Distributor. The Fund reserves the right to
reject any exchange request in whole or in part. The Fund exchange
service or Auto-Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
Automatic Withdrawal. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. An Automatic Withdrawal Plan may be
B-24
<PAGE>
established by completing the appropriate application available from the
Distributor. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, a Fund
or the Transfer Agent. Shares for which certificates have been issued may
not be redeemed through the Automatic Withdrawal Plan.
Dividend Sweep. Dividend Sweep allows investors to invest on the
payment date their dividends or dividends and capital gain distributions,
if any, from a Fund in shares of the same Class of another fund in the
Premier Family of Funds or the Dreyfus Family of Funds of which the
investor is a shareholder. Shares of the same Class of other funds
purchased pursuant to this privilege will be purchased on the basis of
relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be
invested without imposition of a sales load in shares of
other funds that are offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other
funds sold with a sales load, and the applicable sales
load will be deducted.
C. Dividends and distributions paid by a fund which charges
a sales load may be invested in shares of other funds
sold with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to
the Offered Shares exceeds the maximum sales load charged
by the fund from which dividends or distributions are
being swept, without giving effect to any reduced loads,
the difference will be deducted.
D. Dividends and distributions paid by a fund may be
invested in shares of other funds that impose a CDSC and
the applicable CDSC, if any, will be imposed upon
redemption of such shares.
Corporate Pension/Profit-Sharing and Retirement Plans. Each Fund
makes available to corporations a variety of prototype pension and profit-
sharing plans including a 401(k) Salary Reduction Plan. In addition, each
Fund makes available Keogh Plans, IRAs, including SEP-IRAs and IRA
"Rollover Accounts," and 403(b)(7) Plans. Plan support services also are
available.
Investors who wish to purchase Fund shares in conjunction with a
Keogh Plan, a 403(b)(7) Plan or an IRA, including an SEP-IRA, may request
from the Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans
or IRAs may charge a fee, payment of which could require the liquidation
of shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by
direct remittance to the entity acting as custodian. Purchases for these
plans may not be made in advance of receipt of funds.
B-25
<PAGE>
The minimum initial investment for corporate plans, Salary
Reduction Plans, 403(b)(7) Plans and SEP-IRAs with more than one
participant, is $1,000 with no minimum on subsequent purchases. The
minimum initial investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-
IRAs and 403(b)(7) Plans with only one participant, is normally $750, with
no minimum on subsequent purchases. Individuals who open an IRA may also
open a non-working spousal IRA with a minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details on
eligibility, service fees and tax implications, and should consult a tax
adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to Buy
Fund 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 Board of Directors, are valued at fair
value as determined in good faith by the Board of Directors. The Board of
Directors will review the method of valuation on a current basis. In
making their good faith valuation of restricted securities, the Directors
generally will take the following factors into consideration: restricted
securities which are 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 Board of Directors if the Directors 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 Board of Directors.
New York Stock Exchange Closings. The holidays (as observed) on
which the NYSE is closed currently are: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Dividends,
Other Distributions and Taxes."
The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any
government agency.
To qualify as a regulated investment company ("RIC"), each Fund
(1) must distribute to its shareholders each year at least 90% of its
investment company taxable income (generally consisting of net investment
income, net short-term capital gains and net gains from certain foreign
B-26
<PAGE>
currency transactions), (2) must derive at least 90% of its annual gross
income from specified sources ("Income Requirement"), (3) must derive less
than 30% of its annual gross income from gain on the sale or disposition
of any of the following that are held for less than three months --
(i) securities, (ii) non-foreign-currency options and futures and
(iii) foreign currencies (or foreign currency options, futures and forward
contracts) that are not directly related to a Fund's principal business of
investing in securities (or options and futures with respect thereto)
("Short-Short Limitation") -- and (4) must meet certain asset
diversification and other requirements. Accordingly, a Fund may be
restricted in the selling of securities held for less than three months.
Any dividend or other 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 his investment. Such a dividend or other
distribution would be a return on investment in an economic sense,
although taxable as stated in the Funds' Prospectus. In addition, the
Code provides that if a shareholder holds shares of the Fund for six
months or less and has received a capital gain distribution with respect
to those shares, any loss incurred on the sale of those shares will be
treated as a long-term capital loss to the extent of the capital gain
distribution received.
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on
a date in that month any of those months are deemed to have been paid by a
Fund and received by the shareholders on December 31 of that year if the
distributions are paid by a Fund during the following January.
Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends paid by a Fund, whether received in
cash or reinvested in additional Fund shares, may be eligible for the
dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by a Fund from
U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the alternative minimum tax.
Dividends and interest received by a Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not
impose taxes on capital gains in respect of investments by foreign invest-
ors.
Income from foreign currencies (except certain gains therefrom
that may be excluded by future regulations), and income from transactions
in options, futures and forward contracts derived by the Fund with respect
to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However,
income from the disposition of options and futures contracts (other than
those on foreign currencies) will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition
B-27
<PAGE>
of foreign currencies, and options, futures and forward contracts thereon,
that are not directly related to a Fund's principal business of investing
in securities (or options and futures with respect to securities) also
will be subject to the Short-Short Limitation if they are held for less
than three months.
If a Fund satisfies certain requirements, any increase in value
of a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether a Fund satisfies the Short-Short Limitation. Thus, only the net
gain (if any) from the designated hedge will be included in gross income
for purposes of that limitation. Each Fund will consider whether it
should seek to qualify for this treatment for its hedging transactions.
To the extent a Fund does not so qualify, it may be forced to defer the
closing out of certain options, futures and forward contracts beyond the
time when it otherwise would be advantageous to do so, in order for such
Fund to qualify as a RIC.
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gain and loss. However, a portion of the gain
or loss from the disposition of foreign currencies and non-U.S. dollar
denominated securities (including debt instruments, certain financial
forward, futures and option contracts and certain preferred stock) may be
treated as ordinary income or loss under Section 988 of the Code. 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. Moreover, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold
to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a
Fund from certain futures and forward contracts and options transactions
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 exercise or lapse of
such contracts and options as well as from closing transactions. In
addition, any such contracts or options remaining unexercised at the end
of a Fund's taxable year will be treated as sold for their then fair
market value (a process known as "marking to market"), resulting in
additional gain or loss to the Fund characterized in the manner described
above.
Offsetting positions held by a Fund involving certain contracts
or options may constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the
Code, which, in certain circumstances, override or modify Sections 1256
and 988. As such, all or a portion of any short-term or long-term capital
gain from certain "straddle" transactions may be recharacterized to
ordinary income. If the Fund were treated as entering into "straddles" by
reason of its engaging in certain forward contracts or options
transactions, such "straddles" would be characterized as "mixed straddles"
B-28
<PAGE>
if the forward contracts or options transactions comprising a part of such
"straddles" were governed by Section 1256. Each Fund may make one or more
elections with respect to "mixed straddles." Depending on which election
is made, if any, the results to a Fund may differ. If no election is
made, then to the extent the "straddle" and conversion transactions rules
apply to positions established by a Fund, losses realized by a Fund will
be deferred to the extent of unrealized gain in the offsetting position.
Moreover, as a result of the "straddle" rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains or
ordinary income.
Investment by a Fund in securities issued or acquired at a
discount (for example, zero coupon securities) or providing for deferred
interest or for payment of interest in the form of additional obligations
(for example, "pay-in-kind" or "PIK" securities) could, under special tax
rules, affect the amount, timing and character of distributions to
shareholders by causing the Fund to recognize income prior to the receipt
of cash payments. For example, a Fund could be required to take into
gross income annually a portion of the discount (or deemed discount) at
which the securities were issued and to distribute such income in order to
maintain its qualification for treatment as a RIC. In such case, the Fund
may have to dispose of securities it might otherwise have continued to
hold in order to generate cash to satisfy these distribution requirements.
If a Fund invests in an entity that is classified as a "passive
foreign investment company" ("PFIC") for federal income tax purposes, the
operation of certain provisions of the Code applying to PFICs could result
in the imposition of certain federal income taxes on the Fund. In
addition, gain realized from the sale or other disposition of PFIC
securities may be treated as ordinary income under Section 1291 of the
Code.
State and Local Taxes. Depending upon the extent of a Fund's
activities in states and localities in which its offices are maintained,
in which its agents or independent contractors are located, or in which it
is otherwise deemed to be conducting business, the Fund may be subject to
the tax laws of such states or localities. Shareholders are advised to
consult their tax advisers concerning the application of state and local
taxes.
