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PROSPECTUS JANUARY 1, 1998
DREYFUS BALANCED FUND, INC.
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DREYFUS BALANCED FUND, INC. (THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. THE
FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE LONG-TERM CAPITAL GROWTH AND
CURRENT INCOME, CONSISTENT WITH REASONABLE INVESTMENT RISK.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY. YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED JANUARY 1, 1998, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. 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. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL
FLUCTUATE FROM TIME TO TIME.
TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES ................... 3
CONDENSED FINANCIAL INFORMATION................... 3
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 7
HOW TO BUY SHARES................................. 8
SHAREHOLDER SERVICES.............................. 10
HOW TO REDEEM SHARES.............................. 13
SHAREHOLDER SERVICES PLAN......................... 15
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 15
PERFORMANCE INFORMATION........................... 16
GENERAL INFORMATION............................... 17
APPENDIX.......................................... 18
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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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[This Page Intentionally Left Blank]
[Page 2]
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees ................. .60%
Other Expenses................... .36%
Total Fund Operating Expenses ... .96%
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $10 $31 $53 $118
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR 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%.
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund, the payment of which will reduce
investors' annual return. You can purchase Fund shares without charge
directly from the Fund's distributor; you may be charged a fee if you effect
transactions in Fund shares through a securities dealer, bank or other
financial institution. See "Management of the Fund," "How to Buy Shares" and
"Shareholder Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst
&Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany the Statement of
Additional Information, available upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated. This information
has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-_______________________________________________________________
1993(1) 1994 1995 1996 1997
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year................. $12.50 $13.28 $13.72 $15.61 $15.13
_______ _______ _______ _______ _______
INVESTMENT OPERATIONS:
Investment income_net ............................ .39 .41 .54 .51 .45
Net realized and unrealized gain on investments... .71 .59 1.99 .29 3.65
_______ _______ _______ _______ _______
TOTAL FROM INVESTMENT OPERATIONS................. 1.10 1.00 2.53 .80 4.10
_______ _______ _______ _______ _______
DISTRIBUTIONS:
Dividends from investment income-net............... (.32) (.42) (.51) (.53) (.44)
Dividends from net realized gain on investments.... __ (.14) (.13) (.75) (.64)
_______ _______ _______ _______ _______
TOTAL DISTRIBUTIONS.............................. (.32) (.56) (.64) (1.28) (1.08)
_______ _______ _______ _______ _______
Net asset value, end of year....................... $13.28 $13.72 $15.61 $15.13 $18.15
_______ _______ _______ _______ _______
TOTAL INVESTMENT RETURN............................. 8.88%(2) 7.73% 19.03% 5.19% 28.06%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .......... .23%(2) .69% 1.04% 1.00% .96%
Ratio of net investment income to average net assets 3.46%(2) 3.26% 3.99% 3.37% 2.71%
Decrease reflected in above expense ratios
due to undertakings
by The Dreyfus Corporation................... 1.13%(2) .41% __ __ __
Portfolio Turnover Rate............................ 46.42%(2) 58.22% 72.42% 186.23% 235.56%
Average commission rate paid(3).................... __ __ __ $.0684 $.0587
Net Assets, end of year (000's omitted)............ $48,315 $82,848 $165,909 $269,869 $347,259
(1) From September 30, 1992
(commencement of operations) to August 31, 1993.
(2) Not annualized.
(3) For fiscal years beginning September
1, 1995, the Fund is required to disclose its average commission rate paid
per share for purchases and sales of investment securities.
</TABLE>
[Page 3]
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without
charge by writing to the address or calling the number set forth on the cover
page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide you with long-term
capital growth and current income, consistent with reasonable investment
risk. The Fund's investment objective cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")) of the Fund's outstanding voting shares. There
can be no assurance that the Fund's investment objective will be achieved.
MANAGEMENT POLICIES
The Fund is managed as a balanced fund and invests in equity and debt
securities of domestic and foreign issuers. The proportion of the Fund's
assets invested in each type of security will vary from time to time in
accordance with The Dreyfus Corporation's assessment of economic conditions
and investment opportunities. Under normal market conditions, equity
investments will range from 45% to 65% of the Fund's portfolio, with a
benchmark allocation of 50%. Fixed-income investments will range from 25% to
55%, with a benchmark allocation of 40%. Cash and cash equivalents will
comprise between 0% and 25% of the Fund's portfolio, with a benchmark
allocation of 10%.
In determining whether the Fund should invest in a particular equity
security, The Dreyfus Corporation generally employs a value-oriented
approach, utilizing a "bottom-up" equity selection process. Unlike a process
that seeks equity securities of companies that are experiencing significant
capital growth with the prospect that such growth will continue, the process
used by the Fund involves seeking equity securities of companies that are
generally disfavored or undervalued in the marketplace, but which, in the
view of The Dreyfus Corporation, have certain characteristics indicating that
those equity securities may achieve significant capital growth. The Dreyfus
Corporation considers an equity security to be disfavored or undervalued if,
among other things, that security is selling with a relatively low price to
book ratio, low price to earnings ratio or higher than average dividend
payment in relation to price. Of course, there can be no assurance that the
equity securities actually purchased by the Fund under this process will
produce such returns.
In determining whether the Fund should invest in a particular debt
security, The Dreyfus Corporation reviews the terms of the instrument and
evaluates the creditworthiness of the issuer of the instrument, considering
all factors which it deems relevant, including, as deemed applicable, a
review of an issuer's cash flow; level of short-term debt; leverage;
capitalization; the quality and depth of management; profitability; return on
assets; and economic factors relative to the issuer's industry. The Dreyfus
Corporation, however, will not rely on its ability to predict correctly
movements in the direction of interest rates. The Fund will seek to provide a
positive real rate of return each year from its debt security investments by
investing in debt securities that have short to intermediate maturities and
offer the highest return relative to investment grade instruments in general.
The equity securities in which the Fund may invest consist of common
stocks, preferred stocks and convertible securities, as well as warrants to
purchase such securities. The Fund will be particularly alert to companies
which offer opportunities for capital appreciation and growth of earnings.
The debt securities in which the Fund may invest must be rated at
least Baa by Moody's Investors Service, Inc. ("Moody's") or at least BBB by
Standard & Poor's Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff
& Phelps Credit Rating Co. ("Duff") or, if unrated, deemed to be of
comparable quality by The Dreyfus Corporation. Debt securities rated Baa by
Moody's and BBB by S&P, Fitch and Duff are considered investment grade
obligations which lack outstanding investment characteristics and have specula
tive characteristics as well. See "Appendix" in the Statement of Additional
Information. The Fund may
[Page 4]
invest in mortgage-related securities and asset-backed securities. The debt
securities in which the Fund invests have remaining maturities of 40 years or
less and, under normal market conditions, the dollar-weighted average
maturity of the Fund's portfolio invested in debt securities is expected to
be between two and ten years. During periods of rapidly rising interest
rates, the dollar-weighted average portfolio maturity of the Fund's debt
portfolio may be shortened to one year or less.
The money market instruments in which the Fund may invest consist of
U.S. Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under
"Appendix_Certain Portfolio Securities_Money Market Instruments." Under
normal market conditions, the Fund does not expect to have a substantial
portion of its assets invested in money market instruments. However, when The
Dreyfus Corporation determines that adverse market conditions exist, the Fund
may adopt a temporary defensive posture and invest all of its assets in money
market instruments.
The Fund's annual portfolio turnover rate (for both common stock and
bond portions of its portfolio) for the current fiscal year is not expected
to exceed 100%. A turnover rate of 100% is equivalent to the Fund buying and
selling all of the securities in its portfolio once in the course of a year.
Higher portfolio turnover rates are likely to result in comparatively greater
brokerage commissions and transaction costs. In addition, short-term gains
realized from portfolio transactions are taxable to shareholders as ordinary
income. In an effort to increase returns, the Fund may engage in various
investment techniques, such as options and futures transactions, leveraging,
lending portfolio securities and foreign currency transactions. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objective and Management Policies_Management
Policies"in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ The Fund's net asset value per share should be expected to
fluctuate. Investors should consider the Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objective and Management Policies" in the
Statement of Additional Information for a further discussion of certain
risks.
EQUITY SECURITIES _ Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of the Fund's
investments will result in changes in the value of its shares and thus the
Fund's total return to investors.
The Fund may purchase securities of smaller capitalization companies,
the prices of which may be subject to more abrupt or erratic market movements
than larger, more established companies, because these securities typically
are traded in lower volume and the issuers typically are more subject to
changes in earnings and prospects.
FIXED-INCOME SECURITIES _ Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
the Fund, such as those rated Baa by Moody's and BBB by S&P, Fitch and Duff,
may be subject to such risk with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated fixed-income
securities. Once the rating of a portfolio security has been changed, the
Fund will consider all circumstances deemed relevant in determining whether
to continue to hold the security. Mortgage-related securities in which the
Fund may invest are complex derivative instruments, subject to both credit
and prepayment risk, and may be more volatile and less liquid than more tradit
ional debt securities. Some mortgage-related securities have structures that
make their reactions to interest rate changes and other factors
[Page 5]
difficult to predict, making their value highly volatile. See
"Appendix_Certain Portfolio Securities_Mortgage-Related Securities" below and
"Appendix" in the Statement of Additional Information.
