PROSPECTUS JANUARY 15, 1994
DREYFUS INTERNATIONAL EQUITY FUND, INC.
DREYFUS INTERNATIONAL EQUITY FUND, INC. (THE "FUND") IS AN OPEN-END, NON-
DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND.
ITS GOAL IS TO PROVIDE YOU WITH CAPITAL GROWTH. THE FUND WILL INVEST
PRIMARILY IN THE EQUITY SECURITIES OF FOREIGN ISSUERS LOCATED
THROUGHOUT THE WORLD.
YOU CAN INVEST, REINVEST OR REDEEM FUND SHARES AT ANY TIME WITHOUT
CHARGE OR PENALTY IMPOSED BY THE FUND. YOU CAN PURCHASE OR REDEEM
SHARES BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION ("DREYFUS") SERVES AS THE FUND'S INVESTMENT
ADVISER. DREYFUS HAS ENGAGED M&G INVESTMENT MANAGEMENT LIMITED
("M&G") TO SERVE AS THE FUND'S SUB-INVESTMENT ADVISER AND PROVIDE DAY-
TO-DAY MANAGEMENT OF THE FUND'S INVESTMENTS. DREYFUS AND M&G ARE
REFERRED TO COLLECTIVELY AS THE "ADVISERS."
THE FUND BEARS CERTAIN COSTS PURSUANT TO A DISTRIBUTION PLAN ADOPTED
IN ACCORDANCE WITH RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF
1940 AND A SHAREHOLDER SERVICES PLAN.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
PART B (ALSO KNOWN AS THE STATEMENT OF ADDITIONAL INFORMATION), DATED
JANUARY 15, 1994, 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. FOR A FREE COPY, WRITE TO THE FUND AT 144 GLENN CURTISS
BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561.
WHEN TELEPHONING, ASK FOR OPERATOR 666.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. THE FUND'S SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL. THE FUND'S SHARE PRICE AND INVESTMENT
RETURN FLUCTUATE AND ARE NOT GUARANTEED.
TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES................... 2
CONDENSED FINANCIAL INFORMATION.................. 2
DESCRIPTION OF THE FUND.......................... 3
MANAGEMENT OF THE FUND........................... 14
HOW TO BUY FUND SHARES........................... 15
SHAREHOLDER SERVICES............................. 16
HOW TO REDEEM FUND SHARES........................ 19
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN.. 21
DIVIDENDS, DISTRIBUTIONS AND TAXES............... 21
PERFORMANCE INFORMATION.......................... 22
GENERAL INFORMATION.............................. 23
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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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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.................................. .75%
12b-1 Fees....................................... .66%
Service Fees..................................... .25%
Other Expenses................................... 1.24%
Total Fund Operating Expenses.................... 2.90%
EXAMPLE: 1 YEAR 3 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: $29 $90
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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%.
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The purpose of the foregoing table is to assist you in understanding the
various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. Other Expenses and Total Fund Operating Expenses are based on
estimated amounts for the current fiscal year. The information in the
foregoing table does not reflect any fee waivers or expense
reimbursement arrangements that may be in effect. Certain Service
Agents (as defined below) may charge their clients direct fees for
effecting transactions in Fund shares; such fees are not reflected in the
foregoing table. Long-term investors could pay more in 12b-1 fees than
the economic equivalent of paying a front-end sales charge. For a further
description of the various costs and expenses incurred in the operation of
the Fund, as well as expense reimbursement or waiver arrangements, see
"Management of the Fund," "How to Buy Fund Shares" and "Distribution
Plan and Shareholder Services Plan."
CONDENSED FINANCIAL INFORMATION
The table below sets forth certain information covering the Fund's
investment results for the period indicated. Further financial data and
related notes are included in 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 the period June 29, 1993
(commencement of operations) to September 30, 1993 (unaudited). This
information has been derived from information provided in the Fund's
financial statements.
<TABLE>
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................ $12.50
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INVESTMENT OPERATIONS:
Investment income--net...................................................................... .07
Net realized and unrealized gain on investments............................................. 1.21
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TOTAL FROM INVESTMENT OPERATIONS....................................................... 1.28
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DISTRIBUTIONS;
Dividends from investment income_net........................................................ --
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Net asset value, end of period.............................................................. $13.78
======
TOTAL INVESTMENT RETURN 10.24%*
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................................................... .55%*
Ratio of net investment income to average net assets........................................ 1.06%*
Decrease reflected in above expense ratio due to undertakings by Dreyfus
(limited to the expense limitation provision of the Investment Advisory Agreement)..... .19%*
Portfolio Turnover Rate..................................................................... 9.73%*
Net Assets, end of period (000's omitted)................................................... $48,846
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*Not Annualized.
</TABLE>
Further information about the Fund's performance will be contained in the
Fund's annual report for the fiscal year ending May 31, 1994, which will
be available approximately the end of July 1994, and 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 goal is to provide you with capital growth. 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) of the
Fund's outstanding voting shares. There can be no assurance that the
Fund's investment objective will be achieved.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that at least 65% of the value of
its total assets (except when maintaining a temporary defensive position)
will be invested in equity securities of foreign issuers. Equity securities
consist of common stocks, convertible securities and preferred stocks.
The Fund also may invest in debt securities of foreign issuers that
management believes, based on market conditions, the financial condition
of the issuer, general economic conditions and other relevant factors,
offer opportunities for capital growth. Under normal market conditions, it
is expected that substantially all of the Fund's assets will be invested in
securities of foreign issuers. While there are no prescribed limits on
geographic asset distribution outside the United States, the Fund
ordinarily will seek to invest its assets in not less than three foreign
countries. The Fund may invest up to 5% of its assets in securities of
companies that have been in continuous operation for fewer than three
years. The Fund's policy is to purchase marketable securities which are
not restricted as to public sale, subject to the limited exception set forth
below under "Certain Portfolio Securities - Illiquid Securities."
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 Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch") or Duff & Phelps, Inc. ("Duff'') or, if unrated, deemed to be of
comparable quality by the Advisers. Debt securities rated Baa by Moody's
or BBB by S&P, Fitch or Duff are considered investment grade obligations
which lack outstanding investment characteristics and have speculative
characteristics as well. See "Risk Factors - Other Investment
Considerations" below.
The Fund may invest, in anticipation of investing cash positions, in money
market instruments consisting 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 "Certain Portfolio Securities"
below. The Fund also may hold U.S. Government securities to meet certain
asset segregation requirements. 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 Advisers determine that
adverse market conditions exist, the Fund may adopt a temporary
defensive posture and invest all of its assets in money market
instruments. To the extent the Fund is so invested, the Fund's investment
objective may not be achieved.
INVESTMENT TECHNIQUES
The Fund may engage in various investment techniques, such as foreign
exchange transactions, options and futures transactions and lending
portfolio securities, each of which may involve risk. See "Risk Factors"
below.
FOREIGN CURRENCY TRANSACTIONS - The Fund may engage in currency
exchange transactions to the extent consistent with its investment
objective or to hedge its portfolio. The Fund will conduct its currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or through entering into
forward contracts to purchase or sell currencies. A forward currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Forward
currency exchange contracts are entered into in the interbank market
conducted directly between currency traders (typically commercial banks
or other financial institutions) and their customers. The Fund also may
combine forward currency exchange contracts with investments in
securities denominated in other currencies.
The Fund also may maintain short positions in forward currency exchange
transactions, 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 will maintain in a segregated custodial account cash or U.S.
Government securities or other high quality liquid debt securities at least
equal to the aggregate amount of its short positions, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission.
OPTIONS ON FOREIGN CURRENCY - The Fund may purchase and sell call and
put options on foreign currency for the purpose of hedging against changes
in future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot
price of the currency at the time the option expires. Put options convey
the right to sell the underlying currency at a price which is anticipated to
be higher than the spot prices of the currency at the time the option
expires. The Fund may use foreign currency options for the same purposes
as forward currency exchange and futures transactions, as described
herein. See also "Call and Put Options on Specific Securities" and
"Currency Futures and Options on Currency Futures" below.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES - The Fund may invest up
to 5% of its assets, represented by the premium paid, in the purchase of
call and put options in respect of specific securities (or groups or
"baskets" of specific securities) in which the Fund may invest. The Fund
may write covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security or securities at the
exercise price at any time during the option period. Conversely, a put
option gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period. A covered call option sold by the
Fund, which is a call option with respect to which the Fund owns the
underlying security or securities, exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the
market price of the underlying security or securities or to possible
continued holding of a security or securities which might otherwise have
been sold to protect against depreciation in the market price thereof. A
covered put option sold by the Fund exposes the Fund during the term of
the option to a decline in price of the underlying security or securities. A
put option sold by the Fund is covered when, among other things, cash or
liquid securities are placed in a segregated account with the Fund's
custodian to fulfill the obligation undertaken.
To close out a position when writing covered options, the Fund may make a
"closing purchase transaction," which involves purchasing an option on
the same security or securities with the same exercise price and
expiration date as the option which it has previously written. To close out
a position as a purchaser of an option, the Fund may make a "closing sale
transaction," which involves liquidating the Fund's position by selling the
option previously purchased. The Fund will realize a profit or loss from a
closing purchase or sale transaction depending upon the difference
between the amount paid to purchase an option and the amount received
from the sale thereof.
The Fund intends to treat options in respect of specific securities that are
not traded on a U.S. or foreign national securities exchange and the
securities underlying covered call options written by the Fund as illiquid
securities. See "Certain Portfolio Securities - Illiquid Securities" below.
The Fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale.
STOCK INDEX OPTIONS - The Fund may purchase and write put and call
options on stock indexes listed on U.S. or foreign securities exchanges or
traded in the over-the-counter market. A stock index fluctuates with
changes in the market values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in the Fund's
investments correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, whether the Fund
will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on stock indexes will
be subject to the Advisers' ability to predict correctly movements in the
direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the
price of individual stocks.
When the Fund writes an option on a stock index, the Fund will place in a
segregated account with its custodian or sub-custodian cash or liquid
securities in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is
open or otherwise will cover the transaction.
FUTURES TRANSACTIONS-IN GENERAL - The Fund will not be a commodity
pool. However, as a substitute for a comparable market position in the
underlying securities and for hedging purposes, the Fund may engage in
futures and options on futures transactions, as described below.
The Fund may trade futures contracts and options on 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, to
the extent permitted under applicable law, 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 in commodities that are not currently
traded in the United States or arbitrage possibilities not available in the
United States. Foreign markets, however, may have greater risk potential
than domestic markets. See "Risk Factors - Foreign Commodity
Transactions" below.
The Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
CFTC. In addition, the Fund may not engage in such transactions if the sum
of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would
exceed 5% of the liquidation value of the Fund's assets, after taking into
account unrealized profits and unrealized losses on such contracts it has
entered into; 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%. Pursuant to regulations and/or published
positions of the Securities and Exchange Commission, the Fund may be
required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally
equal to the value of the underlying commodity.
Initially, when purchasing or selling futures contracts the Fund will be
required to deposit with its custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount.
This amount is subject to change by the exchange or board of trade on
which the contract is traded and members of such exchange or board of
trade may impose their own higher requirements. This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of
the futures position, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to and from
the broker generally will be made daily as the price of the index or
securities underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process
known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Fund may elect to close the position by taking an
opposite position, at the then prevailing price, which will operate to
terminate the Fund's existing position in the contract.
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. If it is
not possible, or the Fund determines not, to close a futures position in
anticipation of adverse price movements, the Fund will be required to
make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of the portfolio being hedged, if any,
may offset partially or completely losses on the futures contract.
However, no assurance can be given that the price of the securities being
hedged will correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.
In addition, to the extent the Fund is engaging in a futures transaction
as a hedging device, due to the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is
possible that the hedge will not be fully effective in that, for example,
losses on the portfolio securities may be in excess of gains on the futures
contract or losses on the futures contract may be in excess of gains on the
portfolio securities that were the subject of the hedge. In futures
contracts based on indexes, the risk of imperfect correlation increases as
the composition of the Fund's portfolio varies from the composition of the
index. In an effort to compensate for the imperfect correlation of
movements in the price of the securities being hedged and movements in
the price of futures contracts, the Fund may buy or sell futures contracts
in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract
has been less or greater than that of the securities. Such "over hedging"
or "under hedging" may adversely affect the Fund's net investment results
if market movements are not as anticipated when the hedge is established.
Successful use of futures by the Fund also is subject to the Advisers'
ability to predict correctly movements in the direction of the market or
interest rates. For example, if the Fund has hedged against the possibility
of a decline in the market adversely affecting the value of securities held
in its portfolio and prices increase instead, the Fund will lose part or all
of the benefit of the increased value of securities which it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which
reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long position
if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's
futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Call options sold by the Fund with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of
which are expected to move relatively consistently with the instruments
underlying, the futures contract. Put options sold by the Fund with respect
to futures contracts will be covered in the same manner as put options on
specific securities as described above.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES - The Fund
may purchase and sell stock index futures contracts and options on stock
index futures contracts.