Foreign Shareholders - U.S. Federal Income Taxation. U.S. federal
income taxation of a shareholder who, as to the United States, is a
non-resident alien individual, a foreign trust or estate, a foreign
corporation or a foreign partnership (a "foreign shareholder"), depends on
whether the income from a Fund is "effectively connected" with a U.S.
trade or business carried on by the shareholder, as discussed generally
below. Special U.S. federal income tax rules that differ from those
described below may apply to certain foreign persons who invest in the
Fund. For example, the tax consequences to a foreign shareholder entitled
to claim the benefits of an applicable tax treaty may be different from
those described below. Foreign shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them
of an investment in a Fund.
B-29
<PAGE>
Foreign Shareholders - Income Not Effectively Connected. If the
income from the Fund is not effectively connected with a U.S. trade or
business carried on by the foreign shareholder, distributions of
investment company taxable income generally will be subject to a U.S.
federal withholding tax of 30% (or lower treaty rate) on the gross amount
of the distribution. Foreign shareholders also may be subject to U.S.
federal withholding tax on income resulting from any election by a Fund to
treat foreign taxes paid by it as paid by its shareholders (see discussion
above), but foreign shareholders will not be able to claim a credit or
deduction for the foreign taxes treated as having been paid by them.
Capital gains realized by foreign shareholders on the sale of
Fund shares and distributions to them of net capital gain, as well as
amounts retained by a Fund that are designated as undistributed capital
gains, generally will not be subject to U.S. federal income tax unless the
foreign shareholder is a non-resident alien individual and is physically
present in the United States for more than 182 days during the taxable
year. However, this rule only applies in exceptional cases, because any
individual present in the United States for more than 182 days during the
taxable year generally is treated as a resident for U.S. federal income
tax purposes on his worldwide income at the graduated rates applicable to
U.S. citizens, rather than the 30% U.S. federal withholding tax rate. In
the case of certain foreign shareholders, the Fund may be required to
withhold U.S. Federal income tax at a rate of 31% of capital gain
distributions and of the gross proceeds from a redemption of Fund shares
unless the shareholder furnishes the Fund with a certificate regarding the
shareholder's foreign status.
Foreign Shareholders - Effectively Connected Income. If income
from a Fund is effectively connected with a U.S. trade or business carried
on by a foreign shareholder, then all distributions to that shareholder
and any gains realized by that shareholder on the disposition of the Fund
shares will be subject to U.S. federal income tax at the graduated rates
applicable to U.S. citizens and domestic corporations, as the case may be.
Foreign shareholders also may be subject to the branch profits tax.
Foreign Shareholders - Estate Tax. Foreign individuals generally
are subject to U.S. federal estate tax on their U.S. situs property, such
as shares of a Fund, that they own at the time of their death. Certain
credits against that tax and relief under applicable tax treaties may be
available.
Pennsylvania Personal Property Tax Exemption. The Company has
obtained a Certificate of Authority to do business as a foreign
corporation in Pennsylvania. In the opinion of counsel, shares of the
Company are exempt from Pennsylvania personal property taxes.
PORTFOLIO TRANSACTIONS
All portfolio transactions of each Fund are placed on behalf of
each Fund by Dreyfus. Debt securities purchased and sold by each Fund are
generally traded on a net basis (i.e., without commission) through dealers
acting for their own account and not as brokers, or otherwise involve
transactions directly with the issuer of the instrument. This means that
a dealer (the securities firm or bank dealing with a Fund) makes a market
B-30
<PAGE>
for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread.
Other portfolio transactions may be executed through brokers acting as
agent. Each Fund will pay a spread or commissions in connection with such
transactions. Dreyfus uses its best efforts to obtain execution of
portfolio transactions at prices which are advantageous to each Fund and
at spreads and commission rates, if any, which are reasonable in relation
to the benefits received. Dreyfus also places transactions for other
accounts that it provides with investment advice.
Brokers and dealers involved in the execution of portfolio
transactions on behalf of a Fund are selected on the basis of their
professional capability and the value and quality of their services. In
selecting brokers or dealers, Dreyfus will consider various relevant
factors, including, but not limited to, the size and type of the
transaction; the nature and character of the markets for the security to
be purchased or sold; the execution efficiency, settlement capability, and
financial condition of the broker-dealer; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
spreads (or commissions, if any). Any spread, commission, fee or other
remuneration paid to an affiliated broker-dealer is paid pursuant to the
Company's procedures adopted in accordance with Rule 17e-1 of the 1940
Act.
