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PROSPECTUS MARCH 31, 1995
DREYFUS LIFETIME PORTFOLIOS, INC.
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DREYFUS LIFETIME PORTFOLIOS, INC. (THE "FUND") IS AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. THE FUND PERMITS YOU
TO INVEST IN THREE SEPARATE DIVERSIFIED PORTFOLIOS (EACH, A "PORTFOLIO"):
INCOME PORTFOLIO, THE PRIMARY GOAL OF WHICH IS TO MAXIMIZE CURRENT INCOME,
ITS SECONDARY GOAL IS CAPITAL APPRECIATION; GROWTH AND INCOME PORTFOLIO, THE
GOAL OF WHICH IS TO MAXIMIZE TOTAL RETURN, CONSISTING OF CAPITAL APPRECIATION
AND CURRENT INCOME; AND GROWTH PORTFOLIO, THE GOAL OF WHICH IS CAPITAL
APPRECIATION. EACH PORTFOLIO WILL FOLLOW AN INVESTMENT STRATEGY THAT
ALLOCATES THE PORTFOLIO'S ASSETS AMONG COMMON STOCKS, FIXED-INCOME SECURITIES
AND, IN THE CASE OF THE INCOME PORTFOLIO, SHORT-TERM MONEY MARKET
INSTRUMENTS.
BY THIS PROSPECTUS, EACH PORTFOLIO IS OFFERING INVESTOR CLASS SHARES
AND CLASS R SHARES. INVESTOR CLASS SHARES AND CLASS R SHARES ARE IDENTICAL,
EXCEPT AS TO THE SERVICES OFFERED TO AND THE EXPENSES BORNE BY EACH CLASS.
INVESTOR CLASS SHARES ARE OFFERED TO ANY INVESTOR. CLASS R SHARES ARE OFFERED
ONLY TO INSTITUTIONAL INVESTORS ACTING FOR THEMSELVES OR IN A FIDUCIARY,
ADVISORY, AGENCY, CUSTODIAL OR SIMILAR CAPACITY, SUCH AS BANKS AND QUALIFIED
OR NON-QUALIFIED EMPLOYEE BENEFIT PLANS OR OTHER PROGRAMS, INCLUDING PENSION,
PROFIT-SHARING AND OTHER DEFERRED COMPENSATION PLANS, WHETHER ESTABLISHED BY
CORPORATIONS, PARTNERSHIPS, NON-PROFIT ENTITIES OR STATE AND LOCAL
GOVERNMENTS.
INVESTORS CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT
CHARGE OR PENALTY.
THE DREYFUS CORPORATION SERVES AS EACH PORTFOLIO'S INVESTMENT
ADVISER. THE DREYFUS CORPORATION HAS ENGAGED MELLON EQUITY ASSOCIATES
("MELLON EQUITY") TO SERVE AS EACH PORTFOLIO'S SUB-INVESTMENT ADVISER AND
PROVIDE DAY-TO-DAY MANAGEMENT OF EACH PORTFOLIO'S INVESTMENTS. THE DREYFUS
CORPORATION AND MELLON EQUITY ARE REFERRED TO COLLECTIVELY AS THE "ADVISERS."
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
AN INVESTOR SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 31, 1995, 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 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO
TIME.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
Annual Fund Operating Expenses.................... 4
Description of the Fund........................... 4
Management of the Fund............................ 17
How to Buy Fund Shares............................ 19
Shareholder Services.............................. 22
How to Redeem Fund Shares......................... 25
Service Plan...................................... 28
Dividends, Distributions and Taxes................ 28
Performance Information........................... 30
General Information............................... 30
Page 2
This Page Intentionally Left Blank
Page 3
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
INCOME GROWTH AND INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
___________ ____________ ___________
Investor Investor Investor
Class R Class Class R Class Class R Class
--------- ----- ---------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees.................. .60% .60% .75% .75% .75% .75%
12b-1 Fees (distribution
and servicing)................... None .25% None .25% None .25%
Other Expenses................... .30% .30% .30% .30% .30% .30%
Total Portfolio Operating
Expenses......................... .90% 1.15% 1.05% 1.30% 1.05% 1.30%
EXAMPLE:
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:
1 Year ............. $ 9 $12 $11 $13 $11 $13
3 Years ............ $29 $37 $33 $41 $33 $41
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN,
EACH PORTFOLIO'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 investors 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 Portfolio Operating Expenses are
based on estimated amounts for the current fiscal year. Long-term investors
in Investor Class shares could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. 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. The information in the foregoing table does not reflect any fee
waivers or expense reimbursement arrangements that may be in effect. 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
"Service Plan."
DESCRIPTION OF THE FUND
GENERAL
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios. Each Portfolio is treated as a separate entity for
certain matters under the Investment Company Act of 1940 and for other
purposes, and a shareholder of one Portfolio is not deemed to be a
shareholder of any other Portfolio. As described below, for certain matters
Fund shareholders vote together as a group; as to others they vote separately
by Portfolio.
By this Prospectus, two classes of shares of each Portfolio are being
offered-Investor Class shares and Class R shares (each such class being
referred to as a "Class"). The Classes are identical, except that Investor
Class shares are subject to certain distribution and service fees for certain
services which are described under "Service Plan." The distribution and
service fees paid by the Investor Class will cause such Class to have a
higher expense ratio and to pay lower dividends than Class R.
Class R shares may not be purchased directly by individuals, although
institutions may purchase Class R shares for accounts maintained by
individuals. Such institutions have agreed to transmit copies
Page 4
of this Prospectus and all relevant Fund materials, including proxy materials,
to each individual or entity for whose account the institution purchases
Class R shares, to the extent required by law. The Fund treats the institution
investing in Class R shares as the Fund shareholder entitled to the rights and
privileges described herein.
INVESTMENT OBJECTIVE
The INCOME PORTFOLIO'S primary goal is to maximize current income,
its secondary goal is capital appreciation.
The GROWTH AND INCOME PORTFOLIO'S goal is to maximize total return,
consisting of capital appreciation and current income.
The GROWTH PORTFOLIO'S goal is capital appreciation.
Each Portfolio's investment objective cannot be changed without
approval by the holders of a majority (as defined in the Investment Company
Act of 1940) of such Portfolio's outstanding voting shares. There can be no
assurance that a Portfolio's investment objective will be achieved.
MANAGEMENT POLICIES
INVESTMENT APPROACH - The Growth and Income Portfolio and the Growth
Portfolio seek to achieve their investment objective by following an asset
allocation strategy that contemplates shifts among common stock and
fixed-income securities. The Income Portfolio will invest in common stock,
fixed-income securities and short-term money market instruments. In selecting
investments for a Portfolio, Mellon Equity will employ a multi-step process
that, first, establishes an asset allocation baseline, or weighting of a
Portfolio's assets towards a particular asset class, second, establishes
ranges within which to allocate a Portfolio's assets among the asset classes,
third, uses proprietary asset allocation models to recommend an allocation
among asset classes and, fourth, selects the securities within the asset
classes.
The Portfolios employ a strategic asset allocation investment
technique that involves an ongoing comparison of the relative value of stocks
and bonds across different markets. Each Portfolio diversifies among stocks,
bonds and, in the case of the Income Portfolio, money market instruments,
based on Mellon Equity's assessment of current economic conditions and
investment opportunities both domestically and internationally. A target
allocation is set for each Portfolio and then adjusted within defined ranges
based upon Mellon Equity's assessment of return and risk characteristics of
each.
The Income Portfolio invests exclusively in domestic securities and
may invest up to 10% of its assets in money market instruments. The target
allocation is 25% equity securities and 75% fixed-income securities. All
equity investments will consist of large capitalization stocks (typically
with market capitalizations of greater than $1.4 billion).
The Growth and Income Portfolio divides its investments between
equity securities and fixed-income securities and may invest up to 15% of its
assets in international securities. Equity and fixed-income investments may
range from 35% to 65% of the portfolio with a target allocation of 50% in
each asset class. The equity portion is divided into 80% large capitalization
stocks and 20% small capitalization stocks (typically with market
capitalizations of less than $1.4 billion).
The Growth Portfolio divides its investments between equity
securities and fixed-income securities and may invest up to 25% of its assets
in international securities. Equity investments may range from 65% to 100% of
the portfolio with a target allocation of 80%. The equity portion is divided
into 80% large capitalization stocks and 20% small capitalization stocks.
Fixed-income investments may range from 0% to 35% of the portfolio with a
target allocation of 20%.
Mellon Equity will attempt, in selecting securities for each
Portfolio, to approximate the investment characteristics of designated
benchmark indices but with expected returns that exceed the benchmark. The
designated benchmark indices, which are described in detail below, are listed
in the following table:
Page 5
<TABLE>
<CAPTION>
ASSET CLASS PORTFOLIOS BENCHMARK INDEX
------------ ------------ ------------------
<S> <C> <C>
Domestic Large Cap Equity Income, Growth and Income Standard & Poor's 500
and Growth Index ("S&P 500 Index")*
Domestic Small Cap Equity Growth and Income and Growth Russell 2000 Index
International Equity Growth and Income Morgan Stanley Capital
and Growth International Europe, Australia,
Far East (Free) Index ("EAFE Index")**
Domestic Fixed- Income Income, Growth and Lehman Brothers Government/Corporate
Income and Growth Intermediate Bond Index ("Lehman
Government/Corporate Index")
International Fixed-Income Growth and Income and Growth J.P. Morgan Non-US Government Bond
Index-Hedged ("J.P. Morgan Global Index")
-----------------------------
* "Standard & Poor's," "S&P" and "S&P 500Registration Mark" are trademarks
of Standard & Poor's Corporation.
** In U.S. Dollars.
</TABLE>
Mellon Equity may manage asset classes either actively or on an
indexed basis consistent with the Portfolio's investment objective. For asset
classes managed on an indexed basis, where possible, full index replication
will be used, otherwise a statistically based "sampling" technique will be
used to construct portfolios. This process will be used with respect to the
equity asset class, for example, to select stocks so that the market
capitalizations, industry weightings, dividend yield, beta and, with respect
to the international equity asset class, country weightings closely
approximate those of the designated index. The sampling technique is expected
to be an effective means of substantially duplicating the investment
performance of the benchmark index. It may, however, provide investment
performance relative to the benchmark index with the same degree of accuracy
that complete or full replication would provide. In its active investment
process, Mellon Equity concentrates on fundamental factors such as relative
price/earnings ratios, relative book to price ratios, earnings growth rates
and momentum, and consensus earnings expectations and changes in that
consensus to value and rank stocks based on expected relative performance to
the asset class benchmark index.
A further explanation of the Fund's allocation process is provided in
the Statement of Additional Information.
COMMON STOCKS. The S&P 500 Index is composed of 500 common stocks,
most of which are listed on the New York Stock Exchange. The weightings of
stocks in the S&P 500 Index are based on each stock's relative total market
capitalization; that is, its market price per share times the number of
shares outstanding. Because of this weighting, as of February 28, 1995,
approximately 46% of the S&P 500 Index was composed of the 50 largest
companies.
The Russell 2000 Index is composed of 2,000 common stocks of U.S.
companies with market capitalizations ranging between $5.4 million and $1.4
billion as of February 28, 1995.
The EAFE Index is a broadly diversified international index composed
of the equity securities of approximately 1,000 companies located outside the
United States. The weightings of stocks in the EAFE Index are based on each
stock's market capitalization relative to the total market capitalization of
all stocks in the Index. Because of this weighting, as of February 28, 1995,
approximately 42.9% of the EAFE Index was composed of equity securities of
Japanese issuers.
FIXED-INCOME SECURITIES. The Lehman Government/Corporate Index is
composed of approximately 5,000 fixed-income securities, including U.S.
Government securities and investment grade corporate bonds, each with an
outstanding market value of at least $25 million and maturities of less than
ten years and greater than one year. As of February 28, 1995, U.S. Government
securities and corporate
Page 6
debt securities represented 75% and 25%, respectively, of the Lehman Brothers
Government/Corporate Intermediate Bond Index, and the average maturity of such
securities was 4.15 years.
The J.P. Morgan Global Government Index is composed of traded,
fixed-rate government bonds from twelve countries with maturities of greater
than one year. The twelve countries are Australia, Belgium, Canada, Denmark,
France, Germany, Italy, Japan, the Netherlands, Spain, Sweden and United
Kingdom.
