-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqjjJpYkqAOwg4FmlNPIXXqz7Bd65zOTNLtE5f3Y3IwuiiIDz8lcAFOBO3aPD3ae 43kvxox2DYyPg2Xu2MSB5g== 0001056707-01-500003.txt : 20010430 0001056707-01-500003.hdr.sgml : 20010430 ACCESSION NUMBER: 0001056707-01-500003 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20010427 EFFECTIVENESS DATE: 20010427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREYFUS INVESTMENT PORTFOLIOS CENTRAL INDEX KEY: 0001056707 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 333-47011 FILM NUMBER: 1612833 BUSINESS ADDRESS: STREET 1: C/O THE DREYFUS CORPORATION STREET 2: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2129226789 MAIL ADDRESS: STREET 1: C/O THE DREYFUS CORPORATION STREET 2: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 485BPOS 1 lp1172.txt POST-EFFECTIVE AMENDMENT NO. 16 File Nos. 333-47011 811-08673 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [__] Post-Effective Amendment No. 16 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 16 [X] (Check appropriate box or boxes.) DREYFUS INVESTMENT PORTFOLIOS (Exact Name of Registrant as Specified in Charter) c/o The Dreyfus Corporation 200 Park Avenue, New York, New York 10166 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (212) 922-6000 Mark N. Jacobs, Esq. 200 Park Avenue New York, New York 10166 (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) immediately upon filing pursuant to paragraph (b) ---- X on May 1, 2001 pursuant to paragraph (b) ---- 60 days after filing pursuant to paragraph (a)(1) ---- on (date) pursuant to paragraph (a)(1) ---- --------------- 75 days after filing pursuant to paragraph (a)(2) ---- on (date) pursuant to paragraph (a)(2) of Rule 485 ---- --------------- If appropriate, check the following box: this post-effective amendment designates a new effective date for a ---- previously filed post-effective amendment. Dreyfus Investment Portfolios Core Bond Portfolio Seeks to maximize total return by investing in fixed-income securities PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Core Bond Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMI-ANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment adviser, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks to maximize total return through capital appreciation and current income. To pursue this goal, the portfolio invests at least 65% of its assets in fixed-income securities, such as: U.S. government bonds and notes, corporate bonds, convertible securities, preferred stocks, asset-backed securities, mortgage-related securities, and foreign bonds of issuers located in developed and emerging markets. The portfolio also may own warrants and common stock acquired in "units" with bonds. Generally, the portfolio seeks to maintain an investment grade (BBB/Baa) average credit quality. However, the portfolio may invest up to 35% of its assets in lower-rated securities (" high yield" or "junk" bonds). The portfolio has the flexibility to shift its investment focus among different fixed-income securities, based on market conditions and other factors. In choosing market sectors and securities for investment, the issuer's financial strength, and the current state and long-term outlook of the industry or sector are reviewed. Current and forecasted interest rate and liquidity conditions also are important factors in this regard. Typically, the portfolio can be expected to have an average effective maturity of between 5 and 10 years and an average effective duration between 3.5 and 6 years. While the portfolio' s duration and maturity usually will stay within these ranges, if the maturity or duration of the portfolio's benchmark index moves outside these ranges, so may the portfolio's. Concepts to understand AVERAGE EFFECTIVE MATURITY: an average of the stated maturity of bonds, adjusted to reflect provisions that may cause a bond's principal to be repaid earlier than at maturity. DURATION: an indication of an investment's "interest rate risk," or how sensitive a bond or mutual fund portfolio may be to changes in interest rates. Generally speaking, the longer a portfolio's duration, the more it is likely to react to interest rate fluctuations and the greater its long-term risk/return potential. BOND RATING: a ranking of a bond's quality, based on its ability to pay interest and repay principal. Bonds are rated from a high of "AAA" (highly unlikely to default) through a low of "D" (companies already in default). The Portfolio [Page 1] MAIN RISKS The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. The portfolio's principal risks include: * INTEREST RATE RISK. Prices of bonds tend to move inversely with changes in interest rates. Typically, a rise in rates will adversely affect bond prices and, accordingly, the portfolio' s share price. The longer the portfolio's effective maturity and duration, the more its share price is likely to react to changes in interest rates. * CREDIT RISK. Failure of an issuer to make timely interest or principal payments, or a decline or perception of a decline in the credit quality of a bond, can cause a bond's price to fall, potentially lowering the portfolio's share price. High yield bonds involve greater credit risk, including the risk of default, than investment grade bonds and are considered speculative. The prices of high yield bonds can fall dramatically in response to bad news about the issuer or its industry, or the economy in general. * MARKET RISK. The portfolio' s overall risk level will depend on the market sectors in which the portfolio is invested and the current interest rate, liquidity and credit quality of such sectors. * ILLIQUIDITY RISK. When there is no active trading market for specific securities, it can become more difficult to sell the