Brokers or dealers may be selected who provide brokerage and/or
research services to a Fund and/or other accounts over which Dreyfus or
its affiliates exercise investment discretion. Such services may include
advice concerning the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of securities or
the purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement).
The receipt of research services from broker-dealers may be
useful to Dreyfus in rendering investment management services to a Fund
and/or its other clients; and, conversely, such information provided by
brokers or dealers who have executed transaction orders on behalf of other
clients of Dreyfus may be useful to these organizations in carrying out
their obligations to the Fund. The receipt of such research services does
not reduce these organizations' normal independent research activities;
however, it enables these organizations to avoid the additional expenses
which might otherwise be incurred if these organizations were to attempt
to develop comparable information through their own staffs.
The Company's Board of Directors periodically review Dreyfus'
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of a Fund and review the prices paid by
the Fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the Fund.
Although Dreyfus manages other accounts in addition to the Funds,
investment decisions for the Funds are made independently from decisions
made for these other accounts. It sometimes happens that the same security
B-31
<PAGE>
is held by more than one of the accounts managed by Dreyfus. Simultaneous
transactions may occur when several accounts are managed by the same
investment manager, particularly when the same investment instrument is
suitable for the investment objective of more than one account.
When more than one account is simultaneously engaged in the
purchase or sale of the same investment instrument, the prices and amounts
are allocated in accordance with a formula considered by Dreyfus to be
equitable to each account. In some cases this system could have a
detrimental effect on the price or volume of the investment instrument as
far as the Fund is concerned. In other cases, however, the ability of a
Fund to participate in volume transactions will produce better executions
for the Fund. While the Directors will continue to review simultaneous
transactions, it is their present opinion that the desirability of
retaining Dreyfus as investment manager to a Fund outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions.
For the period July 11, 1991 (commencement of operations) to
October 31, 1991, Premier Limited Term Income Fund did not pay any
brokerage commissions. For the fiscal years ended October 31, 1993 and
1992, Premier Limited Term Income Fund paid $4,885 and $563, respectively,
in brokerage commissions. Increase in brokerage commissions paid was
related to the acquisition in fiscal year 1993 of a few securities of
which brokerage was charged. The Premier Limited Term Income Fund
typically does not pay a stated brokerage fee on transactions.
For the period September 15, 1993 (commencement of operations) to
October 31, 1993, Balanced Fund paid brokerage commissions amounting to
$24,670.
Portfolio Turnover. The portfolio turnover rate for each Fund is
calculated by dividing the lesser of the Fund's annual sales or purchases
of portfolio securities (exclusive of purchases and sales of securities
whose maturities at the time of acquisition were one year or less) by the
monthly average value of securities in the Fund during the year.
The portfolio turnover rates for the last two years of each Fund
were:
Fiscal Year Ended October 31,
-----------------------------
1993 1992
---- ----
Premier Limited Income 112% 67%
Balanced (1) -- --
(1) Balanced Fund commences operations 9/15/93.
B-32
<PAGE>
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled
"Performance Information."
Average annual total return is calculated by determining the
ending redeemable value of an investment purchased at net asset value
(maximum offering price in the case of Class A) per share with a
hypothetical $1,000 payment made at the beginning of the period (assuming
the reinvestment of dividends and other 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. A Class's average annual total return figures calculated in
accordance with such formula assume that in the case of Class A the
maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase or in the case of Class B or C the
maximum applicable CDSC has been paid upon redemption at the end of the
period.
Total return is calculated by subtracting the amount of a Fund's
net asset value (maximum offering price in the case of Class A) per share
at the beginning of a stated period from the net asset value (maximum
offering price in the case of Class A) per share at the end of the period
(after giving effect to the reinvestment of dividends and other
distributions during the period and any applicable CDSC), and dividing the
result by the net asset value (maximum offering price in the case of Class
A) per share at the beginning of the period. Total return also may be
calculated based on the net asset value per share at the beginning of the
period instead of the maximum offering price per share at the beginning of
the period for Class A shares or without giving effect to any applicable
CDSC at the end of the period for Class B or C shares. In such cases, the
calculation would not reflect the deduction of the sales load with respect
to Class A shares or any applicable CDSC with respect to Class B or C
shares, which, if reflected would reduce the performance quoted.
Average annual total return (expressed as a percentage) for Class
A shares of each Fund for the periods noted were:
Annualized Total Return for the
Periods Ended April 30, 1994
Fund:
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Balanced -- -- -- (4/14/94)
Limited Term -- -- -- (4/7/94)
Income
The dates in parentheses under the column headed "Inception" reflect the
date the commencement of Class A shares of each Fund.
