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PROSPECTUS NOVEMBER 1, 1995
DREYFUS DISCIPLINED INTERMEDIATE BOND FUND
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DREYFUS DISCIPLINED INTERMEDIATE BOND FUND (THE "FUND") IS A
SEPARATE, DIVERSIFIED PORTFOLIO OF THE DREYFUS/LAUREL FUNDS, INC., AN
OPEN-END MANAGEMENT INVESTMENT COMPANY (THE "COMPANY"), KNOWN AS A MUTUAL
FUND. THE FUND SEEKS TO OUTPERFORM THE LEHMAN BROTHERS AGGREGATE BOND INDEX,
WHILE MAINTAINING A SIMILAR LEVEL OF RISK, BY INVESTING PRIMARILY IN DOMESTIC
AND FOREIGN INVESTMENT-GRADE DEBT SECURITIES AND BY ACTIVELY MANAGING BOND
MARKET AND MATURITY EXPOSURE. UNDER NORMAL MARKET CONDITIONS, THE FUND EXPECTS
TO MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF BETWEEN THREE AND TEN
YEARS.
BY THIS PROSPECTUS, THE FUND IS OFFERING INVESTOR SHARES AND CLASS R
SHARES. INVESTOR SHARES AND CLASS R SHARES ARE IDENTICAL, EXCEPT AS TO THE
SERVICES OFFERED TO AND THE EXPENSES BORNE BY EACH CLASS. CLASS R SHARES ARE
SOLD PRIMARILY TO BANK TRUST DEPARTMENTS AND OTHER FINANCIAL SERVICE
PROVIDERS (INCLUDING MELLON BANK, N.A. ("MELLON BANK") AND ITS AFFILIATES)
("BANKS") ACTING ON BEHALF OF CUSTOMERS HAVING A QUALIFIED TRUST OR
INVESTMENT ACCOUNT OR RELATIONSHIP AT SUCH INSTITUTION OR TO CUSTOMERS WHO HAV
E RECEIVED AND HOLD SHARES OF THE FUND DISTRIBUTED TO THEM BY VIRTUE OF SUCH
AN ACCOUNT OR RELATIONSHIP. INVESTOR SHARES ARE SOLD PRIMARILY TO RETAIL
INVESTORS BY THE FUND'S DISTRIBUTOR AND BY BANKS, BROKERS, DEALERS AND OTHER
FINANCIAL INSTITUTIONS THAT HAVE ENTERED INTO A SELLING AGREEMENT WITH THE
FUND'S DISTRIBUTOR.
SHARES OF THE FUND ARE SOLD WITHOUT A SALES LOAD. INVESTOR SHARES OF
THE FUND ARE SUBJECT TO DISTRIBUTION AND SHAREHOLDER SERVICING FEES.
YOU CAN PURCHASE OR REDEEM FUND SHARES BY TELEPHONE USING THE DREYFUS
TELETRANSFER PRIVILEGE.
THE DREYFUS CORPORATION SERVES AS THE FUND'S INVESTMENT MANAGER. THE
DREYFUS CORPORATION IS REFERRED TO AS "DREYFUS."
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ CAREFULLY BEFORE YOU
INVEST AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED NOVEMBER 1,
1995, WHICH MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION
OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER MATTERS THAT MAY BE OF INTEREST
TO SOME INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") AND IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY,
WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK
11556-0144 OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
THE FEES TO WHICH THE FUND IS SUBJECT ARE SUMMARIZED IN THE "EXPENSE
SUMMARY" SECTION OF THE FUND'S PROSPECTUS. THE FUND PAYS AN AFFILIATE OF
MELLON BANK 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
EXPENSE SUMMARY........................................... 4
DESCRIPTION OF THE FUND................................... 5
MANAGEMENT OF THE FUND.................................... 13
HOW TO BUY FUND SHARES.................................... 14
SHAREHOLDER SERVICES...................................... 17
HOW TO REDEEM FUND SHARES................................. 20
DISTRIBUTION PLAN (INVESTOR SHARES ONLY).................. 23
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES.................. 23
PERFORMANCE INFORMATION................................... 25
GENERAL INFORMATION....................................... 26
</TABLE>
Page 2
[This Page Intentionally Left Blank]
Page 3
EXPENSE SUMMARY
<TABLE>
INVESTOR CLASS R
SHARES SHARES
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases............................... none none
Maximum Sales Load Imposed on Reinvestments........................... none none
Deferred Sales Load................................................... none none
Redemption Fee........................................................ none none
Exchange Fee.......................................................... none none
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF NET ASSETS)
Management Fee........................................................ 0.55% 0.55%
12b-1 Fee(1).......................................................... 0.25% none
Other Expenses(2)..................................................... 0.00% 0.00%
__ __
Total Fund Operating Expenses......................................... 0.80% 0.55%
</TABLE>
<TABLE>
EXAMPLE:
An investor would pay the following expenses
on a $1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
time period:
INVESTOR CLASS R
SHARES SHARES
<S> <C> <C>
1 YEAR $8 $6
3 YEARS $26 $18
</TABLE>
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(1) See "Distribution Plan (Investor Shares Only)" for a description of the
Fund's Distribution Plan for the Investor shares.
(2) Does not include fees and expenses of the non-interested Directors
(including counsel). The investment manager is contractually required to
reduce its Management Fee by an amount equal to the Fund's allocable portion
of such fees and expenses, which are estimated to be 0.02% of the Fund's net
assets (See "Management of the Fund.")
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN,
THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
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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
Investor shares could pay more in 12b-1 fees than 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. The
information in the foregoing table does not reflect any fee waivers or
expense reimbursement arrangements that may be in effect. Certain Agents (as
defined below) may charge their clients direct fees for effecting
transactions in Fund shares; such fees are not reflected in the foregoing
table. See "Management of the Fund," "How to Buy Fund Shares" and
"Distribution Plan (Investor Shares Only)."
The Company understands that banks, brokers, dealers or other
financial institutions (including Dreyfus and its affiliates) (collectively
"Agents") may charge fees to their clients who are owners of the Fund's
Investor shares for various services provided in connection with a client's
account. These fees would be in addition to any amounts received by an Agent
under its Selling Agreement ("Agreement") with Premier Mutual Fund Services,
Inc. (the "Distributor"). The Agreement requires each Agent to disclose to
its clients any compensation payable to such Agent by the Distributor and any
other compensation payable by the clients for various services provided in
connection with their accounts.
Page 4
DESCRIPTION OF THE FUND
GENERAL
By this Prospectus, the Fund is offering Investor shares and Class R
shares. Investor shares and Class R shares are identical, except as to the
services offered to and the expenses borne by each Class. Class R shares are
sold primarily to Banks acting on behalf of customers having a qualified
trust or investment account or relationship at such institution or to
customers who have received and hold shares of the Fund distributed to them
by virtue of such an account or relationship. Investor shares are sold
primarily to retail investors by the Fund's Distributor and by Agents that
have entered into an Agreement with the Fund's Distributor. 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 transaction
requests to the Fund's transfer agent or to the Fund's Distributor.
Distribution and shareholder servicing fees paid by Investor shares will
cause Investor shares to have a higher expense ratio and to pay lower
dividends than Class R shares.
INVESTMENT OBJECTIVE
The Fund seeks to outperform the Lehman Brothers Aggregate Bond Index
(the "Benchmark"), while maintaining a similar level of risk, by investing
primarily in domestic and foreign investment-grade debt securities and by
actively managing bond market and maturity exposure. There can be no
assurance that the Fund will achieve its investment objective. Under normal
market conditions, the Fund expects to maintain a dollar-weighted average
maturity of between three and ten years. The Fund is not (nor will it be
operated as) an index fund, and the Fund's portfolio investments will not be
limited to debt issues included in the Benchmark.
MANAGEMENT POLICIES
Dreyfus seeks to achieve the Fund's investment objective by actively
managing the Fund's portfolio. Dreyfus' techniques include security selection
and management of bond market and maturity exposure. Dreyfus selects the
Fund's portfolio investments on the basis of, among other factors, yields,
credit quality, the level of interest rates and inflation, general economic
and financial trends, and its outlook for the securities markets. Although
the Fund may maintain aggregate investment characteristics similar to the
Benchmark, the Fund seeks to invest in individual debt securities that
together will provide a higher total return than the Benchmark. Dreyfus'
investment techniques utilize a disciplined control of fund risk and a
process of rigorous control and testing. Prior to security selection,
quality, duration, coupon, maturity and sector are targeted within
pre-determined ranges as a percentage of the total portfolio. The selection
must fit within strategies that are constantly being developed to meet the
targeted positions. The security selection process is completed only after
computer modeling is employed to stress and scenario test the strategies
through "what if" portfolios for a variety of possible changes in market
conditions. Dreyfus will use various investment techniques to attempt to
protect against risks (such as adverse interest rate fluctuations or bond
market movements) and to manage the effective maturity of the Fund's
portfolio securities. However, if Dreyfus judges market conditions
incorrectly or employs a management strategy that does not correlate well
with the Fund's investments, these techniques could result in a loss,
regardless of whether Dreyfus intended to increase the Fund's total return or
to reduce risk.
Under normal market conditions, the Fund will invest at least 65% of
its total assets in debt securities, such as bonds, notes and debentures, of
domestic and foreign issuers. See "Certain Portfolio Securities" below. The
issuers of these debt securities include the U.S. Government and foreign
governments, their political subdivisions, agencies and municipalities, and
domestic and foreign corporations. The Fund currently intends to limit its
investments in debt securities to those rated at least investment-grade.
Investment-grade debt securities are securities that, at the time of
purchase, are rated within one of the four highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's
("S&P") (AAA, AA, A or BBB) or, if unrated, are determined by Dreyfus to be
of
Page 5
comparable quality. At least 55% of the value of the Fund's net assets
will normally consist of debt securities that, at the time of purchase, are
rated at least Aa or AA or, if unrated, are determined by Dreyfus to be of
comparable quality.
Debt securities rated Baa by Moody's or BBB by S&P are considered by
those rating agencies to be "investment grade" securities, although Moody's
considers securities rated Baa to have speculative characteristics.
Furthermore, although bonds rated BBB by S&P exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal on debt
in this category than on debt in higher rated categories. The Fund will, in a
prudent and orderly fashion, sell securities whose ratings drop below
investment-grade (or comparable) quality. A discussion of the Moody's and S&P
rating categories appears in the SAI.
The debt securities in which the Fund may invest include: (1) U.S.
Treasury bills, notes and bonds; (2) other obligations issued or guaranteed
as to interest and principal by the U.S. Government, its agencies and
instrumentalities; (3) mortgage-related securities backed by the U.S.
Government, its agencies and instrumentalities, or by private issuers; (4)
repurchase agreements; (5) taxable obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities; (6) corporate debt securities; and (7)
Eurodollar bonds and notes. The Fund may invest up to 20% of its total assets
in debt securities issued by foreign governments and foreign corporations.
The Fund generally invests in debt securities with intermediate-term
maturities, which securities are expected to pay higher yields and experience
greater fluctuations in value than securities with short-term maturities.
Under normal market conditions, the Fund expects to maintain a
dollar-weighted average maturity of between three and ten years. Within this
limitation, the Fund may purchase individual debt securities with effective
maturities of less than three years and greater than ten years. Under normal
market conditions, the longer the average maturity of the Fund's holdings,
the greater the expected yield and price volatility.
The Fund may also invest in convertible debt obligations, convertible
preferred stocks, and zero coupon bonds and, to maintain liquidity, may
invest in commercial paper and in obligations of U.S. and foreign banks,
including certificates of deposit, bankers' acceptances, time deposits,
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), and Eurodollar Time Deposits ("ETDs"). The Fund currently
intends to limit its investments in any one of these types of instruments to
5% or less of its net assets (except when maintaining a temporary defensive
position). The Fund will not invest in common stocks and will sell any common
stocks received upon the conversion of convertible securities as promptly as
it can and in a manner that it believes will reduce its risk of loss in
connection with the sale.
The debt securities in which the Fund may invest have fixed, floating
or variable rates of interest, and some debt securities, such as zero coupon
bonds, do not pay current interest, but are purchased at a discount from
their face values. The Fund may purchase any of the securities in which it
may invest on a when-issued or delayed delivery basis. The Fund may also
engage in options and futures transactions.
Although Dreyfus normally invests the Fund's assets according to the
Fund's investment strategy, when Dreyfus determines that adverse market
conditions exist, the Fund may adopt a defensive position and invest
temporarily and without limitation in money market and other short-term debt
instruments. To the extent that the Fund so invests, it may not achieve its
investment objective.
The Benchmark is a broad market weighted index composed of the Lehman
Brothers Government/Corporate Bond Index and the Lehman Brothers
Mortgage-Backed Securities Index and includes fixed-income, investment-grade
U.S. Treasury and agency issues, corporate bond issues, and mortgage-backed
securities. All issues have at least one year to maturity.
Page 6
INVESTMENT TECHNIQUES
In connection with its investment objective and policies, the Fund
may engage in the following investment techniques, among others, to attempt
to hedge various market risks or to enhance total return:
BORROWING MONEY. The Fund is authorized, within specified limits, to
borrow money for temporary administrative purposes and to pledge its assets
in connection with such borrowings.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. To secure advantageous
prices or yields, the Fund may purchase debt 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 securities in an amount at least equal at all times to the amount of its
when-issued and delayed delivery commitments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The Fund may
purchase and sell various financial instruments ("Derivative Instruments"),
such as financial futures contracts (including interest rate, index and
foreign currency futures contracts), options (including options on
securities, indices, foreign currencies and futures contracts), forward
currency contracts and interest rate and currency swaps, caps, collars and
floors. The index Derivative Instruments the Fund may use may be based on
indices of U.S. or foreign equity or debt securities. These Derivative
Instruments may be used, for example, to preserve a return or spread, to lock
in unrealized market value gains or losses, to facilitate or substitute for
the sale or purchase of securities, to manage the duration of securities, to
alter the exposure of a particular investment or portion of the Fund's
portfolio to fluctuations in interest rates or currency rates, to uncap a
capped security or to convert a fixed rate security into a variable rate
security or a variable rate security into a fixed rate security.