A stock index future obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
With respect to stock indexes that are permitted investments, the Fund
intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to
liquidity.
The Fund may use index futures as a substitute for a comparable market
position in the underlying securities.
The price of stock index futures may not correlate perfectly with the
movement in the stock index because of certain market distortions. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the
index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may
cause temporary price distortions.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE
FUTURES CONTRACTS - The Fund may invest in interest rate futures
contracts and options on interest rate futures contracts as a substitute
for a comparable market position and to hedge against adverse movements
in interest rates.
To the extent the Fund has invested in interest rate futures contracts or
options on interest rate futures contracts as a substitute for a
comparable market position, the Fund will be subject to the investment
risks of having purchased the securities underlying the contract.
The Fund may purchase call options on interest rate futures contracts to
hedge against a decline in interest rates and may purchase put options on
interest rate futures contracts to hedge its portfolio securities against
the risk of rising interest rates.
The Fund may sell call options on interest rate futures contracts to
partially hedge against declining prices of its portfolio securities. If the
futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Fund's
portfolio holdings. The Fund may sell put options on interest rate futures
contracts to hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contracts. If the futures price at
expiration of the option is higher than the exercise price, the Fund will
retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund
intends to purchase. If a put or call option sold by the Fund is exercised,
the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of
its futures positions, the Fund's losses from existing options on futures
may to some extent be reduced or increased by changes in the value of its
portfolio securities.
The Fund also may sell options on interest rate futures contracts as part
of closing purchase transactions to terminate its options positions. No
assurance can be given that such closing transactions can be effected or
that there will be correlation between price movements in the options on
interest rate futures and price movements in the Fund's portfolio
securities which are the subject of the hedge. In addition, the Fund's
purchase of such options will be based upon predictions as to anticipated
interest rate trends, which could prove to be inaccurate.
CURRENCY FUTURES AND OPTIONS ON CURRENCY FUTURES - The Fund may
purchase and sell currency futures contracts and options thereon. See
"Call and Put Options on Specific Securities" above. By selling foreign
currency futures, the Fund can establish the number of U.S. dollars it will
receive in the delivery month for a certain amount of a foreign currency.
In this way, if the Fund anticipates a decline of a foreign currency against
the U.S. dollar, the Fund can attempt to fix the U.S. dollar value of some or
all of its securities that are denominated in that currency. By purchasing
foreign currency futures, the Fund can establish the number of U.S. dollars
it will be required to pay for a specified amount of a foreign currency in
the delivery month. Thus, if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund, for
the price of the currency future, can attempt to fix the price in U.S.
dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium it must pay for the option, to decide whether or not
to buy (in the case of a call option) or to sell (in the case of a put option)
a futures contract at a specified price at any time during the period
before the option expires. If the Fund, in purchasing an option, has been
correct in its judgment concerning the direction in which the price of a
foreign currency would move as against the U.S. dollar, it may exercise the
option and thereby take a futures position to hedge against the risk it had
correctly anticipated or close out the option position at a gain that will
offset, to some extent, currency exchange losses otherwise suffered by
the Fund. If exchange rates move in a way the Fund did not anticipate, the
Fund will have incurred the expense of the option without obtaining the
expected benefit. As a result, the Fund's profits on the underlying
securities transactions may be reduced or overall losses incurred.
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 derivative investment 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.
LENDING PORTFOLIO SECURITIES - From time to time, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33l/3% of the value of the Fund's
total assets. In connection with such loans, the Fund will receive
collateral consisting of cash, U.S. Government securities and/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. The Fund can increase its income through the investment of
such collateral. The Fund continues to be entitled to payments in amounts
equal to the interest, dividends or other distributions payable on the
loaned security and receives interest on the amount of the loan. Such loans
will be terminable at any time upon specified notice. The Fund might
experience risk of loss if the institution with which it has engaged in a
loan transaction breaches its agreement with the Fund.
FORWARD COMMITMENTS - The Fund may purchase debt securities on a
when-issued or forward commitment basis, which means that the price is
fixed at the time of commitment, but delivery and payment ordinarily take
place a number of days after the date of the commitment to purchase. The
Fund will make commitments to purchase such securities only with the
intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable. The Fund
will not accrue income in respect of a security purchased on a when-
issued or forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Fund's portfolio are subject to changes
in value (both 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 when-issued or forward commitment basis may expose the
Fund to risk because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a when-issued or forward
commitment 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. A segregated account of the Fund
consisting of cash, cash equivalents or U.S. Government securities or other
high quality liquid debt securities at least equal at all times to the
amount of the when-issued or forward commitments will be established
and maintained at the Fund's custodian bank. Purchasing debt securities on
a when-issued or forward commitment 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.
BORROWING MONEY - As a fundamental policy, the Fund is permitted to
borrow to the extent permitted under the Investment Company Act of
1940. However, the Fund currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 15%
of the value of the Fund's total assets (including the amount borrowed)
valued at the lesser of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made. While borrowings
exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
CERTAIN PORTFOLIO SECURITIES
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS - The
Fund's assets may be invested in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"). These securities may not necessarily be denominated in
the same currency as the securities into which they may be converted.
ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), are receipts issued in Europe typically by
non-United States banks and trust companies that evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form
are designed for use in the United States securities markets and EDRs and
CDRs in bearer form are designed for use in Europe. The Fund may invest in
ADRs, EDRs and CDRs through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to
pass through voting rights to the holders of such receipts in respect of the
deposited securities.
CONVERTIBLE SECURITIES - The Fund may purchase convertible securities,
which are fixed-income securities, such as bonds or preferred stock,
which may be converted at a stated price within a specified period of time
into a specified number of shares of common stock of the same or a
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing a fixed-income stream
(generally higher in yield than the income derivable from a common stock
but lower than that afforded by a non-convertible debt security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the
common stock into which it is convertible.
In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common
stock if the security is converted). As a fixed-income security, the market
value of a convertible security generally increases when interest rates
decline and generally decreases when interest rates rise. However, the
price of a convertible security also is influenced by the market value of
the security's underlying common stock. Thus, the price of a convertible
security generally increases as the market value of the underlying stock
increases, and generally decreases as the market value of the underlying
stock declines. Investments in convertible securities generally entail less
risk than investments in the common stock of the same issuer.
U.S. GOVERNMENT SECURITIES - The Fund may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
which include U.S. Treasury securities that differ in their interest rates,
maturities and times of issuance. Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten
years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National
Mortgage Association pass-through certificates, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
Home Loan Banks, by the right of the issuer to borrow from the U.S.
Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as
those issued by the Student Loan Marketing Association, only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government-
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, because the U.S. Government is not obligated to do so by
law.
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. The Fund also may invest in zero coupon
securities 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 amount of the discount fluctuates with the market price of
the security. 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.
BANK OBLIGATIONS - The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches
of domestic banks, and domestic and foreign branches of foreign banks,
domestic savings and loan associations and other banking institutions.
With respect to such securities issued by foreign branches of domestic
banks, foreign subsidiaries 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.
Such risks include possible future political and economic developments,
the possible imposition of foreign withholding taxes on interest income
payable on the securities, the possible establishment of exchange controls
or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities
and the possible seizure or nationalization of foreign deposits.
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 at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. The Fund will
not invest more than 15% of the value of its net assets in time deposits
that are illiquid and in other illiquid securities.
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 of 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.
REPURCHASE AGREEMENTS - Repurchase agreements involve the
acquisition by the Fund of an underlying debt instrument, subject to an
obligation of the seller to repurchase, and the Fund to resell, the
instrument at a fixed price usually not more than one week after its
purchase. 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 one billion dollars, 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 resale price. The Advisers
will monitor on an ongoing basis the value of the collateral to assure that
it always equals or exceeds the repurchase price. Certain costs may be
incurred by the Fund in connection with the sale of the securities if the
seller does not repurchase them in accordance with the repurchase
agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by the
Fund may be delayed or limited. The Fund will consider on an ongoing basis
the creditworthiness of the institutions with which it enters into
repurchase agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS -
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-l by S&P, F-l by Fitch or Duff-l by Duff, (b) issued by companies having
an outstanding unsecured debt issue currently rated not lower than Aa3 by
Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined by the
Advisers to be of comparable quality to those rated obligations which may
be purchased by the Fund. The Fund may purchase floating and variable rate
demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand
payment of principal at any time or at specified intervals. Variable rate
demand notes 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. As mutually agreed between the parties, the Fund may increase
the amount under the notes at any time up to the full amount provided by
the note agreement, or decrease the amount, and the borrower may repay
up to the full amount of the note without penalty. 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. In connection with floating and variable
rate demand obligations, the Advisers will consider, on an ongoing basis,
earning power, cash flow and other liquidity ratios of the borrower, and
the borrower's ability 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 above for other commercial paper issuers.
WARRANTS - The Fund may invest up to 5% of its net assets in warrants,
except that this limitation does not apply to warrants acquired in units or
attached to securities. 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.
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, and certain options
traded in the over-the-counter market 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. 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 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, if
a substantial market of qualified institutional buyers develops pursuant
to Rule 144A under the Securities Act of 1933, as amended, for certain
unregistered securities held by the Fund, the Fund intends to treat such
securities as liquid securities in accordance with procedures approved by
the Fund's Board of Directors. Because it is not possible to predict with
assurance how the market for restricted securities pursuant to Rule 144A
will develop, the Fund's Board of Directors has directed the Advisers 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 such
restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity in the
Fund's portfolio during such period.
RATINGS - The ratings of the various rating agencies represent their
opinions as to the quality of the obligations which they undertake to rate.
It should be emphasized, however, that ratings are relative and subjective
and, although ratings may be useful in evaluating the safety of interest
and principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion
for selection of Fund's investments, the Advisers also will evaluate such
obligations and the ability of their issuers to pay interest and principal.
The Fund will rely on the Advisers' judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the
Advisers will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
quality of the issuer's management and regulatory matters. It also is
possible that a rating agency might not timely change the rating on a
particular issue to reflect subsequent events. Once the rating of a
security in the Fund's portfolio has been changed, the Advisers will
consider all circumstances deemed relevant in determining whether the
Fund should continue to hold the security.
CERTAIN FUNDAMENTAL POLICIES
The Fund may (i) borrow money to the extent permitted under the
Investment Company Act of 1940; and (ii) invest up to 25% of the value of
its total assets in the securities of issuers in a single industry, provided
that there is no such limitation on investments in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. This
paragraph describes fundamental policies of the Fund that cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting shares.
See "Investment Objective and Management Policies - Investment
Restrictions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
The Fund may (i) purchase securities of any company having less than
three years' continuous operation (including operations of any
predecessors) if such purchase does not cause the value of its
investments in all such companies to exceed 5% of the value of its total
assets; (ii) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (iii) invest up to 15%
of the value of its net assets in repurchase agreements providing for
settlement in more than seven days after notice and in other illiquid
securities. Notwithstanding any of the foregoing policies, the Fund may
invest all or substantially all of its assets in another investment company
with substantially the same investment objective as the Fund. See
"Investment Objective and Management Policies - Investment
Restrictions" in the Statement of Additional Information.
RISK FACTORS
INVESTING IN 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. The issuers of
some of these securities, such as foreign bank obligations, may be subject
to less stringent or different regulations than are U.S. issuers. In addition,
there may be less publicly available information about a non-U.S. issuer,
and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to
those applicable to U.S. issuers.
Because stock certificates and other 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, possible seizure or nationalization of foreign
deposits and possible adoption of governmental restrictions that might
adversely affect the payment of principal, interest and dividends on the
foreign securities or might restrict the payment of principal, interest and
dividends to investors located outside the country of the issuers, whether
from currency blockage or otherwise. Custodial expenses for a portfolio of
non-U.S. securities generally are higher than for a portfolio of U.S.
securities.
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. Some currency exchange
costs may be incurred when the Fund changes investments from one
country to another.
Furthermore, some of these securities may be subject to brokerage taxes
levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income received by
the Fund from sources within foreign countries may be reduced by
withholding or other taxes imposed by such countries. Tax conventions
between certain countries and the United States, however, may reduce or
eliminate such taxes. All such taxes paid by the Fund will reduce its net
income available for distribution to investors.
FOREIGN CURRENCY EXCHANGE - 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.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading in currencies
occurs on an exchange. Since a forward currency contract is not
guaranteed by an exchange or clearinghouse, a default on the contract
would deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
FOREIGN COMMODITY TRANSACTIONS - Unlike trading on domestic
commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal
markets so that no common clearing facility exists and a trader may look
only to the broker for performance of the contract. In addition, unless the
Fund hedges against fluctuations in the exchange rate between the U.S.
dollar and the currencies in which trading is done on foreign exchanges,
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 which are traded on domestic exchanges and those
which are not.