MONEY MARKET INSTRUMENTS. The short-term money market instruments in
which the Income Portfolio only will invest consist of U.S. Government
securities, bank obligations, including certificates of deposit, time
deposits and bankers' acceptances and other short-term obligations of domestic
or foreign banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $1 billion; commercial paper,
and repurchase agreements, as set forth under "Certain Portfolio Securities"
below. The Income Portfolio will purchase only money market instruments
having remaining maturities of 13 months or less. When the Advisers determine
that market conditions warrant, a Portfolio may adopt a temporary defensive
posture and invest without limitation in money market instruments.
INVESTMENT TECHNIQUES
Each Portfolio also may engage in various investment and hedging
techniques such as options and futures transactions and foreign currency
transactions with respect to the Growth and Income Portfolio and Growth
Portfolio, and lending portfolio securities, each of which involves risk. See
"Risk Factors" below. Options and futures transactions involve so-called
"derivative securities."
CALL AND PUT OPTIONS ON SECURITIES _ Each Portfolio may invest, to the
extent consistent with the Portfolio's management policies described above,
up to 5% of its assets, represented by the premium paid, in the purchase of
call and put options in respect of groups or "baskets" of securities in which
the Portfolio may invest. Each Portfolio 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 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 at the exercise
price at any time during the option period. A covered call option sold by a
Portfolio, which is a call option with respect to which the Portfolio owns
the underlying security, exposes the Portfolio during the term of the option
to possible loss of opportunity to realize appreciation in the market price
of the underlying security or to possible continued holding of a security
which might otherwise have been sold to protect against depreciation in its
market price. 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 Portfolio's securities alone. A covered put option sold by a
Portfolio exposes the Portfolio during the term of the option to a decline in
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. A put
option sold by a Portfolio 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, a Portfolio may
make a "closing purchase transaction" by purchasing an option on the same
security with the same exercise price and expiration date as the option it
has previously written. To close out a position as a purchaser of an option,
a Portfolio may make a "closing sale transaction," which involves liquidating
the Portfolio's position by selling the option previously purchased. A
Portfolio 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.
Page 7
The Fund intends to treat options in respect of specific securities
that are not traded on a national securities exchange and the securities
underlying covered call options written by the Portfolios as illiquid
securities. See "Certain Portfolio Securities-Illiquid Securities" below.
Each Portfolio will purchase options only to the extent permitted by
the policies of state securities authorities in states where shares of the
Portfolio are qualified for offer and sale.
STOCK INDEX OPTIONS - Each Portfolio may purchase and write put and call
options on stock indices, to the extent consistent with the Portfolio's
management policies described above. 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 Portfolio'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 a Portfolio
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 indices, in an industry or market
segment, rather than movements in the price of a particular stock.
Accordingly, successful use by each Portfolio 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 a Portfolio writes an option on a stock index, the Portfolio
will place in a segregated account with its 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 or for hedging purposes, each Portfolio may engage in futures and
options on futures transactions, as described below.
Each Portfolio 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,
with respect to each of the Growth and Income Portfolio and Growth Portfolio,
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.
Each Portfolio's commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated
by the Commodity Futures Trading Commission (the "CFTC"). In addition, a
Portfolio 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 Portfolio'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, each Portfolio 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. To the extent a Portfolio engages in the use of futures
and options on futures other than for bona fide hedging purposes, the
Portfolio may be subject to additional risk.
Initially, when purchasing or selling futures contracts a Portfolio
will be required to deposit with the Fund's custodian in the broker's name an
amount of cash or cash equivalents up to approximately 10%
Page 8
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 Portfolio upon termination of
the futures position, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to and from the
broker 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 Portfolio may elect to close the position by taking an opposite
position at the then prevailing price, which will operate to terminate the
Portfolio's existing position in the contract.
Although each Portfolio intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be
given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount
of fluctuation permitted in futures contract prices during a single trading
day. Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit or trading may be
suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting a Portfolio to substantial losses. If it
is not possible, or the Portfolio determines not, to close a futures position
in anticipation of adverse price movements, the Portfolio will be required to
make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of a Portfolio's securities 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.
To the extent a Portfolio is engaging in a futures transaction as a
hedging device, because of the risk of an imperfect correlation between
securities owned by the 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 if, for example, losses on the
portfolio securities exceed gains on the futures contract or losses on the
futures contract exceed gains on the portfolio securities. For futures
contracts based on indices, the risk of imperfect correlation increases as the
composition of a Portfolio's securities vary 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 Portfolio 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 Portfolio's net investment results if the
market does not move as anticipated when the hedge is established.
Successful use of futures by a Portfolio also is subject to the
Advisers' ability to predict correctly movements in the direction of the
market or interest rates. For example, if a Portfolio 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 Portfolio
will lose part or all of the benefit of the increased value of securities
which it has hedged because it will have offsetting losses in its futures
positions. Furthermore, if in such circumstances the Portfolio has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. The Portfolio may have to sell such 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
Page 9
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 a Portfolio 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 a Portfolio 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 _ Each Portfolio may
purchase and sell stock index futures contracts and options on stock index
futures contracts as a substitute for a comparable market position in the
underlying securities or for hedging purposes.
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 indices that are permitted investments, each Portfolio
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 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 _ Each Portfolio may invest in interest rate futures contracts and
options on interest rate futures contracts as a substitute for a comparable
market position or to hedge against adverse movements in interest rates.
To the extent a Portfolio has invested in interest rate futures
contracts or options on interest rate futures contracts as a substitute for a
comparable market position, the Portfolio will be subject to the investment
risks of having purchased the securities underlying the contract.
Each Portfolio 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.
Each Portfolio 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 Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in such Portfolio's holdings. Each Portfolio 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 contract. If
the futures price at expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option sold by a
Portfolio is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it
Page 10
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,
a Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of its portfolio securities.
Each Portfolio 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 a correlation between price movements in the
options on interest rate futures and price movements in a Portfolio's
securities which are the subject of the hedge. In addition, a Portfolio's
purchase of such options will be based upon predictions as to anticipated
interest rate trends, which could prove to be inaccurate.
FOREIGN CURRENCY TRANSACTIONS _ Each of the Growth and Income Portfolio and
Growth Portfolio may engage in currency exchange transactions to the extent
consistent with its investment objective or to hedge its portfolio. Each such
Portfolio 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. Each of these Portfolios
also may combine forward currency exchange contracts with investments in
securities denominated in other currencies.
OPTIONS ON FOREIGN CURRENCY _ Each of the Growth and Income Portfolio and
Growth Portfolio 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. Each of these
Portfolios 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" above and "Currency Futures and
Options on Currency Futures" below.
CURRENCY FUTURES AND OPTIONS ON CURRENCY FUTURES _ Each of the Growth and
Income Portfolio and Growth Portfolio 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 Portfolio 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 Portfolio
anticipates a decline of a foreign currency against the U.S. dollar, the
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio,
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 each of these
Portfolios, 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 Portfolio, 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 suf-
Page 11
fered by the Portfolio. If exchange rates move in a way the Portfolio did not
anticipate, the Portfolio will have incurred the expense of the option
without obtaining the expected benefit. As a result, the Portfolio's profits
on the underlying securities transactions may be reduced or overall losses
incurred.
FUTURE DEVELOPMENTS _ Each Portfolio may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other derivative investments 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
Portfolio's investment objective and legally permissible for the Portfolio.
Before entering into such transactions or making any such investment on
behalf of a Portfolio, the Fund will provide appropriate disclosure in its
prospectus.
LENDING PORTFOLIO SECURITIES _ From time to time, each Portfolio 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 33-1/3% of the value of such Portfolio's total
assets. In connection with such loans, the Portfolio will receive collateral
consisting of cash, short-term U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Each
Portfolio can increase its income through the investment of such collateral.
A Portfolio engaging in the portfolio loan transaction 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. A Portfolio might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Portfolio.
FORWARD COMMITMENTS _ Each Portfolio 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. A Portfolio will
make commitments to purchase such securities only with the intention of
actually acquiring the securities, but the Portfolio may sell these
securities before the settlement date if it is deemed advisable. A Portfolio
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 debt securities held by the Fund 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 a Portfolio to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing debt 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 a Portfolio is fully or almost fully invested may
result in greater potential fluctuation in the value of the Portfolio's net
assets and its net asset value per share.
BORROWING MONEY _ As a fundamental policy, each Portfolio is permitted to
borrow to the extent permitted under the Investment Company Act of 1940.
However, each Portfolio currently intends to borrow money only for temporary
or emergency (not leveraging) purposes, in an amount up to 15% of the value
of its total assets (including the amount borrowed) valued at the lesser of
cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While borrowings exceed 5% of the Portfolio's
total assets, the Portfolio will not make any additional investments.
Page 12
CERTAIN PORTFOLIO SECURITIES
U.S. GOVERNMENT SECURITIES _ Each Portfolio may purchase securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
which include U.S. Treasury securities. 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 - Each Portfolio 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. Each Portfolio 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.
REPURCHASE AGREEMENTS - Repurchase agreements involve the acquisition by a
Portfolio of an underlying debt instrument, subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the instrument at a fixed
price, usually not more than one week after its purchase. Certain costs may
be incurred 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 Portfolio may be delayed or
limited.
BANK OBLIGATIONS - Each Portfolio 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 each Portfolio will not benefit from
Page 13
insurance from the Bank Insurance Fund or the Savings Association Insurance
Fund administered by the Federal Deposit Insurance Corporation.
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.
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 a Portfolio will
consist only of direct obligations which, at the time of their purchase, are
(a) rated not lower than Prime-1 by Moody's Investors Service, Inc.
("Moody's"), A-1 by S&P, F-1 by Fitch Investors Service, Inc. ("Fitch") or
Duff-1 by Duff & Phelps Credit Rating Co. ("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 Portfolio. Each Portfolio 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.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES _ Each
of the Growth and Income Portfolio and Growth Portfolio may invest in
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are
determined by the Advisers to be of comparable quality to the other
obligations in which the Portfolio may invest. Such securities also include
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities
to promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS _ Each of the Growth
and Income Portfolio and Growth Portfolio may invest 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.
INVESTMENT COMPANIES _ Each Portfolio may invest in securities issued by
other investment companies to the extent consistent with its investment
objective. Under the Investment Company Act of 1940, the Portfolio's
investment in such securities, subject to certain exceptions, currently is
limited to (i) 3% of the total voting stock of any one investment company,
(ii) 5% of the Portfolio's net assets with respect to any one investment
company and (iii) 10% of the Portfolio's net assets in the aggregate.
Investments in the securities of other investment companies may involve
duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES _ Each Portfolio 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 Portfolio'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 agree-
Page 14
ments providing for settlement in more than seven days after notice, certain
options traded in the over-the-counter market and securities used to cover
such options. As to these securities, a Portfolio 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
Portfolio's net assets could be adversely affected.
CERTAIN FUNDAMENTAL POLICIES
Each Portfolio may (i) borrow money to the extent permitted under the
Investment Company Act of 1940, which currently limits borrowing to no more
than 33-1/3% of the Portfolio's total assets; (ii) invest up to 5% of its
total assets in the obligations of any issuer, except that up to 25% of the
value of its total assets may be invested, and securities issued or
guaranteed by the U.S Government, its agencies or instrumentalities may be
purchased, without regard to any such limitation; and (iii) invest up to 25%
of the value of its total assets in the securities of issuers in a single
industry (or more to the extent the relevant index also is so concentrated),
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 that cannot be changed as to a
Portfolio without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting shares.
See "Investment Objective and Management Policies_Investment Restrictions" in
the Fund's Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Portfolio 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 such Portfolio's
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. See
"Investment Objective and Management Policies_Investment Restrictions" in the
Fund's Statement of Additional Information.
RISK FACTORS
CERTAIN INVESTMENT TECHNIQUES _ The use of investment techniques such as
engaging in financial futures and options transactions, purchasing securities
on a forward commitment basis and lending portfolio securities, and the
purchase of certain zero coupon securities, involves greater risk than that
incurred by many other funds with a similar objective. These risks are
described above under "Investment Techniques" and "Certain Portfolio
Securities." In addition, using these techniques may produce higher than
normal portfolio turnover and may affect the degree to which a Portfolio's
net asset value fluctuates. Portfolio turnover may vary from year to year, as
well as within a year. Under normal market conditions, the portfolio turnover
rate of each Portfolio generally will not exceed 100%. Higher portfolio
turnover rates are likely to result in comparatively greater brokerage
commissions or transaction costs. See "Portfolio Transactions" in the Fund's
Statement of Additional Information.
A Portfolio's ability to engage in certain short-term transactions
may be limited by the requirement that, to qualify as a regulated investment
company, the Portfolio 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 a Portfolio 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. However, portfolio
turnover will not otherwise be a limiting factor in making investment
decisions.