FOREIGN SECURITIES _ Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund will be subject to additional risks which
include possible adverse political and economic developments, seizure or
nationalization of foreign deposits, and adoption of governmental
restrictions which might adversely affect or restrict the payment of
principal and interest on the foreign securities to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Fund may use include options and
futures, mortgage-related securities and asset-backed securities. While
Derivatives can be used effectively in furtherance of the Fund's investment
objective, under certain market conditions, they can increase the volatility
of the Fund's net asset value, decrease the liquidity of the Fund's portfolio
and make more difficult the accurate pricing of the Fund's portfolio. See
"Appendix _ Investment Techniques _ Use of Derivatives" below and
"Investment Objective and Management Policies _ Management Policies _
Derivatives"in the Statement of Additional Information.
NON-DIVERSIFIED STATUS _ The classification of the Fund as a
"non-diversified" investment company means that the proportion of the Fund's
assets that may be invested in the securities of a single issuer is not
limited by the 1940 Act. A "diversified" investment company is required by
the 1940 Act generally, with respect to 75% of its total assets, to invest
not more than 5% of such assets in the securities of a single issuer. Since a
relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, some of which may be in the same
industry, the Fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry. However, to meet Federal tax
requirements, at the close of each quarter the Fund may not have more than
25% of its total assets invested in any one issuer and, with respect to 50%
of total assets, not more than 5% of its total assets invested in any one
issuer. The Fund may not invest more than 25% of its assets in any one
industry. These limitations do not apply to U.S. Government securities.
SIMULTANEOUS INVESTMENTS _ Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as the Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
[Page 6]
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of October 31, 1997, The Dreyfus Corporation
managed or administered approximately $93 billion in assets for approximately
1.7 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the authority of the Fund's Board in accordance with Maryland law.
The Fund's primary portfolio manager is Douglas D. Ramos, Senior Vice
President and Senior Equity Portfolio Manager of The Dreyfus Corporation. He
has been the Fund's primary portfolio manager and has been employed by The
Dreyfus Corporation since July 1997. For more than five years prior thereto,
Mr. Ramos was employed by Loomis, Sayles & Company, most recently serving as
a Senior Partner and Investment Counselor. The Fund's other portfolio
managers are identifiedin the Statement of Additional Information. The
Dreyfus Corporation also provides research services for the Fund and for
other funds advised by The Dreyfus Corporation through a professional staff
of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, Mellon managed more than $299 billion in assets as of
September 30, 1997, including approximately $102 billion in proprietary
mutual fund assets. As of September 30, 1997, Mellon, through various
subsidiaries, provided non-investment services, such as custodial or
administration services, for more than $1.488 trillion in assets, including
approximately $60 billion in mutual fund assets.
For the fiscal year ended August 31, 1997, the Fund paid The Dreyfus
Corporation a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. From time to time, The Dreyfus
Corporation may waive receipt of its fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the expense
ratio of the Fund and increasing yield to investors. The Fund will not pay
The Dreyfus Corporation at a later time for any amounts it may waive nor will
the Fund reimburse The Dreyfus Corporation for any amounts it may assume.
In allocating brokerage transactions, The Dreyfus Corporation seeks
to obtain the best execution of orders at the most favorable net price.
Subject to this determination, The Dreyfus Corporation may consider, among
other things, the receipt of research services and/or the sale of shares of
the Fund or other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the State
ment of Additional Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's 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 securities
dealers, banks or other financial institutions in respect of these services.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
[Page 7]
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a fee
if you effect transactions in Fund shares through a securities dealer, bank
or other financial institution. 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. See "Appendix_Additional
Information About Purchases, Exchanges and Redemptions."
The minimum initial investment is $2,500, or $1,000 if you are a
client of a securities dealer, bank or other financial institution which
maintains an omnibus account in the Fund and 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 is $750 for
Dreyfus-sponsored Keogh Plans, IRAs (including regular IRAs, spousal IRAs for
a non-working spouse, Roth IRAs, SEP-IRAs and rollover IRAs) and 403(b)(7)
Plans with only one participant and $500 for Dreyfus-sponsored Education
IRAs, with no minimum for subsequent purchases. The initial investment must
be accompanied by the Account Application. For full-time or part-time
employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries, directors of The Dreyfus Corporation, Board members of a fund
advised by The Dreyfus Corporation, including members of the Fund'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 The Dreyfus
Corporation or any of its affiliates or subsidiaries who elect to have a
portion of their pay directly deposited into their accounts, 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
certain 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. Fund
shares also are offered without regard to the minimum initial investment
requirements through Dreyfus-AUTOMATIC Asset BuilderRegistration Mark,
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.
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.
For subsequent investments, your Fund account number should appear on the
check and an investment 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 one of the telephone numbers listed
under "General Information."
[Page 8]
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 The Bank of New York, DDA
#8900117176/Dreyfus Balanced Fund, Inc., for purchase of Fund shares in your
name. 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, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the 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 member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other agent. Net asset value per share is determined as of
the close of trading on the floor of the New York Stock Exchange (currently
4:00 p.m., New York time), on each day the New York Stock Exchange is open
for business. For purposes of determining net asset value, options and
futures contracts will be valued 15 minutes after the close of trading on the
floor of the New York Stock Exchange. Net asset value per share is computed
by dividing the value of the Fund's net assets (i.e., the value of its assets
less liabilities) by the total number of shares outstanding. The Fund's
investments are valued based on market value or, where market quotations are
not readily available, based on fair value as determined in good faith by the
Fund's Board. Certain securities may be valued by an independent pricing
service approved by the Fund's Board and are valued at fair value as
determined by the pricing service. For further information regarding the
methods employed in valuing the Fund's investments, see "Determination of Net
Asset Value" in the Statement of Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .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 plan 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 $1,000,000 ("Eligible Benefit Plans").
Shares of funds in the Dreyfus Family of Funds then held by Eligible Benefit
Plans will be aggregated to determine the fee payable. 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, Distributions and Taxes" and
the Account Application for further information
[Page 9]
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").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase shares (minimum $500,
maximum $150,000) by telephone if you have checked the appropriate box and
supplied the necessary information on the 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 Automated Clearing House member may be so designated.
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 purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES _ You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by The Dreyfus
Corporation, 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.
To request an exchange, you 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 applicable "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, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561, or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. If you have
established the Telephone Exchange Privilege, you may telephone exchange
instructions (including over The Dreyfus TouchRegistration Mark automated
telephone system) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares _ Procedures." Upon an
exchange into a new account, 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, Wire Redemption Privilege, Telephone Redemption Privilege, Dreyfus
TELETRANSFER Privilege and the dividend/capital gain distribution option
(except for Dreyfus Dividend Sweep) selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging 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 you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous exchange
from shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or distributions paid with respect to the foregoing categories
of shares. To qualify, at the time of the exchange you must notify the
Transfer Agent. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. 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
[Page 10]
charge shareholders a nominal administrative fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund reserves the
right to reject any exchange request in whole or in part. See
"Appendix_Additional Information About Purchases, Exchanges and Redemptions."
The availability of Fund Exchanges may be modified or terminated at any time
upon notice to shareholders. See "Dividends, Distributions and Taxes."
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 certain other funds
in the Dreyfus Family of Funds of which you are a shareholder. 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 fifteenth of the month according to the schedule you have selected.
Shares will be exchanged at the then-current net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a
sales load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled 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. 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. See "Dividends, Distributions and Taxes."
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark _ 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 fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House 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
your 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. 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 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. 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 the
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 your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a
[Page 11]
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, The Dreyfus Corporation, 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. Shares held under Keogh
Plans, IRAs or other retirement plans are not eligible for this Privilege.
DREYFUS STEP PROGRAM _ Dreyfus Step Program enables you to purchase Fund
shares without regard to the Fund's minimum initial investment requirements
through Dreyfus-AUTOMATIC-Asset BuilderRegistration Mark, 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 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
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time. Investors who wish to purchase
Fund shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plans may do so only for IRAs, SEP- IRAs and IRA
"Rollover Accounts."
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 another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; 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 which do not include the sales load or which reflect a reduced sales
load. See "Shareholder Services" in the Statement of Additional Information.
Dreyfus Dividend ACHpermits you to transfer electronically dividends or
dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only such an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. Banks may charge a fee for this service.
For more information concerning these privileges or to request a
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. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
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.