securities. In such a market, the value of such securities and the portfolio's share price may fall dramatically. * PREPAYMENT AND EXTENSION RISK. When interest rates fall, the principal on mortgages underlying mortgage-backed and certain asset-backed securities may be prepaid. The loss of higher-yielding, underlying mortgages and the reinvestment of proceeds at lower interest rates can reduce the portfolio's potential price gain in response to falling interest rates, reduce the portfolio' s yield, or cause the portfolio's share price to fall. When interest rates rise, the portfolio' s maturity may lengthen in response to a drop in mortgage prepayments. This would increase the portfolio's sensitivity to rising rates and its potential for price declines. * FOREIGN RISK. The prices and yields of foreign bonds can be affected by political and economic instability or changes in currency exchange rates. The bonds of issuers located in emerging markets can be more volatile and less liquid than those of issuers in more mature economies. Under certain market conditions, usually during periods of market illiquidity or rising interest rates, the portfolio's "callable" issues are less likely to be called for payment before their maturity. This could lengthen the portfolio's maturity, which could increase the portfolio's sensitivity to rising interest rates and its potential for price declines. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts, and certain mortgage-related and asset-backed securities. While used primarily to hedge certain of the portfolio's investments and manage exposure to certain markets, such investments can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. The portfolio may buy securities on a forward commitment basis and may enter into reverse repurchase agreements. Those investment strategies may have a leveraging effect on the portfolio, thus potentially increasing its overall volatility. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE Since each class of shares of the portfolio has less than one calendar year of performance, past performance information is not included in this section of the prospectus. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. These figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for information on those fees or charges. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.60% 0.60% Rule 12b-1 fee none 0.25% Other expenses 1.30% 1.30% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.90% 2.15% Fee waiver and/or expense reimbursement (1.10%) (1.35%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 0.80% 0.80% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 0.80%. ---------------------------------------------------------------------------
Expense example 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $82 $490 $924 $2,132 SERVICE SHARES $82 $543 $1,030 $2,376
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. The portfolio has agreed to pay Dreyfus an annual management fee of 0.60% of the portfolio's average daily net assets. For the fiscal period May 1, 2000 (commencement of operations) through December 31, 2000, the portfolio did not pay Dreyfus a management fee as a result of a fee waiver/expense reimbursement in effect. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. The Dreyfus taxable fixed income team, which consists of sector specialists, collectively makes investment decisions for the portfolio. The team' s specialists focus on, and monitor conditions in, the different sectors of the fixed income market. Once different factors have been analyzed, the sector specialists then decide on allocation weights for the portfolio and recommend securities for investment. The portfolio, Dreyfus and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio [Page 5] MANAGEMENT (CONTINUED) Performance Information for a Related Public Fund The portfolio has the same investment objective and follows substantially the same investment policies and strategies as a corresponding series of another open-end investment company advised by Dreyfus -- Dreyfus Premier Core Bond Fund - -- Class A shares (the "Public Fund"). The portfolio currently has the same investment team as the Public Fund. The table at right shows average annual total return information for the Public Fund and for the Merrill Lynch Domestic Master Index, the benchmark index of the portfolio and the Public Fund. NO PERFORMANCE INFORMATION IS SHOWN FOR THE PORTFOLIO, WHICH DID NOT HAVE ITS OWN FULL YEAR OF PERFORMANCE AS OF DECEMBER 31, 2000. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund reflect the deduction of the historical fees and expenses paid by the Public Fund, and not those paid by the portfolio. The Public Fund's total annual operating expenses for the fiscal year ended October 31, 2000 were 1.01% of its average daily net assets. The performance figures also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio and the Public Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund reflects the reinvestment of dividends and other distributions. Historical performance information for Class A shares of the Public Fund and the Merrill Lynch Domestic Master Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
1 Year 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS PREMIER CORE BOND FUND CLASS A (NAV) 9.13% 7.21% 9.12% CLASS A (WITH SALES LOAD) 4.23% 6.23% 8.62% MERRILL LYNCH DOMESTIC MASTER INDEX* 11.73% 6.47% 8.01% * THE MERRILL LYNCH DOMESTIC MASTER INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK FOR U.S. GOVERNMENT SECURITIES AND INVESTMENT GRADE CORPORATE SECURITIES WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR. ALL PERFORMANCE FIGURES REFLECT THE REINVESTMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS.