The Fund's ability to use Derivative Instruments may be limited by
market conditions, regulatory limits and tax considerations. The Fund might
not use any of these strategies and there can be no assurance that any
strategy that is used will succeed. See the SAI for more information
regarding Derivative Instruments and the risks relating thereto.
FOREIGN CURRENCY TRANSACTIONS. The Fund may engage in currency
exchange transactions on a spot or forward basis and may hold foreign
currency deposits. (See "ECDs, ETDs and Yankee CDs".) The Fund may exchange
foreign currency on a spot basis at the spot rate then prevailing for purchasi
ng or selling foreign currencies in the foreign exchange market.
The Fund may also enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date with
respect to either specific transactions or portfolio positions in order to
minimize the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. For example, when the Fund
anticipates purchasing or selling a security denominated in a foreign
currency, the Fund may enter into a forward contract in order to set the
exchange rate at which the transaction will be made. The Fund may also enter
into a forward contract to sell an amount of foreign currency approximating
the value of some or all of the Fund's securities positions denominated in
that currency. The Fund will not enter into or maintain a position in forward
contracts if their consummation would obligate the Fund to deliver an amount
of foreign currency greater than the value of the Fund's assets denominated
or quoted in, or currency convertible into, such currency.
Page 7
Forward currency contracts may substantially change the Fund's
investment exposure to changes in currency exchange rates and could result in
losses if currencies do not perform as Dreyfus anticipates. There is no
assurance that Dreyfus' use of forward currency contracts will be
advantageous to the Fund or that it will hedge at an appropriate time.
RISKS OF DERIVATIVE INSTRUMENTS. The use of Derivative Instruments
involves special risks, including: (1) possible imperfect or no correlation
between price movements of the portfolio investments (held or intended to be
purchased) involved in the transaction and price movements of the Derivative
Instruments involved in the transaction; (2) possible lack of a liquid
secondary market for any particular Derivative Instrument at a particular
time; (3) the need for additional portfolio management skills and techniques;
(4) losses due to unanticipated market price movements; (5) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in portfolio investments; (6) incorrect forecasts by Dreyfus
concerning interest or currency exchange rates or direction of price
fluctuations of the investment involved in the transaction, which may result
in the strategy being ineffective; (7) loss of premiums paid by the Fund on
options it purchases; and (8) the possible inability of the Fund to purchase
or sell a portfolio security at a time when it would otherwise be favorable
for it to do so, or the need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of the Fund to close out or liquidate its positions.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its investment objective and polices, and regulatory
requirements applicable to investment companies.
MORTGAGE DOLLAR ROLLS. The Fund may enter into mortgage "dollar
rolls" in which the Fund sells mortgage-related securities for delivery in
the current month and simultaneously contracts to purchase substantially
similar securities on a specified future date. The mortgage-related
securities that are purchased will be of the same type and will have the same
interest rate as those securities sold, but generally will be supported by
different pools of mortgages with different prepayment histories than those
sold. The Fund forgoes principal and interest paid during the roll period on
the securities sold in a dollar roll, but the Fund is compensated by the
difference between the current sales price and the lower price for the future
purchase, as well as by any interest earned on the proceeds of the securities
sold. The Fund could be compensated also through the receipt of fee income
equivalent to a lower forward price. The dollar rolls entered into by the
Fund normally will be "covered". A covered roll is a specific type of dollar
roll for which there is an offsetting cash position or a cash equivalent
security position that matures on or before the forward settlement date of
the related dollar roll transaction. Covered rolls are not treated as a
borrowing or other senior security and will be excluded from the calculation
of the Fund's borrowings and other senior securities.
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
associated limits discussed under "Certain Portfolio Securities _ Illiquid
Investments."
MASTER/FEEDER OPTION. The Company may in the future seek to achieve
the Fund's investment objective by investing all of the Fund's net investable
assets in another investment company having the same investment objective and
substantially the same investment policies and restrictions as those
Page 8
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 Company's Board of Directors determines it to be in the best interest
of the Fund and its shareholders. In making that determination, the Company's
Board of 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 Board of 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.
CERTAIN PORTFOLIO SECURITIES
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 ("U.S. Government
Securities"). 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 ("GNMA"), General Services Administration and Maritime
Administration. The Fund may also invest in U.S. Government obligations that
do not carry the full faith and credit guarantee, such as those issued by the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC"), or other instrumentalities.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are
securities that, directly or indirectly, represent interests in, or are
secured by and payable from, loans secured by real property, including
pass-through securities such as GNMA, FNMA and FHLMC certificates, private
pass-through securities, commercial mortgage-related securities, and certain
collateralized mortgage obligations. There are currently three basic types of
mortgage-related securities: (1) those issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, such as GNMA, FNMA and FHLMC;
(2) those issued by private issuers that represent interests in, or are
collateralized by, mortgage-related securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; and (3) those issued by
private issuers that represent interests in, or are collateralized by, whole
loan mortgages or mortgage-related securities without a government guarantee,
but usually with some other form of credit support. Investors should note
that mortgage-related securities in which the Fund may invest are developed
and marketed from time-to-time and that, consistent with its investment
limitations, the Fund may invest in those mortgage-related securities that
Dreyfus believes may assist the Fund in achieving its investment objective.
The yield characteristics of mortgage-related securities differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments on mortgage-related securities are made more
frequently, generally once a month, and that principal prepayments on
mortgage-related securities may occur at any time because the underlying
mortgage loans generally may be prepaid at any time. As a result, if the Fund
purchases mortgage-related securities at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchases mortgage-related
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. The
timing and magnitude of prepayments cannot be predicted. Generally, however,
prepayments on fixed-rate mortgage loans will increase during a period of
falling mortgage interest rates and will decrease during a period of rising
mortgage interest rates. Amounts available for reinvestment by the Fund are
likely to be greater during a period of falling interest rates and, as a
result, are likely to be reinvested at lower interest rates than during a
period of rising interest rates. Accelerated prepayments on mortgage-related
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time
the principal is repaid in full. The value of mortgage-related securities may
be significantly affected by changes in interest rates, the market's
perception of the issuers, and the creditworthiness of the parties involved.
Page 9
Timely payment of principal and interest on pass-through securities
of GNMA (but not of FNMA or FHLMC) is guaranteed by the full faith and credit
of the United States. This is not a guarantee against market decline of the
value of these securities or the shares of the Fund. It is possible that the
availability (i.e., liquidity) of these securities could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit. Timely payment of principal and interest on pass-through securities
of FNMA or FHLMC is guaranteed by the respective entity.
Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage-related securities issued by GNMA, FNMA or FHLMC,
or by whole loans or private issuer pass-through securities. CMOs may be
issued by GNMA, FNMA, FHLMC or private issuers. CMOs are structured to direct
payments on underlying collateral to different series or classes of the
obligations. CMO classes may be specially structured in a manner that
provides any of a wide variety of investment characteristics, such as yield,
effective maturity and interest rate sensitivity. CMO structuring is
accomplished by in effect stripping out portions of the cash flows (comprised
of principal and interest payments) on the underlying mortgage assets and
prioritizing the payments of those cash flows. In the most extreme case, one
class will be entitled to receive all of the interest, but none of the
principal, from the underlying mortgage assets (the interest-only or "IO"
class) and one class will be entitled to receive all of the principal, but
none of the interest (the principal-only or "PO" class). CMOs may be
structured in other ways that, based on mathematical modeling or similar
techniques, are expected to provide certain results. As market conditions
change, however, and particularly during periods of rapid or unanticipated
changes in market interest rates, the attractiveness of a CMO class and the
ability of a structure to provide the anticipated investment characteristics
may be significantly reduced. Such changes can result in volatility in the
market value, and in some instances reduced liquidity, of the CMO class. The
Fund may invest up to 20% of its total assets in CMOs.
In determining the Fund's average maturity, the maturity of a
mortgage-related security is deemed to be its effective life (i.e., the
average time in which the principal amount of the security is repaid), as
estimated by Dreyfus based on scheduled principal amortization and an
anticipated rate of principal prepayments, which rate, in turn, is based on
past prepayment patterns, prevailing interest rates and other factors. The
effective life of a mortgage-related security generally is substantially
shorter than its stated maturity.
ASSET-BACKED SECURITIES. Asset-backed securities are securities that
represent direct or indirect participations in, or are secured by and payable
from, assets such as motor vehicle installment sales contracts, installment
loan contracts, leases of various types of real and personal property, and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts and special purpose corporations. The
value of such securities partly depends on loan repayments by individuals,
which may be adversely affected during general downturns in the economy.
Payments or distributions of principal and interest on asset-backed
securities may be supported by credit enhancements, such as various forms of
cash collateral accounts or letters of credit. Like mortgage-related
securities, asset-backed securities are subject to the risk of prepayment.
The risk that recovery on repossessed collateral might be unavailable or
inadequate to support payments on asset-backed securities, however, is
greater than is the case for mortgage-backed securities.
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, adverse political and
economic developments, 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
generally are not subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements
comparable to those
Page 10
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.
MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS. The Fund may invest
in debt obligations issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities. The Fund limits its investments in municipal
obligations to those obligations the interest on which is subject to federal
income tax. Municipal obligations generally include debt obligations issued
to obtain funds for various public purposes, as well as industrial
development bonds issued by public authorities. Municipal obligations are
classified as general obligation bonds, revenue bonds and notes. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Notes are
short-term instruments that are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal obligations bear fixed, floating or
variable rates of interest that are determined in some instances by formulas
under which the municipal obligation's interest rate will change directly or
inversely to changes in interest rates or an index, or multiples thereof, in
many cases subject to a maximum and minimum.
FIXED-INCOME SECURITIES. The Fund may invest in fixed-income
securities to achieve its investment objective. In periods of declining
interest rates, the Fund's yield (its income from portfolio investments over
a stated period of time) may tend to be higher than prevailing market rates,
and in periods of rising interest rates, the Fund's yield may tend to be
lower than prevailing market rates. Also, in periods of falling interest
rates, the inflow of net new money to the Fund from the continuous sales of
its shares will likely be invested in portfolio instruments producing lower
yield than the balance of the Fund's portfolio, thereby reducing the yield of
the Fund. In periods of rising interest rates, the opposite can be true. The
net asset value of a fund investing in fixed-income securities also may
change as general levels of interest rates fluctuate. When interest rates
rise, the value of a portfolio of fixed-income securities can be expected to
decline. Conversely, when interest rates decline, the value of a portfolio of
fixed-income securities can be expected to rise.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may invest in
variable and floating rate securities. A variable rate security provides for
the adjustment of its interest either at predesignated periodic intervals or
whenever the market rate to which the security's interest rate is tied
changes. A floating rate security provides for the automatic adjustment of its
interest whenever a specified interest rate changes. Interest rates on
floating rate securities are ordinarily tied to, and are a percentage of, a
widely recognized interest rate, such as the yield on 90-day U.S. Treasury
bills or the prime rate of a specified bank. These rates may change as often
as twice daily. Generally, changes in interest rates will have a smaller
effect on the market value of variable and floating rate securities than on
the market value of comparable fixed-income obligations. Thus, investing in
variable and floating rate securities generally allows less opportunity for
capital appreciation and depreciation than investing in comparable
fixed-income securities.
EURODOLLAR BONDS AND NOTES. The Fund may invest in Eurodollar bonds
and notes. Eurodollar bonds and notes are obligations that pay principal and
interest in U.S. dollars held in banks outside the United States, primarily
in Europe. Investments in Eurodollar bonds and notes involve risks that
differ from investments in securities of domestic issuers. (See "Foreign
Securities.")
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
Page 11
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.
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 at the time of purchase at least A-1 by S&P, Prime-1 by
Moody's, F-1 by Fitch, Duff 1 by Duff & Phelps, Inc., or A1 by IBCA, Inc.
ECDS, ETDS AND YANKEE CDS. The Fund may invest in ECDs, ETDs and
Yankee CDs. ECDs are U.S. dollar-denominated certificates of deposit issued
by foreign branches of domestic banks. ETDs are U.S. dollar-denominated time
deposits in a foreign branch of a U.S. bank or a foreign bank. Yankee CDs are
certificates of deposit issued by a U.S. 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 are the obligations of domestic
banks. (See "Foreign Securities.")
ILLIQUID INVESTMENTS. The Fund will not knowingly invest more than
15% of the value of its net assets in illiquid investments. Investments
currently considered to be illiquid include securities for which market
quotations are not readily available; repurchase agreements and time deposits
with maturities in excess of seven days; certain mortgage-related securities;
securities involved in swap, cap, collar and floor transactions; and certain
options traded in the over-the-counter market and securities used to cover
such options. The Fund may not be able to sell illiquid securities when
Dreyfus considers it desirable to do so or may have to sell such securities
at a price lower than the price that could be obtained if they were more
liquid. Illiquid securities may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and
investment in illiquid securities may have an adverse impact on the Fund's
net asset value. See the SAI for more information regarding these
investments.
PORTFOLIO TURNOVER. While securities are purchased for the Fund on
the basis of potential for high current income and possible capital
appreciation and not for short-term trading profits, the Fund's portfolio
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 that must be
borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover (100% or higher) may result in
the realization of larger amounts of short-term capital gains that, when
distributed to the Fund's shareholders, are taxable to them as ordinary
income. Nevertheless, securities transactions for the Fund will be based only
upon investment considerations and will not be limited by any other
considerations when Dreyfus deems it appropriate to make changes in the
Fund's assets.