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 quarterly basis if you have a $5,000 minimum account. An Automatic
Withdrawal Plan may be established by filing an Automatic Withdrawal Plan
application with the Transfer Agent or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. The
Automatic Withdrawal Plan may be ended at any time by you, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
[Page 12]
RETIREMENT PLANS _ The Fund offers a variety of pension and profit-sharing
plans, including Keogh Plans, IRAs (including regular IRAs, spousal IRAs for
a non-working spouse, Roth IRAs, SEP-IRAs and rollover IRAs), 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; or for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call
1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. When a request
is received in proper form, the Fund will redeem the shares at the next
determined net asset value. See "Appendix_Additional Information About
Purchases, Exchanges and Redemptions."
The Fund imposes no charges when shares are redeemed. Securities
dealers, banks and other financial institutions may charge their clients a
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 net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDERRegistration
Mark 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 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-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 your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or through the Telephone Redemption Privilege,
which is granted automatically unless you specifically refuse it by checking
the applicable "No" box on the Account Application. The Telephone Redemption
Privilege may be established for an existing account by a separate signed
Shareholder Services Form or by oral request from any of the authorized
signatories on the account by calling 1-800-645-6561. You also may redeem
shares through the Wire Redemption Privilege or the Dreyfus TELETRANSFER Privi
lege, if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. The Fund makes available to certain large
institutions the ability to issue redemption instructions through compatible
computer facilities. The Fund reserves the right to refuse any request made
by wire or telephone, including requests made shortly after a change of
address, and may limit the amount involved or the number of such requests.
The Fund
[Page 13]
may modify or terminate any redemption Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated. Shares held under Keogh Plans, IRAs or other retirement plans,
and shares for which certificates have been issued, are not eligible for the
Wire Redemption, Telephone Redemption or Dreyfus TELETRANSFER Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus TouchRegistration Mark automated telephone system) from any
person representing himself or herself to be you 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 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 net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
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 one of the telephone numbers
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. If
you have any questions with respect to signature-guarantees, please call one
of the telephone numbers 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.
WIRE REDEMPTION PRIVILEGE _ You may request by wire, telephone or letter
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. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of not more than $250,000 wired within
any 30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE _ You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Telephone Redemption Privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE _ You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank
[Page 14]
account maintained in a domestic financial institution which is an Automated
Clearing House member may be designated. Redemption proceeds will be on
deposit in your account at an Automated Clearing House member bank ordinarily
two days after receipt of the redemption request. Holders of jointly
registered Fund or bank accounts may redeem through the Dreyfus TELETRANSFER
Privilege for transfer to their bank account not more than $250,000 within
any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling l-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan pursuant to which it
reimburses Dreyfus Service Corporation, a wholly-owned subsidiary of The
Dreyfus Corporation, an amount not to exceed an annual rate of .25 of 1% of
the value of the Fund's average daily net assets for certain allocated
expenses of providing personal services and/or maintaining shareholder
accounts. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares and pays dividends from net investment
income quarterly, and distributes net realized securities 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 securities gains unless capital loss
carryovers, if any, have been utilized or have expired. If you elect to receive
dividends and distributions in cash, and your dividend or distribution
check is returned to the Fund as undeliverable or remains uncashed for six
months, the Fund reserves the right to reinvest such dividend or distribution
and all future dividends and distributions payable to you in additional Fund
shares at net asset value. No interest will accrue on amounts represented by
uncashed distribution or redemption checks. All expenses are accrued daily
and deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in Fund shares.
Depending upon the composition of the Fund's income, all or a portion of the
dividends derived from net investment income may qualify for the dividends
received deduction allowable to certain U.S. corporations. Distributions from
net realized long-term securities gains of the Fund will be taxable to U.S.
shareholders as long-term capital gains for Federal income tax purposes,
regardless of how long shareholders have held their Fund shares and whether
such distributions are received in cash or reinvested in shares. The Code
provides that an individual generally will be taxed on his or her net capital
gain at a maximum rate of 28% with respect to capital gain from securities
held for more than one year but not more than 18 months and at a maximum rate
of 20% with respect to capital gain from securities held for more than 18
months. Dividends and distributions may be subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless
[Page 15]
of the extent to which gain or loss may be realized, generally will not be
subject to U.S. nonresident 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 distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
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 a
taxable gain or loss.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains 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 either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup wi
thholding 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.
A TIN is either the Social Security number, IRS individual taxpayer
identification 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.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended August 31, 1997 as a "regulated investment company" under
the Code. The Fund intends to continue to so qualify if such qualification is
in the best interests of its shareholders. Such qualification relieves the
Fund of any liability for Federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. The Fund is
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 adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five
[Page 16]
and ten year periods, or for shorter periods depending upon the length of
time the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. 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.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price Index,
Standard & Poor's MidCap 400 Index, the Dow Jones Industrial Average,
Morningstar, Inc. and other industry publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on June 9, 1992, and
commenced operations on September 30, 1992. The Fund is authorized to issue
300 million shares of Common Stock, par value $.001 per share. Each share has
one vote.
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 Board members or
the appointment of auditors. However, pursuant to the Fund's By-laws, the
holders of at least l0% of the shares outstanding and entitled to vote may
require the Fund to hold a special meeting of shareholders for purposes of
removing a Board member from office and for any other purpose. Fund
shareholders may remove a Board member by the affirmative vote of a majority
of the Fund's outstanding voting shares. In addition, the Fund's Board will
call a meeting of shareholders for the purpose of electing Board members if,
at any time, less than a majority of the Board members then holding office
have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and sends 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. In New York City, call
1-718-895-1206; outside the U.S., call 516-794-5452.
[Page 17]
APPENDIX
INVESTMENT TECHNIQUES
LEVERAGE _ Leveraging will exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be limited to 331/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, the Fund's borrowings generally will
be unsecured.
LENDING PORTFOLIO SECURITIES _ The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Fund an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331/3%
of the value of the Fund's total assets, and the Fund will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Fund at any time upon specified notice. TheFund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, the types of
Derivatives enumerated under "Description of the Fund_Investment
Considerations and Risks_Use of Derivatives." These instruments and certain
related risks are described more specifically under "Investment Objective and
Management Policies_Management Policies_Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its
Derivatives were poorly correlated with its other investments, or if the Fund
were unable to liquidate its position because of an illiquid secondary
market. The market for many Derivatives is, or suddenly can become, illiquid.
Changes in liquidity may result in significant, rapid and unpredictable
changes in the prices for Derivatives.
Although the Fund will not be a commodity pool, certain Derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission,
which limit the extent to which the Fund can invest in such Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such
[Page 18]
contracts and options; provided, however, that in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5% limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Fund will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to transactions in Derivatives. To maintain this required
cover, the Fund may have to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a Derivative
position at a reasonable price.
FORWARD COMMITMENTS _ The Fund may purchase or sell securities on a forward
commitment, when-issued or delayed delivery basis, which means delivery and
payment take place a number of days after the date of the commitment to
purchase or sell the securities at a predetermined price and/or yield.
Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk
of price and yield fluctuations, and takes such fluctuations into account
when determining its net asset value. Because the Fund is not required to pay
for these securities until the delivery date, these risks are in addition to
the risks associated with the Fund's other investments. If the Fund is fully
or almost fully invested when forward commitment purchases are outstanding,
such purchases may result in a form of leverage. The Fund may engage in
forward commitments to increase its portfolio's financial exposure to the
types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and
will increase the volatility of its returns. A segregated account of the Fund
consisting of permissible liquid assets at least equal at all times to the
amount of the commitments will be established and maintained at the Fund's
custodian bank. At no time will the Fund have more than 331\3% of its assets
committed to purchase securities on a forward commitment basis.
FOREIGN CURRENCY TRANSACTIONS _ Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; to hedge the U.S. dollar value of securities the Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES _ Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both
[Page 19]
fixed-income and equity securities. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
WARRANTS _ A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. The Fund may
invest up to 2% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Fund that are sold in units with,
or attached to, other securities.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are a form of
Derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities. The mortgage-related securities in which the Fund
may invest include those with fixed, floating or variable interest rates,
those with interest rates that change based on multiples of changes in a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
Mortgage-related securities are subject to credit risks associated
with the performance of the underlying mortgage properties. Adverse changes
in economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commercial properties than on those secured by loans on residential
properties. In addition, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than residenti
al mortgages and prepayment protection features. In certain instances, the
credit risk associated with mortgage-related securities can be reduced by
third party guarantees or other forms of credit support. Improved credit risk
does not reduce prepayment risk which is unrelated to the rating assigned to
the mortgage-related security. Prepayment risk can lead to fluctuations in
the value of the mortgage-related security which may be pronounced. If a
mortgage-related security is purchased at a premium, all or part of the
premium may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments on
the underlying mortgage collateral. Certain mortgage-related securities that
may be purchased by the Fund, such as inverse floating rate collateralized
mortgage obligations, have coupons that move inversely to a multiple of a
specific index which may result in a form of leverage. As with other
interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
certain stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup its initial investment even if the securities
are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a
mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates.
[Page 20]
Were the prepayments on the Fund's mortgage-related securities to decrease
broadly, the Fund's effective duration, and thus sensitivity to interest rate
fluctuations, would increase.