[Page 6] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal period indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during the period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio's financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ------------------ --------------- PERIOD ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, 2000(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 12.50 12.93 Investment operations: Investment income -- net .50 -- Net realized and unrealized gain (loss) on investments .56 -- Total from investment operations 1.06 -- Distributions: Dividends from investment income -- net (.50) -- Dividends from net realized gain on investments (.12) -- Total distributions (.62) -- Net asset value, end of period 12.94 12.93 Total return (%) 8.61(3) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) .80(4) -- Ratio of net investment income to average net assets (%) 6.24(4) -- Decrease reflected in above expense ratio due to actions by Dreyfus (%) 1.10(4) -- Portfolio turnover rate (%) 953.66(3) 953.66(3) - -------------------------------------------------------------------------------- Net assets, end of period ($ x 1,000) 12,048 1 (1) FROM MAY 1, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) NOT ANNUALIZED. (4) ANNUALIZED.
The Portfolio [Page 7] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: CORE BOND PORTFOLIO/ SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) and account registration and dealer number, if applicable, of the participating insurance company. The portfolio' s investments are generally valued by using available market quotations or at fair value, which may be determined by one or more pricing services approved by the fund's board. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income once a month, and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. [Page 8] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information [Page 9] For More Information Dreyfus Investment Portfolios Core Bond Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal period. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 165P0501 Dreyfus Investment Portfolios Core Value Portfolio Seeks long-term capital growth by investing in large-cap stocks PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Core Value Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 6 Account Information - -------------------------------------------------------------------------------- Account Policies 7 Distributions and Taxes 7 Exchange Privilege 8 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment adviser, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks long-term growth of capital, with current income as a secondary objective. To pursue these goals, the portfolio invests primarily in stocks of large-cap value companies (market capitalizations of $1 billion and above) . The portfolio typically invests mainly in the stocks of U.S. issuers, and will limit its foreign stock holdings to 20% of the value of its total assets. The portfolio's stock investments may include common stocks, preferred stocks, convertible securities and depositary receipts. In choosing stocks, the portfolio manager focuses on individual stock selection (a "bottom-up" approach) rather than forecasting stock market trends (a " top-down" approach) , and looks for value companies. A three-step value screening process is used to select stocks: * VALUE: quantitative screens track traditional measures such as price-to-earnings, price-to-book and price-to-sales; these ratios are analyzed and compared against the market * SOUND BUSINESS FUNDAMENTALS: a company' s balance sheet and income data are examined to determine the company's financial history * POSITIVE BUSINESS MOMENTUM: a company' s earnings and forecast changes are analyzed and sales and earnings trends are reviewed to determine the company's financial condition The portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the portfolio manager's expectations. Concepts to understand VALUE COMPANIES: companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in price. LARGE-CAP COMPANIES: established companies that are considered "known quantities." Large-cap companies often have the resources to weather economic shifts, though they can be slower to innovate than small companies. The Portfolio [Page 1] MAIN RISKS While stocks have historically been a leading choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. Value stocks involve the risk that they may never reach what the portfolio manager believes is their full market value, either because the market fails to recognize the stock' s intrinsic worth or the portfolio manager misgauged that worth. They also may decline in price, even though in theory they are already underpriced. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the portfolio's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing growth stocks). Any foreign securities purchased by the portfolio include special risks, such as exposure to currency fluctuations, changing political climate, lack of comprehensive company information and potentially less liquidity. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its primary investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. The portfolio also may invest in foreign currencies. While used primarily to hedge certain of the portfolio's investments and manage exposure to certain markets, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. The portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the portfolio's gains or losses. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goals, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the changes in the performance of the portfolio's Initial shares from year to year. The table compares the average annual total return of the Initial shares to that of the Standard & Poor's 500/BARRA Value Index (S&P 500 BARRA Value), a broad measure of stock performance. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES 19.73 12.06 91 92 93 94 95 96 97 98 99 00 BEST QUARTER: Q4 '99 +13.16% WORST QUARTER: Q3 '99 -10.40% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (5/1/98) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 12.06% 9.26% S&P 500 BARRA VALUE 6.08% 7.57%* * FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/98 IS USED AS THE BEGINNING VALUE ON 5/1/98.