LIMITING INVESTMENT RISK. 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, poli-
Page 12
cies, restrictions, practices or procedures change, shareholders should
consider whether the Fund remains an appropriate investment in light of the
shareholder's 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 in the SAI. Should the Fund
determine that any such commitment is no longer in the best interest of the
Fund, it may consider terminating sales of its shares in the states involved.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER. Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was formed in 1947. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of September 30, 1995, Dreyfus managed or administered
approximately $78 billion in assets for more than 1.8 million investor
accounts nationwide.
Dreyfus serves as the Fund's investment manager. Dreyfus supervises
and assists in the overall management of the Fund's affairs under an
Investment Management Agreement with the Fund, subject to the overall
authority of the Company's Board of Directors in accordance with Maryland
law. Pursuant to the Investment 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 the
Fund. As the Fund's investment manager, Dreyfus manages the Fund by making
investment decisions based on the Fund's investment objective, policies and
restrictions.
The Fund is managed by Ridgway H. Powell. Mr. Powell is a Vice
President of Mellon Bank and of Boston Safe Deposit and Trust Company. Mr.
Powell has held various offices with Boston Safe Deposit and Trust Company
since 1989, and he is a Chartered Financial Analyst. Mr. Powell has been
employed by Dreyfus as portfolio manager of the Fund since the Fund commenced
operations.
Mellon is a publicly-owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Bank Holding Company
Act of 1956, as amended. Mellon provides a comprehensive range of financial
products and services in domestic and selected international markets. Mellon
is among the twenty-five largest bank holding companies in the United States
based on total assets. Mellon's principal wholly-owned subsidiaries are
Mellon Bank, Mellon Bank (DE) National Association, Mellon Bank (MD), The
Boston Company, Inc., AFCO Credit Corporation and a number of companies known
as Mellon Financial Services Corporations. Through its subsidiaries,
including Dreyfus, Mellon managed approximately $203 billion in assets as of
June 30, 1995, including approximately $73 billion in mutual fund assets. As
of June 30, 1995, Mellon, through various subsidiaries, provided
non-investment services, such as custodial or administration services, for
approximately $707 billion in assets, including approximately $71 billion in
mutual fund assets.
Under the Investment Management Agreement, the Fund has agreed to pay
Dreyfus a monthly fee at the annual rate of 0.55 of 1% of the value of the
Fund's average daily net assets. Dreyfus pays all of the Fund's expenses,
except brokerage fees, taxes, interest, fees and expenses of the
non-interested Directors (including counsel fees), Rule 12b-1 fees (if
applicable) and extraordinary expenses. Although Dreyfus does not pay for the
fees and expenses of the non-interested Directors (including counsel fees),
Dreyfus is contractually required to reduce its investment management fee by
an amount equal to the Fund's allocable share of such fees and expenses. In
order to compensate Dreyfus 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 advisers. From time to time, Dreyfus may waive (either
voluntarily or pursuant to applicable state limitations) a portion of the
investment management fees payable by the Fund.
In addition, Investor shares may be subject to certain distribution
and shareholder servicing fees. See "Distribution Plan (Investor Shares
Only)."
Page 13
Dreyfus may pay the Fund's distributor for shareholder services from
Dreyfus' own assets, including past profits, but not including the management
fee paid by the Fund. The Fund's distributor may use part or all of such
payments to pay Agents in respect of these services.
Dreyfus is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the
case of agency transactions, financial institutions that are affiliated with
Dreyfus or Mellon Bank or that have sold shares of the Fund, if Dreyfus
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.
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"). The Distributor is located at One Exchange Place, Boston,
Massachusetts 02109. The Distributor is a wholly-owned subsidiary of FDI
Distribution Services, Inc., a provider of mutual fund administration
services, which in turn is a wholly-owned subsidiary of FDI Holdings, Inc.,
the parent company of which is Boston Institutional Group, Inc.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, AND
SUB-ADMINISTRATOR. Mellon Bank, One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258, is the Fund's custodian. The Fund's transfer and dividend
disbursing agent is The Shareholder Services Group, Inc. (the "Transfer
Agent"), a subsidiary of First Data Corporation, P.O. Box 9671, Providence,
Rhode Island 02940-9671. Premier Mutual Fund Services, Inc. serves as the
Fund's sub-administrator and, pursuant to a Sub-Administration Agreement with
Dreyfus, provides various administrative and corporate secretarial services
to the Fund. Dreyfus provides the Fund's fund accountant services.
HOW TO BUY FUND SHARES
GENERAL _ Investor shares are offered to any investor and may be purchased
through the Distributor or through Agents that have entered into Agreements
with the Distributor.
Class R shares are sold primarily to Banks acting on behalf of
customers having a qualified trust or investment account or relationship at
such institution or to customers who have received and hold shares of the
Fund distributed to them by virtue of such an account or relationship. A
"Retirement Plan" is a qualified or non-qualified employee benefit plan or
other program, including pension, profit-sharing and other deferred
compensation plans, whether established by corporations, partnerships,
non-profit entities or state and local governments. 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.
Stock certificates are issued only upon your written request. No
certificates are issued for fractional shares. The Fund reserves the right to
reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of an Agent that has made an aggregate minimum initial purchase for
its customers of $2,500. Subsequent investments must be at least $100.
However, the minimum initial investment for Dreyfus-sponsored Keogh Plans,
IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant is $750, with no
minimum on subsequent purchases. Individuals who open an IRA also may open a
non-working spousal IRA with a minimum initial investment of $250. The
initial investment must be accompanied by the Fund's Account Application. For
full-time or part-time employees of Dreyfus or any of its affiliates or
subsidiaries, directors of Dreyfus, Board members of a fund advised by
Dreyfus including members of the Company's Board, or the spouse or minor
child of any of the foregoing, the minimum initial investment is $1,000. For
full-time or part-time employees of Dreyfus or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited into
their Fund account, the minimum initial investment is $50. The Fund reserves
the right to offer Fund shares without regard to minimum purchase
requirements to employees participating in cer-
Page 14
tain qualified or non-qualified employee benefit plans or other programs
where contributions or account information can be transmitted in a manner and
form acceptable to the Fund. The Fund reserves the right to vary further the
initial and subsequent investment minimum requirements at any time. Investor
shares are offered without regard to the minimum initial investment
requirements through Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant to the
Dreyfus Step Program (described under "Shareholder Services"). These services
enable you to make regularly scheduled investments and may provide you with
a convenient way to invest for long-term financial goals. You should be aware,
however, that periodic investment plans do not guarantee a profit and will
not protect an investor against loss in a declining market.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes
various limitations on the amount that may be contributed to certain
Retirement Plans. These limitations apply with respect to participants at the
plan level and, therefore, do not directly affect the amount that may be
invested in the Fund by a Retirement Plan. Participants and plan sponsors
should consult their tax advisers for details.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds" or, if for Dreyfus retirement plan accounts, to "The
Dreyfus Trust Company, Custodian." Payments to open new accounts which are
mailed should be sent to The Dreyfus Family of Funds, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account Application
indicating which Class of shares is being purchased. For subsequent
investments, your Fund account number should appear on the check and an invest
ment slip should be enclosed and sent to The Dreyfus Family of Funds, P.O.
Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement plan accounts,
both initial and subsequent investments should be sent to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427.
Neither initial nor subsequent investments should be made by third party
check. Purchase orders may be delivered in person only to a Dreyfus Financial
Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY
UPON RECEIPT THEREBY. For the location of the nearest Dreyfus Financial
Center, please call the telephone number listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to Boston Safe Deposit and Trust Company, together with
the applicable Class' DDA # as shown below, for purchase of Fund shares in
your name:
DDA# 054518 Dreyfus Disciplined Intermediate Bond Fund/Investor
shares;
DDA# 054526 Dreyfus Disciplined Intermediate Bond Fund/Class R
shares.
The wire must include your Fund account number (for new accounts, your
Taxpayer Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, you should call 1-800-645-6561 after you have
completed the wire payment in order to obtain your Fund account number. You
should include your Fund account number on the Fund's Account Application and
promptly mail the Account Application to the Fund, as no redemptions will be
permitted until the Account Application is received. You may obtain further
information about remitting funds in this manner from your bank. All payments
should be made in U.S. dollars and, to avoid fees and delays, should be drawn
only on U.S. banks. A charge will be imposed if any check used for investment
in your account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House ("ACH") member. You must
direct the institution to transmit immediately available funds through the
ACH to Boston Safe Deposit and Trust Company with instructions to credit your
Fund account. The instruc-
Page 15
tions must specify your Fund account registration and Fund account number
PRECEDED BY THE DIGITS "4970" FOR INVESTOR SHARES AND "4980" FOR CLASS R
SHARES.
The Distributor may pay dealers a fee of up to 0.5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds one million dollars ("Eligible Benefit
Plans"). The determination of the number of employees eligible for
participation in a plan or program shall be made on the date Fund shares are
first purchased by or on behalf of employees participating in such plan or
program and on each subsequent January 1st. All present holdings of shares of
funds in the Dreyfus Family of Funds by Eligible Benefit Plans will be
aggregated to determine the fee payable with respect to each purchase of Fund
shares. The Distributor reserves the right to cease paying these fees at any
time. The Distributor will pay such fees from its own funds, other than
amounts received from the Fund, including past profits or any other source
available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Other Distributions and
Taxes" and the Fund's Account Application for further information concerning
this requirement. Failure to furnish a certified TIN to the Fund could
subject you to a $50 penalty imposed by the Internal Revenue Service (the
"IRS").
NET ASSET VALUE PER SHARE ("NAV") _ An investment portfolio's NAV
refers to the worth of one share. The NAV for Investor shares and Class R
shares is computed by adding, with respect to such Class of shares, the value
of the Fund's investments, cash, and other assets attributable to that Class,
deducting liabilities of the Class and dividing the result by the number of
shares of that Class outstanding. The valuation of assets for determining the
NAV for the Fund may be summarized as follows:
The portfolio securities of the Fund listed or traded on a stock
exchange, except as otherwise noted, 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. 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.
NAV is determined on each day that the New York Stock Exchange
("NYSE") is open (a "business day"), as of the close of business of the
regular session of the NYSE (usually 4 p.m., Eastern Time). For purposes of
determining NAV, options and futures contracts will be valued 15 minutes
after the closing of trading on the floor of the NYSE. Investments and
requests to exchange or redeem shares received by the Fund in proper form
before such close of business are effective on, and will receive the price
next determined on, that day. Investment, exchange and redemption requests
received after such close of business are effective on, and receive the share
price determined on, the next business day.
The public offering price of Investor shares and Class R shares is
the NAV of that Class.
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase Fund shares
(minimum $500 and maximum $150,000 per day) by telephone if you have checked
the appropriate box and supplied the necessary information on the Fund's
Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your Fund account. Only a bank
account maintained in a domestic financial institution which is an ACH member
may be so designated. The Fund may modify or ter-
Page 16
minate this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if calling from overseas, 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Agents and some Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus. You should consult your Agent in this regard.
FUND EXCHANGES
You may purchase, in exchange for shares of a Class, shares of the
same class of certain other funds managed or administered by Dreyfus, to the
extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, please call 1-800-645-6561 to determine if
it is available and whether any conditions are imposed on its use. WITH
RESPECT TO CLASS R SHARES HELD BY RETIREMENT PLANS, EXCHANGES MAY BE MADE
ONLY BETWEEN A SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN ONE FUND AND SUCH
SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN ANOTHER FUND.
To request an exchange, you or your Agent acting on your behalf must
give exchange instructions to the Transfer Agent in writing or by telephone.
Before any exchange, you must obtain and should review a copy of the current
prospectus of the fund into which the exchange is being made. Prospectuses
may be obtained by calling 1-800-645-6561. Except in the case of personal
Retirement Plans, the shares being exchanged must have a current value of at
least $500; furthermore, when establishing a new account by exchange, the
shares being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made. The
ability to issue exchange instructions by telephone is given to all Fund
shareholders automatically, unless you check the relevant "No" box on the
Account Application, indicating that you specifically refuse this privilege.
The Telephone Exchange Privilege may be established for an existing account
by written request, signed by all shareholders on the account, or by a
Shareholder Services Form, also available by calling 1-800-645-6561. If you
previously have established the Telephone Exchange Privilege, you may
telephone exchange instructions by calling 1-800-221-4060 or, if calling from
overseas, 1-401-455-3306. See "How to Redeem Fund Shares_Procedures." Upon an
exchange, the following shareholder services and privileges, as applicable
and where available, will be automatically carried over to the fund into
which the exchange is made: Telephone Exchange Privilege, Check Redemption
Privilege, Wire Redemption Privilege, Telephone Redemption Privilege, Dreyfus
TELETRANSFER Privilege, and the dividends and distributions payment option
(except for Dreyfus Dividend Sweep) selected by the investor.