ASSET-BACKED SECURITIES _ Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. These securities include debt
securities and securities with debt-like characteristics. The collateral for
these securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
MONEY MARKET INSTRUMENTS _ The Fund may invest, in the circumstances
described under "Description of the Fund_Management Policies," in the
following types of money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Description of the Fund_Investment Considerations and
Risks_Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
[Page 21]
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit
needs. The commercial paper purchased by the Fund will consist only of direct
obligations which, at the time of their purchase, are (a) rated not lower
than Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b)
issued by companies having an outstanding unsecured debt issue currently
rated at least Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if
unrated, determined by The Dreyfus Corporation to be of comparable quality to
those rated obligations which may be purchased by the Fund.
ZERO COUPON SECURITIES _ The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and is sold at a discount to its face
value at maturity. The market prices of zero coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
ILLIQUID SECURITIES _ The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, certain mortgage-related
securities and certain privately negotiated, non-exchange traded options and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer
is not available at a price the Fund deems representative of their value, the
value of the Fund's net assets could be adversely affected.
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS. The Fund
is intended to be a long-term investment vehicle and is not designed to
provide investors with a means of speculation on short-term market movements.
A pattern of frequent purchases and exchanges can be disruptive to efficient
portfolio management and, consequently, can be detrimental to the Fund's
performance and its shareholders. Accordingly, if the Fund's management
determines that an investor is engaged in excessive trading, the Fund, with
or without prior notice, may temporarily or permanently terminate the
availability of Fund Exchanges, or reject in whole or part any purchase or
exchange request, with respect to such investor's account. Such investors
also may be barred from purchasing other funds in the Dreyfus Family of
Funds. Generally, an investor who makes more than four exchanges out of the
Fund during any calendar year (for calendar year 1998, beginning on January
15th) or who makes exchanges that appear to coincide with an active
market-timing strategy may be deemed to be engaged in excessive trading.
Accounts under common ownership or control will be considered as one account
for purposes of determining a pattern of excessive trading. In addition, the
Fund may refuse or restrict purchase or exchange requests by any person or
group if, in the judgment of the Fund's management, the Fund would be unable
to invest the money effectively in accordance with its investment objective
and policies or could otherwise be adversely affected or if the Fund receives
or anticipates receiving simultaneous orders that may significantly affect
the Fund (E.G., amounts equal to 1% or more of the Fund's total assets). If
an exchange request is refused, the Fund will take no other action with
respect to the shares until it receives further instructions from the
investor. The Fund may delay forwarding redemption proceeds for up to seven
days if the investor redeeming shares is engaged in excessive trading or if
the amount of the redemption request otherwise would be disruptive to
efficient portfolio management or would adversely affect the Fund. The Fund's
policy on excessive trading applies to
[Page 22]
investors who invest in the Fund directly or through financial
intermediaries, but does not apply to the Dreyfus Auto-Exchange Privilege, to
any automatic investment or withdrawal privilege described herein, or to
participants in employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components _ redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
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 23]
Balanced
Fund, Inc.
Prospectus
Registration Mark
Copy Rights 1998, Dreyfus Service Corporation
222p0198
[Page 24]
DREYFUS BALANCED FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
JANUARY 1, 1998
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Balanced Fund, Inc. (the "Fund"), dated January 1, 1998, as it may
be revised from time to time. 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 the following numbers:
Call Toll Free -- 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. -- Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
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-13
Management Agreement B-18
Purchase of Shares B-20
Shareholder Services Plan B-21
Redemption of Shares B-22
Shareholder Services B-24
Portfolio Transactions B-27
Determination of Net Asset Value B-28
Dividends, Distributions and Taxes B-28
Performance Information B-31
Information About the Fund B-31
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors B-32
Financial Statements and Report of Independent Auditor B-32
Appendix B-33
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "Description of the
Fund" and "Appendix."
Portfolio Securities
Repurchase Agreements. The Fund's custodian or sub-custodian will have
custody of, and will hold in a segregated account, securities acquired by
the Fund under a repurchase agreement. Repurchase agreements are considered
by the staff of the Securities and Exchange Commission to be loans by the
Fund. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, the Fund will enter into repurchase agreements only with domestic
banks with total assets in excess of $1 billion, or primary government
securities dealers reporting to the Federal Reserve Bank of New York, with
respect to securities of the type in which the Fund may invest, and will
require that additional securities be deposited with it if the value of the
securities purchased should decrease below the resale price.
Commercial Paper and Other Short-Term Corporate Obligations. These
investments include variable amount master demand notes, which are
obligations that permit the Fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary
market for these obligations, although they are redeemable at face value,
plus accrued interest, at any time. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements,
the Fund's right to redeem is dependent on the ability of the borrower to
pay principal and interest on demand. Such obligations frequently are not
rated by credit rating agencies, and the Fund may invest in them only if at
the time of an investment the borrower meets the criteria set forth in the
Fund's Prospectus for other commercial paper issuers.
Convertible Securities. Although to a lesser extent than with fixed-
income securities generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion
feature, the market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stock. A unique
feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation.
Mortgage-Related Securities. Mortgage-related securities are a form of
Derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations and stripped mortgage-backed securities, mortgage pass-through
securities, interests in REMICs or other kinds of mortgage-backed
securities, including those with fixed, floating and variable interest
rates, those with interest rates that change based on multiples of changes
in a specified index of interest rates and those with interest rates that
change inversely to changes in interest rates.
Government-Agency Securities -- Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed
as to the timely payment of principal and interest by GNMA and such
guarantee is backed by the full faith and credit of the United States. GNMA
is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Government-Related Securities -- Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of the FNMA and are not backed by or entitled to the
full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of principal and interest by
FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection
or timely payment of all principal payments on the underlying mortgage
loans. When FHLMC does not guarantee timely payment of principal, FHLMC may
remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance
or guarantee covers the Fund or the price of the Fund's shares. Mortgage-
related securities issued by non-governmental issuers generally offer a
higher rate of interest than government-agency and government-related
securities because there are no direct or indirect government guarantees of
payment.
Commercial Mortgage-Related Securities--Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. These mortgage-related
securities generally are structured to provide protection to the senior
class investors against potential losses on the underlying mortgage loans.
This protection generally is provided by having the holders of subordinated
classes of securities ("Subordinated Securities") take the first loss if
there are defaults on the underlying commercial mortgage loans. Other
protection, which may benefit all of the classes or particular classes, may
include issuer guarantees, reserve funds, additional Subordinated
Securities, cross-collateralization and over-collateralization.
The Fund may invest in Subordinated Securities issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers.
Subordinated Securities have no governmental guarantee, and are subordinated
in some manner as to the payment of principal and/or interest to the holders
of more senior mortgage-related securities arising out of the same pool of
mortgages. The holders of Subordinated Securities typically are compensated
with a higher stated yield than are the holders of more senior mortgage-
related securities. On the other hand, Subordinated Securities typically
subject the holder to greater risk than senior mortgage-related securities
and tend to be rated in a lower rating category, and frequently a
substantially lower rating category, than the senior mortgage-related
securities issued in respect of the same pool of mortgage. Subordinated
Securities generally are likely to be more sensitive to changes in
prepayment and interest rates and the market for such securities may be less
liquid than is the case for traditional fixed-income securities and senior
mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is
viewed as exposing the lender to a greater risk of loss than one- to four-
family residential lending. Commercial lending, for example, typically
involves larger loans to single borrowers or groups of related borrowers
than residential one- to four-family mortgage loans. In addition, the
repayment of loans secured by income producing properties typically is
dependent upon the successful operation of the related real estate project
and the cash flow generated therefrom. Consequently, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on commercial
properties than on those secured by loans on residential properties.
Collateralized Mortgage Obligations ("CMOs")--A CMO is a multiclass bond
backed by a pool of mortgage pass-through certificates or mortgage loans.
CMOs may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac
pass-through certificates, (b) unsecuritized mortgage loans insured by the
Federal Housing Administration or guaranteed by the Department of Veterans'
Affairs, (c) unsecuritized conventional mortgages, (d) other mortgage-
related securities, or (e) any combination thereof. Each class of CMOs,
often referred to as a "tranche," is issued at a specific coupon rate and
has a stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. The principal and
interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in many ways. One or more tranches of a CMO
may have coupon rates which reset periodically at a specified increment over
an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes
more than one index). These floating rate CMOs typically are issued with
lifetime caps on the coupon rate thereon. The Fund also may invest in
inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche
of a CMO with a coupon rate that moves in the reverse direction to an
applicable index such as LIBOR. Accordingly, the coupon rate thereon will
increase as interest rates decrease. Inverse floating rate CMOs are
typically more volatile than fixed or floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying
inversely to a multiple of an applicable index creates a leverage factor.