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.75% 0.75% Rule 12b-1 fee none 0.25% Other expenses 0.29% 0.29% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.04% 1.29% Fee waiver and/or expense reimbursement (0.04%) (0.29%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.00% 1.00% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, DREYFUS FURTHER REIMBURSED THE PORTFOLIO FOR OTHER EXPENSES SO THAT TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES FOR INITIAL SHARES WERE 0.97% INSTEAD OF 1.00%. THIS ADDITIONAL EXPENSE REIMBURSEMENT WAS VOLUNTARY. --------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $102 $327 $570 $1,267 SERVICE SHARES $102 $380 $680 $1,531
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual returns and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.68% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. The portfolio' s primary portfolio manager is Valerie J. Sill. She has been a portfolio manager of the portfolio since its inception. Ms. Sill is a portfolio manager of Dreyfus and senior vice president of The Boston Company Asset Management, Inc. (TBCAM), an affiliate of Dreyfus. She is also a member of the Equity Policy Group of TBCAM. She previously served as director of equity research and as an equity research analyst for TBCAM. The portfolio, Dreyfus and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio [Page 5] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ------------------------------------- -------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 1998(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 13.97 11.72 12.50 15.09 Investment operations: Investment income -- net .17(3) .07(3) .07 -- Net realized and unrealized gain (loss) on investments 1.50 2.24 (.77) -- Total from investment operations 1.67 2.31 (.70) -- Distributions: Dividends from investment income -- net (.16) (.06) (.08) -- Dividends from net realized gain on investments (.38) -- -- -- Total distributions (.54) (.06) (.08) -- Net asset value, end of period 15.10 13.97 11.72 15.09 Total return (%) 12.06 19.73 (5.59)(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) .97 1.00 .67(4) -- Ratio of net investment income to average net assets (%) 1.19 .56 .62(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .07 .50 .74(4) -- Portfolio turnover rate (%) 110.74 97.14 47.37(4) 110.74 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 23,897 15,343 5,959 1 (1) FROM MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
[Page 6] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: CORE VALUE PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) , account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. Account Information [Page 7] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the appli- cable insurance company prospectus for more information on exchanging portfolio shares. NOTES For More Information Dreyfus Investment Portfolios Core Value Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 172P0501 Dreyfus Investment Portfolios Emerging Leaders Portfolio Seeks capital growth by investing in small companies PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Emerging Leaders Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment adviser, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks capital growth. To pursue this goal, the portfolio invests primarily in companies Dreyfus believes to be emerging leaders: small companies characterized by new or innovative products, services or processes having the potential to enhance earnings growth. The portfolio invests at least 65% of its total assets in companies with total market values of less than $2.0 billion at the time of purchase. The portfolio's investments may include common stocks, preferred stocks and convertible securities, including those issued in initial public offerings. In choosing stocks, the portfolio uses a blended approach, investing in a combination of growth and value stocks. Using fundamental research and direct management contact, the portfolio managers seek stocks with dominant positions in major product lines, sustained achievement records and strong financial condition. They also seek special situations, such as corporate restructurings or management changes, that could increase the stock price. The portfolio managers use a sector management approach, supervising a team of sector managers who assist in making buy and sell decisions within their respective areas of expertise. The portfolio typically sells a stock when the reasons for buying it no longer apply, when the company begins to show deteriorating fundamentals or poor relative performance, or when a stock is fully valued by the market. The portfolio currently intends to close to new investors after it reaches total assets of approximately $750 million. Concepts to understand SMALL COMPANIES: new, often entrepreneurial companies. Small companies tend to grow faster than large-cap companies, but frequently are more volatile, are more vulnerable to major setbacks, and have a higher failure rate than larger companies. GROWTH COMPANIES: companies of any capitalization whose earnings are expected to grow faster than the overall market. Often, growth stocks have relatively high price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more volatile than value stocks. VALUE COMPANIES: companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in price. The Portfolio [Page 1] MAIN RISKS While stocks have historically been a leading choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder' s investment in the portfolio will go up and down, sometimes dramatically, which means that shareholders could lose money. Small companies carry additional risks because their operating histories tend to be more limited, their earnings less predictable, their share prices more volatile and their securities less liquid than those of larger, more established companies. Some of the portfolio' s investments will rise and fall based on investor perceptions rather than economics. In addition, some of the portfolio's investments will be made in anticipation of future products and services that, if delayed, could cause the stock price to drop. The portfolio may purchase securities of companies in initial public offerings (IPOs). The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Growth companies are expected to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. Value stocks are subject to the risk that their intrinsic values may never be realized by the market, or their prices may go down. Further, while the portfolio' s investments in value stocks may limit the overall downside risk of the portfolio over time, the portfolio may produce more modest gains than riskier small company stock funds as a trade-off for this potentially lower risk. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. The portfolio also may invest in foreign currencies and engage in short-selling. While used primarily to hedge certain of the portfolio's investments and manage exposure to certain markets, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. The portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the portfolio's gains or losses. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the performance of the portfolio's Initial shares for the portfolio's first full calendar year of operations. The table compares the average annual total return of the Initial shares to that of the Russell 2000 Index, a widely recognized, unmanaged small-cap index. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES 31.70 91 92 93 94 95 96 97 98 99 00 BEST QUARTER: Q3 '00 +16.18% WORST QUARTER: Q4 '00 -2.24% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (12/15/99) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 31.70% 39.28% RUSSELL 2000 INDEX -3.02% 7.32%* * FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99.