Shares will be exchanged at the next determined NAV; however, a sales
load may be charged with respect to exchanges of Investor shares into funds
sold with a sales load. If you are exchanging Investor 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 other
distributions paid with respect to the foregoing categories of shares. To
qualify, at the time of the exchange you must notify the Transfer Agent or
your Agent must notify the Distributor. Any such qualification is subject to
confirmation of your holdings through a check of appropriate records. See
"Shareholder Services" in the SAI. 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
Page 17
or in part. The availability of fund exchanges may be modified or terminated
at any time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize, or an
exchange on behalf of a Retirement Plan which is not tax exempt may result
in, a taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
the Fund, in shares of the same class of certain other funds in the Dreyfus
Family of Funds of which you are currently an investor. With respect to Class
R shares held by Retirement Plans, exchanges pursuant to the Dreyfus
Auto-Exchange Privilege may be made only between a shareholder's Retirement
Plan account in one fund and such shareholder's Retirement Plan account in
another fund. The amount you designate, which can be expressed either in
terms of a specific dollar or share amount ($100 minimum), will be exchanged
automatically on the first and/or the fifteenth day of the month according to
the schedule you have selected. Shares will be exchanged at the then-current
NAV; however, a sales load may be charged with respect to exchanges of
Investor shares into funds sold with a sales load. The right to exercise this
Privilege may be modified or canceled by the Fund or the Transfer Agent. You
may modify or cancel your exercise of this Privilege at any time by mailing
written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. The Fund may charge a service fee for
the use of this Privilege. No such fee currently is contemplated. The
exchange of shares of one fund for shares of another is treated for Federal
income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize, or an
exchange on behalf of a Retirement Plan which is not tax exempt may result
in, a taxable gain or loss. For more information concerning this Privilege
and the funds in the Dreyfus Family of Funds eligible to participate in this
Privilege, or to obtain a Dreyfus Auto-Exchange Authorization Form, please
call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. At your option, the bank account
designated by you will be debited in the specified amount, and Fund shares
will be purchased, once a month, on either the first or the fifteenth day, or
twice a month, on both days. Only an account maintained at a domestic
financial institution which is an ACH member may be so designated. To
establish a Dreyfus-AUTOMATIC Asset Builder account, you must file an
authorization form with the Transfer Agent. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may cancel your
participation in this Privilege or change the amount of purchase at any time
by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671 or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of the same class of certain other funds in the Dreyfus Family of
Funds of which you are an investor. Shares of the other fund will be
purchased at the then-current NAV; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share
prices
Page 18
which do not include the sales load or which reflect a reduced sales
load. See "Shareholder Services" in the SAI. Dreyfus Dividend ACH permits you
to transfer electronically on the payment date dividends or dividends and
capital gain distributions, if any, from the Fund to a designated bank
account. Only an account maintained at a domestic financial institution which
is an ACH member may be so designated. Banks may charge a fee for this
service.
For more information concerning these privileges, or to request a
Dreyfus Dividend Options Form, please call toll free 1-800-645-6561. You may
cancel these privileges by mailing written notification to The Dreyfus Family
of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. Enrollment in
or cancellation of these privileges is effective three business days
following receipt. These privileges are available only for existing accounts
and may not be used to open new accounts. Minimum subsequent investments do
not apply for Dreyfus Dividend Sweep. The Fund may modify or terminate these
privileges at any time or charge a service fee. No such fee currently is
contemplated. Shares held under Keogh Plans, IRAs or other retirement plans
are not eligible for Dreyfus Dividend Sweep.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
Fund account. You may deposit as much of such payments as you elect. You
should consider whether Direct Deposit of your entire payment into a fund
with fluctuating NAV, such as the Fund, may be appropriate for you. To enroll
in Dreyfus Government Direct Deposit, you must file with the Transfer Agent a
completed Direct Deposit Sign-Up Form for each type of payment that you
desire to include in this Privilege. The appropriate form may be obtained by
calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency.
Further, the Fund may terminate your participation upon 30 days' notice to
you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon the direct deposit program of your employer, you may have part or all of
your paycheck transferred to your existing Dreyfus account electronically
through the ACH system at each pay period. To establish a Dreyfus Payroll
Savings Plan account, you must file an authorization form with your
employer's payroll department. Your employer must complete the reverse side
of the form and return it to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, Dreyfus, the Fund, the Transfer Agent or any other person, to
arrange for transactions under the Dreyfus Payroll Savings Plan. The Fund may
modify or terminate this Privilege at any time or charge a service fee. No
such fee currently is contemplated.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Investor shares without
regard to the Fund's minimum initial investment requirements through Dreyfus-A
UTOMATIC Asset Builder, Dreyfus Government Direct Deposit Privilege or
Dreyfus Payroll Savings Plan. To establish a Dreyfus Step Program account,
you must supply the necessary information on the Fund's Account Application
and file the required authorization form(s) with the Transfer Agent. For more
information concerning this program, or to request the necessary
authorization form(s), please call toll free 1-800-782-6620. You may
terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC-Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
Page 19
case may be, as provided under the terms of such Privilege(s). The Fund
reserves the right to redeem your account if you have terminated your
participation in the Program and your account's net asset value is $500 or
less. See "How to Redeem Fund Shares." The Fund may modify or terminate this
Program at any time. Investors who wish to purchase Investor shares through
the Dreyfus Step Program in conjunction with a Dreyfus-sponsored retirement
plan may do so only for IRAs, SEP-IRAs and IRA "Rollover Accounts."
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or a quarterly
basis if you have a $5,000 minimum account.
Particular Retirement Plans, including Dreyfus-sponsored retirement
plans, may permit certain participants to establish an automatic withdrawal
plan from such Retirement Plans. Participants should consult their Retirement
Plan sponsor and tax adviser for details. Such a withdrawal plan is different
from the Automatic Withdrawal Plan. An application for the Automatic
Withdrawal Plan can be obtained by calling 1-800-645-6561. The Automatic
Withdrawal Plan may be ended at any time by the shareholder, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566;
for IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call
1-800-322-7880.
HOW TO REDEEM FUND SHARES
GENERAL _ You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined NAV as described below. If you hold Fund shares of more than
one Class, any request for redemption must specify the Class of shares being
redeemed. If you fail to specify the Class of shares to be redeemed or if you
own fewer shares of the Class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further instructions
from you or your Agent.
The Fund imposes no charges when shares are redeemed directly through
the Distributor. Agents or other institutions may charge their clients a
nominal fee for effecting redemptions of Fund shares. Any certificates
representing Fund shares being redeemed must be submitted with the redemption
request. The value of the shares redeemed may be more or less than their
original cost, depending upon the Fund's then-current NAV.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the SEC. HOWEVER, IF YOU HAVE
PURCHASED FUND SHARES BY CHECK, BY THE DREYFUS TELETRANSFER PRIVILEGE, OR
THROUGH THE DREYFUS-AUTOMATIC ASSET BUILDER AND SUBSEQUENTLY SUBMIT A WRITTEN
REDEMPTION REQUEST TO THE TRANSFER AGENT, THE REDEMPTION PROCEEDS WILL BE
TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE OF YOUR PURCHASE CHECK,
DREYFUS TELETRANSFER PURCHASE, OR DREYFUS-AUTOMATIC ASSET BUILDER ORDER,
WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL
NOT HONOR REDEMPTION CHECKS UNDER THE CHECK REDEMPTION PRIVILEGE, AND WILL
REJECT REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE
DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS TELETRANSFER
PURCHASE, OR THE DREYFUS-
Page 20
AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED.
THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT,
OR IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO
COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE,
DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED
TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if the net asset value of your account
is $500 or less and remains so during the notice period.
PROCEDURES _ You may redeem Fund shares by using the regular
redemption procedure through the Transfer Agent, the Check Redemption
Privilege, the Wire Redemption Privilege, the Telephone Redemption Privilege,
or the Dreyfus TELETRANSFER Privilege. Other redemption procedures may be in
effect for clients of certain Agents and institutions. The Fund makes
available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select the Telephone Redemption
Privilege or Telephone Exchange Privilege, which is granted automatically
unless you refuse it, you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Agent, and reasonably believed by the Transfer Agent
to be genuine. The Fund will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or an exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's NAV may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may
redeem your shares by written request mailed to The Dreyfus Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671 or, if for Dreyfus
retirement plan accounts, to The Dreyfus Trust Company, Custodian, P.O. Box
6427, Providence, Rhode Island 02940-6427. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call the
telephone number listed under "General Information." Redemption requests must
be signed by each shareholder, including each owner of a joint account, and
each signature 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 New York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP"), and the Stock Exchanges
Medallion Program. For more information with respect to signature-guarantees,
please call the telephone number listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE _ You may request on the Account
Application, Shareholder Services Form or by later written request that the
Fund provide Redemption Checks drawn on the
Page 21
Fund's account. Redemption Checks may be made payable to the order of any
person in the amount of $500 or more. Potential fluctuations in the NAV of
the Fund's shares should be considered in determining the amount of the check.
Redemption Checks should not be used to close your account. Redemption Checks
are free, but the Transfer Agent will impose a fee for stopping payment of a
Redemption Check upon your request or if the Transfer Agent cannot honor the
Redemption Check due to insufficient funds or other valid reason. You should
date your Redemption Checks with the current date when you write them. Please
do not postdate your Redemption Checks. If you do, the Transfer Agent will
honor, upon presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of presentment
for payment, if they are otherwise in good order. Shares for which
certificates have been issued may not be redeemed by Redemption Check. This
Privilege may be modified or terminated at any time by the Fund or the
Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE _ You may request by wire or telephone
that redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank if
your bank is not a member. To establish the Wire Redemption Privilege, you
must check the appropriate box and supply the necessary information on the
Fund's Account Application or file a Shareholder Services Form with the
Transfer Agent. You may direct that redemption proceeds be paid by check
(maximum $150,000 per day) made out to the owners of record and mailed to
your address. Redemption proceeds of less than $1,000 will be paid
automatically by check. Holders of jointly registered Fund or bank accounts
may have redemption proceeds of only up to $250,000 wired within any 30-day
period. You may telephone redemption requests by calling 1-800-221-4060 or,
if calling from overseas, 1-401-455-3306. The Fund reserves the right to
refuse any redemption request, including requests made shortly after a change
of address, and may limit the amount involved or the number of such requests.
This Privilege may be modified or terminated at any time by the Transfer
Agent or the Fund. The Fund's SAI sets forth instructions for transmitting
redemption requests by wire. Shares held under Keogh Plans, IRAs or other
retirement plans, and shares for which certificates have been issued, are not
eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE _ You may redeem Fund shares (maximum
$150,000 per day) by telephone if you checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if calling from overseas, 1-401-455-3306. The Fund
reserves the right to refuse any redemption request made by telephone,
including requests made shortly after a change of address, and may limit the
amount involved or the number of such requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund. Shares
held under Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE _ You may redeem Fund shares (minimum
$500 per day) by telephone if you have checked the appropriate box and
supplied the necessary information on the Fund's Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between your Fund account and the bank account designated in
one of these documents. Only a bank account maintained in a domestic
financial institution which is an ACH member may be so designated. Redemption
proceeds will be on deposit in your account at an ACH member bank ordinarily
two days after receipt of the redemption request or, at your request, paid by
check (maximum $150,000 per day) and mailed to your address. Holders of
jointly registered Fund or bank accounts may redeem through the Dreyfus
TELETRANSFER Privilege for transfer to their bank account only up to $250,000
within any 30-day period. The Fund reserves the right to refuse any request
made by telephone, including requests made shortly after a change of address,
and may limit the amount
Page 22
involved or the number of such requests. The Fund may modify or terminate this
Privilege at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if calling from overseas, 1-401-455-3306. Shares held
under Keogh Plans, IRAs or other retirement plans, and shares issued in
certificate form, are not eligible for this Privilege.
DISTRIBUTION PLAN
(INVESTOR SHARES ONLY)
Investor shares are subject to a Distribution Plan (the "Plan")
adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"). The
Investor shares of the Fund bear some of the cost of selling those shares
under the Plan. The Plan allows the Fund to spend annually up to 0.25% of its
average daily net assets attributable to Investor shares to compensate
Dreyfus Service Corporation, an affiliate of Dreyfus, for shareholder
servicing activities and the Distributor for shareholder servicing activities
and for activities or expenses primarily intended to result in the sale of
Investor shares of the Fund. The Plan allows the Distributor to make payments
from the Rule 12b-1 fees it collects from the Fund to compensate Agents that
have entered into Agreements with the Distributor. Under the Agreements, the
Agents are obligated to provide distribution-related services with regard to
the Fund and/or shareholder services to the Agent's clients that own Investor
shares of the Fund.
The Fund and the Distributor 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 Agents, the
Distributor and the Fund may agree to voluntarily reduce the maximum fees
payable under the Plan. See the SAI for more details on the Plan.
Potential investors should read this Prospectus in light of the terms
governing Agreements with their Agents. An 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.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Fund declares daily and pays monthly dividends from its net
investment income and distributes net realized gains, if any, once a year,
but it may make distributions on a more frequent basis to comply with the
distribution requirements of the Code, in all events in a manner consistent
with the provisions of the 1940 Act. The Fund will not make distributions
from net realized gains unless capital loss carryovers, if any, have been
utilized or have expired. Investors other than qualified Retirement Plans may
choose whether to receive dividends and other distributions in cash, to
receive dividends in cash and reinvest other distributions in additional Fund
shares, or to reinvest both dividends and other distributions; dividends and
other distributions payable to qualified Retirement Plans are reinvested
automatically in additional Fund shares at NAV. Shares begin accruing
dividends on the day following the date of purchase. The Fund's earnings for
Saturdays, Sundays and holidays are declared as dividends on the next
business day. If you redeem all shares in your account at any time during the
month, all dividends to which you are entitled will be paid to you along with
the proceeds of the redemption. All expenses are accrued daily and deducted
before declaration of dividends to investors. Dividends paid by each Class
will be calculated at the same time and in the same manner and will be in the
same amount, except that the expenses attributable solely to a particular
Class will be borne exclusively by that Class. Investor shares will receive
lower per share dividends than Class R shares because of the higher expenses
borne by the Investor shares. See "Expense Summary."