OTHER INVESTMENT CONSIDERATIONS - The Fund's net asset value is not
fixed and should be expected to fluctuate. You should purchase Fund shares
only as a supplement to an overall investment program and only if you are
willing to undertake the risks involved.
Investors should be aware that equity securities fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
that fluctuations can be pronounced. Changes in the value of the Fund's
securities, regardless of whether the securities are equity or debt, will
result in changes in the value of a Fund share and thus the Fund's total
return to investors.
For the portion of the Fund's assets invested in debt securities, investors
should be aware that 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 issuing entities. 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. Obligations which are rated Baa by
Moody's are considered medium grade obligations; they are neither highly
protected nor poorly secured, and are considered by Moody's to have
speculative characteristics. Bonds rated BBB by S&P are regarded as
having adequate capacity to pay interest and repay principal, and while
such bonds 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 in higher rated categories. Bonds rated BBB by Fitch are
considered investment grade and of satisfactory credit quality; however,
adverse changes in economic conditions and circumstances are more likely
to have an adverse impact on these bonds and, therefore, impair timely
payment. Bonds rated BBB by Duff have below average protection factors
but nonetheless are considered sufficient for prudent investment. See
"Appendix" in the Statement of Additional Information.
The use of investment techniques such as engaging in financial futures and
options transactions and lending portfolio securities involves greater risk
than that incurred by many other funds with similar objectives. Using
these techniques may produce higher than normal portfolio turnover which
usually generates additional brokerage commissions and expenses. In
addition, short-term gains realized from portfolio transactions are
taxable to shareholders as ordinary income. The Fund's ability to engage in
certain short-term transactions may be limited by the requirement that,
to qualify as a regulated investment company, the Fund must earn less
than 30% of its gross income from the disposition of securities held for
less than three months. This 30% test limits the extent to which the Fund
may sell securities held for less than three months, write options
expiring in less than three months and invest in certain futures contracts,
among other strategies. With exception of the above requirement, the
amount of portfolio activity will not be a limiting factor when making
portfolio decisions. Under normal market conditions, the Fund's portfolio
turnover rate generally will not exceed 150%. See "Portfolio
Transactions" in the Statement of Additional Information.
The Fund's classification 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 Investment Company Act
of 1940. A "diversified" investment company is required by the
Investment Company Act of 1940 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 and to hold not more than 10% of the outstanding voting
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"),
which requires that, at the end of each quarter of its taxable year, (i) at
least 50% of the market value of the Fund's total assets be invested in
cash, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of
any one issuer limited for the purposes of this calculation to an amount
not greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets be invested in the securities of any one
issuer (other than U.S. Government securities or the securities of other
regulated investment companies). 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 within the same industry or economic
sector, the Fund's portfolio securities may be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
Investment decisions for the Fund are made independently from those of
other investment companies or accounts advised by Dreyfus or M&G.
However, if such other investment companies or accounts are prepared to
invest in, or desire to dispose of, securities of the type in which the Fund
invests at the same time as the Fund, available investments or
opportunities for sales will be allocated equitably to each. In some cases,
this procedure may adversely affect the size of the position obtained for
or disposed of by the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER - Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was formed in 1947 and serves as the Fund's investment
adviser. As of November 30, 1993, Dreyfus managed or administered
approximately $78 billion in assets for more than 1.9 million investor
accounts nationwide.
Dreyfus supervises and assists in the overall management of the Fund's
affairs under a Management Agreement with the Fund, subject to the
overall authority of the Fund's Board of Directors in accordance with
Maryland law.
Dreyfus has engaged M&G, located at Three Quays Tower Hill, London EC3R
6BQ, England, to serve as the Fund's sub-investment adviser. M&G, a
registered investment adviser, was formed in 1931. As of September 30,
1993, M&G managed approximately $18.9 billion in assets.
M&G, subject to the supervision and approval of Dreyfus, provides
investment advisory assistance and the day-to-day management of the
Fund's investments, as well as investment research and statistical
information, under a Sub-Investment Advisory Agreement with Dreyfus,
subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law. The Fund's primary investment officer is
Paul D.A. Nix. He has held that position since the Fund's inception and has
been employed by M&G since 1968. The Fund's other investment officers
are identified under "Management of the Fund" in the Fund's Statement of
Additional Information. Dreyfus also provides research services for the
Fund as well as for other funds advised by Dreyfus through a professional
staff of portfolio managers and security analysts.
Under the terms of the Management Agreement, the Fund has agreed to pay
Dreyfus a monthly fee at the annual rate of .75 of 1% of the value of the
Fund's average daily net assets. For the period June 29, 1993
(commencement of operations) through September 30, 1993, no
management fee was paid by the Fund pursuant to an undertaking by
Dreyfus.
Under the terms of the Sub-Investment Advisory Agreement, Dreyfus has
agreed to pay M&G a monthly fee at the annual rate of .30 of 1% of the
value of the Fund's average daily net assets. For the period June 29, 1993
(commencement of operations) through September 30, 1993, no sub-
investment advisory fee was paid by Dreyfus pursuant to an undertaking by
M&G.
EXPENSES - All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by Dreyfus and/or
M&G. The expenses borne by the Fund include: organizational costs, taxes,
interest, brokerage fees and commissions, if any, fees of Directors who
are not officers, directors, employees or holders of 5% or more of the
outstanding voting securities of Dreyfus or M&G or their affiliates,
Securities and Exchange Commission fees, state Blue Sky qualification
fees, advisory fees, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association
fees, outside auditing and legal expenses, costs of independent pricing
services, costs of maintaining the Fund's existence, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, and any
extraordinary expenses. The Fund is subject to an annual distribution fee
for advertising, marketing and distributing its shares and an annual
service fee for ongoing personal services relating to shareholder accounts
and services related to the maintenance of shareholder accounts. See
"Distribution Plan and Shareholder Services Plan."
The management fee paid by the Fund is higher than that paid by most
other investment companies. From time to time, Dreyfus may waive
receipt of its fee and/or voluntarily assume certain expenses of the Fund,
which would have the effect of lowering the overall expense ratio of the
Fund and increasing yield to investors at the time such amounts are
waived or assumed, as the case may be. The Fund will not pay Dreyfus at a
later time for any amounts it may waive, nor will the Fund reimburse
Dreyfus for any amounts it may assume. The Dreyfus Corporation may pay Dreyfus
Service Corporation for shareholder and distribution services from its own
monies, including past profits but not including the management fee paid
by the Fund. Dreyfus Service Corporation may pay part of all of these payments
to securities dealers or others for servicing and distribution.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT - The Bank of
New York, 110 Washington Street, New York, New York 10286, is the
Fund's Custodian. The Shareholder Services Group, Inc., a subsidiary of
First Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-
9671, is the Fund's Transfer and Dividend Disbursing Agent (the "Transfer
Agent").
HOW TO BUY FUND SHARES
The Fund's distributor is Dreyfus Service Corporation, a wholly-owned
subsidiary of Dreyfus located at 200 Park Avenue, New York, New York
10166. The shares it distributes are not deposits or obligations of The
Dreyfus Security Savings Bank, F.S.B. and therefore are not insured by the
Federal Deposit Insurance Corporation.
You can purchase Fund shares through Dreyfus Service Corporation or
certain financial institutions, securities dealers and other industry
professionals (collectively, "Service Agents") that have entered into
agreements with Dreyfus Service Corporation. 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.
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in
this Prospectus, and, to the extent permitted by applicable regulatory
authority, may charge their clients direct fees which would be in addition
to any amounts which might be received under the Shareholder Services
Plan. Each Service Agent has agreed to transmit to its clients a schedule
of such fees. You should consult your Service Agent in this regard.
The minimum initial investment is $2,500, or $1,000 if you are a client of
a Service Agent which has made an aggregate minimum initial purchase
for its customers of $2,500. Subsequent investments must be at least
$100. The initial investment must be accompanied by the Fund's Account
Application. For full-time or part-time employees of Dreyfus or any of its
affiliates or subsidiaries, directors of Dreyfus, Board members of a fund
advised by Dreyfus, including members of the 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 Dreyfus or any of its
affiliates or subsidiaries who elect to have a portion of their pay directly
deposited into their Fund account, the minimum initial investment is $50.
The Fund reserves the right to offer Fund shares without regard to
minimum purchase requirements to employees participating in 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.
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."
Wire payments may be made if your 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 #8900117842/Dreyfus
International Equity Fund, Inc., for purchase of fund shares in your name.
The wire must include your Fund account number (for new accounts, please
include 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 Fund's Account Application
and promptly mail the Account Application to the Fund, as no redemptions
will be permitted until the Account Applicaton is received. You may obtain
further information about remitting funds in this manner may be obtained
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 of Directors. For further information
regarding the methods employed in valuing the Fund's investments, see
"Determination of Net Asset Value" in the Fund's Statement of Additional
Information.
Federal regulations require that you provide a certified TIN upon opening
or reopening an account. See "Dividends, Distributions and Taxes" and the
Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject
you to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE -- You may purchase Fund shares
(minimum $500, maximum $150,000 per day) by telephone if you
have checked the appropriate box and supplied the necessary information
on the Fund's Account Application or have filed an Optional 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 by telephoning 1-800-221-4060 or, if
you are calling from overseas, call 1-401-455-3306. Shares issued in
certificate form are not eligible for this Privilege.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents
may impose certain conditions on their clients which are different from
those in this Prospectus. You should consult your Service Agent in this
regard.
EXCHANGE PRIVILEGE -- The Exchange Privilege enables you to purchase, in
exchange for shares of the Fund, shares of certain other funds managed or
administered by Dreyfus, to the extent such shares are offered for sale in
your state of residence. These funds have different investment objectives
which may be of interest to you. If you desire to use this Privilege, you
should consult your Service Agent or Dreyfus Service Corporation to
determine if it is available and whether any conditions are imposed on its
use.
To use this Privilege, you must give exchange instructions to the Transfer
Agent in writing, by wire or by telephone. If you previously have established
the Telephone Exchange Privilege, you may telephone exchange instructions by
calling 1-800-221-4060 or, if you are calling from overseas, call
1-401-455-3306.
See "How to Redeem Fund Shares - Procedures." 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 from
Dreyfus Service Corporation. 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.
Telephone exchanges may be made only if the appropriate "YES" box has
been checked on the Account Application, or a separate signed Optional
Services Form is on file with the Transfer Agent. 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: Exchange Privilege, Wire Redemption
Privilege Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege
and the dividend/capital gain distribution option (except for the Dreyfus
Dividend Sweep Privilege) 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 of the fund from which
you are exchanging were: (a) purchased with a sales load, (b) acquired by a
previous exchange from shares purchased with a sales load, or (c) acquired
through reinvestment of dividends or distributions paid with respect to
the foregoing categories of shares. To qualify, at the time of your
exchange you must notify the Transfer Agent or your Service Agent must
notify Dreyfus Service Corporation. 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 charge shareholders a nominal 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.
The Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
The exchange of shares of one fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE -- Dreyfus Auto-Exchange Privilege
enables you to invest regularly (on a semi-monthly, monthly, quarterly or
annual basis), in exchange for shares of the Fund, in shares of other funds
in the Dreyfus Family of Funds of which you are currently an investor. 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 day 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 canceled by the Fund or the
Transfer Agent. You may modify or cancel your exercise of this Privilege
at any time by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. The Fund may
charge a service fee for the use of this Privilege. No such fee currently is
contemplated. The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss. For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto-Exchange
Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER -- Dreyfus-AUTOMATIC Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000
per transaction) at regular intervals selected by you. Fund shares are
purchased by transferring funds from the bank designated by you. At your
option, the 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 from Dreyfus Service
Corporation. You may cancel your participation in this Privilege or change
the amount of purchase at any time by mailing written notification to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671,
or, if for Dreyfus retirement plan accounts, to The Dreyfus Trust Company,
Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427, and the
notification will be effective three business days following receipt. The
Fund may modify or terminate this Privilege at any time or charge a
service fee. No such fee currently is contemplated.
DREYFUS 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
from Dreyfus Service Corporation. 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 DIVIDEND SWEEP PRIVILEGE -- Dreyfus Dividend Sweep Privilege
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. If you are investing in a fund
that charges a contingent deferred sales charge, the shares purchased will
be subject on redemption to the contingent deferred sales charge, if any,
applicable to the purchased shares. See "Shareholder Services" in the
Statement of Additional Information. For more information concerning
this Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to request a Dividend Sweep Authorization
Form, please call toll free 1-800-645-6561. You may cancel this Privilege
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 authorization form. Enrollment in or
cancellation of this Privilege is effective three business days following
receipt. This Privilege is available only for existing accounts and may not
be used to open new accounts. Minimum subsequent investments do not
apply. 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 or IRAs are not eligible for this Privilege.