Average annual total return (expressed as a percentage) for Class R shares
of each Fund for the periods noted were:
B-33
<PAGE>
Annualized Total Return for the
Periods Ended April 30, 1994
Fund:
1 Year 5 Years 10 Years Inception
Balanced -- -- -- (9/15/94)
Limited Term 0.36 -- -- 7.35 (7/11/91)
Income
The dates in parentheses under the column headed "Inception" reflect the
date of each Fund's inception.
Certain Funds may also advertise yield from time to time. Yields
are computed by using standardized methods of calculation required by the
SEC. Yields are calculated by dividing the net investment income per
share earn during a 30-day (or one month) period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
YIELD = 2[a-b/cd+1) -1]
Where: a = dividends and interest earned during
the period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
d = the maximum offering price per share
on the last day of the period.
The 30-day yield for each Fund quoting yield for the period ended
April 30, 1994 was:
Limited Term Income Fund (Class R) 5.76%
Performance information for the Funds may be compared, in reports
and promotional literature, to indexes including, but not limited to: (i)
the Morgan Stanley European Index; (ii) the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), the Dow Jones Industrial Average
("DJIA"), or other appropriate unmanaged domestic or foreign indices of
performance of various types of investments so that investors may compare
the Fund's results with those of indices widely regarded by investors as
representative of the securities markets in general; (iii) other groups of
mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or
other criteria; (iv) the Consumer Price Index (a measure of inflation) to
assess the real rate of return from an investment in the Fund; and (v)
products managed by a universe of money managers with similar country
allocation and performance objectives. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions or
administrative and management costs and expenses.
B-34
<PAGE>
INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-
assessable. Fund shares have no preemptive or subscription rights and are
freely transferable.
Each Fund will send annual and semi-annual financial statements
to all its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
Mellon Bank, One Mellon Bank Center, Pittsburgh, PA
15258, is the Funds' custodian and fund accountant. The Shareholder
Services Group, Inc., a subsidiary of First Data Corporation, P.O. Box
9692, Providence, Rhode Island 09240-9830, is each Fund's transfer and
dividend disbursing agent. The Shareholder Services Group, Inc. and
Mellon Bank as custodian, have no part in determining the investment
policies of a Fund or which securities are to be purchased or sold by the
Fund. Prior to the effectiveness of the Investment Management Agreement
for its services as custodian and fund accountant, Mellon Bank was paid an
annual fee of $30,000 per portfolio, and, for all portfolios, an annual
administrative account maintenance fee of $10,000, an annual on-line fee
of $3,600, an asset-based fee of .02% of the first $500 million of the
Company's net assets and .01% of net assets over $500 million, plus a
specified transaction fee for each transaction. For its services as
transfer and dividend disbursing agent, Mellon Bank was paid an annual fee
of $13.00 per shareholder account, with a minimum monthly fee of $3,000
per portfolio. Mellon Bank was reimbursed for certain out-of-pocket
expenses including wire fees, and postage, stationery and telephone
expenses.
Kirkpatrick & Lockhart, 1800 M Street, N.W., South Lobby
- 9th Floor, Washington, D.C. 20036, has passed upon the legality of the
shares offered by the Prospectuses and this Statement of Additional
Information.
KPMG Peat Marwick LLP was appointed by the Directors to
serve as the Funds' independent auditors for the year ending October 31,
1994, providing audit services including (1) examination of the annual
financial statements, (2) assistance, review and consultation in
connection with the SEC and (3) review of the annual federal income tax
return and the Pennsylvania excise tax return filed on behalf of each
Fund.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31,
1993, including notes to the financial statements and supplementary
information and the Report of Independent Auditors, are included in the
B-35
<PAGE>
Annual Report to shareholders. A copy of the Annual Report, as well as
the Semi-Annual Report for the six months ended June 30, 1994 (unaudited),
accompanies this Statement of Additional Information. The financial
statements for the Annual Report and the Semi-Annual Report are
incorporated herein by reference.
B-36
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Debt Instruments Ratings
------------------------
Moody's Investors Service. Inc. (Moody's):
------------------------------------------
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are protected by a
large or exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
Securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A -- Bonds rated A possess many favorable investment attributes
and are considered "upper medium grade obligations."
Those Bonds in the Aa and A group which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa 1 and
A 1.