It is expected that the Fund will qualify for treatment as a
"regulated investment company" under the Code so long as such qualification
is in the best interests of its shareholders. Such qualification will
Page 23
relieve the Fund of any liability for Federal income tax to the extent its
earnings are distributed in accordance with applicable provisions of the Code.
Dividends derived from net investment income, together with
distributions from net realized short-term capital gains and all or a portion
of any gains realized from the sale or other disposition of certain market
discount bonds (collectively, "Dividend Distributions"), paid by the Fund
will be taxable to U.S. shareholders, including certain non-qualified
Retirement Plans, as ordinary income whether received in cash or reinvested
in Fund shares. Distributions from the Fund's net capital gain (the excess of
net long-term capital gain over net short-term capital loss) will be taxable
to such shareholders as long-term capital gains for Federal income tax
purposes, regardless of how long the shareholders have held their Fund shares
and whether such distributions are received in cash or reinvested in Fund
shares. The net capital gain of an individual generally will not be subject
to Federal income tax at a rate in excess of 28%. Dividends and other
distributions also may be subject to state and local taxes.
Dividend Distributions paid by the Fund to a non-resident foreign
investor generally will be subject to U.S. withholding tax at the rate of
30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net capital gain paid by the Fund to a
non-resident foreign investor, as well as the proceeds of any redemptions
from a non-resident foreign investor's account, regardless of the extent to
which gain or loss may be realized, generally will not be subject to U.S.
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and other distributions
will be mailed to you annually. You also will receive periodic summaries of
your account that will include information as to dividends and distributions
from net capital gain, if any, paid during the year.
Dividends and other distributions 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 distributions 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 "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
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. If a distributee of an "eligible rollover
distribution" from a qualified Retirement Plan does not elect to have the
eligible rollover distribution paid directly from the plan to an eligible
retirement plan in a "direct rollover," the eligible rollover distribution is
subject to a 20% income tax withholding.
With respect to individual investors and certain non-qualified
Retirement Plans, Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of dividends,
distributions from net capital gain and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify that the TIN furnished in
connection with opening an account is correct and that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on
a Federal income tax return. Furthermore, the IRS may notify the Fund to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect or if a shareholder has failed to properly report taxable dividend
and interest income on a Federal income tax return.
Page 24
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account and may be claimed as a credit on the record
owner's Federal income tax return.
The Fund may be subject to a non-deductible 4% excise tax, measured
with respect to certain undistributed amounts of taxable investment income
and capital gains.
You should consult your tax advisers regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class may be
calculated on the basis of average annual total return and/or total return.
These total return figures reflect changes in the price of the shares and
assume that any income dividends and/or capital gains distributions made by
the Fund during the measuring period were reinvested in shares of the same
Class. These figures also take into account any applicable distribution and
shareholder servicing fees. As a result, at any given time, the performance
of Investor shares should be expected to be lower than that of Class R
shares. Performance for each Class will be calculated separately.
Average annual total return is calculated pursuant to a standardized
formula, which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
other distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result
in the redeemable value of the investment at the end of the period. Advertisem
ents of the Fund's performance will include the Fund's average annual total
return for one, five and ten year periods, or for shorter periods depending
upon the length of time during which the Fund has operated. Computations of
average annual total return for periods of less than one year represent an
annualization of the Fund's actual total return for the applicable period.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and other distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the NAV at the
beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the end
of the period which assumes the application of the percentage rate of total
return.
The Fund may also advertise the yield on a Class of shares. 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. Because 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.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
The Fund may compare the performance of its shares with various
industry standards of performance including Lipper Analytical Services, Inc.
ratings, the Lehman Brothers Aggregate Bond Index, other indices created by
Lehman Brothers, CDA Technologies indices, 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,
IBC/DONOGHUE'S MONEY FUND REPORT, MUTUAL FUND FORECASTER, NO LOAD INVESTOR,
MONEY MAGAZINE, MORNINGSTAR MUTUAL FUND VALUES, U.S. NEWS AND WORLD
Page 25
REPORT, FORBES, FORTUNE, BARRON'S and similar publications may also be used in
comparing the Fund's performance. Furthermore, the Fund may quote its 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.
GENERAL INFORMATION
The Company was incorporated in Maryland on August 6, 1987 under the
name The Laurel Funds, Inc., and changed its name to The Dreyfus/Laurel
Funds, Inc. on October 17, 1994. The Company is registered with the SEC under
the 1940 Act as an open-end management investment company. The Company has an
authorized capitalization of 25 billion shares of $0.001 par value stock with
equal voting rights. The Fund is a portfolio of the Company. The Fund's
shares are classified into two classes_Investor shares and Class R shares.
The Company's Articles of Incorporation permit the Board of Directors to
create an unlimited number of investment portfolios (each a "fund").
Each share (regardless of Class) has one vote. All shares of all
funds (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. Only
holders of Investor shares will be entitled to vote on matters submitted to
shareholders pertaining to the Distribution Plan relating to that Class.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Directors or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Company to hold a special
meeting of shareholders for purposes of removing a Director from office and
for any other proper purpose. Company shareholders may remove a Director by
the affirmative vote of a majority of the Company's voting shares. In
addition, the Board of Directors will call a meeting of shareholders for the
purpose of electing Directors if, at any time, less than a majority of the
Directors then holding office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and will send
you confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 26
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Page 27
DREYFUS
Disciplined
Intermediate
Bond Fund
Prospectus
(LION LOGO)
Copy Rights 1995 Dreyfus Service Corporation
302/702p1110195
Registration Mark
DREYFUS DISCIPLINED INTERMEDIATE BOND FUND
INVESTOR SHARES AND CLASS R SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
November 1, 1995
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
the Dreyfus Disciplined Intermediate Bond Fund (the "Fund"), dated November
1, 1995, as it may be revised from time to time. The Fund is a separate,
diversified portfolio of The Dreyfus/Laurel Funds, Inc. (formerly, The
Laurel Funds, Inc.), an open-end management investment company (the
"Company"), known as a mutual fund. To obtain a copy of the Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call one of 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 Fund's investment
manager.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . B-20
Management Arrangements . . . . . . . . . . . . . . . . B-25
Purchase of Fund Shares . . . . . . . . . . . . . . . . B-26
Distribution Plan . . . . . . . . . . . . . . . . . . . B-26
Redemption of Fund Shares . . . . . . . . . . . . . . . B-27
Shareholder Services. . . . . . . . . . . . . . . . . . B-29
Determination of Net Asset Value. . . . . . . . . . . . B-32
Dividends, Other Distributions and Taxes. . . . . . . . B-33
Portfolio Transactions. . . . . . . . . . . . . . . . . B-36
Performance Information . . . . . . . . . . . . . . . . B-38
Information About the Fund. . . . . . . . . . . . . . . B-39
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . B-39
Appendix. . . . . . . . . . . . . . . . . . . . . . . . B-40
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Description of the
Fund."
Portfolio Securities
Government Obligations. The 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, the 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) the 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 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, Federal Home Loan Mortgage Corporation ("FHLMC"), 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, because it is not obligated to do
so by law.
Repurchase Agreements. The Fund 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. The 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 the Fund invest in
repurchase agreements for more than one year. The 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.
When-Issued Securities. In when-issued transactions, delivery and
payment for the securities normally takes place approximately 7 to 15 days
after the date the buyer commits to purchase them (delivery and payment
could take place considerably later in the case of some mortgage-related
securities). 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. The 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 Dreyfus deems it 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 the 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
the 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 increase in value when interest rates fall and decrease in
value when interest rates rise. Therefore, if in order to achieve higher
interest income the 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, the 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.
Mortgage Pass-Through Certificates. Mortgage pass-through certificates
are issued by governmental, government-related and private entities and are
backed by pools of mortgages (including those on residential properties and
commercial real estate). The mortgage loans are made by savings and loan
institutions, mortgage bankers, commercial banks and other lenders. The
securities are "pass-through" securities because they provide investors with
monthly payments of principal and interest which, in effect, are a
"pass-through" of the monthly payments made by the individual borrowers on
the underlying mortgages, net of any fees paid to the issuer or guarantor of
the pass-through certificates. The principal governmental issuer of such
securities is GNMA, which is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. Government-related
issuers include FHLMC and FNMA, both government sponsored corporations owned
entirely by private stockholders. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and
other secondary market issuers also create pass-through pools of
conventional residential and commercial mortgage loans. Such issuers may be
the originators of the underlying mortgage loans as well as the guarantors
of the mortgage-related securities.
(1) GNMA Mortgage Pass-Through Certificates ("Ginnie Maes"). Ginnie
Maes represent an undivided interest in a pool of mortgages that are insured
by the Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. Ginnie Maes entitle the holder to
receive all payments (including prepayments) of principal and interest owed
by the individual mortgagors, net of fees paid to GNMA and to the issuer
which assembles the mortgage pool and passes through the monthly mortgage
payments to the certificate holders (typically, a mortgage banking firm),
regardless of whether the individual mortgagor actually makes the payment.
Because payments are made to certificate holders regardless of whether
payments are actually received on the underlying mortgages, Ginnie Maes are
of the "modified pass-through" mortgage certificate type. The GNMA is
authorized to guarantee the timely payment of principal and interest on the
Ginnie Maes as securities backed by an eligible pool of mortgages. The GNMA
guarantee is backed by the full faith and credit of the United States, and
the GNMA has unlimited authority to borrow funds from the U.S. Treasury to
make payments under the guarantee. The market for Ginnie Maes is highly
liquid because of the size of the market and the active participation in the
secondary market of securities dealers and a variety of investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie Macs").
Freddie Macs represent interests in groups of specified first lien
residential conventional mortgages underwritten and owned by the FHLMC.
Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans.
In cases where the FHLMC has not guaranteed timely payment of principal, the
FHLMC may remit the amount due on account of its guarantee of ultimate
payment of principal at any time after default on an underlying mortgage,
but in no event later than one year after it becomes payable. Freddie Macs
are not guaranteed by the United States or by any of the Federal Home Loan
Banks and do not constitute a debt or obligation of the United States or of
any Federal Home Loan Bank. The secondary market for Freddie Macs is highly
liquid because of the size of the market and the active participation in the
secondary market of the FHLMC, securities dealers and a variety of
investors.
(3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie
Maes"). Fannie Maes represent an undivided interest in a pool of
conventional mortgage loans secured by first mortgages or deeds of trust, on
one family, or two to four family, residential properties. The FNMA is
obligated to distribute scheduled monthly installments of principal and
interest on the mortgages in the pool, whether or not received, plus full
principal of any foreclosed or otherwise liquidated mortgages. The
obligation of the FNMA under its guaranty is solely the obligation of the
FNMA and is not backed by, nor entitled to, the full faith and credit of the
United States.
(4) Private issuer mortgage certificates are pass-through securities
structured in a similar fashion to GNMA, FNMA and FHLMC certificates.
Private issuer mortgage certificates are generally backed by conventional
single family, multi-family and commercial mortgages. Private issuer
mortgage certificates typically are not guaranteed by the U.S. Government,
its agencies or instrumentalities, but generally have some form of credit
support in the form of over-collateralization, pool insurance or other form
of credit enhancement.
The market value of mortgage-related securities depends on, among other
things, the level of interest rates, the certificates' coupon rates and the
payment history of the mortgagors of the underlying mortgages.
Municipal Bonds and Other Municipal Obligations. The Fund limits its
investments in municipal obligations to those obligations the interest on
which is subject to federal income tax.
Municipal Bonds. Municipal bonds, which generally have a maturity of
more than one year when issued, have two principal classifications: general
obligation bonds and revenue bonds. A private activity bond is a particular
kind of revenue bond. The classification of general obligation bonds,
revenue bonds and private activity bonds are discussed below.
(1) General Obligation Bonds. The proceeds of these obligations are
used to finance a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems.
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest.
(2) Revenue Bonds. Revenue bonds are issued to finance a wide variety
of capital projects including: electric, gas, water and sewer systems;
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities or, in some cases, the proceeds of a special excise or other
specific revenue source. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service
reserve fund whose money may be used to make principal and interest payments
on the issuer's obligations. Some authorities provide further security in
the form of a state's ability (without obligation) to make up deficiencies
in the debt service reserve fund.
(3) Private Activity Bonds. Private activity bonds are issued by or
on behalf of public authorities to raise money to finance various privately
operated facilities for business and manufacturing, housing, sports and
pollution control. These bonds are also used to finance public facilities
such as airports, mass transit systems, ports and parking. The payment of
the principal and interest on such bonds is dependent solely on the ability
of the facility's user to meet its financial obligations and the pledge, if
any, of real and personal property so financed as security for such payment.
Municipal Notes. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of thirteen months or
less. Municipal notes include:
(1) Tax Anticipation Notes. Tax anticipation notes are issued to
finance working capital needs of municipalities. Generally, they are issued
in anticipation of various seasonal tax revenue, such as income, sales, use
and business taxes, and are payable from these specific future taxes.
(2) Revenue Anticipation Notes. Revenue anticipation notes are issued
in expectation of receipt of other kinds of revenue, such as Federal
revenues available under the Federal Revenue Sharing Programs.
(3) Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds then provide the money for the repayment of
the notes.
Municipal Commercial Paper. Issues of municipal commercial paper
typically represent short-term, unsecured, negotiable promissory notes.
These obligations are issued by agencies of state and local governments to
finance seasonal working capital needs of municipalities or to provide
interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions.