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.90% 0.90% Rule 12b-1 fee none 0.25% Other expenses 1.30% 1.30% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 2.20% 2.45% Fee waiver and/or expense reimbursement (0.70%) (0.95%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.50% 1.50% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.50%. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $153 $621 $1,116 $2,479 SERVICE SHARES $153 $673 $1,220 $2,714
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.20% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. The portfolio's primary portfolio managers are Paul Kandel and Hilary Woods. Mr. Kandel and Ms. Woods have been the portfolio's primary portfolio managers since its inception. Mr. Kandel joined Dreyfus in 1994 as senior sector manager for the technology and telecommunications industries. Ms. Woods joined Dreyfus in 1987 as senior sector manager for the capital goods industry. The portfolio, Dreyfus and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio [Page 5] MANAGEMENT (CONTINUED) Performance Information for Related Funds and Portfolio The portfolio has substantially the same investment objective and follows substantially the same investment policies and strategies as two corresponding series of separate open-end investment companies advised by Dreyfus, the Dreyfus Emerging Leaders Fund (the "Public Fund"), which is offered to the public, and Dreyfus Small Cap Portfolio (the "Insurance Fund"), which, like the portfolio, serves as a funding vehicle for variable insurance products. The portfolio currently has the same primary portfolio managers as the Public Fund and the Insurance Fund. The first table at right shows average annual total return information for the Public Fund, the Insurance Fund and the Russell 2000 Index, the benchmark index of the portfolio, the Public Fund and the Insurance Fund. The second table shows average annual total return information for the portfolio's Initial shares and for the Russell 2000 Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund and the Insurance Fund reflect the deduction of the historical fees and expenses paid by such funds, and not those paid by the portfolio. The total annual operating expenses, after fee waiver and expense reimbursement, if any, for the fiscal year ended August 31, 2000 for the Public Fund were 1.26% and for the fiscal year ended December 31, 2000 for the Insurance Fund were 0.78% of the respective fund's average daily net assets. The performance figures for the Public Fund, the Insurance Fund and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio, the Public Fund and the Insurance Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund, the Insurance Fund and the portfolio reflects the reinvestment of dividends and other distributions. RELATED FUNDS Historical performance information for the Public Fund, the Insurance Fund and the Russell 2000 Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since 1 Year 5 Years 10 Years inception* - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS EMERGING LEADERS FUND 9.49% 24.77% -- 28.64% DREYFUS SMALL CAP PORTFOLIO 13.31% 12.90% 34.34% -- RUSSELL 2000 INDEX** -3.02% 10.31% 15.53% 10.25%***
PORTFOLIO Average annual total returns for the portfolio's Initial shares and for the Russell 2000 Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (12/15/99) - -------------------------------------------------------------------------------- EMERGING LEADERS PORTFOLIO -- INITIAL SHARES 31.70% 39.28% RUSSELL 2000 INDEX** -3.02% 7.32%*** - -------------------------------------------------------------------------------- * THE INCEPTION DATE OF THE DREYFUS EMERGING LEADERS FUND WAS 9/29/95 ** THE RUSSELL 2000 INDEX IS A WIDELY RECOGNIZED, UNMANAGED SMALL-CAP INDEX COMPRISED OF THE COMMON STOCKS OF THE 2,000 U.S. PUBLIC COMPANIES NEXT IN SIZE AFTER THE LARGEST 1,000 PUBLICLY TRADED U.S. COMPANIES. ALL PERFORMANCE FIGURES REFLECT THE REINVESTMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. *** FOR COMPARATIVE PURPOSES: FOR THE DREYFUS EMERGING LEADERS FUND, THE VALUE OF THE INDEX ON 9/30/95 IS USED AS THE BEGINNING VALUE ON 9/29/95; FOR THE EMERGING LEADERS PORTFOLIO, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. [Page 6] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ------------------------- ------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 13.44 12.50 17.05 Investment operations: Investment income (loss) -- net (.09)(3) .01 -- Net realized and unrealized gain (loss) on investments 4.30 .93 -- Total from investment operations 4.21 .94 -- Distributions: Dividends from investment income -- net (.01) -- -- Dividends from net realized gain on investments (.59) -- -- Total distributions (.60) -- -- Net asset value, end of period 17.05 13.44 17.05 Total return (%) 31.70 7.52(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 1.50 .07(4) -- Ratio of net investment income (loss) to average net assets (%) (.59) .04(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .70 1.25(4) -- Portfolio turnover rate (%) 234.94 1.79(4) 234.94 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 5,902 2,150 1 (1) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