EQUITY SECURITIES _ For the portion of a Portfolio's assets invested in
equity securities, 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. The securities of small
capitalization companies may be subject to more abrupt or erratic market
movements than larger capitalized companies, both because the securities
typically are traded in lower volume and because the issuers typically are sub
ject to a greater degree to changes in earnings and prospects. Changes in the
value of a
Page 15
Portfolio's equity securities will result in changes in the value
of the Portfolio's shares and thus the Portfolio's yield and total return to
investors.
FIXED-INCOME SECURITIES _ For the portion of a Portfolio's assets invested
in fixed-income 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 generally are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. Certain securities that may be purchased by each
Portfolio, such as those with interest rates that fluctuate directly or
indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal. The values of
fixed-income securities also may be affected by changes in the credit rating
or financial condition of the issuing entities. Certain securities that may
be purchased by the Portfolios, such as those rated Baa by Moody's and BBB by
S&P, Fitch and Duff, may be subject to such risk with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated fixed-income securities. Once the rating of a security held by a
Portfolio has been changed, the Advisers will consider all circumstances
deemed relevant in determining whether such Portfolio should continue to hold
the security.
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 Growth and Income
Portfolio and Growth Portfolio 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 Growth and Income Portfolio or Growth Portfolio 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
Growth and Income Portfolio or Growth Portfolio 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
Portfolio 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
Page 16
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 Growth and Income Portfolio or Growth Portfolio, as the case may
be, of unrealized profits or force such Portfolio 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 Growth and Income
Portfolio or Growth Portfolio, as the case may be, 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 such
Portfolio might realize in trading could be eliminated by adverse changes in
the exchange rate, or the Portfolio could incur losses as a result of those
changes.
OTHER INVESTMENT CONSIDERATIONS _ Each Portfolio's net asset value per share
is not fixed and should be expected to fluctuate. Investors should purchase
Portfolio shares only as a supplement to an overall investment program and
only if the investor is willing to undertake the risks involved.
Federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, each Portfolio may be required to distribute such
income accrued with respect to these securities and may have to dispose of
such securities under disadvantageous circumstances in order to generate cash
to satisfy these distribution requirements.
It is anticipated that each Portfolio initially may not have
sufficient assets to implement fully its asset allocation strategy.
Consequently, until sufficient asset levels are attained, each Portfolio will
invest primarily in U.S. Treasury securities to gain exposure to the
fixed-income securities asset class and, in the case of the Income Portfolio,
the money market instruments asset class, and will engage in futures
contracts to gain exposure to, in the case of the Income Portfolio only, the
domestic large cap equity asset class and, in the case of the Growth and
Income Portfolio and Growth Portfolio, the domestic small cap equity and
international equity asset classes. While so invested, each Portfolio's
return may be lower than if its asset allocation strategy was fully
implemented, and the Portfolio's ability to achieve its investment objective
may be affected.
Investment decisions for each Portfolio are made independently from
those of other investment companies or accounts advised by the Advisers.
However, if such other investment companies or accounts are prepared to
invest in, or desire to dispose of, securities of the type in which a
Portfolio invests at the same time as such Portfolio, available investments
or opportunities for sales will be allocated equitably to each. In some
cases, this procedure may adversely affect the size of the position obtained
for or disposed of by the Portfolio or the price paid or received by the
Portfolio.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as each Portfolio's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of February 28, 1995, The Dreyfus Corporation
managed or administered approximately $72 billion in assets for more than 1.9
million investor accounts nationwide.
Page 17
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law.
The Dreyfus Corporation has engaged Mellon Equity, located at 500
Grant Street, Pittsburgh, Pennsylvania 15258, to serve as each Portfolio's
sub-investment adviser. Mellon Equity, a registered investment adviser formed
in 1987, is an indirect wholly-owned subsidiary of Mellon. As of January 31,
1995, Mellon Equity managed approximately $6.1 billion in assets and serves
as the investment adviser of three other investment companies.
Mellon Equity, subject to the supervision and approval of The Dreyfus
Corporation, provides investment advisory assistance and the day-to-day
management of each Portfolio's investments, as well as investment research
and statistical information, under a Sub-Investment Advisory Agreement with
The Dreyfus Corporation, subject to the overall authority of the Fund's Board
of Directors in accordance with Maryland law. In providing its services,
Mellon Equity may use the services of one or more of its affiliates. Each
Portfolio's primary portfolio manager will be Steven A. Falci. He has been
employed by Mellon Equity since April 1994, and for more than five years
prior thereto, he was a managing director for pension investments at NYNEX
Corporation.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$193 billion in assets as of December 31, 1994, including approximately $70
billion in mutual fund assets. As of December 31, 1994, various subsidiaries
of Mellon provided non-investment services, such as custodial or
administration services, for more than $654 billion in assets, including $74
billion in mutual fund assets.
Under the Management Agreement, the Fund has agreed to pay The
Dreyfus Corporation a monthly fee at the annual rate of .60 of 1% of the
value of the Income Portfolio's average daily net assets and .75 of 1% of the
value of each of the Growth and Income Portfolio's and Growth Portfolio's
average daily net assets. The management fee payable for the Growth and
Income Portfolio and Growth Portfolio is higher than that paid by most other
investment companies.
Under the Sub-Investment Advisory Agreement, The Dreyfus Corporation
has agreed to pay Mellon Equity an annual fee payable monthly, at the
following rate: .35% of each Portfolio's average daily net assets up to $600
million in Fund assets; .25% of the Portfolio's average daily net assets when
the Fund's assets are between $600 million and $1.2 billion; .20% of the
Portfolio's average daily net assets when the Fund's assets are between $1.2
billion and $1.8 billion; and .15% of the Portfolio's average daily net
assets when the Fund's assets are over $1.8 billion.
EXPENSES _ All expenses incurred in the operation of the Fund will be borne
by the Fund, except to the extent specifically assumed by The Dreyfus
Corporation. The expenses to be borne by the Fund will include:
organizational costs, taxes, interest, loan commitment fees, brokerage fees
and commissions, if any, fees of Board members, 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 preparing and
printing prospectuses
Page 18
and statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholders' reports and
meetings, and any extraordinary expenses. Expenses attributable to a
particular Portfolio are charged against the assets of that Portfolio; other
expenses of the Fund are allocated among the Portfolios on the basis
determined by the Board of Directors, including, but not limited to,
proportionately in relation to the net assets of each Portfolio.
In addition, Investor Class shares are subject to certain
distribution and service fees. See "Service Plan."
From time to time, The Dreyfus Corporation may waive receipt of its
fee and/or voluntarily assume certain expenses of a Portfolio, which would
have the effect of lowering the overall expense ratio of that Portfolio and
increasing yield to its investors at the time such amounts are waived or
assumed, as the case may be. The Fund will not pay The Dreyfus Corporation at
a later time for any amounts it may waive, nor will the Fund reimburse The
Dreyfus Corporation for any amounts it may assume.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor is a wholly-owned subsidiary of FDI Distribution
Services, Inc., a provider of mutual fund administration services, which in
turn is a wholly-owned subsidiary of FDI Holdings, Inc., the parent company
of which is Boston Institutional Group, Inc.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT _ The Bank of New York,
90 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
Investor Class shares are offered to any investor and may be
purchased through the Distributor or certain financial institutions (which
may include banks), securities dealers and other industry professionals
(collectively, "Service Agents") that have entered into service agreements
with the Distributor.
Class R shares are offered only to institutional investors acting for
themselves or in a fiduciary, advisory, agency, custodial or similar
capacity, such as banks and qualified or non-qualified employee benefit plans
or other programs, including pension, profit-sharing and other deferred
compensation plans, whether established by corporations, partnerships,
non-profit entities or state and local governments ("Retirement Plans").
Class R shares may be purchased for a Retirement Plan only by a custodian,
trustee, investment manager or other entity authorized to act on behalf of
such Plan. Institutions effecting transactions in Class R shares for the
accounts of their clients may charge their clients direct fees in connection
with such transactions.
Stock certificates are issued only upon an investor's written
request. No certificates are issued for fractional shares. The Fund reserves
the right to reject any purchase order.
The minimum initial investment for each Class is $2,500, or $1,000 if
the investor is 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. However, the minimum initial investment for
Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only
one participant is $750, with no minimum on subsequent purchases. Individuals
who open an IRA also may open a non-working spousal IRA with a minimum
initial investment of $250. Subsequent investments in a spousal IRA must be
at least $250. The initial investment must be accompanied by the Fund's
Account Application. For
Page 19
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Fund's Board, or the spouse or minor child of any of the foregoing, the
minimum initial investment is $1,000. For full-time or part-time employees of
The Dreyfus Corporation or any of its affiliates or subsidiaries who elect to
have a portion of their pay directly deposited into their 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.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes
various limitations on the amount that may be contributed to certain
Retirement Plans. These limitations apply with respect to participants at the
plan level and, therefore, do not directly affect the amount that may be
invested in the Fund by a Retirement Plan. Participants and plan sponsors
should consult their tax advisers for details.
Investors may purchase Fund shares by check or wire, or, with respect
to Investor Class shares only, 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 the investor's Account Application indicating which
Portfolio and Class of shares is being purchased. For subsequent investments,
the investor's 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 Dreyfu
s 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 the investor's bank account is in a
commercial bank that is a member of the Federal Reserve System or any other
bank having a correspondent bank in New York City. Immediately available
funds may be transmitted by wire to The Bank of New York, together with the
relevant Portfolio's DDA # as shown below, for purchase of shares in the
investor's name:
DDA #8900251785 Dreyfus LifeTime Portfolios, Inc./Income Portfolio_Class R; or
DDA #8900104511 Dreyfus LifeTime Portfolios, Inc./Income Portfolio_Investor
Class; or
DDA #8900251778 Dreyfus LifeTime Portfolios, Inc./Growth and Income
Portfolio_Class R; or
DDA #8900118253 Dreyfus LifeTime Portfolios, Inc./Growth and Income
Portfolio_Investor Class; or
DDA #8900251794 Dreyfus LifeTime Portfolios, Inc./Growth Portfolio_Class R; or
DDA #8900227745 Dreyfus LifeTime Portfolios, Inc./Growth Portfolio_Investor
Class.
The wire must include the investor's Fund account number (for new accounts,
the investor's Taxpayer Identification Number ("TIN") should be included
instead), account registration and dealer number, if applicable. If an
investor's initial purchase of Portfolio shares is by wire, the investor
should call 1-800-645-6561 after the investor has completed the wire payment
in order to obtain his or her Fund account number. The investor should
include his or her Fund account number on the Fund's Account Application and
promptly mail the Account Application to the Fund, as no redemptions will be
permitted until the Account Application is received. Investors may obtain
further information about remitting funds in this manner from their 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
invest-
Page 20
ment in an investor's 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. The investor must
direct the institution to transmit immediately available funds through the
Automated Clearing House to The Bank of New York with instructions to credit
the investor's Fund account. The instructions must specify the investor's
Fund account registration and Fund account number PRECEDED BY THE DIGITS
"1111."
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
authorities, may charge their clients direct fees. These fees would be in
addition to any amounts which might be received under the Service Plan.
Service Agents may receive different levels of compensation for selling
different classes of shares. Each Service Agent has agreed to transmit to its
clients a schedule of such fees. Investors should consult their Service Agent
in this regard. See "Service Plan."
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds one million dollars ("Eligible Benefit
Plans"). All present holdings of shares of funds in the Dreyfus Family of
Funds by Eligible Benefit Plans will be aggregated to determine the fee
payable with respect to each purchase of Fund shares. The Distributor
reserves the right to cease paying these fees at any time. The Distributor
will pay such fees from its own funds, other than amounts received from the
Fund, including past profits or any other source available to it.
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 of each Class is computed by
dividing the value of the Portfolio's net assets represented by such Class
(i.e., the value of its assets less liabilities) by the total number of
shares of such Class outstanding. Each Portfolio'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 Board of Directors.
For further information regarding the methods employed in valuing the
Portfolios' investments, see "Determination of Net Asset Value" in the Fund's
Statement of Additional Information.
Federal regulations require that investors 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 the investor to a $50 penalty imposed by the Internal Revenue Service
(the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ INVESTOR CLASS
An investor may purchase Investor Class shares (minimum $500, maximum
$150,000 per day) by telephone if he has checked the appropriate box and
supplied the necessary information on the Fund's Account Application or has
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and the investor's Fund account. Only a bank account maintained in a domestic
financial institution which is an Automated
Page 21
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 an investor has selected the Dreyfus TELETRANSFER Privilege, he
may request a Dreyfus TELETRANSFER purchase of Investor Class shares by
telephoning 1-800-221-4060 or, if calling from overseas, 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. Investors should consult their Service Agent in
this regard.