Convertible Securities. The Fund may purchase convertible securities,
which are fixed-income securities such as bonds or preferred stock that may
be converted into or exchanged for a specified number of shares of common
stock of the same or a different issuer within a specified period of time
and at a specified price or formula. Convertible securities are senior to
common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. Before conversion,
convertible securities ordinarily provide a stable stream of income with
yields generally higher than those on common stock, but lower than those on
non-convertible debt securities of similar quality. In general, the market
value of a convertible security is the higher of its "investment value"
(i.e., its value as a fixed-income security) or its "conversion value"
(i.e., the value of the underlying shares of common stock if the security is
converted). As a fixed-income security, the market value of a convertible
security generally increases when interest rates decline and generally
decreases when interest rates rise. However, the price of a convertible
security also is influenced by the market value of the security's underlying
common stock. Thus, the price of a convertible security generally increases
as the market value of the underlying stock rises, and generally decreases
as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the
common stock of the same issuer. The Fund does not intend to exercise
conversion rights for any convertible security that it may hold and does not
intend to hold any security that has been subject to conversion.
Zero Coupon Securities. The Fund may invest in zero coupon securities,
which are debt securities that do not entitle the holder to any periodic
payment of interest, but instead are issued or sold at a discount from their
face value. The amount of the discount varies depending on, among other
factors, prevailing interest rates, the liquidity of the security, and the
perceived creditworthiness of the issuer. Zero coupon securities may take
the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero
coupon securities having similar maturities and credit qualities.
Illiquid Investments. Over-the-counter ("OTC") options purchased by
the Fund will be considered illiquid for purposes of the Fund's operating
policy that provides that it may not invest more than 15% of its net assets
in illiquid investments. When the Fund sells OTC options, it will segregate
assets or cover its obligations with respect to OTC options written by it.
The assets used as cover for OTC options written by the Fund will also be
considered illiquid investments for purposes of this limitation unless the
OTC options are sold to qualified dealers who agree that the Fund may
repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
Under current guidelines of the staff of the SEC, IOs and POs are also
considered to be illiquid; however, IO and PO classes of fixed-rate
mortgage-related securities issued by the U.S. Government or one of its
agencies or instrumentalities will not be considered illiquid if Dreyfus
determines that they are liquid pursuant to guidelines established by or
under the direction of the Company's Board of Directors.
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 that 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
or by Dreyfus pursuant to guidelines established by the Board of Directors.
The Board or Dreyfus 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
pursuant to registration or an exemption therefrom. Section 4(2) paper
normally is resold to other institutional investors like the Fund through or
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 from a Fund
or other holder. The Fund does not currently intend to invest in Section
4(2) paper or Rule 144A securities.
Management Policies
The Fund engages, except as noted, in the following practices in
furtherance of its investment objective.
Derivative Instruments.
General. As discussed in the Prospectus, the Fund may purchase and
sell various financial instruments ("Derivative Instruments"), such as
financial futures contracts (including interest rate, index and foreign
currency futures contracts), options (including options on securities,
indices, foreign currencies and futures contracts), forward currency
contracts, and interest rate and currency swaps, caps, collars and floors.
The index Derivative Instruments the Fund may use may be based on indices of
U.S. or foreign equity or debt securities. These Derivative Instruments may
be used, for example, to preserve a return or spread, to lock in unrealized
market value gains or losses, to facilitate or substitute for the sale or
purchase of securities, to manage the duration of securities, to alter the
exposure of a particular investment or portion of the Fund's portfolio to
fluctuations in interest rates or currency rates, to uncap a capped security
or to convert a fixed rate security into a variable rate security or a
variable rate security into a fixed rate security.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Derivative
Instrument intended partially or fully to offset potential declines in the
value of one or more investments held in the Fund's portfolio. Thus, in a
short hedge the Fund takes a position in a Derivative Instrument whose price
is expected to move in the opposite direction of the price of the investment
being hedged.
Conversely, a long hedge is a purchase or sale of a Derivative
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that the Fund intends to
acquire. Thus, in a long hedge the Fund takes a position in a Derivative
Instrument whose price is expected to move in the same direction as the
price of the prospective investment being hedged. A long hedge is sometimes
referred to as an anticipatory hedge. In an anticipatory hedge transaction,
the Fund does not own a corresponding security and, therefore, the
transaction does not relate to a security the Fund owns. Rather, it relates
to a security that the Fund intends to acquire. If the Fund does not
complete the hedge by purchasing the security it anticipated purchasing, the
effect on the Fund's portfolio is the same as if the transaction were
entered into for speculative purposes.
Derivative Instruments on securities generally are used to hedge
against price movements in one or more particular securities positions that
the Fund owns or intends to acquire. Derivative Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which the Fund has invested or expects to invest.
Derivative Instruments on debt securities may be used to hedge either
individual securities or broad debt market sectors.
The use of Derivative Instruments is subject to applicable regulations
of the Securities and Exchange Commission ("SEC"), the several options and
futures exchanges upon which they are traded, the Commodity Futures Trading
Commission ("CFTC") and various state regulatory authorities. In addition,
the Fund's ability to use Derivative Instruments will be limited by tax
considerations. See "Dividends, Other Distributions and Taxes."
In addition to the instruments, strategies and risks described below
and in the Prospectus, Dreyfus expects to discover additional opportunities
in connection with other Derivative Instruments. These new opportunities
may become available as Dreyfus develops new techniques, as regulatory
authorities broaden the range of permitted transactions and as new
techniques are developed. Dreyfus may utilize these opportunities to the
extent that they are consistent with the Fund's investment objective, and
permitted by the Fund's investment policies and applicable regulatory
authorities. The Fund's Prospectus or Statement of Additional Information
will be supplemented to the extent that new products or techniques involve
materially different risks than those described below or in the Prospectus.
Special Risks. The use of Derivative Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Derivative Instruments are described in the
sections that follow.
(1) Successful use of most Derivative Instruments depends upon
Dreyfus' ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Derivative Instrument and price movements of
the investments being hedged. For example, if the value of a Derivative
Instrument used in a short hedge increased by less than the decline in value
of the hedged investment, the hedge would not be fully successful. Such a
lack of correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which Derivative Instruments are traded. The effectiveness of
hedges using Derivative Instruments on indices will depend on the degree of
correlation between price movements in the index and price movements in the
securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts
available will not match the Fund's current or anticipated investments
exactly. The Fund may invest in options and futures contracts based on
securities with different issuers, maturities, or other characteristics from
the securities in which it typically invests, which involves a risk that the
options or futures position will not track the performance of the Fund's
other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable
price movements. However, such strategies can also reduce opportunity for
gain by offsetting the positive effect of favorable price movements. For
example, if the Fund entered into a short hedge because Dreyfus projected a
decline in the price of a security in the Fund's portfolio, and the price of
that security increased instead, the gain from that increase might be wholly
or partially offset by a decline in the price of the Derivative Instrument.
Moreover, if the price of the Derivative Instrument declined by more than
the increase in the price of the security, the Fund could suffer a loss. In
either such case, the Fund would have been in a better position had it not
attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in Derivative Instruments involving obligations to third
parties (i.e., Derivative Instruments other than purchased options). If the
Fund were unable to close out its positions in such Derivative Instruments,
it might be required to continue to maintain such assets or accounts or make
such payments until the position expired or matured. These requirements
might impair the Fund's ability to sell a portfolio security or make an
investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous time.
The Fund's ability to close out a position in a Derivative Instrument prior
to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of
the other party to the transaction ("contra party") to enter into a
transaction closing out the position. Therefore, there is no assurance that
any position can be closed out at a time and price that is favorable to the
Fund.
(5) Dreyfus may use Derivative Instruments, including securities with
embedded derivatives, for hedging purposes (to adjust the risk
characteristics of the Fund's portfolio) and may use these instruments to
adjust the return characteristics of the Fund's portfolio of investments.
This can increase investment risk. If Dreyfus judges market conditions
incorrectly or employs a strategy that does not correlate well with the
Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the Fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the contra party to the transaction
does not perform as promised or if there is not a liquid secondary market to
close out a position that the Fund has entered into.
(6) The ordinary spreads between the prices in the cash and futures
markets, due to the nature of such markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest,
foreign currency or securities price trends by Dreyfus may still not result
in a successful transaction. Dreyfus may be incorrect in its expectations
as to the extent of various interest rate, foreign exchange rate or
securities price movements, or the time span within which the movements take
place.
(7) Options and futures transactions may increase portfolio turnover
rates, which results in correspondingly greater commission expenses and
transaction costs, and may result in certain tax consequences.
Cover for Derivative Instruments. Transactions using Derivative
Instruments may expose the Fund to an obligation to another party. The Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, futures, options, currencies
or forward contracts or (2) cash and short-term liquid debt securities with
a value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (1) above. The Fund will comply with SEC
guidelines regarding cover for Derivative Instruments and will, 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.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Derivative Instrument is open,
unless they are replaced with other appropriate assets. As a result, the
commitment of a large portion of the Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed upon
exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying
investment at the agreed upon exercise price during the option period. A
purchaser of an option pays an amount, known as the premium, to the option
writer in exchange for rights under the option contract.
Options on indices are similar to options on securities or currencies
except that all settlements are in cash and gain or loss depends on changes
in the index in question rather than on price movements in individual
securities or currencies.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call
options can enable the Fund to enhance income or yield by reason of the
premiums paid by the purchasers of such options. However, if the market
price of the security or other instrument underlying a put option declines
to less than the exercise price on the option, minus the premium received,
the Fund would expect to suffer a loss.
Writing call options can also serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. However, if the investment
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be exercised and the Fund will be
obligated to sell the investment at less than its market value.
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the investment
depreciates to a price lower than the exercise price of the put option, it
can be expected that the put option will be exercised and the Fund will be
obligated to purchase the investment at more than its market value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of
the underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised
have no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing
purchase transaction. Conversely, the Fund may terminate a position in a
put or call option it had purchased by writing an identical put or call
option; this is known as a closing sale transaction. Closing transactions
permit the Fund to realize profits or limit losses on an option position
prior to its exercise or expiration.
The Fund may purchase and sell both exchange-traded and OTC options.
Exchange-traded options in the United States are issued by a clearing
organization that, in effect, guarantees completion of every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund
and its contra party (usually a securities dealer or a bank) with no
clearing organization guarantee. Thus, when the Fund purchases an OTC
option, it relies on the contra party from whom it purchased the option to
make or take delivery of the underlying investment upon exercise of the
option. Failure by the contra party to do so would result in the loss of
any premium paid by the Fund as well as the loss of any expected benefit of
the transaction.
Generally, the OTC debt and foreign currency options used by the Fund
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of
the option.
OTC options purchased by the Fund will be considered illiquid for
purposes of the Fund's operating policy that provides that it may not invest
more than 15% of its net assets in illiquid investments. See "Illiquid
Investments."
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating
directly with the contra party, or by a transaction in the secondary market
if any such market exists. Although the Fund will enter into OTC options
only with major dealers in unlisted options, there is no assurance that the
Fund will in fact be able to close out an OTC option position at a favorable
price prior to expiration. In the event of insolvency of the contra party,
the Fund might be unable to close out an OTC option position at any time
prior to its expiration.
If the Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by the Fund could cause material losses because
the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the futures contract at a
specified time in the future for a specified price. When the Fund sells a
futures contract, it incurs an obligation to deliver a specified amount of
the obligation underlying the futures contract at a specified time in the
future for an agreed upon price. With respect to index futures, no physical
transfer of the securities underlying the index is made. Rather, the
parties settle by exchanging in cash an amount based on the difference
between the contract price and the closing value of the index on the
settlement date.
When the Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the term of the
option. If the Fund has written a call, it assumes a short futures
position. If the Fund has written a put, it assumes a long futures
position. When the Fund purchases an option on a futures contract, it
acquires the right, in return for the premium it pays, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put).
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve
as a limited short hedge, using a strategy similar to that used for writing
call options on securities or indices. Similarly, writing put options on
futures contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of
the Fund's fixed-income portfolio. If Dreyfus wishes to shorten the average
duration of the Fund's fixed-income portfolio, the Fund may sell an interest
rate futures contract or a call option thereon, or purchase a put option on
that futures contract. If Dreyfus wishes to lengthen the average duration
of the Fund's fixed-income portfolio, the Fund may buy an interest rate
futures contract or a call option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at
the inception of a futures contract the Fund is required to deposit "initial
margin" consisting of cash or U.S. Government securities in an amount
generally equal to 10% or less of the contract value. Margin must also be
deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction
if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required
by an exchange to increase the level of its initial margin payment.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but
rather represents a daily settlement of the Fund's obligations to or from a
futures broker. When the Fund purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when the
Fund purchases or sells a futures contract or writes a call or put option
thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Fund has
insufficient cash to meet daily variation margin requirements, it might need
to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions
on options, by selling or purchasing, respectively, an instrument identical
to the instrument purchased or sold. Positions in futures and options on
futures may be closed only on an exchange or board of trade that provides a
secondary market. Although the Fund intends to enter into futures and
options on futures only on exchanges or boards of trade where there appears
to be a liquid secondary market, there can be no assurance that such a
market will exist for a particular contract at a particular time. In such
event, it may not be possible to close a futures contract or options
position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures or an option on a futures
contract can vary from the previous day's settlement price; once that limit
is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move
to the daily limit for several consecutive days with little or no trading,
thereby preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures or options on futures
position due to the absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses. The Fund would continue
to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain
cash or securities in a segregated account.
Foreign Currency Strategies - Special Considerations. The Fund may use
Derivative Instruments on foreign currencies to hedge against movements in
the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such
hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
The Fund might seek to hedge against changes in the value of particular
currency when no Derivative Instruments on that currency are available or
such Derivative Instruments are more expensive than certain other Derivative
Instruments. In such cases, the Fund may hedge against price movements in
that currency by entering into transactions using Derivative Instruments on
another currency or a basket of currencies, the values of which Dreyfus
believes will have a high degree of positive correlation to the value of the
currency being hedged. The risk that movements in the price of the
Derivative Instrument will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.