The Portfolio [Page 7] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: EMERGING LEADERS PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) and account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. [Page 8] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information [Page 9] For More Information Dreyfus Investment Portfolios Emerging Leaders Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio managers discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 192P0501 Dreyfus Investment Portfolios Emerging Markets Portfolio Seeks long-term capital growth by investing in emerging markets PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Emerging Markets Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment adviser, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks long-term capital growth. To pursue this goal, the portfolio invests primarily in the stocks of companies organized, or with a majority of its assets or business, in emerging market countries. Normally, the portfolio will not invest more than 25% of its total assets in the securities of companies in any one emerging market country. The portfolio may invest up to 35% of its net assets in the high yield debt securities of such companies as Dreyfus deems appropriate in light of market conditions. In choosing stocks, the portfolio manager identifies potential investments through extensive quantitative and fundamental research using a value-oriented, research-driven approach. Emphasizing individual stock selection rather than economic and industry trends, the portfolio focuses on three key factors: * VALUE, or how a stock is valued relative to its intrinsic worth based on traditional value measures * BUSINESS HEALTH, or overall efficiency and profitability as measured by return on assets and return on equity * BUSINESS MOMENTUM, or the presence of a catalyst (such as corporate restructuring, change in management or spin-off) that potentially will trigger a price increase near term or midterm The portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or declining momentum, or falls short of the manager's expectations. Concepts to understand EMERGING MARKET COUNTRIES: consist of all countries represented by the Morgan Stanley Capital International (MSCI) Emerging Markets (Free) Index, which currently includes Argentina, Brazil, Chile, China, Colombia, Czech Republic, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey and Venezuela, or any other country Dreyfus believes has an emerging economy or market. VALUE COMPANIES: companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). For international investing, "value" is determined relative to a company's home market. Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in price. The Portfolio [Page 1] MAIN RISKS The stock markets of emerging market countries can be extremely volatile. The value of a shareholder' s investment in the portfolio will go up and down, sometimes dramatically, which means that shareholders could lose money rapidly. The portfolio's performance will be influenced by political, social and economic factors affecting investments in companies in emerging market countries. These countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of companies located in emerging markets are often subject to rapid and large changes in price. Special risks include exposure to currency fluctuations, less liquidity, less developed or efficient trading markets, a lack of comprehensive company information, political instability, and differing auditing and legal standards. Such risks could result in more volatility for the portfolio. Value stocks involve the risk that they may never reach what the manager believes is their full market value either because the market fails to recognize the stock' s intrinsic worth or the manager misgauged that worth. They also may decline in price, even though in theory they are already underpriced. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the portfolio's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing growth stocks). The portfolio may invest in companies of any size. Investments in smaller companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than those of larger, more established companies. High yield ("junk") bonds involve greater credit risk, including the risk of default, than investment grade bonds. They tend to be more volatile in price and less liquid and are considered speculative. The portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the portfolio may be more sensitive to changes in the market value of a single company or industry. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. The portfolio also may invest in foreign currencies and engage in short-selling. While used primarily to hedge certain of the portfolio's investments and manage exposure to certain markets, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. The portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the portfolio's gains or losses. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the performance of the portfolio's Initial shares for the portfolio's first full calendar year of operations. The table compares the average annual total return of the Initial shares to that of the Morgan Stanley Capital International (MSCI) Emerging Markets (Free) Index, a broad measure of emerging markets stock performance. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES -31.81 91 92 93 94 95 96 97 98 99 00 BEST QUARTER: Q1 '00 +4.15% WORST QUARTER: Q3 '00 -14.80% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00*