FUND EXCHANGES
An investor may purchase, in exchange for Investor Class shares or
Class R shares of a Portfolio, shares of the same class of another Portfolio
or shares of certain other funds managed or administered by The Dreyfus
Corporation, to the extent such shares are offered for sale in the investor's
state of residence. These funds have different investment objectives which
may be of interest to investors. To use this service, investors should
consult their Service Agent or call 1-800-645-6561 to determine if it is
available and whether any conditions are imposed on its use. WITH RESPECT TO
CLASS R SHARES HELD BY RETIREMENT PLANS, EXCHANGES MAY BE MADE ONLY BETWEEN A
SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN ONE FUND AND SUCH SHAREHOLDER'S
RETIREMENT PLAN ACCOUNT IN ANOTHER FUND.
To request an exchange, an investor or the investor's Service Agent
acting on the investor's behalf must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, the investor
must obtain and should review a copy of the current prospectus of the fund
into which the exchange is being made. Prospectuses may be obtained by
calling 1-800-645-6561. Except in the case of Personal Retirement Plans, the
shares being exchanged must have a current value of at least $500;
furthermore, when establishing a new account by exchange, the shares being
exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. The ability to
issue exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "No" box on the
Account Application, indicating that the investor specifically refuses this
Privilege. The Telephone Exchange Privilege may be established for an
existing account by written request, signed by all shareholders on the
account, or by a separate signed Shareholder Services Form, also available by
calling 1-800-645-6561. If an investor has established the Telephone Exchange
Privilege, the investor may telephone exchange instructions by calling
1-800-221-4060 or, if calling from overseas, 1-401-455-3306. See "How to
Redeem Fund Shares_ Procedures." Upon an exchange, the following shareholder
services and privileges, as applicable and where available, will be
automatically carried over to the fund into which the exchange is made:
Telephone Exchange Privilege, Wire Redemption Privilege, Telephone Redemption
Privilege, Dreyfus TELETRANSFER Privilege and the dividends and distributions
payment option (except for Dreyfus Dividend Sweep) selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If an investor is exchanging into a fund that charges
a sales load, the investor 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 the investor is exchanging were: (a) purchased with a sales
load, (b) acquired by a previous exchange from shares purchased with a sales
load, or (c) acquired through reinvestment of dividends or distributions paid
with respect to the foregoing categories of shares. To qualify, at the time
of the exchange the investor must notify the Transfer Agent or the investor's
Service Agent must notify the Distributor. Any such qualification is subject
to confirmation of the investor's holdings through a check of appropriate
records. See "Shareholder Services" in the Statement of Additional
Information. No fees currently are charged
Page 22
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 availability of Fund exchanges may be
modified or terminated at any time upon notice to shareholders.
The exchange of shares of one fund or portfolio for shares of another
is treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize, or an exchange on behalf of a Retirement Plan which is not tax
exempt may result in, a taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables a shareholder to invest
regularly (on a semi-monthly, monthly, quarterly or annual basis), in
exchange for shares of a Portfolio, in shares of the same class of another
Portfolio or shares of other funds in the Dreyfus Family of Funds of which
such shareholder is currently an investor. WITH RESPECT TO CLASS R SHARES
HELD BY RETIREMENT PLANS, EXCHANGES PURSUANT TO THE DREYFUS AUTO-EXCHANGE
PRIVILEGE MAY BE MADE ONLY BETWEEN A SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN
ONE FUND AND SUCH SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN ANOTHER FUND. The
amount the investor designates, 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 the investor has 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.
An investor may modify or cancel the investor's 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 or portfolio for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize, or an
exchange on behalf of a Retirement Plan which is not tax exempt may result
in, a taxable gain or loss. For more information concerning this Privilege
and the funds in the Dreyfus Family of Funds eligible to participate in this
Privilege, or to obtain a Dreyfus Auto-Exchange Authorization Form, please
call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits a shareholder to purchase
Portfolio shares (minimum of $100 and maximum of $150,000 per transaction) at
regular intervals selected by the shareholder. Portfolio shares are purchased
by transferring funds from the bank account designated by the shareholder. At
the shareholder's option, the bank account designated by the shareholder will
be debited in the specified amount, and Portfolio 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, the shareholder must file an
authorization form with the Transfer Agent. Shareholders may obtain the
necessary authorization form by calling 1-800-645-6561. A shareholder may
cancel his 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.
Page 23
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables a shareholder to invest automatically
dividends or dividends and capital gain distributions, if any, paid by a
Portfolio in shares of the same class of another Portfolio or other funds in
the Dreyfus Family of Funds of which the shareholder is an investor. 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 the shareholder is investing in a fund that
charges a sales load, such shareholder may qualify for share prices which do
not include the sales load or which reflect a reduced sales load. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits a shareholder to transfer electronically on the payment
date dividends or dividends and capital gain distributions, if any, from the
Fund to a designated bank account. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. Banks may charge a fee for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments do not apply
for Dreyfus Dividend Sweep. The Fund may modify or terminate these privileges
at any time or charge a service fee. No such fee currently is contemplated.
Shares held under Keogh Plans or IRAs are not eligible for Dreyfus Dividend
Sweep.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables a shareholder to
purchase Portfolio 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 such shareholder's Fund account. A shareholder may deposit as
much of such payments as such shareholder elects. To enroll in Dreyfus
Government Direct Deposit, the shareholder must file with the Transfer Agent
a completed Direct Deposit Sign-Up Form for each type of payment that the
shareholder desires to include in this Privilege. The appropriate form may be
obtained by calling 1-800-645-6561. Death or legal incapacity will terminate
a shareholder's participation in this Privilege. A shareholder may elect at
any time to terminate his participation by notifying in writing the
appropriate Federal agency. Further, the Fund may terminate a shareholder's
participation upon 30 days' notice to such shareholder.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits a shareholder to purchase
Portfolio shares (minimum of $100 per transaction) automatically on a regular
basis. Depending upon the direct deposit program of the shareholder's
employer, a shareholder may have part or all of his paycheck transferred to
his existing Dreyfus account electronically through the Automated Clearing
House system at each pay period. To establish a Dreyfus Payroll Savings Plan
account, the shareholder must file an authorization form with his employer's
payroll department. The shareholder's 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. A shareholder may obtain the necessary
authorization form by calling 1-800-645-6561. A shareholder may change the
amount of purchase or cancel the authorization only by written notification
to the shareholder's employer. It is the sole responsibility of the
shareholder's employer, not the Distributor, The Dreyfus Corporation, the
Fund, the Transfer Agent or any other person, to arrange for transactions
under the Dreyfus Payroll Savings Plan. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated. Shares held under Keogh Plans, IRAs or other retirement plans
are not eligible for this Privilege.
Page 24
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits a shareholder to request
withdrawal of a specified dollar amount (minimum of $50) on either a monthly
or quarterly basis if such shareholder has a $5,000 minimum account.
Particular Retirement Plans, including Dreyfus sponsored retirement plans,
may permit certain participants to establish an automatic withdrawal plan
from such Retirement Plans. Participants should consult their Retirement Plan
sponsor and tax adviser for details. Such a withdrawal plan is different than
the Automatic Withdrawal Plan. An application for the Automatic Withdrawal
Plan can be obtained by calling 1-800-645-6561. There is a service charge of
50 cents for each withdrawal check. The Automatic Withdrawal Plan may be ended
at any time by the shareholder, the Fund or the Transfer Agent. Shares for
which certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. An investor can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for SEP-IRAs,
401(k) Salary Reduction Plans and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM FUND SHARES
GENERAL
Shareholders may request redemption of their 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 Portfolio will redeem
the shares at the next determined net asset value.
The Fund imposes no charges when shares are redeemed. Service Agents
or other institutions may charge their clients a nominal fee for effecting
redemptions of Portfolio shares. Any certificates representing Portfolio
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 Portfolio's then-current net asset value.
Distributions from qualified Retirement Plans and certain
non-qualified deferred compensation plans, except distributions representing
returns of non-deductible contributions to the Retirement Plan, generally are
taxable income to the participant. Distributions from such a Retirement Plan
to a participant prior to the time the participant reaches age 59-1/2 or
becomes permanently disabled may subject the participant to an additional 10%
penalty tax imposed by the IRS. Participants should consult their tax
advisers concerning the timing and consequences of distributions from a
Retirement Plan. Participants in qualified Retirement Plans will receive a
disclosure statement describing the consequences of a distribution from such
a Plan from the administrator, trustee or custodian of the Plan, before
receiving the distribution. The Fund will not report to the IRS redemptions
of Portfolio shares by qualified Retirement Plans or certain non-qualified
deferred compensation plans. The administrator, trustee or custodian of such
Retirement Plans will be responsible for reporting distributions from such
Plans to the IRS.
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 AN INVESTOR HAS PURCHASED PORTFOLIO SHARES BY CHECK,
BY DREYFUS TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER
AND SUBSEQUENTLY SUBMITS A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT,
THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO THE INVESTOR PROMPTLY UPON
BANK CLEARANCE OF THE INVESTOR'S PURCHASE CHECK, DREYFUS TELETRANSFER
PURCHASE OR DREYFUS-AUTOMATIC ASSET BUILDER ORDER,
Page 25
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 THE INVESTOR'S
SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF THE INVESTOR OTHERWISE HAS A
SUFFICIENT COLLECTED BALANCE IN THE INVESTOR'S ACCOUNT TO COVER THE REDEMPTION
REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH
SHARES WILL ACCRUE AND BE PAYABLE, AND THE INVESTOR WILL BE ENTITLED TO
EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Portfolio shares will not
be redeemed until the Transfer Agent has received the investor's Account
Application.
The Fund reserves the right to redeem an investor's account at its
option upon not less than 45 days' written notice if the net asset value of
the investor's account is $500 or less and remains so during the notice
period.
PROCEDURES
Investors may redeem shares by using the regular redemption procedure
through the Transfer Agent, the Wire Redemption Privilege, the Telephone
Redemption Privilege, or, for Investor Class shares only, the Dreyfus
TELETRANSFER Privilege. Other redemption procedures may be in effect for
clients of certain Service Agents and institutions. The Fund makes available
to certain large institutions the ability to issue redemption instructions
through compatible computer facilities.
Investors may redeem Portfolio shares by telephone if they have
checked the appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If an investor selects the
telephone redemption privilege or telephone exchange privilege (which is
granted automatically unless the investor refuses it), such investor
authorizes the Transfer Agent to act on telephone 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. 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, investors may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Portfolio shares. In such cases,
investors should consider using the other redemption procedures described
herein. Use of these other redemption procedures may result in an investor's
redemption request being processed at a later time than it would have been if
telephone redemption had been used. During the delay, the Portfolio's net
asset value may fluctuate.
REGULAR REDEMPTION. Under the regular redemption procedure, an investor may
redeem his shares by written request mailed to The Dreyfus Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus
retirement plan accounts, to The Dreyfus Trust Company, Custodian, P.O. Box
6427, Providence, Rhode Island 02940-6427. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information."
Redemption requests must be signed by each shareholder, including
each owner of a joint account, and each signature must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing
Page 26
agencies and savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
For more information with respect to signature-guarantees, please call 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. An investor may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to the investor's account at a
bank which is a member of the Federal Reserve System, or a correspondent bank
if the investor's bank is not a member. To establish the Wire Redemption
Privilege, an investor must check the appropriate box and supply the
necessary information on the Fund's Account Application or file a Shareholder
Services Form with the Transfer Agent. An investor may direct that redemption
proceeds be paid by check (maximum $150,000 per day) made out to the owners
of record and mailed to the investor's 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 not more
than $250,000 wired within any 30-day period. An investor may telephone
redemption requests by calling 1-800-221-4060 or, if calling from overseas,
1-401-455-3306. The Fund reserves the right to refuse any redemption request,
including requests made shortly after a change of address, and may limit the
amount involved or the number of such requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund. The
Fund's 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. An investor may redeem Fund shares (maximum
$150,000 per day) by telephone if the investor has checked the appropriate
box on the Fund's Account Application or has filed a Shareholder Services
Form with the Transfer Agent. The redemption proceeds will be paid by check
and mailed to the investor's address. An investor may telephone redemption
instructions by calling 1-800-221-4060 or, if calling from overseas,
1-401-455-3306. The Fund reserves the right to refuse any 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 certificates have been issued, are not eligible
for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE _ Investor Class. An investor may redeem Fund
shares (minimum $500 per day) by telephone if the investor has checked the
appropriate box and supplied the necessary information on the Fund's Account
Application or has filed a Shareholder Services Form with the Transfer Agent.