The value of Derivative Instruments on foreign currencies depends on
the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might
involve substantially larger amounts than those involved in the use of
foreign currency Derivative Instruments, the Fund could be disadvantaged by
having to deal in the odd lot market (generally consisting of transactions
of less than $1 million) for the underlying foreign currencies at prices
that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions
where rates might be less favorable. The interbank market in foreign
currencies is a global, round-the-clock market.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign
regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Forward Contracts. A forward foreign currency exchange contract
("forward contract") is a contract to purchase or sell a currency at a
future date. The two parties to the contract set the number of days and the
price. Forward contracts are used as a hedge against future movements in
foreign exchange rates. The Fund may enter into forward contracts to
purchase or sell foreign currencies for a fixed amount of U.S. dollars or
other foreign currency.
Forward contracts may serve as long hedges -- for example, the Fund may
purchase a forward contract to lock in the U.S. dollar price of a security
denominated in a foreign currency that the Fund intends to acquire. Forward
contracts may also serve as short hedges -- for example, the Fund may sell a
forward contract to lock in the U.S. dollar equivalent of the proceeds from
the anticipated sale of a security denominated in a foreign currency or from
anticipated dividend or interest payments denominated in a foreign currency.
Dreyfus may seek to hedge against changes in the value of a particular
currency by using forward contracts on another foreign currency or basket of
currencies, the value of which Dreyfus believes will bear a positive
correlation to the value of the currency being hedged.
The cost to the Fund of engaging in forward contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are
usually entered into a principal basis, no fees or commissions are involved.
When the Fund enters into a forward contract, it relies on the contra party
to make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of
any expected benefit of the transaction.
Buyers and sellers of forward contracts can enter into offsetting
closing transactions by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Secondary markets generally
do not exist for forward contracts, with the result that closing
transactions generally can be made for forward contracts only by negotiating
directly with the contra party. Thus, there can be no assurance that the
Fund will in fact be able to close out a forward contract at a favorable
price prior to maturity. In addition, in the event of insolvency of the
contra party, the Fund might be unable to close out a forward contract at
any time prior to maturity. In either event, the Fund would continue to be
subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are
the subject of the hedge or to maintain cash or securities in a segregated
account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value
of such securities measured in the foreign currency will change after the
forward contract has been established. Thus, the Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The
projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain.
Swaps, Caps, Collars and Floors. Swap agreements, including interest
rate and currency swaps, caps, collars and floors, may be individually
negotiated and structured to include exposure to a variety of different
types of investments or market factors. Swaps involve two parties
exchanging a series of cash flows at specified intervals. In the case of an
interest rate swap, the parties exchange interest payments based on an
agreed upon principal amount (referred to as the "notional principal
amount"). Under the most basic scenario, Party A would pay a fixed rate on
the notional principal amount to Party B, which would pay a floating rate on
the same notional principal amount to Party A. Depending on their
structure, swap agreements may increase or decrease the Fund's exposure to
long or short-term interest rates (in the U.S. or abroad), foreign currency
values, mortgage securities, corporate borrowing rates, or other factors.
Swap agreements can take many different forms and are known by a variety of
names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee
by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
The Fund will set aside cash or appropriate liquid assets to cover its
current obligations under swap transactions. If the Fund enters into a swap
agreement on a net basis (that is, the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount
of the two payments), the Fund will maintain cash or liquid assets with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis or writes a cap, collar or floor, it
will maintain cash or liquid assets with a value equal to the full amount of
the Fund's accrued obligations under the agreement.
The most important factor in the performance of swap agreements is the
change in the specific interest rate, currency or other factor(s) that
determine the amounts of payments due to and from the Fund. If a swap
agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. In addition, if the contra party's creditworthiness
declines, the value of a swap agreement would likely decline, potentially
resulting in losses.
The Fund will enter into swaps, caps, collars and floors only with
banks and recognized securities dealers believed by Dreyfus to present
minimal credit risks in accordance with guidelines established by the Board.
If there is a default by the other party to such a transaction, the Fund
will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreement relating
to the transaction.
The Fund understands that it is the position of the staff of the SEC
that assets involved in swap transactions are illiquid and, therefore, are
subject to the limitations on illiquid investments. See "Illiquid
Investments."
Investment Restrictions
The following limitations have been adopted by the Fund. The 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 the Fund are present or represented by proxy, or (b) more than 50%
of the outstanding shares of the Fund, whichever is less. The Fund may not:
1. Purchase any securities which would cause more than 25% of the value of
the 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.)
2. Borrow money or issue senior securities as defined in the Investment
Company Act of 1940, as amended ("1940 Act"), except that (a) the 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) the Fund may issue
multiple classes of shares. The purchase or sale of futures contracts,
options, forward contracts, swaps, caps, collars and floors shall not
be considered to involve the borrowing of money or issuance of senior
securities.
3. Purchase with respect to 75% of the 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 the Fund's total assets would be invested in the
securities of that issuer, or (b) the 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
loans. For purposes of this limitation debt instruments, swaps, caps,
collars, floors, 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 the 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 the Fund may purchase and
sell foreign currency, futures contracts, options, forward currency
contracts, swaps, caps, collars and floors, and other similar
instruments.
The 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 objective, policies and limitations as the Fund.
The 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. The Fund shall not 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, options, forward contracts, swaps, caps, collars, floors,
and other similar financial instruments are not deemed to constitute
selling short.
2. The Fund shall not purchase securities on margin, except that the 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, options, forward contracts, swaps, caps, collars,
floors, and other similar financial instruments shall not constitute
purchasing securities on margin.
3. The Fund shall not purchase oil, gas or mineral leases.
4. The 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 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
5. The Fund will not 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 years, if by reason thereof, the value of
the Fund's investment in securities would exceed 5% of the 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. The Fund will not 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 interest-only (IO) and principal-only (PO) classes of
fixed-rate mortgage-related securities issued by the U.S. Government or
one of its agencies or instrumentalities; provided, that the Board of
Directors, or its delegate, determines that such securities are liquid
pursuant to guidelines established by or under the direction of the
Board of Directors. Also, for purposes of this limitation, illiquid
securities shall not include Section 4(2) paper, or securities that 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. The Fund may not 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. The Fund shall not purchase any security while borrowings representing
more than 5% of the Fund's total assets are outstanding.
9. The Fund will not purchase warrants if at the time of such purchase:
(a) more than 5% of the value of the 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 limitation, warrants acquired by
the Fund in units or attached to securities will be deemed to have no
value).
10. The Fund will not purchase puts, calls, straddles, spreads and any
combination thereof if, as a result of such purchase, the value of its
aggregate investment in such 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 the Fund's
transactions in futures contracts and options on futures contracts.
To the extent that the Fund enters into futures contracts, options on
futures contracts, or options on foreign currencies traded on an exchange
regulated by the CFTC, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options
are "in-the-money" at the time of purchase) will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Fund has
entered into. This policy does not limit to 5% the percentage of the Fund's
assets that are at risk in futures contracts and options on futures
contracts.
MANAGEMENT OF THE FUND
CONTROLLING SHAREHOLDER
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, more than 25%
of the issued and outstanding voting shares of the Company as of October 9,
1995, 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. As of the date of this
Statement of Additional Information, the Distributor owned all of the
outstanding shares of the Fund.
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, N.A. ("Mellon Bank") in informing its customers
of, and performing, investment and redemption services in connection with
the Fund, and in providing services to the Fund as custodian, as well as
Dreyfus' investment advisory activities, may raise issues under these
provisions. Mellon Bank has been advised by counsel that the 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 above services for its
customers and/or the Fund. If Mellon Bank or Dreyfus was prohibited from
serving the 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 thirteen Directors which supervises
the Fund's investment activities and reviews contractual arrangements with
companies that provide the Fund 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 1940 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/Laurel Family of Funds").
o + RUTH MARIE ADAMS. Director of the Company; Professor of English and
Vice President Emeritus, Dartmouth College; Senator, United Chapters of
Phi Beta Kappa; Trustee, Woods Hole Oceanographic Institution. Age:
80 years old. Address: 1026 Kendal Lyme Road, Hanover, New Hampshire
03755.
o + FRANCIS P. BRENNAN. Chairman of the Board of Directors and Assistant
Treasurer of the Company; Director and Chairman, Massachusetts Business
Development Corp.; Director, Boston Mutual Insurance Company. Age: 78
years old. Address: Massachusetts Business Development Corp., One
Liberty Square, Boston, Massachusetts 02109.
o * JOSEPH S. DiMARTINO. Director of the Company since February 1995.
Since January 1995, Mr. DiMartino has served as Chairman of the Board
for various funds in the Dreyfus Family of Funds. For more than five
years prior thereto, he was President and a director of Dreyfus and
Executive Vice President and a director of Dreyfus Service Corporation,
a wholly-owned subsidiary of Dreyfus. From August 1994 to December 31,
1994, he was a director of Mellon Bank Corporation. He is Chairman of
the Board of Noel Group, Inc., a venture capital company; a trustee of
Bucknell University; and a director of the Muscular Dystrophy
Association, HealthPlan Services Corporation, Belding Heminway, Inc., a
manufacturer and marketer of industrial threads, specialty yarns, home
furnishings and fabrics, Curtis Industries, Inc., a national
distributor of security products, chemicals and automotive and other
hardware, Simmons Outdoor Corporation, and Staffing Resources, Inc.
Age: 51 years old. Address: 200 Park Avenue, New York, New York 10166.
o + JAMES M. FITZGIBBONS. Director of the 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. Age: 60 years old.
Address: 40 Norfolk Road, Brookline, Massachusetts 02167.
o * J. TOMLINSON FORT. Director of the Company; Since 1990, Partner, Reed,
Smith, Shaw & McClay (law firm). Age: 65 years old. Address: 204
Woodcock Drive, Pittsburgh, Pennsylvania 15215.
o + ARTHUR L. GOESCHEL. Director of the Company; Director and Chairman of
the Board, Rexene Corporation; Director, Calgon Carbon Corporation;
Director, National Picture Frame Corporation; Director and Chairman of
the Board, Tetra Corporation, 1991-1993; Director, Medalist
Corporation, 1992-1993. Since May 1991, Mr. Goeschel has served as
Trustee of Sewickley Valley Hospital. Age: 73 years old. Address:
Way Hollow Road and Woodland Road, Sewickley, Pennsylvania 15143.
o + KENNETH A. HIMMEL. Director of the Company; former Director, The Boston
Company, Inc. and Boston Safe Deposit and Trust Company; President and
Chief Executive Officer, Himmel & Co., Inc.; Vice Chairman, Sutton
Place Gourmet, Inc.; and Managing Partner, Franklin Federal Partners.
Age: 49 years old. Address: Himmel and Company, Inc., 101 Federal
Street, 22nd Floor, Boston, Massachusetts 02110.
o * ARCH S. JEFFERY. Director of the Company; Financial Consultant. Age:
76 years old. Address: 1817 Foxcroft Lane, Unit 306, Allison Park,
Pennsylvania 15101.
o + STEPHEN J. LOCKWOOD. Director of the Company; President and CEO, LDG
Management Company, Inc.; CEO, LDG Reinsurance Underwriters, SRRF
Management Inc. and Medical Reinsurance Underwriters Inc. Age: 48
years old. Address 401 Edgewater Place, Wakefield, Massachusetts
01880.
o + ROBERT D. McBRIDE. Director of the Company; Director and Chairman,
McLouth Steel; Director, Salem Corporation. Director, SMS/Concast,
Inc. (1983-1991). Age: 67 years old. Address: 15 Waverly Lane,
Grosse Pointe Farms, Michigan 48236.
o + JOHN L. PROPST. Director of the Company; Of Counsel, Reed, Smith, Shaw
& McClay (law firm). Age: 81 years old. Address: 5521 Dunmoyle
Street, Pittsburgh, Pennsylvania 15217.
o + JOHN J. SCIULLO. Director of the Company; Dean Emeritus and Professor
of Law, Duquesne University Law School; Director, Urban Redevelopment
Authority of Pittsburgh. Age: 62 years old. Address: 321 Gross
Street, Pittsburgh, Pennsylvania 15224.
o + ROSLYN M. WATSON. Director of the Company; Principal, Watson Ventures,
Inc.; Director, American Express Centurion Bank; Director, Harvard
Community Health Plan, Inc.; Director, Massachusetts Electric Company;
Director, The Hymias Foundation, Inc.; prior to February 1993, Real
Estate Development Project Manager and Vice President, The Gunwyn
Company. Age: 45 years old. Address: 25 Braddock Park, Boston,
Massachusetts 02116-5816.
# MARIE E. CONNOLLY. President and Treasurer of the Company, 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 Company (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). Age: 37 years old. Address: One Exchange Place, Boston,
Massachusetts 02109.
# FREDERICK C. DEY. Vice President and Assistant Treasurer of the Company,
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). Age: 33 years old. Address: Premier Mutual Fund Services,
Inc., One Exchange Place, Boston Massachusetts 02109.
# ERIC B. FISCHMAN. Vice President and Assistant Secretary of the Company,
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).
Age: 30 years old. Address: Premier Mutual Fund Services, Inc., 200
Park Avenue, New York, New York 10166.
LESLIE M. GAYNOR. Assistant Treasurer of the Company, The Dreyfus/Laurel
Investment Series, The Dreyfus/Laurel Funds Trust and The
Dreyfus/Laurel Tax-Free Municipal Funds (since October 1994); Assistant
Treasurer/Manager of Treasury Services, Funds Distributor, Inc. (since
July 1994); Vice President, The Boston Company, Inc. (1989 to July
1994). Age: 43 years old. Address: One Exchange Place, Boston,
Massachusetts 02109.