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 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 from Dreyfus Service Corporation. 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 Dreyfus Service Corporation, Dreyfus, the Fund, the Transfer
Agent or any other person, to arrange for transactions under the Dreyfus
Payroll Savings Plan. The Fund may modify or terminate this Privilege at
any time or charge a service fee. No such fee currently is contemplated.
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 application for the Automatic Withdrawal Plan can be obtained
from Dreyfus Service Corporation. There is a service charge of 50o for
each withdrawal check. 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.
RETIREMENT PLANS -- The Fund offers a variety of pension and profit-
sharing plans, including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover
Accounts", 401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan
support services also are available. For details, please contact the
Dreyfus Group Retirement Plans, a division of Dreyfus Service
Corporation, by calling toll free 1-800-358-5566.
HOW TO REDEEM FUND SHARES
GENERAL -- You may request redemption of your shares at any time.
Redemption requests should be transmitted to the Transfer Agent as
described below. When a request is received in proper form, the Fund will
redeem the shares at the next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through
Dreyfus Service Corporation. Service Agents may charge a nominal fee for
effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request.
The value of the shares redeemed may be more or less than their original
cost, depending upon the Fund's then-current 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 BUILDER AND SUBSEQUENTLY SUBMIT A WRITTEN
REDEMPTION REQUEST TO THE TRANSFER AGENT, THE REDEMPTION
PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR
DREYFUS-AUTOMATIC ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT
BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL 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, through the Wire Redemption Privilege,
through the Telephone Redemption Privilege, or through the
Dreyfus TELETRANSFER Privilege. Other redemption procedures may be in
effect for investors who effect transactions in Fund shares through
Service Agents. The Fund makes available to certain large institutions the
ability to issue redemption instructions through compatible computer
facilities.
You may redeem or exchange Fund shares by telephone if you have checked
the appropriate box on the Fund's Account Application or have filed an
Optional Services Form with the Transfer Agent. If you select a telephone
redemption or exchange privilege, you authorize the Transfer Agent to act
on telephone instructions from any person representing himself or herself
to be you or a representative of your Service Agent, and reasonably
believed by the Transfer Agent to be genuine. The Fund will require the
Transfer Agent to employ reasonable procedures, such as requiring a form
of personal identification, to confirm that instructions are genuine and, if
it does not follow such procedures, the Fund or the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent instructions.
Neither the Fund nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or 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. 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
FinancialCenter, 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 or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank
if your bank is not a member. To establish the Wire Redemption Privilege,
you must check the appropriate box and supply the necessary information
on the Fund's Account Application or file an Optional Services Form with
the Transfer Agent. You may direct that redemption proceeds be paid by
check (maximum $150,000 per day) made out to the owners of record and
mailed to your address. Redemption proceeds of less than $1,000 will be
paid automatically by check. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of only up to $250,000 wired
within any 30-day period. You may telephone redemption requests by
calling 1-800-221-4060 or, if you are calling from overseas, call 1-401-
455-3306. The Fund reserves the right to refuse any redemption request,
including requests made shortly after a change in address, and may limit
the amount involved or the number of such requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund. The
Fund's Statement of Additional Information sets forth instructions for
transmitting redemption requests by wire. Shares held under Keogh Plans,
IRAs or other retirement plans, and shares for which certificates have
been issued, are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE-- You may redeem Fund shares
(maximum $150,000 per day) by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed an
Optional Services Form with the Transfer Agent. The redemption proceeds
will be paid by check and mailed to your address. You may telephone
redemption instructions by calling 1-800-221-4060 or, if you are calling
from overseas, call 1-401-455-3306. The Fund reserves the right to
refuse any request made by telephone, including requests made shortly
after a change of address, and may limit the amount involved or the
number of telephone redemption requests. This Privilege may be modified
or terminated at any time by the Transfer Agent or the Fund. Shares held
under Keogh Plans, IRAs or other retirement plans, and shares for which
the certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE - You may redeem Fund shares
(minimum $500, per day) by telephone if you have checked the appropriate box
and supplied the necessary information on the Fund's Account Application or
have filed an Optional Services Form with the Transfer Agent. The proceeds will
be transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so 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
or, at your request, paid by check (maximum $150,000 per day) and mailed to
your address. Holders of jointly registered Fund or bank accounts may redeem
through the Dreyfus TELETRANSFER Privilege for transfer to their bank account
only up to $250,000 within any 30-day period. The Fund reserves the right to
refuse any request made by telephone, including requests made shortly after
a change of address, and may limit the amount invlolved or the number of such
requests.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may request
a Dreyfus TELETRANSFER redemption by telephoning 1-800-221-4060 or,
if you are calling from overseas, call 1-401-455-3306. Shares held under
Keogh Plans, IRAs or other retirement plans, and shares issued in
certificate form, are not eligible for this Privilege.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Fund shares are subject to a Distribution Plan and a Shareholder Services
Plan.
DISTRIBUTION PLAN - Under the Distribution Plan, adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays
Dreyfus Service Corporation for advertising, marketing and distributing
Fund shares at an annual rate of .50 of 1% of the value of the Fund's
average daily net assets. Under the Distribution Plan, Dreyfus Service
Corporation may make payments to Service Agents in respect of these
services. Dreyfus Service Corporation determines the amounts to be paid
to Service Agents. Service Agents receive such fees in respect of the
average daily value of Fund shares owned by their clients. From time to
time, Dreyfus Service Corporation may defer or waive receipt of fees
under the Distribution Plan while retaining the ability to be paid by the
Fund under the Distribution Plan thereafter. The fees payable to Dreyfus
Service Corporation under the Distribution Plan for advertising, marketing
and distributing Fund shares and for payments to Service Agents are
payable without regard to actual expenses incurred.
The Fund bears the costs of preparing and printing prospectuses and
statements of additional information used for regulatory purposes and for
distribution to existing Fund shareholders. Under the Distribution Plan, the
Fund bears (a) the costs of preparing, printing and distributing
prospectuses and statements of additional information used for other
purposes and (b) the costs associated with implementing and operating the
Distribution Plan, the aggregate of such amounts not to exceed in any
fiscal year of the Fund the greater of $100,000 or .005 of 1% of the value
of the Fund's average daily net assets for such fiscal year.
SHAREHOLDER SERVICES PLAN - Under the Shareholder Services Plan, the
Fund pays Dreyfus Service Corporation for the provision of certain
services to Fund shareholders a fee at the annual rate of .25 of 1% of the
value of the Fund's average daily net assets. 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. Dreyfus Service Corporation may make payments to
Service Agents in respect of these services. Dreyfus Service Corporation
determines the amounts to be paid to Service Agents. Each Service Agent
is required to disclose to its clients any compensation payable to it by the
Fund pursuant to the Shareholder Services Plan and any other
compensation payable by their clients in connection with the investment
of their assets in Fund shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but the Fund
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 Investment Company Act of 1940. The Fund will
not make distributions from net realized securities gains unless capital
loss carryovers, if any, have been utilized or have expired. You may choose
whether to receive dividends and distributions in cash or to reinvest in
additional Fund shares at net asset value. 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 gains
from the sale or other disposition of 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. 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 Fund
shares. The Code provides that the net capital gain of an individual
generally will not be subject to Federal income tax at a rate in excess of
28%. Dividends and 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 gains
from the sale or other disposition of 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 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.
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 withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return.
Furthermore, the IRS may notify the Fund to institute backup withholding
if the IRS determines a shareholder's TIN is incorrect or if a shareholder
has failed to properly report taxable dividend and interest income on a
Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
It is expected that the Fund will qualify as a "regulated investment
company" under the Code so long as 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. In addition, 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 will be calculated on the basis
of average annual total return. Advertisements also may include
performance calculated on the basis of total return.
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 and ten year
periods, or for shorter periods depending upon the length of time during
which the Fund has operated. Computations of average annual total return
for periods of less than one year represent an annualization of the Fund's
actual total return for the applicable period.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and 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., Morgan Stanley Capital International World
Index, 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 January 27,1993, and
commenced operations on June 29, 1993. 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 Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year
the election of Directors or the appointment of auditors. However,
pursuant to the Fund's By-Laws, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special
meeting of shareholders for purposes of removing a Director from office
or for any other purpose. Fund shareholders may remove a Director by the
affirmative vote of a majority of the Fund's outstanding voting shares. In
addition, the Board of Directors will call a meeting of shareholders for
the purpose of electing Directors if, at any time, less than a majority of
the Directors then holding office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquires may be made to your Service Agent or by writing to
the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-
0144, or by calling toll free, l -800-645-6561. In New York City, call
1-718-895-1206 (elsewhere in New York State, call collect); on Long
Island, call 794-5200.
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.
DREYFUS INTERNATIONAL EQUITY FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
JANUARY 15, 1994
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus International Equity Fund, Inc. (the "Fund"), dated January 15,
1994, 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:
Outside New York State -- Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
(Outside New York City -- Call Collect)
On Long Island -- Call 794-5200
The Dreyfus Corporation ("Dreyfus") serves as the Fund's investment
adviser. Dreyfus has engaged M&G Investment Management Limited ("M&G") to
serve as the Fund's sub-investment adviser and provide day-to-day
management of the Fund's investments, subject to the supervision of
Dreyfus. Dreyfus and M&G are referred to collectively as the "Advisers."
Dreyfus Service Corporation (the "Distributor"), a wholly-owned
subsidiary of Dreyfus, is the distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . B-8
Management Arrangements . . . . . . . . . . . . . . . . . . . . B-11
Distribution Plan and Shareholder Services Plan . . . . . . . . B-13
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . B-14
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . B-15
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . B-16
Determination of Net Asset Value. . . . . . . . . . . . . . . . B-19
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . B-20
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . B-23
Performance Information . . . . . . . . . . . . . . . . . . . . B-23
Information About the Fund. . . . . . . . . . . . . . . . . . . B-24
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . B-25
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-26
Financial Statement . . . . . . . . . . . . . . . . . . . . . . B-30
Report of Independent Auditors. . . . . . . . . . . . . . . . . B-42
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Description
of the Fund."
Portfolio Securities
Bank Obligations. Domestic commercial banks organized under Federal
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and examined by
state banking authorities but are members of the Federal Reserve System
only if they elect to join. In addition, state banks whose certificates of
deposit ("CDs") may be purchased by the Fund are insured by the FDIC
(although such insurance may not be of material benefit to the Fund,
depending on the principal amount of the CDs of each bank held by the Fund)
and are subject to Federal examination and to a substantial body of Federal
law and regulation. As a result of Federal or state laws and regulations,
domestic branches of domestic banks whose CDs may be purchased by the Fund
generally are required, among other things, to maintain specified levels of
reserves, are limited in the amounts which they can loan to a single
borrower and are subject to other regulation designed to promote financial
soundness. However, not all of such laws and regulations apply to the
foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks, such as CDs and time deposits ("TDs"), may be general obligations of
the parent banks in addition to the issuing branch, or may be limited by
the terms of a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of domestic
banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or
similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing
and financial record keeping requirements. In addition, less information
may be publicly available about a foreign branch of a domestic bank or
about a foreign bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal or state
regulation as well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a foreign bank with
assets in excess of $1 billion may be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch
is located if the branch is licensed in that state.
In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a
designated bank within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state.
The deposits of Federal and State Branches generally must be insured by the
FDIC if such branches take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign
subsidiaries of domestic banks, by foreign branches of foreign banks or by
domestic branches of foreign banks, the Advisers carefully evaluate such
investments on a case-by-case basis.
Management Policies
The Fund engages in the following practices in furtherance of its
objective.
Options Transactions. The Fund may engage in options transactions,
such as purchasing or writing covered call or put options. The principal
reason for writing covered call options is to realize, through the receipt
of premiums, a greater return than would be realized on the Fund's
portfolio securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in the value of
the underlying security above the strike price for the life of the option
(or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the
underlying security. Similarly, the principal reason for writing covered
put options is to realize income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Fund may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing
activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities
at the time the options are written. In the case of call options, these
exercise prices are referred to as "in-the-money," "at-the-money" and "out-
of-the-money," respectively. The Fund may write (a) in-the-money call
options when the Advisers expect that the price of the underlying security
will remain stable or decline moderately during the option period, (b) at-
the-money call options when the Advisers expect that the price of the
underlying security will remain stable or advance moderately during the
option period and (c) out-of-the-money call options when the Advisers
expect that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price,
the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put
options (the reverse of call options as to the relation of exercise price
to market price) may be utilized in the same market environments that such
call options are used in equivalent transactions.