The proceeds will be transferred between the investor's 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
the investor's account at an Automated Clearing House member bank ordinarily
two days after receipt of the redemption request or, at the investor's
request, paid by check (maximum $150,000 per day) and mailed to the
investor's address. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period. 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 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 an investor has selected the Dreyfus TELETRANSFER Privilege, the
investor may request a Dreyfus TELETRANSFER redemption of Fund shares by
telephoning 1-800-221-4060 or, if calling from overseas,
Page 27
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.
SERVICE PLAN
(INVESTOR CLASS ONLY)
Each Portfolio's Investor Class shares are subject to a Service Plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Under the Service Plan, each Portfolio (a) reimburses the Distributor for
payments to certain Service Agents for distributing the Portfolio's Investor
Class shares and servicing Investor Class shareholder accounts ("Servicing")
and (b) pays The Dreyfus Corporation, Dreyfus Service Corporation, a
wholly-owned subsidiary of The Dreyfus Corporation, and any affiliate of
either of them (collectively, "Dreyfus") for advertising and marketing
relating to the Portfolio's Investor Class shares and for Servicing, at an
aggregate annual rate of .25 of 1% of the value of the average daily net
assets of the Portfolio's Investor Class. Each of the Distributor and Dreyfus
may pay one or more Service Agents a fee in respect of Investor Class shares
owned by shareholders with whom the Service Agent has a Servicing
relationship or for whom the Service Agent is the dealer or holder of record.
Each of the Distributor and Dreyfus determines the amounts, if any, to be
paid to Service Agents under the Service Plan and the basis on which such
payments are made. The fees payable under the Service Plan are payable
without regard to actual expenses incurred.
Each Portfolio bears the costs of preparing and printing prospectuses
and statements of additional information used for regulatory purposes and for
distribution to existing shareholders. Under the Service Plan, each Portfolio
bears (a) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes with respect to
the Portfolio's Investor Class and (b) the costs associated with implementing
and operating the Service 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 average daily net assets of the Portfolio's Investor Class for
such fiscal year.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Code, each Portfolio is treated as a separate corporation
for purposes of qualification and taxation as a regulated investment company.
Each Portfolio ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the Investment Company Act of 1940. No Portfolio will make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. Investors may choose
whether to receive dividends and distributions in cash or to reinvest in
additional Portfolio shares. Dividends and distributions paid in cash to
Retirement Plans, however, may be subject to additional tax as described
below. All expenses are accrued daily and deducted before declaration of
dividends to investors. Dividends paid by each Class will be calculated at
the same time and in the same manner and will be of the same amount, except
that the expenses attributable solely to the Investor Class or Class R will
be borne exclusively by such Class. Investor Class shares will receive lower
per share dividends than Class R shares because of the higher expenses borne
by the Investor Class. See "Annual Fund Operating Expenses."
Dividends paid by a Portfolio to qualified Retirement Plans or
certain non-qualified deferred compensation plans ordinarily will not be
subject to taxation until the proceeds are distributed from the Retirement
Plan. The Fund will not report dividends paid to such Plans to the IRS.
Generally, distributions from such Retirement Plans, except those
representing returns of non-deductible contributions thereto, will be taxable
as ordinary income and, if made prior to the time the participant reaches age
59-1/2, generally will be subject to an additional tax equal to 10% of the
taxable portion of the distribution. If the distribution from such a
Retirement Plan (other than certain governmental or church plans)
Page 28
for any taxable year following the year in which the participant reaches
age 70-1/2 is less than the "minimum required distribution" for that taxable
year, an excise tax equal to 50% of the deficiency may be imposed by the IRS.
The administrator, trustee or custodian of such a Retirement Plan will be
responsible for reporting distributions from such Plans to the IRS.
Participants in qualified Retirement Plans will receive a disclosure
statement describing the consequences of a distribution from such a Plan from
the administrator, trustee or custodian of the Plan prior to receiving the
distribution. Moreover, certain contributions to a qualified Retirement Plan
in excess of the amounts permitted by law may be subject to an excise tax.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by a Portfolio will be taxable to U.S.
shareholders and to certain non-qualified Retirement Plans as ordinary income
whether received in cash or reinvested in Portfolio shares. Distributions
from net realized long-term securities gains of a Portfolio will be taxable
to U.S. shareholders and to certain non-qualified Retirement Plans as
long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Portfolio shares and whether such
distributions are received in cash or reinvested in Portfolio 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 all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by a Portfolio 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 a
Portfolio 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 dividends and distributions will be
mailed to investors annually. Investors also will receive periodic summaries
of their account which will include information as to dividends and
distributions from securities gains, if any, paid during the year.
Participants in a Retirement Plan should receive periodic statements from the
trustee, custodian or administrator of their Plan.
With respect to individual investors and certain non-qualified
Retirement Plans, Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of dividends,
distributions from net 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 a Portfolio 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 each Portfolio 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
Page 29
Portfolio of any liability for Federal income tax to the extent its earnings
are distributed in accordance with applicable provisions of the Code. In
addition, each Portfolio is subject to a non-deductible 4% excise tax,
measured with respect to certain undistributed amounts of taxable investment
income and capital gains.
Investors should consult their tax advisers regarding specific
questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class may be
calculated on the basis of average annual total return and/or total return.
These total return figures reflect changes in the price of the shares and
assume that any income dividends and/or capital gains distributions made by
the Portfolio during the measuring period were reinvested in shares of the
same Class. These figures also take into account any applicable service and
distribution fees. As a result, at any given time, the performance of the
Investor Class should be expected to be lower than that of Class R.
Performance for each Class will be calculated separately.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Portfolio 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 each Portfolio's performance will include the Portfolio'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 Portfolio
has operated. Computations of average annual total return for periods of less
than one year represent an annualization of the Portfolio'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. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
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., Morningstar, Inc., Russell 2000 Index, Standard &
Poor's 500 Stock Index, the Dow Jones Industrial Average and other industry
publications.
GENERAL INFORMATION
The Fund was organized as a corporation under the laws of Maryland on
July 15, 1993, and has not engaged in active business to the date of this
Prospectus. The Fund is authorized to issue 300 million shares of Common
Stock (with 100 million allocated to each Portfolio), par value $.001 per
share. Each Portfolio's shares are classified into two classes_Investor Class
and Class R. Each share has one vote and shareholders will vote in the
aggregate and not by class except as otherwise required by law. However, only
holders of Investor Class shares will be entitled to vote on matters
submitted to shareholders pertaining to the Service Plan.
Page 30
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 and 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.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted under the provisions of the Investment
Company Act of 1940 or applicable state law or otherwise to the holders of
the outstanding voting securities of an investment company, such as the Fund,
will not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Portfolio affected by
such matter. Rule 18f-2 further provides that a Portfolio shall be deemed to
be affected by a matter unless it is clear that the interests of each
Portfolio in the matter are identical or that the matter does not affect any
interest of such Portfolio. However, that Rule exempts the selection of
independent accountants and the election of Directors from the separate
voting requirements of the rule.
The Transfer Agent maintains a record of your ownership and will send
you confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call
1-718-895-1206; outside the U.S. and Canada, call 516-794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 31
DREYFUS
LifeTime
Portfolios, Inc.
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1995 Dreyfus Service Corporation
DRPp1033195
DREYFUS LIFETIME PORTFOLIOS, INC.
INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
GROWTH PORTFOLIO
INVESTOR CLASS AND CLASS R
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MARCH 31, 1995
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus LifeTime Portfolios, Inc. (the "Fund"), dated March 31, 1995, as
it may be revised from time to time. To obtain a copy of the Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. and Canada -- Call 1-516-794-5452
The Dreyfus Corporation ("Dreyfus") serves as each Portfolio's
investment adviser. Dreyfus has engaged Mellon Equity Associates ("Mellon
Equity") to serve as each Portfolio's sub-investment adviser and to provide
day-to-day management of each Portfolio's investments, subject to the
supervision of Dreyfus. Dreyfus and Mellon Equity Associates are referred
to collectively as the "Advisers."
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . . . . . . B-2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . B-13
Management Arrangements. . . . . . . . . . . . . . . . . . . . . . . B-17
Purchase of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . B-19
Service Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Redemption of Fund Shares. . . . . . . . . . . . . . . . . . . . . . B-20
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . B-22
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . B-25
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . B-26
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . B-27
Performance Information. . . . . . . . . . . . . . . . . . . . . . . B-28
Information About the Fund . . . . . . . . . . . . . . . . . . . . . B-29
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors . . . . . . . . . . . . . . . . . B-29
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-30
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . B-31
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."
Investment Approach
I. Asset Allocation Baseline. For each Portfolio, Mellon Equity will
establish an asset allocation baseline (the "Portfolio Baseline"). The
Portfolio Baseline describes target levels or relative weights for the
Portfolio's asset classes: Level One describes the relative weighting of
total assets between international assets, domestic assets, and money
market instruments; Level Two describes the relative weighting of
international and domestic assets between common stock and fixed-income
assets; and Level Three describes the relative weighting of domestic common
stock assets between large and small capitalization stocks. The following
table illustrates this hierarchy:
<TABLE>
<CAPTION>
Level One Level Two Level Three
Total Assets International Domestic Assets Domestic Equity
Assets
Money
Market Fixed Fixed
Portfolio Int'l Domestic Instruments Equity Income Equity Income Large Cap Small Cap
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME N/A 90% 10% N/A N/A 25% 75% 100% N/A
GROWTH
AND
INCOME 10% 90% * 50% 50% 50% 50% 80% 20%
GROWTH 15% 85% * 80% 20% 80% 20% 80% 20%
__________
* Not held as an asset class. Money market instruments held for
transactional and liquidity purposes only.
</TABLE>
Mellon Equity will attempt to maintain relative asset class weights
consistent with the Portfolio Baseline as adjusted by the Active Allocation
Overlay described below. At any given time, however, actual weights will
not equal the Portfolio Baseline because of fluctuations in market values,
money market instruments held for transactional and liquidity purposes, and
Mellon Equity's active allocation overlay decisions as described below.
II. Active Allocation Overlay. For each Portfolio, Mellon Equity
will establish two active allocation ranges ("Portfolio Overlay One") and
("Portfolio Overlay Two"). Portfolio Overlay One describes the amount of
over/under weighting to the Portfolio Baseline for the relative weighting
between international and domestic assets. Portfolio Overlay Two describes
the amount of over/under weighting to the Portfolio Baseline for the
relative weighting of domestic assets between common stock and fixed-income
assets. The following table illustrates these ranges:
<TABLE>
<CAPTION>
Portfolio Portfolio Overlay One Portfolio Overlay Two
<S> <C> <C>
Range for Relative Weighting of Range for Relative Weighting of
International and Domestic Assets Domestic Assets Between Equity
Assets and Fixed-Income Assets
INCOME N/A N/A
GROWTH AND INCOME +/- 5% of Portfolio Baseline +/- 15% of Portfolio Baseline
GROWTH +/- 10% of Portfolio Baseline +20%/-15% of Portfolio Baseline
</TABLE>
The following examples illustrate Mellon Equity's allocation overlay
process:
Example 1: Given the Level One Portfolio Baseline for the Growth and
Income Portfolio of 10% of total assets in international securities and 90%
of total assets in domestic securities, under Portfolio Overlay One, Mellon
Equity could invest as much as 15% of the Growth and Income Portfolio's
total assets in international securities and 85% of its total assets in
domestic securities or as little as 5% of its total assets in international
securities and 95% of its total assets in domestic securities.
Example 2: Given the Level Two Portfolio Baseline for the Growth and
Income Portfolio of 50% of domestic assets in equity securities and 50% of
domestic assets in fixed-income securities, under Portfolio Overlay Two,
Mellon Equity could invest as much as 65% of the Growth and Income
Portfolio's assets invested in domestic assets in equity securities and 35%
of such domestic assets in fixed-income securities or as little as 35% of
the Portfolio's assets invested in domestic assets in equity securities and
65% of such domestic assets in fixed-income securities.
Under normal market circumstances, Mellon Equity expects to maintain
relative asset class weights consistent with the Portfolio Baseline
adjusted by Portfolio Overlay One and Portfolio Overlay Two as described
above. At any given time, however, actual weights may not fall within the
ranges suggested by the Portfolio Baseline adjusted by Portfolio Overlay
One and Portfolio Overlay Two because of fluctuations in market values,
cash and cash-equivalents held for transactional and liquidity purposes,
and Portfolio rebalancing.