RICHARD W. HEALEY. Vice President of the Company, The Dreyfus/Laurel
Investment Series, The Dreyfus/Laurel Funds Trust and The
Dreyfus/Laurel Tax-Free Municipal Funds (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). Age: 41 years old. Address: One Exchange Place,
Boston, Massachusetts 02109.
# JOHN E. PELLETIER. Vice President and Secretary of the Company, 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). Age: 31 years
old. Address: One Exchange Place, Boston, Massachusetts 02109.
____________________________
* "Interested person" of the Company, 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 Dreyfus.
The officers and Directors of the Company as a group owned beneficially
less than 1% of the total Investor and Class R shares of the Fund
outstanding as of the date of this Statement of Additional Information.
No officer or employee of Premier (or of any parent, subsidiary or
affiliate thereof) receives any compensation from the Company for serving as
an officer or Director of the Company. In addition, no officer or employee
of Dreyfus (or of any parent or subsidiary thereof) serves as an officer or
Director of the Company. The Dreyfus/Laurel Family of Funds pays each
Director/Trustee who is not an officer or employee of Premier (or of any
parent, subsidiary or affiliate thereof) or of Dreyfus $27,000 per annum
(and an additional $75,000 for the Chairman of the Board of
Directors/Trustees of the Dreyfus/Laurel Family of Funds). In addition, the
Dreyfus/Laurel Family of Funds pays each Director/Trustee $1,000 per joint
Dreyfus/Laurel Family of Funds Board meeting attended, plus $750 per joint
Dreyfus/Laurel Family of Funds Audit committee meeting attended, and
reimburses each Director/Trustee for travel and out-of-pocket expenses.
For the fiscal year ended October 31, 1994, the aggregate amount of
fees and expenses received by each Director from the Company and all other
Funds in the Dreyfus/Laurel Family of Funds for which such person is a Board
member were as follows:
<TABLE>
(5)
(3) (4) Total
(2) Pension or Estimated Compensation from
(1) Aggregate Retirement Benefits Annual the Company and Fund
Name of Board Compensation from the Accrued as Part of Benefits Upon Complex Paid to
Member Company # Company's Expenses Retirement Board Members
- -------------- --------------------- -------------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Ruth Marie Adams $19,685 None None $ 37,500
Francis P. Brennan* 52,809 None None 112,500
Joseph S. DiMartino** N/A N/A N/A N/A
James M. Fitzgibbons 17,685 None None 31,740
J. Tomlinson Fort 27,185 None None 33,500
Arthur L. Goeschel 26,185 None None 32,500
Kenneth A. Himmel 18,685 None None 35,750
Arch S. Jeffery 27,185 None None 33,500
Stephen J. Lockwood 18,685 None None 35,750
Robert D. McBride 27,185 None None 33,500
John L. Propst 27,185 None None 33,500
John J. Sciullo 27,185 None None 33,500
Roslyn M. Watson 19,685 None None 36,750
____________________________________
# Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $10,876 for the Company.
* Compensation of Francis Brennan includes $75,000 paid by The
Dreyfus/Laurel Family of Funds to be Chairman of the Board.
** Joseph S. DiMartino was not a Director of the Company as of October 31,
1994.
</TABLE>
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 the
Fund. As investment manager, Dreyfus manages the Fund by making investment
decisions based on the Fund's investment objective, policies and
restrictions. The Management Agreement is subject to review and approval at
least annually by the Board of Directors.
The Management Agreement will continue from year to year provided that
a majority of the Directors who are not interested persons of the Company
and either a majority of all Directors or a majority of the shareholders of
the Fund approve its continuance. The Company may terminate the Management
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 Fund's
outstanding voting securities. Dreyfus may terminate the Management
Agreement upon sixty (60) days' written notice to the Company. 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; W. Keith Smith,
Vice Chairman of the Board; Robert E. Riley, President, Chief Operating
Officer and a director; Stephen E. Canter, Vice Chairman, Chief Investment
Officer and a director; Lawrence S. Kash, Vice Chairman--Distribution and a
director; Philip L. Toia, Vice Chairman--Operations and Administration;
Daniel C. Maclean, Vice President and General Counsel; Barbara E. Casey,
Vice President--Dreyfus Retirement Services; Henry D. Gottmann, Vice
President--Retail Sales and Service; Elie M. Genadry, Vice President--
Institutional Sales; Mark N. Jacobs, Vice President--Fund Legal and
Compliance and Secretary; Jeffrey N. Nachman, Vice President--Mutual Fund
Accounting; Diane M. Coffey, Vice President--Corporate Communications;
Katherine C. Wickham, Vice President--Human Resources; William F. Glavin,
Jr., Vice President--Product Management; Andrew S. Wasser, Vice President--
Information Services; Maurice Bendrihem, Controller; Elvira Oslapas,
Assistant Secretary; Mandell L. Berman, Frank V. Cahouet, Alvin E. Freidman,
Lawrence M. Greene, Julian M. Smerling and David B. Truman, directors.
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 Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and
for certain other investment companies.
Dreyfus Teletransfer Privilege. Dreyfus 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 Dreyfus 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--Dreyfus Teletransfer
Privilege."
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 in which the account is closed or during the following
calendar year, provided the information on the old Account Application is
still applicable.
DISTRIBUTION PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Distribution Plan."
Investor shares are subject to fees for distribution and shareholder
services.
Distribution Plan--Investor 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
Investor shares of the Fund, the Company has adopted a Distribution Plan
("Plan") and may enter into Agreements with Agents pursuant to the Plan.
Under the Plan, the Fund may spend annually up to 0.25% of its average
daily net assets attributable to Investor shares for costs and expenses
incurred in connection with the distribution of, and shareholder servicing
with respect to, the Investor shares.
The Plan provides that a report of the amounts expended under the 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 Plan provides that it may not be amended to increase materially the
costs which the Fund may bear for distribution pursuant to the Plan without
approval of the Fund's shareholders, and that other material amendments of
the 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 Plan, cast in person at a meeting called for the
purpose of considering such amendments. The 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 Plan, by vote cast in person at a meeting
called for the purpose of voting on the Plan. The Plan is terminable, as to
the Fund's Investor 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 Investor shares of the Fund.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Fund
Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record.
The Account Application or later written request must be manually signed by
the registered owner(s). Checks may be made payable to the order of any
person in an amount of $500 or more. When a Check is presented to the
Transfer Agent for payment, the Transfer Agent, as the investor's agent,
will cause the Fund to redeem a sufficient number of full or fractional
shares in the investor's account to cover the amount of the Check.
Dividends are earned until the Check clears. After clearance, a copy of the
Check will be returned to the investor. Investors generally will be subject
to the same rules and regulations that apply to checking accounts, although
the election of this Privilege creates only a shareholder-transfer agent
relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient funds.
Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Agent, and reasonably
believed by the Transfer Agent to be genuine. Ordinarily, the Fund will
initiate payment for shares redeemed pursuant to this Privilege on the next
business day after receipt if the Transfer Agent receives the redemption
request in proper form. Redemption proceeds will be transferred by Federal
Reserve wire only to the commercial bank account specified by the investor
on the Account Application or Shareholder Services Form. Redemption
proceeds, if wired, must be in the amount of $1,000 or more and will be
wired to the investor's account at the bank of record designated in the
investor's file at the Transfer Agent, if the investor's bank is a member of
the Federal Reserve System, or to a correspondent bank if the investor's
bank is not a member. Fees ordinarily are imposed by such bank and usually
are borne by the investor. Immediate notification by the correspondent bank
to the investor's bank is necessary to avoid a delay in crediting the funds
to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code,
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
---------------- ----------------
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
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.
Dreyfus Teletransfer Privilege. Investors should be aware that if they
have selected the Dreyfus Teletransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus Teletransfer transaction through
the ACH 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--Dreyfus Teletransfer Privilege."
Redemption Commitment. The 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 redemptions 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 the 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 NYSE is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the SEC so that disposal of the Fund's investments
or determination of its net asset value is not reasonably practicable, or
(c) for such other periods as the SEC by order may permit to protect the
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 the 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.
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 Simplified Employee Pension Plans ("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 SEP-IRA 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 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.
Dreyfus Auto-Exchange Privilege. The Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares
of the same Class of another fund in 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 "Fund Exchanges."
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 Dreyfus 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 Dreyfus 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 Dreyfus
Auto-Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
Automatic Withdrawal Plan. 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
other distributions, the investor's shares will be reduced and eventually
may be depleted. An Automatic Withdrawal Plan may be 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, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of the same Class of certain
other funds in 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 other 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 other 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 other 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
other distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and other 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. The Fund makes
available to corporations a variety of prototype pension and profit-sharing
plans including a 401(k) Salary Reduction Plan. In addition, the 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.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$2,500 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 Fund's 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 which 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 reviewed
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 Day and
Christmas Day.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's 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 for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"), the 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
currency transactions) ("Distribution Requirement"), (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 -- (a) securities, (b) non-foreign-currency options
and futures and (c) foreign currencies (or foreign currency options, futures
and forward contracts) that are not directly related to the 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.
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 Fund's Prospectus. In addition, 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 the Fund in October,
November or December of any year and payable to shareholders of record on a
date in any of those months are deemed to have been paid by the Fund and
received by the shareholders on December 31 of that year if the
distributions are paid by the Fund during the following January.
Accordingly, those distributions will be taxed to shareholders for the year
in which that December 31 falls.
Interest received by the 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 investors.
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 of foreign
currencies, and options, futures and forward contracts thereon, that are not
directly related to the 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 the 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 the 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. The Fund will consider whether it should seek to qualify for
this treatment for its hedging transactions. To the extent the 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 the 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 certain foreign currency
denominated securities (including debt instruments and certain financial
forward, futures and option contracts and 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 of the Code.
"Conversion transactions" are defined to include certain forward, futures,
option and straddle transactions, transactions marketed or sold to produce
capital gains and transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, any gain or loss realized by the 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 the 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 the 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 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" if the forward contracts or options
transactions comprising a part of such straddles were governed by Section
1256. The Fund may make one or more elections with respect to mixed
straddles. Depending on which election is made, if any, the results to the
Fund may differ. If no election is made, then to the extent the straddle
and conversion transactions rules apply to positions established by the
Fund, losses realized by the 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 the 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, the Fund would be required to take into gross income annually a
portion of the discount (or deemed discount) at which the securities were
issued and could need to distribute such income to satisfy the Distribution
Requirement and to avoid imposition of the 4% excise tax referred to in the
Fund's Prospectus under "Dividends, Other Distributions and Taxes." 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 requirements.
State and Local Taxes. Depending upon the extent of the Fund's
activities in states and localities in which it is deemed to be conducting
business, it 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 the 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,
such as a foreign shareholder entitled to claim the benefits of an
applicable tax treaty. Foreign shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
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).
Capital gains realized by foreign shareholders on the sale of Fund
shares and distributions to them of net capital gain (the excess of net
long-term capital gain over net short-term capital loss) 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. 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 a foreign
shareholder's ownership of Fund shares 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 the Fund, that they own at the time of their death. Certain
credits against that tax and relief under applicable tax treaties may be
available.
PORTFOLIO TRANSACTIONS
All portfolio transactions of the Fund are placed on behalf of the Fund
by Dreyfus. Debt securities purchased and sold by the 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 the Fund) makes a market 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. The 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 the 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 the 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 the 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 the 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 reviews Dreyfus'
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Fund and reviews 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 Fund,
investment decisions for the Fund are made independently from decisions made
for these other accounts. It sometimes happens that the same security 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 the 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 the Fund outweighs any disadvantages that may be said to exist
from exposure to simultaneous transactions.
Portfolio Turnover. The portfolio turnover rate for the 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.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance
Information."
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and 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.
Total return is calculated by subtracting the amount of the Fund's net
asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of dividends and other distributions during the period), and
dividing the result by the net asset value per share at the beginning of the
period.
The Fund 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 earned
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:
YIELD = 2[(a-b + 1)6-1]
cd
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 = maximum offering price per share on the last day of the
period.
Performance information for the Fund may be compared, in reports and
promotional literature, to indexes including, but not limited to: (i) the
Lehman Brothers Aggregate Bond Index; (ii) other Lehman Brothers indices,
the Dow Jones Industrial Average, 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.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's 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.
The 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
Fund's custodian. The Shareholder Services Group, Inc., a subsidiary of
First Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671,
is the 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 the Fund or which securities are to
be purchased or sold by the Fund.
Kirkpatrick & Lockhart LLP, 1800 M Street, N.W., South Lobby - 9th
Floor, Washington, D.C. 20036, has passed upon the legality of the shares
offered by the Prospectus and this Statement of Additional Information.
KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania
15218, was appointed by the Directors to serve as the Fund's independent
auditors for the year ending October 31, 1996, 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 filed on behalf of the Fund.
APPENDIX
DESCRIPTIONS OF SECURITIES RATINGS
Debt Instruments Ratings
Moody's Investors Service, Inc. (Moody's):
Aaa -- Bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-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 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."
Baa -- Bonds rated Baa are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable on any great
length of time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Those Bonds in the Aa and A groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa 1 and A 1.
Standard & Poor's ("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.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas it instantly exhibits adequate
protection changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than
in higher rated categories.
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.
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-1,
Prime-2, or Prime-3.
Prime-1 indicates a superior capacity for repayment of short-term
promissory obligations. Prime-1 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.
S&P:
Commercial paper rated by S&P has the following characteristics:
liquidity ratios 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 determines whether the
issuer's commercial paper is rated A-1, 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.
Fitch 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-1, 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.
Duff & Phelps, Inc. ("Duff & Phelps"):
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 l+ -- 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.
IBCA, Inc. ("IBCA"):
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 IBCA's
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.
A1 -- Obligations supported by a very strong capacity for timely
repayment.