So long as the Fund's obligation as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through
which the option was sold, requiring the Fund to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase transaction. The
Fund can no longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice.
While it may choose to do otherwise, the Fund generally will purchase
or write only those options for which the Advisers believe there is an
active secondary market so as to facilitate closing transactions. 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 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
otherwise may interfere with the timely execution of customers' orders,
will not recur. In such event, it might not be possible to effect closing
transactions in particular options. If as a covered call option writer 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.
Stock Index Options. The Fund may purchase and write put and call
options on stock indexes listed on U.S. or foreign securities exchanges or
traded in the over-the-counter market. A stock index fluctuates with
changes in the market values of the stocks included in the index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are generally monthly,
while those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make
delivery of a stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied
by (ii) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is
based being greater than, in the case of a call, or less than, in the case
of a put, the exercise price of the option. The amount of cash received
will be equal to such difference between the closing price of the index and
the exercise price of the option expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a
closing transaction on an exchange or it may let the option expire
unexercised.
Futures Contracts and Options on Futures Contracts. Upon exercise of
an option, the writer of the option will deliver to the holder of the
option the futures position and the accumulated balance in the writer's
futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. The potential loss related to the purchase of options on futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the time of sale,
there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and
that change would be reflected in the net asset value of the Fund.
Foreign Currency Transactions. If the Fund enters into a currency
transaction, it will deposit, if so required by applicable regulations,
with its custodian cash or readily marketable securities in a segregated
account of the Fund in an amount at least equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If the
value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the
value of the account will equal the amount of the Fund's commitment with
respect to the contract.
At or before the maturity of a forward contract, the Fund either may
sell a security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to
deliver. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or loss to the extent movement
has occurred in forward contract prices. Should forward prices decline
during the period between the Fund's entering into a forward contract for
the sale of a currency and the date it enters into an offsetting contract
for the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase,
the Fund will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. The use of forward currency exchange contracts
does not eliminate fluctuations in the underlying prices of the securities,
but it does establish a rate of exchange that can be achieved in the
future. If a devaluation generally is anticipated, the Fund may not be
able to contract to sell the currency at a price above the devaluation
level it anticipates. The requirements for qualification as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), may cause the Fund to restrict the degree to which it engages in
currency transactions. See "Dividends, Distributions and Taxes."
Lending Portfolio Securities. To a limited extent, the Fund may lend
its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its securities, the Fund can increase
its income through the investment of the cash collateral. For purposes of
this policy, the Fund considers collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose
securities meet the standards for investment by the Fund to be the
equivalent of cash. From time to time, 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 of Directors must
terminate the loan and regain the right to vote the securities if a
material event adversely affecting the investment occurs. These conditions
may be subject to future modification.
Investment Restrictions. The Fund has adopted investment restrictions
numbered 1 through 8 as fundamental policies. These restrictions cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 9 through 14
are not fundamental policies and may be changed by vote of a majority of
the Fund's Directors at any time. The Fund may not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
3. 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 or real estate investment
trusts.
4. Borrow money, except to the extent permitted under the Act. For
purposes of this Investment Restriction, the entry into options, forward
contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes shall not constitute borrowing.
5. 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 of Directors.
6. 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.
7. Issue any senior security (as such term is defined in Section
18(f) of the Act), except to the extent the activities permitted in
Investment Restriction Nos. 2, 4, 11 and 12 may be deemed to give rise to a
senior security.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
9. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
12. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Fund's Prospectus and Statement of Additional
Information.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the Act.
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 invest, notwithstanding any other investment restriction
(whether or not fundamental), all of the Fund's assets in the securities of
a single open-end management investment company with substantially the same
fundamental investment objective, policies and restrictions as the Fund.
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
Directors and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. Each Director who is deemed to be an "interested person"
of the Fund, as defined in the Act, is indicated by an asterisk.
Directors and Officers of the Fund
*JOSEPH S. DiMARTINO, Director, President and Investment Officer.
President, Chief Operating Officer and a director of Dreyfus,
Executive Vice President and a director of the Distributor and an officer,
director or trustee of other investment companies advised or administered
by Dreyfus. He is also a director of Noel Group, Inc., a director and
Corporate Member of The Muscular Dystrophy Association and a Trustee of
Bucknell University. His address is 200 Park Avenue, New York, New York
10166.
JOHN M. FRASER, JR., Director. 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. His address is 965 Fifth Avenue, New York, New York 10021.
ROBERT R. GLAUBER, Director. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University since January 1992. He was Under Secretary of the Treasury for
Finance at the U.S. Treasury Department from May 1989 to January 1992. For
more than five years prior thereto, he was a Professor of Finance at the
Graduate School of Business Administration of Harvard University and, from
1985 to 1989, Chairman of its Advanced Management Program. His address is
79 John F. Kennedy Street, Cambridge, Massachusetts 02138.
JAMES F. HENRY, Director. President of the Center for Public Resources, 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. His address is c/o Center for Public Resources, 366 Madison
Avenue, New York, New York 10017.
ROSALIND GERSTEN JACOBS, Director. 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 Vice President of Macy's, New
York. Her address is c/o Corporate Property Investors, 305 East 47th
Street, New York, New York 10017.
*IRVING KRISTOL, Director. Consultant to Dreyfus on economic matters. He
is also John M. Olin Distinguished Fellow of the American Enterprise
Institute for Public Policy Research. 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 also co-editor of
The Public Interest magazine and an author or co-editor of several books.
He also has been a director of Lincoln National Corporation, an insurance
company, from 1975 to 1990, and Warner-Lambert Company, a pharmaceutical
and consumer products company, from 1977 to 1990. His address is c/o The
Public Interest, 1112 16th Street, N.W., Suite 530, Washington, D.C. 20036.
DR. PAUL A. MARKS, Director. President and Chief Executive Officer of
Memorial Sloan-Kettering Cancer Center. He was Vice President for Health
Sciences and Director of the Cancer Center at Columbia University from 1973
to September 1980, and Professor of Medicine and of Human Genetics and
Development at Columbia University from 1968 to 1982. He is also a
director of Pfizer, Inc., a pharmaceutical company, Life Technologies,
Inc., a life science company providing products for cell and molecular
biology and microbiology, Biotechnology General, Inc., a biotechnology
company, and Carmel Container Corporation. His address is c/o Memorial
Sloan-Kettering Cancer Center, 1275 York Avenue, New York, New York 10021.
DR. MARTIN PERETZ, Director. 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 a director of Carmel
Container Corporation. His address is c/o The New Republic, 1220 19th
Street, N.W., Washington, D.C. 20036.
*BERT W. WASSERMAN, Director. Executive Vice President and Chief Financial
Officer since January 1990 and a director from January 1990 to March 1993
of Time Warner Inc. From 1981 to 1990, he was President and a director of
Warner Communications Inc. He is also a member of the Chemical Bank
National Advisory Board. His address is c/o Time Warner Inc., 75
Rockefeller Place, New York, New York 10019.
Mrs. Jacobs, Messrs. Fraser, Glauber, Henry, Kristol and Wasserman and
Drs. Marks and Peretz are also directors of Dreyfus A Bonds Plus, Inc.,
Dreyfus Balanced Fund, Inc., Dreyfus Capital Growth Fund, Dreyfus Growth
and Income Fund, Inc., Dreyfus Growth Opportunity Fund, Inc. and Dreyfus
Money Market Instruments, Inc. and trustees of Dreyfus Institutional Money
Market Fund and Dreyfus Variable Investment Fund. In addition, Mr. Glauber
is a director of Dreyfus California Municipal Income, Inc., The Dreyfus
Fund Incorporated, Dreyfus Municipal Income, Inc., Dreyfus New York
Municipal Income, Inc., Dreyfus Short-Term Income Fund, Inc. and Dreyfus
Worldwide Dollar Money Market Fund, Inc. and a trustee of Dreyfus
Institutional Short Term Treasury Fund and Dreyfus Short-Intermediate
Municipal Bond Fund.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain in effect, the
Directors of the Fund who are not "interested persons" of the Fund, as
defined in the Act, will be selected and nominated by the Directors who are
not "interested persons" of the Fund.
The Fund does not pay any remuneration to its officers and Directors
other than fees and expenses to Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
Dreyfus, which totalled $3,000 for the period June 29, 1993 (commencement
of operations) through September 30, 1993 for all such Directors as a
group.
Officers of the Fund Not Listed Above
MARK N. JACOBS, Vice President. Secretary and Deputy General Counsel of
Dreyfus and an officer of other investment companies advised or
administered by Dreyfus.
JEFFREY N. NACHMAN, Vice President and Treasurer. Vice President-Mutual
Fund Accounting of Dreyfus and an officer of other investment companies
advised or administered by Dreyfus.
THOMAS J. DURANTE, Controller. Senior Accounting Manager in the Fund
Accounting Department of Dreyfus and an officer of other investment
companies advised or administered by Dreyfus.
DANIEL C. MACLEAN, Secretary. Vice President and General Counsel of
Dreyfus, Secretary of the Distributor and an officer of other investment
companies advised or administered by Dreyfus.
STEVEN F. NEWMAN, Assistant Secretary. Associate General Counsel of
Dreyfus and an officer of other investment companies advised or
administered by Dreyfus.
CHRISTINE PAVALOS, Assistant Secretary. Assistant Secretary of Dreyfus,
the Distributor and other investment companies advised or administered by
Dreyfus.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Directors and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of common stock outstanding on December 10, 1993.
The following persons are known by the Fund to own of record or
beneficial 5% or more of the Fund's outstanding voting securities as of
December 10, 1993: Larry Lee Bosley, Beverly Hills, CA 90211 - 5.700%.
The Dreyfus Corporation, attn. Maurice Bendrihem, 200 Park Avenue, New
York, New York 10166 - 5.300%. Renelagh Nominee Ltd. (EBIV) Capitol House,
attn. Keith Foley, 1-5 Perrymount Road Haywards Heath, West Sussex, England
RH63SP - 5.300%.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
Management Agreement. Dreyfus supervises investment management of the
Fund pursuant to the Management Agreement (the "Management Agreement")
dated June 14, 1993 between Dreyfus and the Fund. The Management Agreement
is subject to annual approval by (i) the Fund's Board of Directors or (ii)
vote of a majority (as defined in the Act) of the Fund's outstanding voting
securities, provided that in either event its continuance also is approved
by a majority of the Fund's Directors who are not "interested persons" (as
defined in the Act) of the Fund or Dreyfus, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Management
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Directors or by vote of the holders of a majority of the Fund's shares, or,
on not less than 90 days' notice, by Dreyfus. The Management Agreement
will terminate automatically in the event of its assignment (as defined in
the Act).
In addition to the persons named in the section entitled "Management
of the Fund," the following persons also are officers and/or directors of
Dreyfus: Howard Stein, Chairman of the Board of Directors and Chief
Executive Officer; Julian M. Smerling, Vice Chairman of the Board of
Directors; Alan M. Eisner, Vice President and Chief Financial Officer;
David W. Burke, Vice President and Chief Administrative Officer; Robert F.
Dubuss, Vice President; Elie M. Genadry, Vice President--Institutional
Sales; Peter A. Santoriello, Vice President; Robert H. Schmidt, Vice
President; Kirk V. Stumpp, Vice President--New Product Development; Philip
L. Toia, Vice President; John J. Pyburn, Assistant Vice President;
Katherine C. Wickham, Assistant Vice President--Human Resources; Maurice
Bendrihem, Controller; and Mandell L. Berman, Alvin E. Friedman, Lawrence
M. Greene, Abigail Q. McCarthy and David B. Truman, directors.
Dreyfus pays the salaries of all officers and employees employed by
both it and the Fund, maintains office facilities, and furnishes the Fund
statistical and research data, clerical help, accounting, data processing,
bookkeeping and internal auditing and certain other required services.
Dreyfus also may make such advertising and promotional expenditures using
its own resources, as it from time to time deems appropriate.
Sub-Investment Advisory Agreement. M&G provides investment advisory
assistance and day-to-day management of the Fund's investments pursuant to
the Sub-Investment Advisory Agreement (the "Sub-Advisory Agreement") dated
June 14, 1993 between M&G and Dreyfus. The Sub-Advisory Agreement is
subject to annual approval by (i) the Fund's Board of Directors or (ii)
vote of a majority (as defined in the Act) of the Fund's outstanding voting
securities, provided that in either event the continuance also is approved
by a majority of the Fund's Directors who are not "interested persons" (as
defined in the Act) of the Fund or M&G, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Sub-Advisory
Agreement is terminable without penalty, (i) by Dreyfus on 60 days' notice,
(ii) by the Fund's Board of Directors or by vote of the holders of a
majority of the Fund's shares on 60 days' notice, or (iii) on not less than
90 days' notice, by M&G. The Sub-Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the Act) or
upon the termination of the Management Agreement for any reason.