Mellon Equity reserves the right to vary the relative asset class
weights and the percentage of assets invested in any asset class from the
Portfolio Baseline adjusted by Portfolio Overlay One and Portfolio Overlay
Two described above as the risk and return characteristics of either asset
classes or markets, as assessed by Mellon Equity, vary over time. None of
the Portfolios will be managed as a balanced portfolio, which would require
that at least 25% of the Portfolio's total assets be invested in fixed-
income securities.
III. Implementing the Active Allocation Overlay. To implement
Portfolio Overlay One, Mellon Equity will employ a proprietary country
asset allocation model (the "Country Model"). The Country Model evaluates
the return and risk characteristics of individual capital markets and their
correlation across countries, incorporates expected movements in currency
markets to determine expected U.S. dollar returns, and then employs an
international correlation model to recommend appropriate relative
weightings.
To implement Portfolio Overlay Two, Mellon Equity will employ a
proprietary domestic asset allocation model (the "Domestic Model"). The
Domestic Model evaluates the return and risk characteristics of the
domestic equity and fixed-income markets by comparing the valuation of
equity and fixed-income assets relative to their current market prices and
long-term values in the context of the current economic environment. Once
this analysis is completed, the Domestic Model recommends appropriate
relative weightings.
Mellon Equity will compare each Portfolio's relative asset class
weights from time to time to that suggested by the Country Model and the
Domestic Model. Recommended changes will be implemented subject to Mellon
Equity's assessment of current economic conditions and investment
opportunities. From time to time, Mellon Equity may change the criteria
and methods used to implement the recommendations of the asset allocation
models.
IV. Asset Class Benchmarks. For each asset class, other than money
market instruments, a market-based index is designated as a benchmark or
reference for the respective asset class (the "Asset Class Benchmark").
The Asset Class Benchmarks are used in the investment management process as
described in the following section. The Asset Class Benchmarks are listed
in the following table:
<TABLE>
<CAPTION>
Asset Class Portfolios Asset Class Benchmark
<S> <C> <C>
Domestic Large Cap Equity Income, Growth and Income and Growth Standard & Poor's 500 Index
Domestic Small Cap Equity Growth and Income and Growth Russell 2000 Index
International Equity Growth and Income and Growth Morgan Stanley Capital International Europe,
Australia, Far East (Free) Index*
Domestic Fixed-Income Income, Growth and Income and Growth Lehman Brothers Government/Corporate
Intermediate Bond Index
International Fixed-Income Growth and Income and Growth J.P. Morgan Non-US Government Bond Index -
Hedged
____________________________
* In U.S. dollars
</TABLE>
Under normal market circumstances, Mellon Equity expects to use the
Asset Class Benchmarks as described below. Mellon Equity, however,
reserves the right to substitute another suitable Asset Class Benchmark if
the then-existing Asset Class Benchmark is no longer calculated, suffers a
material change in formula or content, fails to adequately reflect the
return characteristics of the asset class, or for any other reason, in the
judgment of Mellon Equity, is inappropriate.
V. Asset Class Investment Management. When constructing portfolios
for each asset class, Mellon Equity seeks to select securities which, in
the aggregate, have approximately the same investment characteristics as
those of the Asset Class Benchmark with expected returns equal to or better
than that of the Asset Class Benchmark. Some of the asset classes will be
managed on an indexed basis and Mellon Equity reserves the right, in its
judgment, to manage asset classes either actively or on an indexed basis
consistent with the Portfolio's investment objective.
For asset classes managed on an indexed basis, a statistically based
"sampling" technique will be used to construct portfolios. The sampling
technique is expected to be an effective means of substantially duplicating
the investment performance of the Asset Class Benchmark. It will not,
however, provide investment performance relative to the Asset Class
Benchmark with the same degree of accuracy that complete or full
replication would provide.
If possible, Mellon Equity will seek to fully replicate the holdings
of an Asset Class Benchmark when managing an indexed portfolio. Such a
strategy is limited by the number of securities in the Asset Class
Benchmark and will not provide investment performance equal to that of the
Asset Class Benchmark owing to certain factors, including Asset Class
Benchmark changes, calculation rules which assume dividends are reinvested
into the Asset Class Benchmark on ex-dividend dates and transaction costs
of rebalancing.
For asset classes which are actively managed, Mellon Equity will
employ proprietary valuation models to assist in the selection of stocks
and in the construction of portfolios which maintain the investment
characteristics of the Asset Class Benchmark consistent with the
Portfolio's investment objective. In its active investment process, Mellon
Equity concentrates on fundamental factors such as relative price/earnings
ratios, relative book to price ratios, earnings growth rates and momentum,
and consensus earnings expectations and changes in that consensus to value
and rank stocks based on expected relative performance to the Asset Class
Benchmark.
Mellon Equity will seek to manage each asset class consistent with the
descriptions above and with each Portfolio's investment objective. Across
the Portfolios, it is not anticipated that each asset class will be managed
identically with respect to being an indexed portfolio or actively managed.
For example, the domestic equity, large cap asset class could be managed as
an index portfolio in the Income Portfolio while being actively managed in
the other Portfolios.
Mellon Equity may choose to combine Asset Class Benchmarks
proportionately if the amount of investable assets in a Portfolio is deemed
low in the judgment of Mellon Equity. For example, the domestic equity
large cap and small cap Asset Class Benchmarks could be combined
proportionately according to the Portfolio Baseline in order to create more
efficient portfolio management as deemed appropriate by Mellon Equity.
Mellon Equity would continue to provide investment management services as
described above, but would manage to the combined Asset Class Benchmark.
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 Portfolio are insured by the FDIC
(although such insurance may not be of material benefit to the Portfolio,
depending on the principal amount of the CDs of each bank held by the
Portfolio) 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 Portfolio 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.
Repurchase Agreements. The Fund's custodian or sub-custodian will
have custody of, and will hold in a segregated account, securities acquired
by a Portfolio under a repurchase agreement. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission to be
loans by the Portfolio that enters into them. In an attempt to reduce the
risk of incurring a loss on a repurchase agreement, each Portfolio 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 Portfolio may invest, and will require
that additional securities be deposited with it if the value of the
securities purchased should decrease below the resale price. The Advisers
will monitor on an ongoing basis the value of the collateral to assure that
it always equals or exceeds the repurchase price. The Fund will consider
on an ongoing basis the creditworthiness of the institutions with which
each Portfolio enters into repurchase agreements.
Commercial Paper and Other Short-Term Corporate Obligations. Variable
rate demand notes include variable amount master demand notes, which are
obligations that permit the Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the
Portfolio, 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
Portfolio may invest in them only if at the time of an investment the
borrower meets the criteria set forth in the Fund's Prospectus for other
commercial paper issuers.
American, European and Continental Depositary Receipts. Each of the
Growth and Income Portfolio and Growth Portfolio may invest in the
securities of foreign issuers in the form of American Depositary Receipts,
European Depositary Receipts and Continental Depositary Receipts 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.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not
readily marketable, the Fund will endeavor to 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 a Portfolio, 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 each Portfolio's investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, a Portfolio's investing in such
securities may have the effect of increasing the level of illiquidity in
its investment portfolio during such period.
Management Policies
Each Portfolio engages to the extent described below in the following
practices in furtherance of its objective.
Options Transactions. The Portfolio may engage in options
transactions, such as purchasing or writing covered call or put options.
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. 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 Portfolio 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 Portfolio 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 Portfolio's obligation as the writer of an option
continues, the Portfolio may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Portfolio 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 Portfolio effects a
closing purchase transaction. The Portfolio 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, each Portfolio 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 Portfolio is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Stock Index Options. Each Portfolio may purchase and write put and
call options on stock indices, to the extent consistent with the
Portfolio's management policies. A stock index fluctuates with changes in
the market values of the stocks included in the index.
Options on stock indices 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 Portfolio.
Foreign Currency Transactions. If the Growth and Income Portfolio or
Growth Portfolio enters into a currency transaction, it will deposit, if so
required by applicable regulations, with the Fund's custodian cash or
readily marketable securities in a segregated account of the Portfolio in
an amount at least equal to the value of the Portfolio'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 Portfolio's commitment with respect to the
contract.
At or before the maturity of a forward contract, the Portfolio 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 Portfolio will obtain,
on the same maturity date, the same amount of the currency which it is
obligated to deliver. If the Portfolio retains the portfolio security and
engages in an offsetting transaction, the Portfolio, at the time of
execution of the offsetting transaction, will insure a gain or loss to the
extent movement has occurred in forward contract prices. Should forward
prices decline during the period between the Portfolio'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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 each of these Portfolios to restrict the degree to which
it engages in currency transactions. See "Dividends, Distributions and
Taxes."
Lending Portfolio Securities. To a limited extent, each Portfolio 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 portfolio securities, the
Portfolio can increase its income through the investment of the cash
collateral. For purposes of this policy, the Fund considers collateral
consisting of short-term U.S. Government securities or irrevocable letters
of credit issued by banks whose securities meet the standards for
investment by the Portfolio to be the equivalent of cash. From time to
time, the Portfolio 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 Portfolio 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 Portfolio must be able to terminate the loan at any time; (4) the
Portfolio 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 Portfolio 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
Each Portfolio has adopted investment restrictions numbered 1 through
10 as fundamental policies. These restrictions cannot be changed as to a
Portfolio without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "Act")) of such Portfolio's
outstanding voting shares. Investment restrictions numbered 11 through 16
are not fundamental policies and may be changed by vote of a majority of
the Fund's Directors at any time. No Portfolio may:
1. Invest more than 5% of its assets in the obligations of any
single issuer, except that up to 25% of the value of the Portfolio's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities may be purchased, without
regard to any such limitation.
2. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to
75% of the Portfolio's total assets.
3. Invest in commodities, except that the Portfolio may purchase
and sell options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.
4. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Portfolio
may purchase and sell securities that are secured by real estate or issued
by companies that invest or deal in real estate.
5. Borrow money, except to the extent permitted under the Act
(which currently limits borrowing to no more than 33-1/3% of the Portfolio's
total assets). For purposes of this investment restriction, the entry into
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not constitute
borrowing.
6. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the
Portfolio may lend its portfolio securities in an amount not to exceed 33-
1/3% of the value of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the Securities and
Exchange Commission and the Fund's Board of Directors.
7. Act as an underwriter of securities of other issuers, except to
the extent the Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
8. Invest more than 25% of the value of its 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.
9. 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. 3, 5, 12 and 13 may be deemed to give rise to a
senior security.
10. Purchase securities on margin, but the Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indices, and options on
futures contracts or indices.
11. Invest in the securities of a company for the purpose of
exercising management or control, but the Portfolio will vote the
securities it owns in its portfolio as a shareholder in accordance with its
views.
12. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.
13. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Fund's Prospectus and this Statement of
Additional Information.
14. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Portfolio's investments in all such
companies to exceed 5% of the value of its total assets.
15. 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 Portfolio's net assets
would be so invested.
16. Purchase securities of other investment companies, except to the
extent permitted under the Act.
Each Portfolio may invest, notwithstanding any other investment
restriction (whether or not fundamental), all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
restrictions as the Portfolio.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Portfolio shares in certain
states. Should the Fund determine that a commitment is no longer in the
best interest of the Portfolio and its shareholders, the Fund reserves the
right to revoke the commitment by terminating the sale of such Portfolio's
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 of the Fund
LUCY WILSON BENSON, Director. President of Benson and Associates,
consultants to business and government. Mrs. Benson is a director of
Communications Satellite Corporation, General RE Corporation and
Logistics Management Institute. She is also a Trustee of the Alfred
P. Sloan Foundation, Vice Chairman of the Board of Trustees of
Lafayette College, Vice Chairman of the Citizens Network for Foreign
Affairs and a member of the Council on Foreign Relations. Mrs. Benson
served as a consultant to the U.S. Department of State and to SRI
International from 1980 to 1981. From 1977 to 1980, she was Under
Secretary of State for Security Assistance, Science and Technology.
Mrs. Benson is also a Board member of 14 other funds in the Dreyfus
Family of Funds. Mrs. Benson is 67 years old and her address is 46
Sunset Avenue, Amherst, Massachusetts 01002.
* DAVID W. BURKE, Director. Since August 1994, Consultant to Dreyfus.
From October 1990 to August 1994, Vice President and Chief
Administrative Officer of Dreyfus. From 1977 to 1990, Mr. Burke was
involved in the management of national television news, as Vice
President and Executive Vice President of ABC News, and subsequently
as President of CBS News. Mr. Burke is also a Board member of 52
other funds in the Dreyfus Family of Funds. Mr. Burke is 59 years old
and his address is 200 Park Avenue, New York, New York 10166.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Mr.