Inverse floaters based on multiples of a stated index are designed to be
highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and loss of principal. The markets
for inverse floating rate CMOs with highly leveraged characteristics at
times may be very thin. The Fund's ability to dispose of its positions in
such securities will depend on the degree of liquidity in the markets for
such securities. It is impossible to predict the amount of trading interest
that may exist in such securities, and therefore the future degree of
liquidity.
Stripped Mortgage-Backed Securities--The Fund also may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are created
by segregating the cash flows from underlying mortgage loans or mortgage
securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments.
Mortgage securities may be partially stripped so that each investor class
receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type
of security, known as an interest-only security, or IO, and all of the
principal is distributed to holders of another type of security known as a
principal-only security, or PO. Strips can be created in a pass-through
structure or as tranches of a CMO. The yields to maturity on IOs and POs
are very sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the
Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially and adversely affected.
Real Estate Investment Trusts--A REIT is a corporation, or a business trust
that would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Code permits a qualifying REIT to deduct dividends paid, thereby
effectively eliminating corporate level Federal income tax and making the
REIT a pass-through vehicle for Federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things,
invest substantially all of its assets in interests in real estate
(including mortgages and other REITs) or cash and government securities,
derive most of its income from rents from real property or interest on loans
secured by mortgages on real property, and distribute to shareholders
annually a substantial portion of its otherwise taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs, which may include operating or finance companies, own
real estate directly and the value of, and income earned by, the REITs
depends upon the income of the underlying properties and the rental income
they earn. Equity REITs also can realize capital gains (or losses) by
selling properties that have appreciated (or depreciated) in value.
Mortgage REITs can make construction, development or long-term mortgage
loans and are sensitive to the credit quality of the borrower. Mortgage
REITs derive their income from interest payments on such loans. Hybrid
REITs combine the characteristics of both equity and mortgage REITs,
generally by holding both ownership interests and mortgage interests in real
estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also
are subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation and the possibility of failing to qualify for tax-free
status under the Code or to maintain exemption from the Investment Company
Act of 1940, as amended (the "1940 Act").
Adjustable-Rate Mortgage Loans ("ARMs")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest
rate for a specified period of time, generally for either the first three,
six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes in an index. ARMs typically have minimum and maximum rates beyond
which the mortgage interest rate may not vary over the lifetime of the
loans. Certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single
adjustment period. Negatively amortizing ARMs may provide limitations on
changes in the required monthly payment. Limitations on monthly payments
can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
Other Mortgage-Related Securities--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not readily
marketable, the Fund will endeavor, to the extent practicable, to obtain the
right to registration at the expense of the issuer. Generally, there will
be a lapse of time between the Fund's decision to sell any such security and
the registration of the security permitting sale. During any such period,
the price of the securities will be subject to market fluctuations.
However, where a substantial market of qualified institutional buyers has
developed for certain unregistered securities purchased by the Fund pursuant
to Rule 144A under the Securities Act of 1933, as amended, the Fund intends
to treat such securities as liquid securities in accordance with procedures
approved by the Fund's Board. Because it is not possible to predict with
assurance how the market for specific restricted securities sold pursuant to
Rule 144A will develop, the Fund's Board has directed the Manager to monitor
carefully the Fund's investments in such securities with particular regard
to trading activity, availability of reliable price information and other
relevant information. To the extent that, for a period of time, qualified
institutional buyers cease purchasing restricted securities pursuant to
Rule 144A, the Fund's investing in such securities may have the effect of
increasing the level of illiquidity in its investment portfolio during such
period.
Management Policies
Leverage. For borrowings for investment purposes, the Investment
Company Act of 1940, as amended (the "1940 Act"), requires the Fund to
maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the required coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio securities within three days to reduce the amount of its
borrowings and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that
time. The Fund also may be required to maintain minimum average balances in
connection with such borrowing or pay a commitment or other fee to maintain
a line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate. To the extent the Fund enters into
a reverse repurchase agreement, the Fund will maintain in a segregated
custodial account permissible liquid assets at least equal to the aggregate
amount of its reverse repurchase obligations, plus accrued interest, in
certain cases, in accordance with releases promulgated by the Securities and
Exchange Commission. The Securities and Exchange Commission views reverse
repurchase transactions as collateralized borrowings by the Fund.
Lending Portfolio Securities. In connection with its securities
lending transactions, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection
with the loan; and (6) while voting rights on the loaned securities may pass
to the borrower, the Fund's Board must terminate the loan and regain the
right to vote the securities if a material event adversely affecting the
investment occurs.
Derivatives. The Fund may invest in, or enter into, Derivatives (as
defined in the Fund's Prospectus) for a variety of reasons, including to
hedge certain market risks, to provide a substitute for purchasing or
selling particular securities or to increase potential income gain.
Derivatives may provide a cheaper, quicker or more specifically focused way
for the Fund to invest than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter Derivatives. Therefore, each party to an over-
the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the Derivative to be interested in
bidding for it.
Futures Transactions--In General. The Fund may enter into futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London
International Financial Futures Exchange and the Sydney Futures Exchange
Limited. Foreign markets may offer advantages, such as trading
opportunities or arbitrage positions, not available in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. For example, some foreign exchanges are principal markets so that
no common clearing facility exists and an investor may look only to the
broker for performance of the contract. In addition, any profits that the
Fund might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
Transactions on foreign exchanges may include both commodities that are
traded on domestic exchanges and those that are not. Unlike trading on
domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund that
could adversely affect the value of its net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active
market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that day at
a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities that it has hedged because it will have
offsetting losses in its future positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets in connection with its futures transactions in an amount
generally equal to the value of the underlying commodity. The segregation
of such assets will have the effect of limiting the Fund's ability otherwise
to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index futures contract obligates the Fund to pay
or receive an amount of cash equal to a fixed dollar amount specified in the
futures contract multiplied by the difference between the settlement price
of the contract on the contract's last trading day and the value of the
index based on the stock prices of the securities that comprise it at the
opening of trading in such securities on the next business day.
The Fund may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific
currency at a future date at a specific price.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date. Conversely, a put option
gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period, or at a specific date.
A covered call option written by the Fund is a call option with respect
to which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other liquid assets. A put option
written by the Fund is covered when, among other things, cash or liquid
securities having a value equal to or greater than the exercise price of the
option are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken. The principal reason for writing covered
call and put options is to realize, through the receipt of premiums, a
greater return than would be realized on the underlying securities alone.
The Fund receives a premium from writing covered call or put options which
it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen events,
at times have rendered certain of the clearing facilities inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events or events that may otherwise interfere with the timely execution of
customer orders, will not recur. In such event, it may not be possible to
effect closing transactions in particular options. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of
specific securities) or stock indices listed on national securities
exchanges or traded in the over-the-counter market. An option on a stock
index is similar to an option in respect of specific securities, except that
settlement does not occur by delivery of the securities comprising the
index. Instead, the option holder receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in
the case of a call, or less than in the case of a put, the exercise price of
the option. Thus, the effectiveness of purchasing or writing stock index
options will depend upon price movements in the level of the index rather
than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign
currency. These options convey the right to buy or sell the underlying
currency at a price that is expected to be lower or higher than the spot
price of the currency at the time the option is exercised or expires.
The Fund may purchase cash-settled options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps
in pursuit of its investment objective. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments
for fixed-rate payments) denominated in U.S. dollars or a foreign currency.
Equity index swaps involve the exchange by the Fund with another party of
cash flows based upon the performance of an index or a portion of an index
of securities that usually includes dividends. A cash-settled option on a
swap gives the purchaser the right, but not the obligation, in return for
the premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Successful use of futures by the Fund is subject to the Manager's
ability to predict correctly movements in the prices of individual stocks,
the stock market generally, foreign currencies or interest rates. To the
extent such predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and
any other Derivatives which are not presently contemplated for use by the
Fund or which are not currently available but which may be developed, to the
extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund. Before entering into such
transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Forward Commitments. Securities purchased on a forward commitment or
when-issued basis are subject to changes in value (generally changing in the
same way, i.e., appreciating when interest rates decline and depreciating
when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. Securities purchased on a forward commitment or
when-issued basis may expose the Fund to risks because they may experience
such fluctuations prior to their actual delivery. Purchasing securities on
a when-issued basis can involve the additional risk that the yield available
in the market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.
Investment Restrictions
The Fund has adopted investment restrictions numbered 1 through 7 as
fundamental policies, which cannot be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. Investment restrictions numbered 8 through 13 are not
fundamental policies and may be changed by vote of a majority of the Fund's
Board members at any time. The Fund may not:
1. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
2. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate. In particular, the Fund may
purchase mortgage-backed securities and real estate investment trust
securities.
3. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). For purposes of this investment restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund may
lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board.
5. Act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
6. Invest more than 25% of its assets in the securities of issuers in
any single industry, provided there shall be no limitation on the purchase
of obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 1, 3, 9 and 10 may be deemed to give rise to a
senior security.
8. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with writing covered put and call
options and the purchase of securities on a when-issued or forward
commitment basis and collateral and initial or variation margin arrangements
with respect to options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices.
10. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Fund's Prospectus and this Statement of
Additional Information.
11. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
12. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
13. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act, or those received as part of a merger
or consolidation.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interest of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below.
Board Members
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. He is also
Chairman of the Board of Directors of Staffing Resources, Inc., a
temporary placement service agency; and a director of The Muscular
Dystrophy Association, HealthPlan Services Corporation, a provider of
marketing, administrative and risk management services to health and
other benefit programs, The Noel Group, Inc., a venture capital
company, and Carlyle Industries, Inc. (formerly, Belding Heminway
Company, Inc.), a button packager and distributor. For more than five
years prior to January 1995, he was President, a director and, until
August 1994, Chief Operating Officer of the Manager and Executive Vice
President and a director of Dreyfus Service Corporation, a wholly-owned
subsidiary of the Manager and, until August 24, 1994, the Fund's
distributor. From August 1994 to December 31, 1994, he was a director
of Mellon Bank Corporation. He is 54 years old and his address is 200
Park Avenue, New York, New York 10166.
DAVID P. FELDMAN, Board Member. Trustee of Corporate Property Investors, a
real estate investment company, and a director of several mutual funds
in the 59 Wall Street Mutual Funds Group and The Jeffrey Company, a
private investment company. From July 1961 until his retirement in
April 1997, he was employed by AT&T Investment Management Corporation,
principally serving as Chairman and Chief Executive Officer. He is 58
years old and his address is One Oak Way, Berkeley Heights, New Jersey
07922.
JOHN M. FRASER, JR., Board Member. President of Fraser Associates, a
service company for planning and arranging corporate meetings and other
events. From September 1975 to June 1978, he was Executive Vice
President of Flagship Cruises Ltd. Prior thereto, he was Senior Vice
President and Resident Director of the Swedish-American Line for the
United States and Canada. He is 76 years old and his address is 133
East 64th Street, New York, New York 10021.
ROBERT R. GLAUBER, Board Member. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University, since January 1992. He is also a director of MidOcean
Reinsurance Co. Ltd., Cooke & Bieler, Inc., investment counselors, NASD
Regulation, Inc. and the Federal Reserve Board of Boston. He was Under
Secretary of the Treasury for Finance at the U.S. Treasury Department,
from May 1989 to January 1992. For more than five years prior thereto,
he was a Professor of Finance at the Graduate School of Business
Administration of Harvard University. He is 58 years old and his
address is 79 John F. Kennedy Street, Cambridge, Massachusetts 02138.
JAMES F. HENRY, Board Member. President of the CPR Institute for Dispute
Resolution, a non-profit organization principally engaged in the
development of alternatives to business litigation. He was of counsel
to the law firm of Lovejoy, Wasson & Ashton from October 1975 to
December 1976 and from October 1979 to June 1983, and was a partner of
that firm from January 1977 to September 1979. He was President and a
director of the Edna McConnell Clark Foundation, a philanthropic
organization, from September 1971 to December 1976. He is 67 years old
and his address is c/o CPR Institute for Dispute Resolution, 366
Madison Avenue, New York, New York 10017.
ROSALIND GERSTEN JACOBS, Board Member. Director of Merchandise and
Marketing for Corporate Property Investors, a real estate investment
company. From 1974 to 1976, she was owner and manager of a merchandise
and marketing consulting firm. Prior to 1974, she was a Vice President
of Macy's, New York. She is 72 years old and her address is c/o
Corporate Property Investors, 305 East 47th Street, New York, New York
10017.
IRVING KRISTOL, Board Member. John M. Olin Distinguished Fellow of the
American Enterprise Institute for Public Policy Research, co-editor of
The Public Interest magazine, and an author or co-editor of several
books. From May 1981 to December 1994, he was a consultant to the
Manager on economic matters; from 1969 to 1988, he was Professor of
Social Thought at the Graduate School of Business Administration, New
York University; from September 1969 to August 1979, he was Henry R.
Luce Professor of Urban Values at New York University. He is 77 years
old and his address is c/o The Public Interest, 1112 16th Street, N.W.,
Suite 530, Washington, D.C. 20036.
DR. PAUL A. MARKS, Board Member. President and Chief Executive Officer of
Memorial Sloan-Kettering Cancer Center. He is also a director emeritus
of Pfizer, Inc., a pharmaceutical company, where he served as a
director from 1978 to 1996; a director of Tulerik, Inc., a
biotechnology company; and a general partner of LINC Venture Lease
Partners II, L.P., a limited partnership engaged in leasing. He was
Vice President for Health Sciences and Director of the Cancer Center at
Columbia University, from 1973 to 1980; Professor of Medicine and of
Human Genetics and Development at Columbia University, from 1968 to
1982; and a director of Life Technologies, Inc., a life science company
providing products for cell and molecular biology and microbiology,
from 1986 to 1996, Biotechnology General, Inc., a biotechnology
development company, from 1992 to 1993, and National Health
Laboratories, a national chemical diagnostic laboratory, from 1991 to
1995. He is 71 years old and his address is c/o Memorial
Sloan-Kettering Cancer Center, 1275 York Avenue, New York, New York
10021.
DR. MARTIN PERETZ, Board Member. Editor-in-Chief of The New Republic
magazine and a lecturer in Social Studies at Harvard University, where
he has been a member of the faculty since 1965. He is a trustee of The
Center for Blood Research at the Harvard Medical School, and of the
Academy for Liberal Education, an accrediting agency for colleges and
universities certified by the U.S. Department of Education; a director
of LeukoSite Inc., a biopharmaceutical company; and Co-Chairman of
TheStreet.com, a financial daily published on the Web. From 1988 to
1991, he was a director of Carmel Container Corporation. He is 58
years old and his address is c/o The New Republic, 1220 19th Street,
N.W., Washington, D.C. 20036.
BERT W. WASSERMAN, Board Member. Financial Consultant. He is also a
director of The New Germany Fund, Mountasia Entertainment
International, Inc., the Lillian Vernon Corporation, Winstar
Communications, Inc. and International Discount Telecommunications
Corporation. From January 1990 to March 1995, he was Executive Vice
President and Chief Financial Officer, and from January 1990 to March
1993, a director, of Time Warner Inc.; and from 1981 to 1990, he was a
member of the office of the President and a director of Warner
Communications, Inc. He is 65 years old and his address is 126 East
56th Street, Suite 12 North, New York, New York 10022-3613.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund for the fiscal year ended
August 31, 1997, and by all other funds in the Dreyfus Family of Funds for
which such person is a Board member (the number of which is set forth in
parenthesis next to each Board member's total compensation) for the year
ended December 31, 1996, is as follows:
Total
Compensation from
Aggregate Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund* Board Members
Joseph S. DiMartino $3,438 $517,075(93)
David P. Feldman $2,750 $122,257(25)
John M. Fraser, Jr. $2,500 $ 73,563(14)
Robert R. Glauber $2,750 $103,549(20)
James F. Henry $2,750 $ 59,973(10)
Rosalind Gersten $2,750 $ 93,900(20)
Jacobs
Irving Kristol $2,750 $ 59,973(10)
Dr. Paul A. Marks $2,500 $ 55,223(10)
Dr. Martin Peretz $2,750 $ 59,973(10)
Bert W. Wasserman $2,500 $ 59,973(10)
___________________________
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $745 for all Board members as a group.
For so long as the Fund's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members of the Fund
who are not "interested persons" of the Fund, as defined in the 1940 Act,
will be selected and nominated by the Board members who are not "interested
persons" of the Fund.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor and
Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 40 years old.
RICHARD W. INGRAM, Vice President and Assistant Treasurer. Executive Vice
President of the Distributor and Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From March 1994 to November 1995, he was Vice President and
Division Manager for First Data Investor Services Group. From 1989 to
1994, he was Vice President, Assistant Treasurer and Tax Director -
Mutual Funds of The Boston Company, Inc. He is 42 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of
the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
September 1989 to July 1994, she was an Assistant Vice President and
Client Manager for The Boston Company, Inc. She is 33 years old.
MICHAEL S. PETRUCELLI, Vice President and Assistant Treasurer. Senior Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
December 1989 through November 1996, he was employed by GE Investments
where he held various financial, business development and compliance
positions. He also served as Treasurer of the GE Funds and a Director
of GE Investment Services. He is 36 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 35 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. From December 1991 to March 1993, he
was employed as a Fund Accountant at The Boston Company, Inc. He is 28
years old.
ELIZABETH A. KEELEY, Vice President and Assistant Secretary. Vice President
of the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. She has
been employed by the Distributor since September 1995. She is 28 years
old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's shares outstanding on November 3, 1997.