The following persons are officers and/or directors of M&G: Laurence
E. Linaker, Chairman of the Board of Directors; David L. Morgan, Managing
Director and a director; John P. Allard, John W. Boeckmann, Gordon P.
Craig, Robert A. R. Hayes, Richard S. Hughes, David J. Hutchins, Peter D.
Jones, James R.D. Korner, Michael G.A. McLintook, Ewen A. Macpherson, Paul
R. Marsh, Nigel D. Morrison, Roger D. Nightingale, Paul D.A. Nix, William
J. Nott, Neil A. Pegrum, Duncan N. Robertson, J. Christopher Whitaker,
directors; and Anthony J. Ashplant, Secretary.
M&G provides day-to-day management of the Fund's investments in
accordance with the stated policies of the Fund, subject to the supervision
of Dreyfus and approval of the Fund's Board of Directors. Dreyfus and M&G
provide the Fund with Investment Officers who are authorized by the Board
of Directors to execute purchases and sales of securities. The Fund's
Investment Officers are Joseph S. DiMartino, Paul D.A. Nix, David L. Morgan
and William Vincent. Dreyfus also maintains a research department with a
professional staff of portfolio managers and securities analysts who
provide research services for the Fund as well as other funds advised by
Dreyfus. All purchases and sales are reported for the Board of Directors'
review at the meeting subsequent to such transactions.
Expenses. All expenses incurred in the operation of the Fund are
borne by the Fund, except to the extent specifically assumed by Dreyfus
and/or M&G. The expenses borne by the Fund include: organizational costs,
taxes, interest, brokerage fees and commissions, if any, fees of Directors
who are not officers, directors, employees or holders of 5% or more of the
outstanding voting securities of Dreyfus or M&G or any of their affiliates,
Securities and Exchange Commission fees, state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of maintaining the Fund's
existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, and any
extraordinary expenses. The Fund is subject to an annual distribution fee
for advertising, marketing and distributing its shares and an annual
service fee for ongoing personal services relating to shareholder accounts
and services related to the maintenance of shareholder accounts. See
"Distribution Plan and Shareholder Services Plan."
As compensation for Dreyfus' services, the Fund has agreed to pay
Dreyfus a monthly fee at the annual rate of .75 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
period from June 29, 1993 (commencement of operations) through September
30, 1993, no management fee was paid by the Fund pursuant to undertakings
by Dreyfus.
As compensation for M&G's services, Dreyfus has agreed to pay M&G a
monthly fee at the annual rate of .30 of 1% of the value of the Fund's
average daily net assets. For the period from June 29, 1993 (commencement
of operations) through September 30, 1993, no sub-investment advisory fee
was paid by Dreyfus pursuant to an undertaking by M&G.
Dreyfus and M&G have agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of interest, taxes, brokerage 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, Dreyfus
and M&G will bear the excess expense in proportion to their management fee
and sub-advisory fee to the extent required by state law. Such payment, if
any, will be estimated daily, and reconciled and paid on a monthly basis.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Distribution Plan and Shareholder Services Plan."
The Fund's shares are subject to a Distribution Plan and a Shareholder
Services Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the Act provides, among other things, that an
investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with the Rule. The Fund's Board
of Directors has adopted such a plan (the "Distribution Plan") with respect
to the Fund's shares, pursuant to which the Fund pays the Distributor for
advertising, marketing and distributing the Fund's shares. Under the
Distribution Plan, the Distributor may make payments to certain financial
institutions, securities dealers and other financial industry professionals
(collectively, "Service Agents") in respect to these services. The Fund's
Board of Directors believes that there is a reasonable likelihood that the
Distribution Plan will benefit the Fund and its shareholders. In some
states, certain financial institutions effecting transactions in Fund
shares may be required to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be
made to the Directors for their review. In addition, the Distribution Plan
provides that it may not be amended to increase materially the costs which
Fund shareholders may bear for distribution pursuant to the Distribution
Plan without shareholder approval and that other material amendments of the
Distribution Plan must be approved by the Board of Directors, and by the
Directors who are not "interested persons" (as defined in the Act) of the
Fund and have no direct or indirect financial interest in the operation of
the Distribution Plan or in any agreements entered into in connection with
the Distribution Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Distribution Plan is subject
to annual approval by such vote of the Directors cast in person at a
meeting called for the purpose of voting on the Distribution Plan. The
Distribution Plan was so approved by the Directors at a meeting held on
June 14, 1993. The Distribution Plan may be terminated at any time by vote
of a majority of the Directors who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Distribution
Plan or in any agreements entered into in connection with the Distribution
Plan or by vote of the holders of a majority of the Fund's shares.
For the period June 29, 1993 (commencement of operations) through
September 30, 1993, the total amount charged to the Fund under the
Distribution Plan was $40,102, of which $30,541 was charged for
advertising, marketing and distributing the Fund's shares, and $9,561 was
charged for preparing, printing and distributing prospectuses and
statements of additional information and operating the Plan.
Shareholder Services Plan. The Fund has adopted a Shareholder
Services Plan, pursuant to which the Fund pays the Distributor for the
provision of certain services to Fund shareholders.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Directors for their review. In addition, the
Shareholder Services Plan provides that it may not be amended without
approval of the Directors, and by the Directors who are not "interested
persons" (as defined in the Act) of the Fund and have no direct or indirect
financial interest in the operation of the Shareholder Services Plan or in
any agreements entered into in connection with the Shareholder Services
Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Shareholder Services Plan is subject to
annual approval by such vote of the Directors cast in person at a meeting
called for the purpose of voting on the Shareholder Services Plan. The
Shareholder Services Plan was so approved on June 14, 1993. The
Shareholder Services Plan is terminable at any time by vote of a majority
of the Directors who are not "interested persons" and have no direct or
indirect financial interest in the operation of the Shareholder Services
Plan or in any agreements entered into in connection with the Shareholder
Services Plan.
For the period June 29, 1993 (commencement of operations) through
September 30, 1993, $15,271 was charged to the Fund under the Shareholder
Services Plan.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and
for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made between the hours of 8:00 a.m. and 4:00 p.m., New York time, on
any business day that The Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), and the New
York Stock Exchange are open. Such purchases will be credited to the
shareholder's Fund account on the next bank business day. To qualify to
use the Dreyfus TeleTransfer Privilege, the initial payment for purchase of
Fund shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or Optional
Services Form on file. If the proceeds of a particular redemption are to
be wired to an account at any other bank, the request must be in writing
and signature-guaranteed. See "Redemption of Fund Shares--Dreyfus
TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt if the Transfer Agent receives the
redemption request in proper form. Redemption proceeds will be transferred
by Federal Reserve wire only to the commercial bank account specified by
the investor on the Account Application or Optional Services Form.
Redemption proceeds, if wired, must be in the amount of $1,000 or more and
will be wired to the investor's account at the bank of record designated in
the investor's file at the Transfer Agent, if the investor's bank is a
member of the Federal Reserve System, or to a correspondent bank if the
investor's bank is not a member. Fees ordinarily are imposed by such bank
and usually are borne by the investor. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
________________ __________________
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
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 of Directors reserves the right to make payments in whole
or in part in securities or other assets in case of an emergency or any
time a cash distribution would impair the liquidity of the Fund to the
detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Fund's portfolio is valued. If
the recipient sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the 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."
Exchange Privilege. Shares of other 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 use this Privilege, an investor or the investor's Service Agent
acting on the investor's behalf must give exchange instructions to the
Transfer Agent in writing, by wire or by telephone. Telephone exchanges
may be made only if the appropriate "YES" box has been checked on the
Account Application, or a separate signed Optional Services Form is on file
with the Transfer Agent. By using this Privilege, the investor authorizes
the Transfer Agent to act on telephonic, telegraphic or written exchange
instructions from any person representing himself or herself to be the
investor or a representative of the investor's Service Agent, 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.
For Dreyfus-sponsored Keogh Plans, IRAs and Simplified Employee Pension
Plans ("SEP-IRAs") with only one participant, the minimum initial
investment is $750. To exchange shares held in Corporate Plans, 403(b)(7)
Plans and IRAs set up under a SEP-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
Personal Retirement Plans, the shares exchanged must have a current value
of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange 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 set forth under "Exchange Privilege" above. 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.
The Exchange Privilege and Dreyfus Auto-Exchange Privilege are
available to shareholders resident in any state in which shares of the fund
being acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Optional Services Forms and prospectuses of the other funds may be
obtained from the Distributor, 144 Glenn Curtiss Boulevard, Uniondale, New
York 11556-0144. The Fund reserves the right to reject any exchange
request in whole or in part. The Exchange Privilege 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. An Automatic Withdrawal Plan may be established by completing
the appropriate application available from the Distributor. There is a
service charge of $.50 for each withdrawal check. Automatic Withdrawal may
be terminated at any time by the investor, the Fund or the Transfer Agent.
Shares for which certificates have been issued may not be redeemed through
the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep Privilege. Dreyfus Dividend Sweep Privilege
allows investors to invest on the payment date 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 that impose a contingent deferred sales charge and
the applicable contingent deferred sales charge, if any, will be imposed
upon redemption of such shares.
Corporate Pension/Profit-Sharing and Personal Retirement Plans. The
Fund makes available to corporations a variety of prototype pension and
profit-sharing plans including a 401(k) Salary Reduction Plan. In
addition, the Fund makes available Keogh Plans, IRAs, including IRAs set up
under a SEP-IRA and IRA "Rollover Accounts," and 403(b)(7) Plans. Plan
support services also are available. For details, please contact the
Dreyfus Group Retirement Plans, a division of the Distributor, by calling
toll free 1-800-358-5566.
Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan or an IRA, including an SEP-IRA, may request from the Distributor
forms for adoption of such plans.
The entity acting as custodian for Keogh Plans 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 Dreyfus-sponsored Keogh Plans, IRAs
and SEP-IRAs with only one participant, is normally $750, with no minimum
on subsequent purchases. Individuals who open an IRA may also open a non-
working spousal IRA with a minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details on eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. The Fund's 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. Any assets or liabilities initially expressed in terms of
foreign currency will be translated into dollars at the midpoint of the
New York interbank market spot exchange rate as quoted on the day of such
translation by the Federal Reserve Bank of New York or if no such rate is
quoted on such date, at the exchange rate previously quoted by the Federal
Reserve Bank of New York or at such other quoted market exchange rate as
may be determined to be appropriate by the Advisers. Forward currency
contracts will be valued at the current cost of offsetting the contract.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of net asset value does not
take place contemporaneously with the determination of prices of a majority
of the Fund's securities. Short-term investments are carried at amortized
cost, which approximates value. Any securities or other assets for which
recent market quotations are not readily available are valued at fair value
as determined in good faith by the Fund's Board of Directors. Expenses and
fees of the Fund, including the management fee paid by the Fund and
distribution and service fees, 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
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Directors, are valued at fair value as
determined in good faith by the Board of Directors. The Board of Directors
will review the method of valuation on a current basis. In making their
good faith valuation of restricted securities, the Directors generally will
take the following factors into consideration: restricted securities which
are, 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 of Directors if the Directors believe
that it no longer reflects the value of the restricted securities.
Restricted securities not of the same class as securities for which a
public market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations deemed
relevant by the Board of Directors.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's 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."
It is expected that the Fund will qualify as a "regulated investment
company" under the Code, as long as such qualification is in the best
interests of its shareholders. As a regulated investment company, the Fund
will pay no Federal income tax on net investment income and net realized
securities gains to the extent that such income and gains are distributed
to shareholders in accordance with applicable provisions of the Code. To
qualify as a regulated investment company, the Fund must pay out to its
shareholders at least 90% of its net income (consisting of net investment
income and net short-term capital gain), must derive less than 30% of its
annual gross income from gain on the sale of securities held for less than
three months, and must meet certain asset diversification and other
requirements. Accordingly, the Fund may be restricted in the selling of
securities held for less than three months. The Code, however, allows the
Fund to net certain offsetting positions, making it easier for the Fund to
satisfy the 30% test. The term "regulated investment company" does not
imply the supervision of management or investment practices or policies by
any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the
cost of the investment. Such a dividend or distribution would be a return
of investment in an economic sense, although taxable as stated 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 long-term capital loss to the extent of the capital gain
distribution received.
Depending upon the composition of the Fund's income, the entire amount
or a portion of the dividends from net investment income may qualify for
the dividends received deduction allowable to qualifying U.S. corporate
shareholders ("dividends received deduction"). In general, dividend income
of the Fund distributed to the Fund's 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 not held for more than 46 days and
has received a dividend from net investment income with respect to such
shares, the portion designated by the Fund as qualifying for the dividends
received deduction will not be eligible for such shareholder's dividends
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.