DiMartino has served as Chairman of the Board of various funds in the
Dreyfus Family of Funds. For more than five years prior thereto, he
was President, a director and, until August 1994, Chief Operating
Officer of Dreyfus and Executive Vice President and a director of
Dreyfus Service Corporation, a wholly-owned subsidiary of Dreyfus and,
until August 24, 1994, the Fund's distributor. From August 1994 to
December 31, 1994, he was a director of Mellon Bank Corporation. Mr.
DiMartino is a director of The Muscular Dystrophy Association; a
trustee of Bucknell University; Chairman of the Board of Directors of
Noel Group, Inc.; director of HealthPlan Services Corporation, Belding
Heminway, Inc. and Curtis Industries, Inc. Mr. DiMartino is also a
Board member of 93 other funds in the Dreyfus Family of Funds. He is
51 years old and his address is 200 Park Avenue, New York, New York
10166.
MARTIN D. FIFE, Director. President of Fife Associates, Inc. and other
related companies that are engaged in the chemical and plastics
industries. Mr. Fife is also a Board member of 11 other funds in the
Dreyfus Family of Funds. Mr. Fife is 68 years old and his address is
30 Rockefeller Plaza, New York, New York 10112.
WHITNEY I. GERARD, Director. Partner of the New York City law firm of
Chadbourne & Parke. Mr. Gerard is also a Board member of 11 other
funds in the Dreyfus Family of Funds. Mr. Gerard is 59 years old and
his address is 30 Rockefeller Plaza, New York, New York 10112.
ROBERT R. GLAUBER, Director. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University, since January 1992. Mr. Glauber 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. Mr. Glauber is also a Board member of 20 other
funds in the Dreyfus Family of Funds. Mr. Glauber is 56 years old and
his address is 79 John F. Kennedy Street, Cambridge, Massachusetts
02138.
ARTHUR A. HARTMAN, Director. Senior consultant with APCO Associates Inc.
From 1981 to 1987, he was United States Ambassador to the former
Soviet Union. He is a director of the ITT Hartford Insurance Group,
Ford Meter Box Corporation, Lawter International and a member of the
advisory councils of several other companies, research institutes and
foundations. He is a former President of the Harvard Board of
Overseers. Mr. Hartman is also a Board member of 11 other funds in
the Dreyfus Family of Funds. Mr. Hartman is 69 years old and his
address is 2738 McKinley Street, N.W., Washington, D.C. 20015.
GEORGE L. PERRY, Director. An economist and Senior Fellow at the Brookings
Institution since 1969. He is co-director of the Brookings Panel on
Economic Activity and editor of its journal, The Brookings Papers. He
is also a director of the State Farm Mutual Automobile Association,
State Farm Life Insurance Company and Federal Realty Investment Trust.
Mr. Perry is also a Board member of 11 other funds in the Dreyfus
Family of Funds. Mr. Perry is 60 years old and his address is 1775
Massachusetts Avenue, N.W., Washington, D.C. 20015.
PAUL WOLFOWITZ, Director. Dean of The Paul H. Nitze School of Advanced
International Studies at Johns Hopkins University. From 1989 to 1993,
Under Secretary of Defense for Policy. From 1986 to 1989, he was the
U.S. Ambassador to the Republic of Indonesia. From 1982 to 1986, he
was Assistant Secretary of State for East Asian and Pacific Affairs,
Department of State. Mr. Wolfowitz is also a Board member of 10 other
funds in the Dreyfus Family of Funds. Mr. Wolfowitz is 50 years old
and his address is 1740 Massachusetts Avenue, N.W., Washington, D.C.
20036.
For so long as the Fund's plan described in the section captioned
"Service Plan" remains 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 typically pays its Directors an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. The estimated
amount of compensation payable by the Fund to each Director for the fiscal
year ending April 30, 1996, and the aggregate amount of compensation paid
to each Director by all other funds in the Dreyfus Family of Funds for
which such person is a Board member for the year ended December 31, 1994,
were as follows:
<TABLE>
<CAPTION>
(3) (5)
(2) Pension or (4) Total Compensation
(1) Aggregate Retirement Benefits Estimated Annual from Fund and
Name of Board Compensation from Accrued as Part of Benefits Upon Fund Complex Paid
Member Fund* Fund's Expenses Retirement to Board Member
------------ ----------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Lucy Wilson Benson $2,000 none none $ 64,459
David W. Burke $2,000 none none $ 27,878
Joseph S. DiMartino $2,000 none none $445,000**
Martin D. Fife $2,000 none none $ 51,750
Whitney I. Gerard $2,000 none none $ 52,000
Robert R. Glauber $2,000 none none $ 79,696
Arthur A. Hartman $2,000 none none $ 52,000
George L. Perry $2,000 none none $ 52,000
Paul Wolfowitz $2,000 none none $ 32,631
______________________________
* Amount does not include reimbursed expenses for attending Board meetings, which are
estimated to be approximately $708 for all Directors as a group.
** Estimated amount for the year ending December 31, 1995.
</TABLE>
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by Dreyfus. From December 1991 to
July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc. She is 37 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by Dreyfus. From February 1992 to
July 1994, he served as Counsel for The Boston Company Advisors, Inc.
From August 1990 to February 1992, he was employed as an Associate at
Ropes & Gray, and prior to August 1990, he was employed as an
Associate at Sidley & Austin. He is 30 years old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by Dreyfus. From September 1992 to
August 1994, he was an attorney with the Board of Governors of the
Federal Reserve System. He is 30 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by Dreyfus. From 1988 to
August 1994, he was Manager of the High Performance Fabric Division of
Springs Industries Inc. He is 33 years old.
JOSEPH F. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by
Dreyfus. From July 1988 to August 1994, he was employed by The Boston
Company, Inc. where he held various management positions in the
Corporate Finance and Treasury areas. He is 32 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by Dreyfus. From 1984 to July 1994, he was Assistant
Vice President in the Mutual Fund Accounting Department of Dreyfus.
He is 59 years old.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by Dreyfus. From January 1992 to July 1994, he was a
Senior Legal Product Manager and, from January 1990 to January 1992, a
mutual fund accountant, for The Boston Company Advisors, Inc. He is
28 years old.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by Dreyfus. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts. She is 50 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
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
each Portfolio pursuant to the Management Agreement (the "Management
Agreement") dated August 24, 1994, as amended February 2, 1995, between
Dreyfus and the Fund. As to each Portfolio, 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 outstanding voting
securities of the Portfolio, provided that in either event the continuance
also is approved by a majority of such 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. As
to each Portfolio, the Management Agreement is terminable without penalty,
on 60 days' notice, by the Fund's Board of Directors or by vote of the
holders of a majority of such Portfolio's shares, or, upon not less than 90
days' notice, by Dreyfus. The Management Agreement will terminate
automatically, as to the relevant Portfolio in the event of its assignment
(as defined in the Act).
The following persons are officers and/or directors of Dreyfus:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Robert E. Riley, President, Chief
Operating Officer and a director; Lawrence S. Kash, Vice Chairman--
Distribution and a director; Philip L. Toia, Vice Chairman--Operations and
Administration; Paul H. Snyder, Vice President and Chief Financial Officer;
Daniel C. Maclean, Vice President and General Counsel; Barbara E. Casey,
Vice President--Retirement Services; Henry D. Gottmann, Vice President--
Retail; Elie M. Genadry, Vice President--Wholesale; Mark N. Jacobs, Vice
President--Fund Legal and Compliance and Secretary; Jeffrey N. Nachman,
Vice President--Mutual Fund Accounting; Diane M. Coffey, Vice President--
Corporate Communications; William F. Glavin, Jr., Vice President--Product
Management; Andrew Wasser, Vice President--Information Systems; Katherine
C. Wickham, Vice President--Human Resources; Elvira Oslapas--Vice
President; Maurice Bendrihem, Controller; and Mandell L. Berman, Frank V.
Cahouet, Alvin E. Friedman, Lawrence M. Greene, Julian M. Smerling and
David B. Truman, directors.
Dreyfus maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. Dreyfus also may make such advertising and
promotional expenditures using its own resources, as it from time to time
deems appropriate.
Sub-Investment Advisory Agreements. Mellon Equity provides investment
advisory assistance and day-to-day management of each Portfolio's
investments pursuant to the Sub-Investment Advisory Agreement (the "Sub-
Advisory Agreement") dated February 2, 1995 between Mellon Equity and
Dreyfus. As to each Portfolio, 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 such Portfolio's outstanding voting
securities, provided that in either event the continuance also is approved
by a majority of the Directors who are not "interested persons" (as defined
in the Act) of the Fund or the Advisers, by vote cast in person at a
meeting called for the purpose of voting on such approval. As to each
Portfolio, 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 such Portfolio's outstanding voting
securities on 60 days' notice, or (iii) upon not less than 90 days' notice,
by Mellon Equity. The Sub-Advisory Agreement will terminate automatically,
as to the relevant Portfolio, in the event of its assignment (as defined in
the Act).
The following persons are officers and/or directors of Mellon Equity:
Phillip R. Roberts, Chairman of the Board; and William P. Rydell, President
and Chief Executive Officer.
Mellon Equity provides day-to-day management of each Portfolio's
investments, subject to the supervision of Dreyfus and the approval of the
Board of Directors. The Advisers provide the Fund with portfolio managers
who are authorized by the Board of Directors to execute purchases and sales
of securities for each Portfolio. The Fund's portfolio manager is Steven
A. Falci. The Advisers maintain research departments with professional
portfolio managers and securities analysts who provide research services
for the Fund as well as for other funds advised by Dreyfus and Mellon
Equity.
Expenses. All expenses incurred in the operation of the Fund are
borne by the Fund, except to the extent specifically assumed by Dreyfus.
The expenses borne by the Fund include: organizational costs, taxes,
interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of
Board members, 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 preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholders' reports and
meetings, and any extraordinary expenses. Expenses attributable to a
particular Portfolio are charged against the assets of that Portfolio;
other expenses of the Fund are allocated among the Portfolios on the basis
determined by the Board of Directors, including, but not limited to,
proportionately in relation to the net assets of the Portfolios.
In addition, Investor Class shares are subject to annual distribution
and service fees. See "Service Plan."
Dreyfus has agreed that if in any fiscal year the aggregate expenses
of a Portfolio, exclusive of taxes, brokerage, interest on borrowings and
(with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee,
exceed the expense limitation of any state having jurisdiction over that
Portfolio, the Fund may deduct from the payment to be made to Dreyfus under
the Management Agreement, or Dreyfus will bear, such excess expense to the
extent required by state law. Such deduction or payment, if any, will be
estimated daily, and reconciled and effected or paid, as the case may be,
on a monthly basis.
The aggregate of the fees payable to Dreyfus is not subject to
reduction as the value of the Portfolios' net assets increases.
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--Investor Class. 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 Portfolio account on the next bank business
day. To qualify to use the Dreyfus TeleTransfer Privilege, the initial
payment for purchase of Investor Class shares must be drawn on, and
redemption proceeds paid to, the same bank and account as are designated on
the Account Application or Shareholder Services Form on file. If the
proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"Redemption of Fund Shares--Dreyfus TeleTransfer Privilege--Investor
Class."
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.
SERVICE PLAN
(INVESTOR CLASS ONLY)
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Service
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 with respect to the Investor Class shares of each
Portfolio (the "Plan"). The Fund's Board of Directors believes that there
is a reasonable likelihood that the Fund's Plan will benefit each Portfolio
and the holders of its Investor Class shares. In some states, certain
financial institutions effecting transactions in Portfolio shares may be
required to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Directors for their review. In addition, the Plan provides that it may not
be amended to increase materially the cost which holders of Investor Class
shares of the Portfolio may bear pursuant to the Plan without the approval
of the holders of the Investor Class shares and that other material
amendments of the Plan must be approved by the Board of Directors and by
the Directors who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in the operation
of the Plan or in any agreements entered into in connection with the Plan,
by vote cast in person at a meeting called for the purpose of considering
such amendments. The Plan is subject to annual approval by such vote of
the Directors cast in person at a meeting called for the purpose of voting
on the Plan. The Plan was so approved by the Directors at a meeting held
on February 2, 1995. The 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 Plan or in
any agreements entered into in connection with the Plan or by vote of the
holders of a majority of Investor Class shares.
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 Shareholder Services Form.
Redemption proceeds, if wired, must be in the amount of $1,000 or more and
will be wired to the investor's account at the bank of record designated in
the investor's file at the Transfer Agent, if the investor's bank is a
member of the Federal Reserve System, or to a correspondent bank if the
investor's bank is not a member. Fees ordinarily are imposed by such bank
and usually are borne by the investor. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Stock Certificates; Signatures. Any certificates representing
Portfolio 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.