The following persons are known by the Fund to own of record 5% or more
of the Fund's outstanding voting securities as of November 3, 1997: Dreyfus
Trust Company, Trustee for FDC Incentive Savings Plan, First Data
Corporation, One Cabot Road, Medford, MA 02155-5141--20.67%; Boston Safe
Deposit and Trust Company, Trustee for Dominion Resources EE Savings, One
Cabot Road, Medford, MA 02155-5158--12.97%; Boston Safe Deposit and Trust
Company, Trustee and Agent for Omnibus Account, One Cabot Road, Medford, MA
02155-5141--9.15%; and Charles Schwab & Co. Inc.--Reinvestment Account,
Mutual Funds Department, 101 Montgomery Street, San Francisco, CA 94104-4122-
- -5.23%. Under applicable trust law, Fund shares held in trust by the
Dreyfus Trust Company and Boston Safe Deposit and Trust Company are
beneficially owned by plan participants having an interest in such trust. A
shareholder who beneficially owns, directly or indirectly, more than 25% of
the Fund's voting securities may be deemed a "control person" (as defined in
the 1940 Act) of the Fund.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994, with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The Board,
including a majority of the Board members who are not "interested persons"
of any party to the Agreement, last approved the Agreement at a meeting held
on June 9, 1997. Shareholders of the Fund approved the Agreement on August
2, 1994. The Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board or by vote of the holders of a majority of the Fund's
shares, or, on not less than 90 days' notice, by the Manager. The Agreement
will terminate automatically in the event of its assignment (as defined in
the 1940 Act).
The following persons are officers and/or directors of the Manager: W.
Keith Smith, Chairman of the Board; Christopher M. Condron, President, Chief
Executive Officer, 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; William T. Sandalls, Jr.,
Senior Vice President and Chief Financial Officer; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Patrice M. Kozlowski, Vice
President--Corporate Communications; Mary Beth Leibig, Vice President--Human
Resources; Jeffrey N. Nachman, Vice President--Mutual Fund Accounting;
Andrew S. Wasser, Vice President--Information Systems; William V. Healey,
Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt, Frank V.
Cahouet, and Richard F. Syron, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions, and provides
the Fund with portfolio managers who are authorized by the Fund's Board to
execute purchases and sales of securities. The Fund's portfolio managers
are Timothy M. Ghriskey, Kevin M. McClintock, C. Matthew Olson and Douglas
R. Ramos. The Manager also maintains a research department with a
professional staff of portfolio managers and securities analysts who provide
research services for the Fund and for other funds advised by the Manager.
The Manager maintains office facilities on behalf of the Fund and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: organizational costs, taxes, interest,
loan commitment fees, dividends and interest on securities sold short,
brokerage fees and commissions, if any, fees of Board members who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of the Manager, Securities and Exchange Commission fees,
state Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, all costs of insurance
obtained other than under a blanket policy covering one or more other
investment companies managed by the Manager, industry association fees,
outside auditing and legal expenses, costs of maintaining the Fund's
existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders, and any extraordinary expenses. In addition, the
Fund is subject to an annual service fee for ongoing personal services
relating to shareholder accounts and services related to the maintenance of
shareholder accounts. See "Shareholder Services Plan."
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. All fees and expenses are
accrued daily and deducted before declaration of dividends to shareholders.
For the fiscal years ended August 31, 1995, 1996 and 1997, the management
fees paid by the Fund amounted to $693,265, $1,331,747 and $1,825,854,
respectively.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings
and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee,
exceed the expense limitation of any state having jurisdiction over the
Fund, the Fund may deduct from the payment to be made to the Manager under
the Agreement, or the Manager will bear, such excess expense to the extent
required by state law. Such deduction or payment, if any, will be estimated
daily, and reconciled and effected or paid, as the case may be, on a monthly
basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Shares."
The Distributor. The Distributor serves as the Fund's distributor on a
best efforts basis pursuant to an agreement which is renewable annually.
The Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 p.m., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange are open for business will be credited to the shareholder's Fund
account on the next bank business day following such purchase order.
Purchase orders made after 4:00 p.m., New York time, on any business day the
Transfer Agent and the New York Stock Exchange are open for business, or
orders made on Saturday, Sunday or any Fund holiday (e.g., when the New York
Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. 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
Shares--Dreyfus TeleTransfer Privilege."
Transactions Through Securities Dealers. Fund shares may be purchased
and redeemed through securities dealers which may charge a transaction fee
for such services. Some dealers will place the Fund's shares in an account
with their firm. Dealers also may require the following: that the customer
invest more than the Fund's stated minimum investment; the customer not take
physical delivery of share certificates; the customer not request redemption
checks to be issued in the customer's name; fractional shares not be
purchased; or other conditions.
There is no sales or service charge by the Fund or the Distributor,
although investment dealers, banks and other institutions may make
reasonable charges to investors for their services. The services provided
and the applicable fees are established by each dealer or other institution
acting independently of the Fund. The Fund has been given to understand
that these fees may be charged for customer services including, but not
limited to, same-day investment of client funds; same-day access to client
funds; advice to customers about the status of their accounts, yield
currently being paid or income earned to date; provision of periodic account
statements showing security and money market positions; other services
available from the dealer, bank or other institution; and assistance with
inquiries related to their investment. Any such fees will be deducted
monthly from the investor's account, which on smaller accounts could
constitute a substantial portion of distributions. Small, inactive,
long-term accounts involving monthly service charges may not be in the best
interest of investors. Investors should be aware that they may purchase
shares of the Fund directly from the Fund without imposition of any
maintenance or service charges, other than those already described herein.
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services
Plan."
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation for certain
allocated expenses of providing personal services and/or maintaining
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Plan provides that material
amendments of the Plan must be approved by the Board, and by the Board
members who are not "interested persons" (as defined in the 1940 Act) of the
Fund or the Manager and have no direct or indirect financial interest in the
operation of the Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Plan is subject to annual
approval by such vote cast in person at a meeting called for the purpose of
voting on the Plan. The Plan was last so approved on December 8, 1997. The
Plan is terminable at any time by vote of a majority of the Board members
who are not "interested persons" and have no direct or indirect financial
interest in the operation of the Plan.
For the fiscal year ended August 31, 1997, the Fund reimbursed Dreyfus
Service Corporation $760,773 pursuant to the Plan.
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Shares."
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire, telephone or letter redemption
instructions from any person representing himself or herself to be the
investor, 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 ($1,000
minimum) 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, or to a correspondent bank if the investor's bank
is not a member of the Federal Reserve System. Fees ordinarily are imposed
by such bank and 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 wire
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."
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 Automated Clearing House ("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."
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 New York Stock Exchange
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.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of the
Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Board 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 such event, the securities would be valued in the
same manner as the Fund's securities are 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 New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
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 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 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.
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.
To request an exchange, an investor must give exchange instructions to
the Transfer Agent in writing or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "No" box on the
Account Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus Touchr automated telephone system) from any person
representing himself or herself to be the investor, and reasonably believed
by the Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares issued in certificate form are not eligible for telephone
exchange.
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. The minimum
initial investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs
(including regular IRAs, spousal IRAs for a non-working spouse, Roth IRAs,
rollover IRAs and IRAs set up under a Simplified Employee Pension Plan ("SEP-
IRAs")) and 403(b)(7) Plans with only one participant, and $500 for Dreyfus-
sponsored Education IRAs, with no minimum on subsequent purchases. To
exchange shares held in corporate plans, 403(b)(7) Plans and SEP-IRAs with
more than one participant, the minimum initial investment is $100 if the
plan has at least $2,500 invested among the funds in the Dreyfus Family of
Funds. To exchange shares held in a retirement plan account, the shares
exchanged must have a current value of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares
of another fund in the Dreyfus Family of Funds. This Privilege is available
only for existing accounts. 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 his account falls below the amount designated to be
exchanged under this Privilege. In this case, an investor's account will
fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
Fund Exchanges and the 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 by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges 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
distributions, the investor's shares will be reduced and eventually may be
depleted. 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 automatically their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the
basis of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested without
imposition of a sales load in shares of other funds that are
offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a
sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided
that, if the sales load applicable to the Offered Shares exceeds
the maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds which impose a contingent deferred sales
charge ("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 Keogh Plans, IRAs (including regular IRAs, spousal IRAs for
a non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education
IRAs), 401(k) Salary Reduction Plans 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 any of the IRAs referred to above, 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 is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including
regular IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs and
rollover IRAs) and 403(b)(7) Plans with only one participant and $500 for
Dreyfus-sponsored Education IRAs, with no minimum on subsequent purchases.
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.