The Fund may qualify for and may make an election permitted under
Section 853 of the Code so that shareholders may be eligible to claim a
credit or deduction on their Federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid or incurred by the Fund to foreign
countries (which taxes relate primarily to investment income). The Fund
may make an election under Section 853, provided that more than 50% of the
value of the Fund's total assets at the close of the taxable year consists
of securities in foreign corporations, and the Fund satisfies the
applicable distribution provisions of the Code. The foreign tax credit
available to shareholders is subject to certain limitations imposed by the
Code.
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 the gain realized from the
disposition of market discount bonds will be treated as ordinary income
under Section 1276. A market discount bond is defined as any bond
purchased by the Fund after April 30, 1993, and after its original
issuance, at a price below its face or accreted value. Finally, all or a
portion of the gain realized from engaging in "conversion transactions" may
be treated as ordinary income under Section 1258. "Conversion
transactions" are defined to include certain forward, futures, option and
straddle transactions, transactions marketed or sold to produce capital
gains, or transactions described in Treasury regulations to be issued in
the future.
Under Section 1256 of the Code, any gain or loss the Fund realizes
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 the Fund characterized in the manner described
above.
Offsetting positions held by the 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. As such, all
or a portion of any short or long-term capital gain from certain "straddle"
transactions may be recharacterized as ordinary income. If the Fund were
treated as entering into "straddles" by reason of its engaging in certain
forward contracts or options transactions, such "straddles" would be
characterized as "mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by Section
1256 of the Code. The Fund may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the
results to the Fund may differ. If no election is made to the extent the
"straddle" and conversion transactions rules apply to positions established
by the Fund, losses realized by the Fund will be deferred to the extent of
unrealized gain in the offsetting position. Moreover, as a result of the
"straddle" rules, short-term capital loss on "straddle" positions may be
recharacterized as long-term capital loss, and long-term capital gains may
be treated as short-term capital gains or ordinary income.
If the 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. Under
Proposed Treasury Regulation Section 1.1291-8(a), the Fund can elect to
mark-to-market gains (but not losses) from PFIC securities in lieu of
paying taxes on gain or distributions therefrom. Such gains will be
treated as ordinary income under Proposed Treasury Regulation Section
1.1291-8(b)(2).
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligation 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 as income each year a portion of the discount (or
deemed discount) at which such securities were issued and to distribute
such income. 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.
PORTFOLIO TRANSACTIONS
Dreyfus assumes general supervision over placing orders on behalf of
the Fund for the purchase or sale of investment securities. Allocation of
brokerage transactions, including their frequency, is made in Dreyfus' 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 will
include those that supplement the Advisers' 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 Advisers and the Advisers' fees are not
reduced as a consequence of the receipt of such supplemental information.
Such information may be useful to Dreyfus in serving both the Fund and
other funds which it advises and to M&G in serving both the Fund and the
other funds or accounts it advises, and, conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Advisers in carrying out their obligations to the Fund.
Sales of Fund shares by a broker may be taken into consideration, and
brokers also will be selected because of their ability to handle special
executions such as are involved in large block trades or broad distribu-
tions, provided the primary consideration is met. Large block trades may,
in certain cases, result from two or more funds advised or administered by
Dreyfus 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. 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. 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.
The Fund's portfolio turnover rate for the period June 29, 1993
(commencement of operations) through September 30, 1993 was 9.73%.
Portfolio turnover may vary from year to year as well as within a year. It
is anticipated that in any fiscal year the turnover rate may approach the
150% level; however, in periods in which extraordinary market conditions
prevail, the Advisers will not be deterred from changing investment
strategy as rapidly as needed, in which case higher turnover rates can be
anticipated which would result in greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by Dreyfus based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
For the period June 29, 1993 (commencement of operations) through
September 30, 1993, the Fund did not pay brokerage commissions and there
were no gross spreads and concessions on principal transactions.
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 return for the period June 29, 1993
(commencement of operations) through September 30, 1993 was 45.92%.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
The Fund's total return for the period June 29, 1993 (commencement of
operations) through September 30, 1993 was 10.24%. 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.
Comparative performance may be used from time to time in advertising
the Fund's shares, including data from Lipper Analytical Services, Inc.,
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, Money Magazine, Morningstar, Inc. and other industry publications.
From time to time, the Fund may compare its performance against inflation
with the performance of other instruments against inflation, such as short-
term Treasury Bills (which are direct obligations of the U.S. Government)
and FDIC-insured bank money market accounts. In addition, advertising for
the Fund may indicate that investors may consider diversifying their
investment portfolios in order to seek protection of the value of their
assets against inflation. From time to time, advertising materials for the
Fund may refer to or discuss then-current or past economic or financial
conditions, development and/or events. The Fund's advertising materials
also may refer to the integration of the world's securities markets,
discuss the investment opportunities available worldwide and mention the
increasing importance of an investment strategy including foreign
investments. In addition, advertising materials or the Fund also may refer
to the clients of M&G.
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.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York 10286,
is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-
2696, as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares of
Common Stock being sold pursuant to the Fund's Prospectus.
Ernst & Young, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund and the
Fund. APPENDIX
Description of certain ratings assigned by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch") and Duff & Phelps, Inc. ("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.
<TABLE>
<CAPTION>
Dreyfus International Equity Fund, Inc.
Statement of Investments September 30, 1993 (Unaudited)
Common Stocks -- 84.3%
Shares Value
------------- -----------
<S> <C> <S>
<C> <C>
Argentina -- 1.0% YPF S.A., A.D.R............................... 20,000 $ 507,500
-----------
Australia -- 4.3% AAPC.......................................... 700,000 360,920
Brambles Industries........................... 50,000 414,414
Newcrest Mining............................... 200,000 492,398
News.......................................... 50,000 354,475
Queensland Metals............................. 90,000 330,628
Toll Holdings................................. 100,000 135,345
-----------
2,088,180
-----------
Austria -- .7%
Bank fuer Oberosterreich und Salburg.......... 5,650 320,888
Bau Holding................................... 5,000 453
-----------
321,341
-----------
Belgium -- .4% Quick Restaurants S.A......................... 4,000 203,793
-----------
Canada -- 2.1% Franco Nevada Mining.......................... 7,000 360,757
TVX Gold...................................... 150,000 674,663
-----------
1,035,420
-----------
France -- 5.2% Axa........................................... 960 252,193
Compagnie Signaux et Equipements Electroniques 7,500 710,713
Groupe Zannier................................ 2,700 393,261
Imetal........................................ 3,000 261,648
Lafarge Coppee................................ 3,600 259,079
Louis Vuitton................................. 440 290,863
Roussel-Uclaf................................. 3,570 382,153
-----------
2,549,910
-----------
Germany -- 5.4% Allianz AG Holding (Warrants)................. 274 213,829
AVA Allgemeine Handelsgesellschaft der
Verbraucher AG............................. 300 157,948
Deutsche Bank AG.............................. 570 271,296
Deutsche Bank AG (Warrants)................... 1,325 198,040
Etienne Aigner AG............................. 628 178,494
Felten & Guilleaume Energietechnik............ 1,600 389,489
Plettac AG.................................... 720 216,110
Siemens AG.................................... 800 326,665
Viag Ag (Warrants)............................ 1,500 297,703
Weru AG....................................... 450 399,418
-----------
2,648,992
-----------
Hong Kong -- 7.7% B & B Asia.................................... 387,000 191,411
Champion Technology Holdings.................. 322,000 224,840
Cheung Kong Holdings.......................... 92,000 327,148
China Light & Power........................... 52,000 304,261
Dah Sing Financial Holdings................... 66,800 196,077
Dairy Farm International Holdings............. 175,000 314,540
HSBC Holdings PLC............................. 22,000 231,848
Hongkong Electric Holdings.................... 98,000 268,649
Lamex Holdings................................ 658,000 216,965
New Island Printing Holdings.................. 1,654,000 222,430
Shaw Brothers................................. 138,000 208,780
Sun Hung Kai Properties....................... 49,000 258,195
Swire Pacific, Cl. A.......................... 54,000 282,796
Tsingtao Brewery.............................. 342,000 258,706
Vtech Holdings................................ 252,000 236,245
-----------
3,742,891
-----------
Italy -- .7% SIP........................................... 146,000 337,424
-----------
Japan -- 25.2% Asahi Concrete Works.......................... 26,000 525,154
Canon......................................... 38,000 516,470
DDI........................................... 12 715,809
Enix.......................................... 15,000 591,789
Hitachi Credit................................ 20,000 407,740
Hogy Medical.................................. 6,000 441,152
JC Foods...................................... 19,000 500,330
JCR Pharmaceutical............................ 10,000 632,374
Jusco......................................... 20,000 462,482
Kandenko...................................... 23,000 570,930
Kissei Pharmaceutical......................... 10,000 569,136
Mitsubishi Bank............................... 15,000 402,076
Nippon Express................................ 37,000 373,667
Nippon Steel.................................. 110,000 330,156
Nippon Telegraph & Telephone.................. 66 517,659
Nissan Chemical Industries.................... 92,000 628,674
Pioneer Electronic............................ 15,000 379,424
Rinnai........................................ 21,000 606,513
Seven Eleven Japan............................ 6,000 503,445
Sharp......................................... 52,000 716,564
Sumitomo Bank................................. 18,000 373,761
Sumitomo Metal Mining......................... 30,000 242,095
Tokio Marine & Fire Insurance................. 50,000 608,778
Toshoku....................................... 75,000 683,105
-----------
12,299,283
-----------
Malaysia -- 2.6% Bedford Berhad................................ 105,000 188,060
Berjaya Singer Berhad......................... 148,200 317,239
Leader Universal Holdings Berhad.............. 58,000 257,423
Malaysian Helicopter Services................. 100,000 286,724
Yangtzekiang Berhad........................... 30,000 232,129
-----------
1,281,575
-----------
Mexico -- 3.6% Cifra S.A. de C.V., A.D.R..................... 105,000 238,350
Grupo Carso S.A., A.D.R....................... 25,000 335,875
Panamerican Beverages, Cl. A ................. 15,000 427,500
Telefonos De Mexico S.A., A.D.R............... 7,000 353,500
Transportacion Maritima Mexicana S.A., A.D.R.. 40,000 390,000
-----------
1,745,225
-----------
Netherlands -- 1.8% ABN Amro Holding N.V.......................... 11,700 405,736
Royal Boskalis Westminster N.V................ 21,000 458,015
-----------
863,751
-----------
Singapore -- 3.7% Fraser and Neave.............................. 30,300 277,543
Haw Par Brothers International................ 220,000 489,198
IPCO International............................ 70,000 371,000
Keppel........................................ 64,600 381,560
Robinson & Co................................. 60,000 265,319
-----------
1,784,620
-----------
Spain -- 3.2% Centros Commercial Pryca...................... 45,000 492,401
Hidroelectrica del Cantabrico S.A............. 17,600 374,468
Repsol S.A.................................... 13,100 378,268
Viscofan Industria Navarra De
Envolturas Celulosicas S.A................. 25,600 339,453
-----------
1,584,590
-----------
Switzerland -- 3.0% Ateliers De Charmilles S.A., Cl. A............ 125 307,895
Baloise Holdings.............................. 190 305,333
Galencia Holding.............................. 840 226,947
SBC Bank Basket (Warrants).................... 8,889 54,893
Sece Cortaillod Holdings S.A.................. 90 300,000
Zurich Versicherungs.......................... 300 260,632
-----------
1,455,700
-----------
United Kingdom -- 13.7% BBA Group..................................... 190,000 479,104
BAT Industries PLC ........................... 83,000 598,069
Bemrose PLC................................... 22,000 128,400
Blue Circle Industries PLC.................... 113,000 476,875
British Gas PLC............................... 68,000 334,288
Commercial Union PLC.......................... 50,000 458,677
Cookson Group PLC............................. 200,000 580,642
Hammerson Property Investment &
Development, Cl. A......................... 82,000 431,950
Johnson, Matthey PLC.......................... 65,000 460,099
Lloyds Bank PLC............................... 65,000 561,262
Saatchi & Saatchi............................. 200,000 484,866
Storehouse PLC................................ 150,000 493,845
Welsh Water PLC............................... 58,000 528,594
Wolstenholme Rink PLC......................... 7,500 58,363
Zeneca Group PLC.............................. 60,000 645,590
-----------
6,720,624
-----------
TOTAL COMMON STOCKS
(cost $39,971,795).......................... $41,170,819
===========
Preferred Stocks -- .4%
Germany -- .4% Hugo Boss
(cost $184,749)............................. 379 $ 183,406
===========
Principal
Amount
-------------
Convertible Notes -- .0%
Malaysia -- .0% Berjaya Singer Berhad,
6%, 8/27/1998
(cost $4,388).............................. $ 11,200 $ 4,399
===========
Bonds -- .0%
Malaysia -- .0% Berjaya Singer Berhad,
5%, 8/27/1998
(cost $10,969).............................. $ 28,000 $ 10,997
===========
Short-Term Investments -- 12.4%
United States -- 12.4% U.S. Treasury Bills:
3.01%, 10/21/1993........................... $ 16,000 $ 15,973
2.971%, 11/18/1993.......................... 2,965,000 2,953,256
2.95%, 12/9/1993............................ 215,000 213,784
2.923%, 12/16/1993.......................... 2,892,000 2,874,157
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,057,170)........................... $ 6,057,170
===========
TOTAL INVESTMENTS (cost $46,229,071).............................................. 97.1% $47,426,791
===== ===========
CASH AND RECEIVABLES (NET)........................................................ 2.9% $ 1,419,193
===== ===========
NET ASSETS........................................................................ 100.0% $48,845,984
===== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Dreyfus International Equity Fund, Inc.