Standard & Poor's Ratings Group ("S&P"):
------------------------------------------
AAA -- This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and in
the majority of instances they differ from AAA issues only in small
degree.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
Plus (+) or Minus (-): The AA rating may be modified by the
addition of a plus or minus sign to show relative standing within the AA
rating category.
B-37
<PAGE>
Commercial Paper Ratings
------------------------
Moody's:
-------
Commercial paper rated Prime by Moody's is based upon its
evaluation of many factors, including: (1) management of the issuer; (2)
the issuer's industry or industries and the speculative-type risks which
may be inherent in certain areas; (3) the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality
of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist
with the issue; and (8) recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. Relative differences in these
factors determine whether the issuer's commercial paper is rated Prime-l,
Prime-2, or Prime-3.
Prime-1 indicates a superior capacity for repayment of short-term
promissory obligations. Prime-l repayment capacity will normally be
evidenced by the following characteristics: (1) leading market positions
in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate
reliance on debt and ample asset protection; (4) broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
(5) well established access to a range of financial markets and assured
sources of alternative liquidity.
Prime-2 indicates a strong capacity for repayment of short-term
promissory 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, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
S&P:
Commercial paper rated by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term senior
debt is rated A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-l, A-2, or A-3.
A-1 -- This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation.
B-38
<PAGE>
A-2 -- Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is not as
high as for issues designated A- 1.
B-39
<PAGE>
Fitch's Investors Service. Inc. ("Fitch"):
-----------------------------------------
Commercial paper rated by Fitch reflects Fitch's current
appraisal of the degree of assurance of timely payment of such debt. An
appraisal results in the rating of an issuer's paper as F-l, F-2, F-3, or
F-4.
F-1 -- This designation indicates that the commercial paper is
regarded as having the strongest degree of assurance for timely payment.
F-2 -- Commercial paper issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than those issues
rated F-l.
Duff and Phelps, Inc.:
---------------------
Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities of under one year, including commercial paper,
the uninsured portion of certificates of deposit, unsecured bank loans,
master notes, bankers acceptances, irrevocable letters of credit, and
current maturities of long-term debt. Asset-backed commercial paper is
also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash
from operations, but also access to alternative sources of funds including
trade credit, bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on short-term funds on
an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings
is the refinement of the traditional '1' category. The majority of
short-term debt issuers carry the highest rating, yet quality differences
exist within that tier. As a consequence, Duff & Phelps has incorporated
gradations of '1+' (one plus) and '1-' (one minus) to assist investors in
recognizing those differences.
Duff 1+--Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1--High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors
are very small.
Good Grade
B-40
<PAGE>
Duff 2--Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
Satisfactory Grade
Duff 3--Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
Non-Investment Grade
Duff 4--Speculative investment characteristics. Liquidity is not
sufficient to ensure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
Default
Duff 5--Issuer failed to meet scheduled principal and/or interest
payments.
IBCA, Inc.:
----------
In addition to conducting a careful review of an institution's
reports and published figures, IBCA's analysts regularly visit the
companies for discussions with senior management. These meetings are
fundamental to the preparation of individual reports and ratings. To keep
abreast of any changes that may affect assessments, analysts maintain
contact throughout the year with the management of the companies they
cover.
IBCA's analysts speak the languages of the countries they cover,
which is essential to maximize the value of their meetings with management
and to properly analyze a company's written materials. They also have a
thorough knowledge of the laws and accounting practices that govern the
operations and reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position,
companies entrust IBCA with confidential data. While these data cannot be
disclosed in reports, they are taken into account when assigning our
ratings. Before dispatch to subscribers, a draft of the report is
submitted to each company to permit correction of any factual errors and
to enable clarification of issues raised.
IBCA's Rating Committees meet at regular intervals to review all
ratings and to ensure that individual ratings are assigned consistently
for institutions in all the countries covered. Following the Committee
meetings, ratings are issued directly to subscribers. At the same time,
the company is informed of the ratings as a matter of courtesy, but not
for discussion.
A1+--Obligations supported by the highest capacity for timely
repayment.
B-41
<PAGE>
A1--Obligations supported by a very strong capacity for timely
repayment.
A2--Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
B1--Obligations supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
B2--Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial
conditions.
C1--Obligations for which there is an inadequate capacity to
ensure timely repayment.
D1--Obligations which have a high risk of default or which are
currently in default.
B-42
<PAGE>