PORTFOLIO TRANSACTIONS
The Manager supervises the placement of orders on behalf of the Fund
for the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the Manager's best
judgment and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable
net price. Subject to this consideration, the brokers selected include
those that supplement the Manager's research facilities with statistical
data, investment information, economic facts and opinions. Information so
received is in addition to and not in lieu of services required to be
performed by the Manager and the Manager's fee is not reduced as a
consequence of the receipt of such supplemental information. Such
information may be useful to the Manager in serving both the Fund and other
clients which it advises and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to the Manager
in carrying out its obligation to the Fund. Brokers also are selected
because of their ability to handle special executions such as are involved
in large block trades or broad distributions, provided the primary
consideration is met. Large block trades, in certain cases, may result from
two or more clients the Manager might advise being engaged simultaneously in
the purchase or sale of the same security. Certain of the Fund's
transactions in securities of foreign issuers may not benefit from the
negotiated commission rates available to the Fund for transactions in
securities of domestic issuers. Foreign exchange transactions are made with
banks or institutions in the interbank market at prices reflecting a mark-up
or mark-down and/or commission. When transactions are executed in the
over-the-counter market, the Fund will deal with the primary market makers
unless a more favorable price or execution otherwise is obtainable.
Portfolio turnover may vary from year to year, as well as within a
year. High turnover rates are likely to result in comparatively greater
brokerage expenses. The overall reasonableness of brokerage commissions
paid is evaluated by the Manager based upon its knowledge of available
information as to the general level of commissions paid by other
institutional investors for comparable services.
For the fiscal years ended 1995, 1996 and 1997, the Fund paid total
brokerage commissions of $104,786, $663,260 and $727,055, respectively, none
of which was paid to the Distributor. The increase in the brokerage
commissions paid in 1996 and 1997 is a result of the significant
restructuring of the Fund's portfolio. The above figures for brokerage
commissions do not include gross spreads and concessions on principal
transactions, which, where determinable, amounted to $54,186, $301,284 and
$500,738, respectively, for such periods, none of which was paid to the
Distributor.
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 Shares."
Valuation of Portfolio Securities. Portfolio securities, including
covered call options written by the Fund, are valued at the last sale price
on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except in the case of open short positions where the asked price is
used for valuation purposes. Bid price is used when no asked price is
available. Market quotations of foreign securities in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange. Any
securities or other assets for which recent market quotations are not
readily available are valued at fair value as determined in good faith by
the Board. Expenses and fees, including the management fee, are accrued
daily and taken into account for the purpose of determining the net asset
value of Fund shares.
Restricted securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by a
pricing service approved by the Fund's Board, are valued at fair value as
determined in good faith by the Board. The Board will review the method of
valuation on a current basis. In making their good faith valuation of
restricted securities, Board members generally will take the following
factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a
public market exists usually will be valued at market value less the same
percentage discount at which purchased. This discount will be revised
periodically by the Board if it believes that the discount 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.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions
and Taxes."
Management believes that the Fund qualified as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"),
for the fiscal year ended August 31, 1997. The Fund intends to continue to
so qualify if such qualification is in the best interests of its
shareholders. As a regulated investment company, the Fund will pay no
Federal income tax on its net investment income and net realized capital
gains to the extent its earnings are distributed to shareholders in
accordance with the applicable provisions of the Code. The term "regulated
investment company" does not imply the supervision of management or
investment practices or policies by any government agency.
Depending on the composition of the Fund's income, all or a portion of
the dividends paid by the Fund from net investment income may qualify for
the dividends received deduction allowable to certain U.S. corporate
shareholders ("dividends received deduction"). In general, dividend income
of the Fund distributed to qualifying corporate shareholders will be
eligible for the dividends received deduction only to the extent that the
Fund's income consists of dividends paid by U.S. corporations. However,
Section 246(c) of the Code provides that if a qualifying corporate
shareholder has disposed of Fund shares held for less than 46 days, which 46
days generally must be during the 90 day period commencing 45 days before
the shares become ex-dividend, and has received a dividend from net
investment income with respect to such shares, the portion designated by the
Fund as qualifying for dividend received deduction will not be eligible for
such shareholder's dividend received deduction. In addition, the Code
provides other limitations with respect to the ability of a qualifying
corporate shareholder to claim the dividends received deduction in
connection with holding Fund shares.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a dividend or distribution would be
a return on investment in an economic sense, although taxable as stated
above. In addition, the Code provides that if a shareholder holds shares of
the Fund for six months or less and has received a capital gain distribution
with respect to such shares, any loss incurred on the sale of such shares
will be treated as a long-term capital loss to the extent of the capital
gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or
loss realized from the disposition of foreign currencies (including foreign
currency denominated bank deposits) and non-U.S. dollar denominated
securities (including debt instruments and certain forward contracts and
options) may be treated as ordinary income or loss under Section 988 of the
Code. In addition, all or a portion of any gains realized from the sale or
other disposition of certain market discount bonds will be treated as
ordinary income under Section 1276 of the Code. Finally, all or a portion
of the gain realized from engaging in "conversion transactions" may be
treated as ordinary income under Section 1258 of the Code. "Conversion
transactions" are defined to include certain forward, futures, option and
straddle transactions, transactions marketed or sold to produce capital
gains, or transactions described in Treasury regulations to be issued in the
future.
Under Section 1256 of the Code, any gain or loss realized by a Fund
from certain 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, resulting in additional
gain or loss to such Fund characterized in the manner described above.
Offsetting positions held by a Fund involving certain foreign currency
forward 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 the
provisions of Sections 1256 and 988 of the Code. As such, all or a portion
of any short or long-term capital gain from certain "straddle" transactions
may be recharacterized to ordinary income.
If a 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 of the Code. A 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, to the
extent the "straddle" and conversion transaction 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" and conversion transaction 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.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally will apply if the Fund either (1) holds an appreciated
financial position with respect to stock, certain debt obligations, or
partnership interests ("appreciated financial positions") and then enters
into a futures, forward, or offsetting notional principal contract
(collectively, a "Contract") respecting the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract
and then acquires property that is the same as, or substantially identical
to, the underlying property. In each instance, with certain exceptions, the
Fund generally will be taxed as if the appreciated financial position were
sold at its fair market value on the date the Fund enters into the financial
position or acquires the property, respectively. Transactions that are
identified as hedging or straddle transactions under other provisions of the
Code can be subject to the constructive sale provisions.
If a Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for Federal income tax purposes, the operation
of certain provisions of the Code applying to PFICs could result in the
imposition of certain Federal income taxes on the Fund. In addition, gain
realized from the sale or other disposition of PFIC securities may be
treated as ordinary income under Section 1291 of the Code or, for tax years
beginning after December 31, 1997, under Section 1296 with respect to PFIC
securities that are marked to market.
Investment by the Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing the Fund to
recognize income prior to the receipt of cash payments. For example, the
Fund could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued each year and to distribute
such income in order to maintain its qualification as a regulated investment
company. In such case, the Fund may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance
Information."
The Fund's average annual total return for the 1 and 4.92 year periods
ended August 31, 1997 (the Fund's fiscal year end) was 28.06% and 13.70%,
respectively. Average annual total return is calculated by determining the
ending redeemable value of an investment purchased at net asset value per
share with a hypothetical $1,000 payment made at the beginning of the period
(assuming the reinvestment of dividends and distributions), dividing by the
amount of the initial investment, taking the "n"th root of the quotient
(where "n" is the number of years in the period) and subtracting 1 from the
result.
The Fund's total return for the period September 30, 1992 (commencement
of operations) through August 31, 1997 (the Fund's fiscal year end) was
88.08%. 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 distributions during the period), and dividing
the result by the net asset value per share at the beginning of the period.
From time to time, advertising material for a Fund may include
biographical information relating to one or more of its portfolio managers
and may refer to, or include commentary by a portfolio manager relating to
investment strategy, asset growth, current or past business, political,
economic or financial conditions and other matters of general interest to
investors. In addition, from time to time advertising materials for the
Fund may refer to Morningstar ratings and related analysis supporting the
ratings.
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 are of one class and have equal rights as to dividends and in
liquidation. Shares have no preemptive, subscription or conversion rights
and are freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the Fund,
the Transfer Agent arranges for the maintenance of shareholder account
records for the Fund, the handling of certain communications between
shareholders and the Fund and the payment of dividends and distributions
payable by the Fund. For these services, the Transfer Agent receives a
monthly fee computed on the basis of the number of shareholder accounts it
maintains for the Fund during the month, and is reimbursed for certain out-
of-pocket expenses. For the fiscal year ended August 31, 1997, the Fund
paid the Transfer Agent $73,624.
Mellon Bank, N.A. (the "Custodian"), the Manager's parent, One Mellon
Bank Center, Pittsburgh, Pennsylvania 15258, acts as custodian of the Fund's
investments. Under a custody agreement with the Fund, the Custodian holds
the Fund's securities and keeps all necessary accounts and records. For its
custody services, the Custodian receives a monthly fee based on the market
value of the Fund's assets held in custody and receives certain securities
transactions charges. For the fiscal year ended August 31, 1997, the Fund
paid the Custodian $48,748.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
The Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1997 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing therein are incorporated by
reference into this Statement of Additional Information.
APPENDIX
Description of certain ratings assigned by Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch IBCA, Inc.
("Fitch") and Duff & Phelps Credit Rating Co. ("Duff"):
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P 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.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by ample
asset protection. Risk factors are minor.