Statement of Assets and Liabilities September 30, 1993 (Unaudited)
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $46,229,071)--see statement..................................... $47,426,791
Cash.................................................................... 230,794
Receivable for investment securities sold............................... 1,047,355
Dividends and interest receivable....................................... 318,916
Receivable for subscriptions to Common Stock............................ 206,800
Prepaid expenses--Note 1(e)............................................. 100,700
-----------
49,331,356
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 25,648
Payable for investment securities purchased............................. 171,904
Net unrealized depreciation on forward currency exchange
contracts--Note 3(a).................................................. 132,610
Accrued expenses........................................................ 155,210 485,372
------- -----------
NET ASSETS................................................................. $48,845,984
===========
REPRESENTED BY:
Paid-in capital......................................................... $47,438,541
Accumulated undistributed investment income--net........................ 251,756
Accumulated undistributed net realized gain on investments.............. 90,577
Accumulated net unrealized appreciation on investments--Note 3(b)....... 1,065,110
-----------
NET ASSETS at value applicable to 3,544,759 outstanding shares of
Common Stock, equivalent to $13.78 per share (300 million shares
of $.001 par value authorized).......................................... $48,845,984
===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Dreyfus International Equity Fund, Inc.
Statement of Operations
from June 29, 1993 (commencement of operations) to September 30, 1993 (Unaudited)
<S> <C> <C>
INVESTMENT INCOME:
Income:
Cash dividends (net of $54,873 foreign taxes withheld at source).. $ 330,795
Interest......................................................... 52,137
----------
Total Income................................................. $ 382,932
Expenses:
Management fee--Note 2(a)........................................ 45,812
Shareholder servicing costs--Note 2(b,c)......................... 49,425
Custodian fees................................................... 33,796
Registration fees................................................ 16,322
Prospectus and shareholders' reports--Note 2(b).................. 11,294
Auditing fees.................................................... 10,003
Organization expenses--Note 1(e)................................. 5,300
Directors' fees and expenses--Note 2(d).......................... 3,000
Legal fees....................................................... 1,503
Miscellaneous.................................................... 533
----------
176,988
Less--expense reimbursement from Dreyfus due to
undertakings--Note 2(a)........................................ 45,812
----------
Total Expenses............................................... 131,176
-----------
INVESTMENT INCOME--NET....................................... 251,756
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments--Note 3(a)........................ $ 90,577
Net unrealized appreciation on investments and forward currency
exchange contracts............................................... 1,065,110
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.............. 1,155,687
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 1,407,443
===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Dreyfus International Equity Fund, Inc.
Statement of Changes in Net Assets
from June 29, 1993 (commencement of operations) to September 30, 1993 (Unaudited)
<S> <C>
OPERATIONS:
Investment income--net............................................................. $ 251,756
Net realized gain on investments................................................... 90,577
Net unrealized appreciation on investments for the period.......................... 1,065,110
-----------
Net Increase In Net Assets Resulting From Operations............................. 1,407,443
-----------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold...................................................... 55,061,725
Cost of shares redeemed............................................................ (7,723,184)
-----------
Increase In Net Assets From Capital Stock Transactions........................... 47,338,541
-----------
Total Increase In Net Assets................................................... 48,745,984
NET ASSETS:
Beginning of period--Note 1........................................................ 100,000
-----------
End of period (including undistributed investment income--net of $251,756)......... $48,845,984
===========
Shares
CAPITAL SHARE TRANSACTIONS: -----------
Shares sold........................................................................ 4,106,521
Shares redeemed.................................................................... (569,762)
-----------
Net Increase In Shares Outstanding............................................... 3,536,759
===========
See notes to financial statements.
</TABLE>
Dreyfus International Equity Fund, Inc.
Financial Highlights (Unaudited)
Reference is made to page 2 of the Prospectus dated January 15, 1994.
Dreyfus International Equity Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Dreyfus International Equity Fund, Inc. (the "Fund") was incorporated on
January 27, 1993 and had no operations until June 29, 1993 (commencement of
operations) other than matters relating to its organization and registration as
a non-diversified open-end management investment company under the Investment
Company Act of 1940 ("Act") and the Securities Act of 1933 and the sale and
issuance of 8,000 shares of common stock ("Initial Shares") to The Dreyfus
Corporation ("Dreyfus"), Fund's investment adviser. M&G Investment Management
Limited ("M&G") serves as the Fund's sub-investment adviser. Dreyfus Service
Corporation ("Distributor"), a wholly-owned subsidiary of Dreyfus, acts as the
distributor of the Fund's shares, which are sold without a sales load. The
Fund's fiscal year ends on May 31.
(a) Portfolio valuation: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Short-term investments are carried at amortized cost, which approximates value.
Investments traded in foreign currencies are translated to U.S. dollars at the
prevailing rates of exchange.
(b) Securities transactions and investment income: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis.
(c) Dividends to shareholders: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net realized
capital gain can be offset by capital loss carryovers, if any, it is the policy
of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the provisions available to
certain investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of taxable income sufficient to relieve
it from all, or substantially all, Federal income taxes.
(e) Other: Organization expenses paid by the Fund are included in prepaid
expenses and are being amortized to operations from June 29, 1993, the date
operations commenced, over the period during which it is expected that a
benefit will be realized, not to exceed five years. At September 30, 1993, the
unamortized balance of such expenses amounted to $100,700. In the event that
any of the Initial Shares are redeemed during the amortization period, the
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of such shares being redeemed bears to the
number of such shares outstanding at the time of such redemption.
Dreyfus International Equity Fund, Inc.
NOTES TO FINANCIAL STATMENTS (Unuadited) (continued)
NOTE 2--Investment Advisory Fee, Sub-Investment Advisory Fee and Other
Transactions With Affiliates:
(a) Pursuant to a Management Agreement with Dreyfus, the management fee is
computed at the annual rate of .75 of 1% of the average daily value of the
Fund's net assets and is payable monthly. Dreyfus and M&G have agreed that
if in any full fiscal year the Fund's aggregate expenses, exclusive of
interest, taxes, brokerage and extraordinary expenses, exceed the expense
limitation of any state having jurisdiction over the Fund, Dreyfus and M&G will
bear the excess expense in proportion to their management fee and sub-advisory
fee to the extent required by state law. The most stringent state expense
limitation applicable to the Fund presently requires reimbursement of expenses
in any full fiscal year that such expenses (exclusive of distribution expenses
and certain expenses as described above) exceed 2 1/2% of the first $30
million, 2% of the next $70 million and 1 1/2% of the excess over $100 million
of the average value of the Fund's net assets in accordance with California
"blue sky" regulations.
However, Dreyfus has undertaken from June 29, 1993 through October 24,
1993, to reduce the management fee paid by the Fund, by certain specified
annual percentages of the Fund's average net assets. The Manager has currently
undertaken from October 25, 1993 through December 31, 1993, or until such time
as the net assets of the Fund exceed $100 million, regardless of whether they
remain at that level, to waive receipt of the management fee payable to it by
the Fund in excess of an annual rate of .30 of 1% of the Fund's average daily
net assets. The expense reimbursement pursuant to the undertaking amounted to
$45,812 for the period ended September 30, 1993.
Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and M&G,
the sub-advisory fee is computed at the annual rate of .30 of 1% of the average
daily value of the Fund's net assets and is payable monthly by Dreyfus.
(b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1
under the Act, the Fund pays the Distributor, at an annual rate of .50 of 1% of
the value of the Fund's average daily net assets, for costs and expenses in
connection with advertising, marketing and distributing the Fund's shares and
for servicing shareholder accounts. The Distributor may make payments to one or
more Service Agents (a securities dealer, financial institution, or other
industry professional) based on the value of the Fund's shares owned by clients
of the Service Agent. The Plan also separately provides for the Fund to bear
the costs of preparing, printing and distributing certain of the Fund's
prospectuses and statements of additional information and costs associated with
implementing and operating the Plan, not to exceed the greater of $100,000 or
.005 of 1% of the Fund's average daily net assets for any full fiscal year.
During the period ended September 30, 1993, the Fund was charged $40,102
pursuant to the Plan.
(c) Pursuant to the Fund's Shareholder Services Plan, the Fund pays the
Distributor an annual rate of .25 of 1% of the value of the Fund's average
daily net assets for servicing 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.
During the period ended September 30, 1993, the Fund was charged an aggregate
of $15,271 pursuant to the Shareholder Services Plan.
(d) Certain officers and directors of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each director who
is not an "affiliated person" receives an annual fee of $1,000 and an
attendance fee of $250 per meeting.
Dreyfus International Equity Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 3--Securities Transactions:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and forward currency exchange contracts, during
the period ended September 30, 1993 amounted to $42,165,545 and $2,083,551,
respectively.
In addition, the following summarizes open forward currency exchange
contracts at September 30, 1993:
<TABLE>
<CAPTION>
U.S. Dollar
Value at Unrealized
Forward Currency Sale Contracts Proceeds 9/30/93 (Depreciation)
- ------------------------------------------------------ ---------- ----------- --------------
<S> <C> <C> <C>
Deutsche Marks, expiring 10/12/93 and 4/12/94......... $1,317,331 $1,368,476 $ (51,145)
French Francs, expiring 10/12/93 and 4/12/94.......... 1,566,214 1,582,722 (16,508)
Japanese Yen, expiring 10/12/93 and 4/12/94........... 8,842,238 8,907,195 (64,957)
---------
$(132,610)
=========
</TABLE>
When executing forward currency exchange contracts, the Fund is obligated
to buy or sell a foreign currency at a specified rate on a certain date in the
future. With respect to sales of forward currency exchange contracts, the
Fund would incur a loss if the value of the contract increases between the date
the forward contract is opened and the date the forward contract is closed.
The Fund realizes a gain if the value of the contract decreases between those
dates. With respect to purchases of forward currency exchange contracts, the
Fund would incur a loss if the value of the contract decreases between the date
the forward contract is opened and the date the forward contract is closed.
(b) At September 30, 1993, accumulated net unrealized appreciation on
investments was $1,065,110, consisting of $2,179,314 gross unrealized
appreciation and $1,114,204 gross unrealized depreciation.
At September 30, 1993, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS INTERNATIONAL EQUITY FUND, INC.
Statement of Assets and Liabilities
June 22, 1993
ASSETS
Cash $100,000
Deferred organization expenses 106,000
Total Assets 206,000
LIABILITIES
Accrued organization expenses 106,000
NET ASSETS applicable to 8,000 shares of
Common Stock ($.001 par value) issued
and outstanding (300 million
shares authorized). . . . . . . . . . . . . . . . . . . . . . . . $100,000
NET ASSET VALUE, offering and redemption price per
share ($100,000 / 8,000 shares) . . . . . . . . . . . . . . . . . $ 12.50
NOTE - Dreyfus International Equity Fund, Inc. (the "Fund") was organized as a
Maryland corporation on January 27, 1993 and has had no operations since that
date other than matters relating to its organization and registration as a
non-diversified, open-end investment company under the Investment Company Act
of 1940 and the Securities Act of 1933 and the sale and issuance of 8,000 shares
of Common Stock to The Dreyfus Corporation ("Initial Shares"). Organization
expenses payable by the Fund have been deferred and will be amortized from the
date operations commence over a period which it is expected that a benefit will
be realized, not to exceed five years. If any of the Initial Shares are
redeemed during the amortization period by any holder thereof, the redemption
proceeds will be reduced by any unamortized organization expenses in the same
proportion as the number of Initial Shares being redeemed bears to the number of
Initial Shares outstanding at the time of the redemption.
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
Dreyfus International Equity Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Dreyfus
International Equity Fund, Inc. as of June 22, 1993. This statement of assets
and liabilities is the responsibility of the Fund's management. Our responsi-
bility is to express an opinion on this statement of assets and liabilities
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether this statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Dreyfus
International Equity Fund, Inc. at June 22, 1993 in conformity with generally
accepted accounting principles.
New York, New York
June 22, 1993
Ernst & Young