Dreyfus TeleTransfer Privilege--Investor Class. 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--Investor Class."
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record of the Portfolio,
limited in amount during any 90-day period to the lesser of $250,000 or 1%
of the value of the Portfolio's net assets at the beginning of such period.
Such commitment is irrevocable without the prior approval of the Securities
and Exchange Commission. In the case of requests for redemption in excess
of such amount, the 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 Portfolio
to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the Portfolio's
investments are valued. If the recipient sold such securities, brokerage
charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Portfolio 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 Portfolio's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Shareholder
Services."
Fund Exchanges. Shares purchased by exchange will be purchased on the
basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to
herein as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
that could have been imposed in connection with the Purchased
Shares (at the time the Purchased Shares were acquired),
without giving effect to any reduced loads, the difference
will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their
account number.
To request an exchange, an investor or the investor's Service Agent
acting on the investor's behalf must give exchange instructions to the
Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the applicable "No" box on the Account
Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic 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.
Exchanges of Class R shares held by a Retirement Plan may be made only
between the investor's Retirement Plan account in one fund and such
investor's Retirement Plan account in another fund.
To establish a retirement plan by exchange, shares of the fund being
exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For Dreyfus-
sponsored Keogh Plans, IRAs and SEP-IRAs with only one participant, the
minimum initial investment is $750. To exchange shares held in Corporate
Plans, 403(b)(7) Plans and IRAs set up under a Simplified Employee Pension
Plan ("SEP-IRAs") with more than one participant, the minimum initial
investment is $100 if the plan has at least $2,500 invested among the funds
in the Dreyfus Family of Funds. To exchange shares held in a Retirement
Plan account, the shares exchanged must have a current value of at least
$100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of a Portfolio,
shares of the same class of another Portfolio or shares of another fund in
the Dreyfus Family of Funds. This Privilege is available only for existing
accounts. With respect to Class R shares held by a Retirement Plan,
exchanges may be made only between the investor's Retirement Plan account
in one fund and such investor's Retirement Plan account in another fund.
Shares will be exchanged on the basis of relative net asset value as
described above under "Fund Exchanges." Enrollment in or modification or
cancellation of this Privilege is effective three business days following
notification by the investor. An investor will be notified if the
investor's account falls below the amount designated to be exchanged under
this Privilege. In this case, an investor's account will fall to zero
unless additional investments are made in excess of the designated amount
prior to the next Auto-Exchange transaction. Shares held under IRA and
other retirement plans are eligible for this Privilege. Exchanges of IRA
shares may be made between IRA accounts and from regular accounts to IRA
accounts, but not from IRA accounts to regular accounts. With respect to
all other retirement accounts, exchanges may be made only among those
accounts.
Fund exchanges and Dreyfus Auto-Exchange are available to shareholders
resident in any state in which shares of the fund being acquired may
legally be sold. Shares may be exchanged only between accounts having
identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Portfolio reserves the right to
reject any exchange request in whole or in part. The Fund exchange service
or Dreyfus Auto-Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
Automatic Withdrawal. 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 Portfolio 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. There is a service charge of $.50 for each
withdrawal check. Automatic Withdrawal may be terminated at any time by
the investor, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from a Portfolio in shares of the same class of
another Portfolio or shares of another fund in the Dreyfus Family of Funds
of which the investor is a shareholder. Shares of the same class of other
funds purchased pursuant to this privilege will be purchased on the basis
of relative net asset value per share as follows:
A. Dividends and 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 ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
Corporate Pension/Profit-Sharing and Retirement Plans. The Fund makes
available to corporations a variety of prototype pension and profit-sharing
plans including a 401(k) Salary Reduction Plan. In addition, the Fund
makes available Keogh Plans, IRAs, including SEP-IRAs and IRA "Rollover
Accounts," and 403(b)(7) Plans. Plan support services also are available.
Investors who wish to purchase Portfolio shares in conjunction with a
Keogh Plan, a 403(b)(7) Plan or an IRA, including an SEP-IRA, may request
from the Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or
IRAs may charge a fee, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans
may not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$2,500 with no minimum on subsequent purchases. The minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7)
Plans with only one participant, is normally $750, with no minimum on
subsequent purchases. Individuals who open an IRA may also open a non-
working spousal IRA with a minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details on eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. The Portfolio's securities,
including covered call options written by the Portfolio, are valued at the
last sale price on the securities exchange or national securities market on
which such securities primarily are traded. Short-term investments are
carried at amortized cost, which approximates value. 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. 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 Manager. 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 certain portfolio
securities. 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 each
Portfolio, including the management fee paid by the Portfolio and, with
respect to an Investor Class, the distribution and service fee, are accrued
daily and taken into account for the purpose of determining the net asset
value of Portfolio shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Directors, are valued at fair value as
determined in good faith by the Board of Directors. The Board of Directors
will review the method of valuation on a current basis. In making their
good faith valuation of restricted securities, the Directors generally will
take the following factors into consideration: restricted securities which
are securities of the same class of securities for which a public market
exists usually will be valued at market value less the same percentage
discount at which purchased. This discount will be revised periodically by
the Board of Directors if the Directors believe that it no longer reflects
the value of the restricted securities. Restricted securities not of the
same class as securities for which a public market exists usually will be
valued initially at cost. Any subsequent adjustment from cost will be
based upon considerations deemed relevant by the Board of Directors.
New York Stock Exchange Closings. The holidays (as observed) on which
the 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 each Portfolio will qualify as a "regulated
investment company" under the Code, as long as such qualification is in the
best interests of its shareholders. Qualification as a regulated
investment company relieves the Portfolio from any liability for Federal
income taxes to the extent its earnings are distributed in accordance with
the applicable provisions of the Code. The term "regulated investment
company" does not imply the supervision of management or investment
practices or policies by any government agency.
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 his investment. Such a dividend or distribution would be a return
on investment in an economic sense, although taxable as stated above. In
addition, the Code provides that if a shareholder holds shares of the Fund
for six months or less and has received a capital gain distribution with
respect to such shares, any loss incurred on the sale of such shares will
be treated as a long-term capital loss to the extent of the capital gain
distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain and loss. However, a portion of the gain or
loss from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial forward futures and option
contracts and certain preferred stock) may be treated as ordinary income or
loss under Section 988 of the Code. In addition, all or a portion of any
gain realized from the sale or other disposition of certain market discount
bonds will be treated as ordinary income under Section 1276. 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 realized by the
Portfolio from certain futures and forward contracts and options
transactions will be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. Gain or loss will arise upon exercise or
lapse of such contracts and options as well as from closing transactions.
In addition, any such contracts or options remaining unexercised at the end
of the Portfolio's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Portfolio
characterized in the manner described above.
Offsetting positions held by the Portfolio involving certain contracts
or options may constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the provisions of
Section 1256 of the Code. As such, all or a portion of any short-term or
long-term capital gain from certain "straddle" transactions may be
recharacterized to ordinary income. If the Portfolio 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 Portfolio may make one or more elections with respect to "mixed
straddles." Depending on which election is made, if any, the results to
the Portfolio may differ. If no election is made to the extent the
"straddle" and conversion transactions rules apply to positions established
by the Portfolio, losses realized by the Portfolio will be deferred to the
extent of unrealized gain in the offsetting position. Moreover, as a
result of the "straddle" rules, short-term capital loss on "straddle"
positions may be recharacterized as long-term capital loss, and long-term
capital gains may be treated as short-term capital gains or ordinary
income.
Investment by the Portfolio in securities issued or acquired at a
discount, or providing for deferred interest or for payment of interest in
the form of additional obligations could under special tax rules affect the
amount, timing and character of distributions to shareholders by causing
the Portfolio to recognize income prior to the receipt of cash payments.
For example, the Portfolio could be required to accrue a portion of the
discount (or deemed discount) at which the securities were issued and to
distribute such income in order to maintain its qualification as a
regulated investment company. In such case, the Portfolio may have to
dispose of securities which it might otherwise have continued to hold in
order to generate cash to satisfy these distribution requirements.
If the Growth and Income Portfolio or Growth Portfolio 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 Portfolio. In addition, gain realized
from the sale or other disposition of PFIC securities may be treated as
ordinary income under Section 1291 of the Code.
PORTFOLIO TRANSACTIONS
The Advisers assume general supervision over placing orders on behalf
of the Portfolio for the purchase or sale of investment securities.
Allocation of brokerage transactions, including their frequency, is made in
the Advisers' 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 Mellon Equity 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.
Portfolio turnover may vary from year to year as well as within a
year. 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.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Performance
Information."
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value per share
with a hypothetical $1,000 payment made at the beginning of the period
(assuming the reinvestment of dividends and distributions), dividing by the
amount of the initial investment, taking the "n"the root of the quotient
(where "n" is the number of years in the period) and subtracting 1 from the
result.
Total return is calculated by subtracting the amount of the
Portfolio's net asset value per share at the beginning of a stated period
from the net asset value per share at the end of the period (after giving
effect to the reinvestment of dividends and distributions during the
period), and dividing the result by the net asset value per share at the
beginning of the period.
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 Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-
assessable. Portfolio shares have no preemptive, subscription or
conversion rights and are freely transferable.
To date, the Fund's Board has authorized the creation of three
portfolios of shares. All consideration received by the Fund for shares of
one of the Portfolios and all assets in which such consideration is
invested will belong to that Portfolio (subject only to the rights of
creditors of the Fund) and will be subject to the liabilities related
thereto. The assets attributable to, and the expenses of, one Portfolio
(and as to classes within a Portfolio) are treated separately from those of
the other Portfolios (and classes). The Fund has the ability to create,
from time to time, new portfolios of shares without shareholder approval.
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, 90 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 LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
DREYFUS RETIREMENT PORTFOLIOS, INC.
(currently Dreyfus Lifetime Portfolios, Inc.)
Statement of Assets and Liabilities
March 28, 1995
<TABLE>
<CAPTION>
Growth
Income and Income Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,000 $34,000 $33,000
Deferred organization and initial offering expenses . . . . . . . . . . . . . . . 65,500 65,500 65,500
------- ------- -------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,500 99,500 98,500
LIABILITIES
Accrued organization and initial offering expenses. . . . . . . . . . . . . . . . 65,500 65,500 65,500
NET ASSETS applicable to 1,320, 1,360 and 1,320
Investor Class shares of common stock and
1,320, 1,360 and 1,320 Class R shares of common
stock ($.001 par value) of the Income Portfolio,
Growth and Income Portfolio and Growth Portfolio,
respectively, issued and outstanding (50 million
shares of each Class of each Portfolio authorized) . . . . . . . . . . . . . . $33,000 $34,000 $33,000
Investor Class Shares
NET ASSET VALUE and redemption price per share
($16,500/1,320, $17,000/1,360 and $16,500/1,320
shares of common stock of the Income Portfolio,
Growth and Income Portfolio and Growth Portfolio,
respectively, issued and outstanding). . . . . . . . . . . . . . . . . . . . $12.50 $12.50 $12.50
====== ====== ======
Class R Shares
NET ASSET VALUE and redemption price per share
($16,500/1,320, $17,000/1,360 and $16,500/1,320
shares of common stock of the Income Portfolio,
Growth and Income Portfolio and Growth Portfolio,
respectively, issued and outstanding). . . . . . . . . . . . . . . . . . . . $12.50 $12.50 $12.50
====== ====== ======
NOTE 1 - Dreyfus LifeTime Portfolios, Inc. (the "Fund") was incorporated
under the laws of the State of Maryland on July 15, 1993 and has had no
operations since that date other than matters relating to its organization
and registration as an open-end investment company under the Investment
Company Act of 1940 and the Securities Act of 1933 and the sale and
issuance of 1,320, 1,360 and 1,320 Investor Class shares and 1,320, 1,360
and 1,320 Class R shares of common stock of the Income Portfolio, Growth
and Income Portfolio and Growth Portfolio, respectively, to MBC Investments
Corporation ("Initial Shares"). Any organization expenses and initial
offering 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.
NOTE 2 - Subsequent event (unaudited) on April 28, 1995, the Fund amended
its Articles of Incorporation to change its name from Dreyfus Retirement
Portfolios, Inc. to Dreyfus Lifetime Portfolios, Inc.
</TABLE>
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
Dreyfus Retirement Portfolios, Inc.
We have audited the accompanying statement of assets and liabilities of
Dreyfus Retirement Portfolios, Inc. as of March 28, 1995. This statement of
assets and liabilities is the responsibility of the Fund's management. Our
responsibility 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 Retirement Portfolios, Inc. at March 28, 1995, in conformity with
generally accepted accounting principles.
New York, New York
March 29, 1995
Ernst & Young LLP