Since inception 1 Year (12/15/99) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES -31.81% -24.59% MSCI EMERGING MARKETS (FREE) INDEX -30.61% -20.29%** * PRIOR TO 1/1/01, THE PORTFOLIO EMPLOYED A GROWTH-ORIENTED, RATHER THAN A VALUE-ORIENTED, APPROACH.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 1.25% 1.25% Rule 12b-1 fee none 0.25% Other expenses 2.61% 2.61% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 3.86% 4.11% Fee waiver and/or expense reimbursement (1.86%) (2.11%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 2.00% 2.00% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 2.00%. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $203 $1,007 $1,830 $3,970 SERVICE SHARES $203 $1,057 $1,927 $4,169
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio did not pay Dreyfus a management fee as a result of a fee waiver/expense reimbursement in effect. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. D. Kirk Henry has been the fund's portfolio manager since January 2001 and has been employed by Dreyfus since May 1996. He is also vice president and international equity portfolio manager of The Boston Company Asset Management, an affiliate of Dreyfus. He has held that position since May 1994. The portfolio, Dreyfus and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio [Page 5] MANAGEMENT (CONTINUED) Performance Information for Public Fund and Portfolio The portfolio has the same investment objective and follows substantially the same investment policies and strategies as a corresponding series of another open-end investment company advised by Dreyfus, the Dreyfus Premier Emerging Markets Fund -- Class A shares (the "Public Fund"). The portfolio has the same primary portfolio manager as the Public Fund. The first table at right shows average annual total return information for the Public Fund and for the MSCI Emerging Markets (Free) Index. The second table shows average annual total return information for the portfolio's Initial shares and for the MSCI Emerging Markets (Free) Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund reflect the deduction of the historical fees and expenses paid by the Public Fund, and not those paid by the portfolio. The Public Fund's total annual operating expenses, after fee waiver and expense reimbursement, if any, for the year ended December 31, 2000 were 2.25% of its average daily net assets. The performance figures for the Public Fund and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio and the Public Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund and the portfolio reflects the reinvestment of dividends and other distributions. PUBLIC FUND Historical performance information for Class A shares of the Public Fund and for the MSCI Emerging Markets (Free) Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00* Since inception 1 Year (3/31/98) - -------------------------------------------------------------------------------- DREYFUS PREMIER EMERGING MARKETS FUND CLASS A (NAV) -33.93% -5.29% CLASS A (WITH SALES LOAD) -37.71% -7.30% MSCI EMERGING MARKETS (FREE) INDEX** -30.61% -7.30% PORTFOLIO Average annual total returns for the portfolio's Initial shares and for the MSCI Emerging Markets (Free) Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00* Since inception 1 Year (12/15/99) - -------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO -- INITIAL SHARES -31.81% -24.59% MSCI EMERGING MARKETS (FREE) INDEX** -30.61% -20.29%*** - -------------------------------------------------------------------------------- * PRIOR TO 1/01/01, THE PUBLIC FUND AND THE PORTFOLIO EMPLOYED A GROWTH-ORIENTED, RATHER THAN A VALUE-ORIENTED, APPROACH. ** THE MSCI EMERGING MARKETS (FREE) INDEX IS A MARKET CAPITALI-ZATION-WEIGHTED INDEX COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET STRUCTURE OF MORE THAN 25 EMERGING MARKET COUNTRIES IN EUROPE, LATIN AMERICA AND THE PACIFIC BASIN AND INCLUDES GROSS DIVIDENDS REINVESTED. THE INDEX EXCLUDES CLOSED MARKETS AND THOSE SHARES IN OTHERWISE FREE MARKETS WHICH ARE NOT PURCHASABLE BY FOREIGNERS. *** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. [Page 6] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ----------------------- ------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 13.63 12.50 9.23 Investment operations: Investment income -- net .04(3) .02 -- Net realized and unrealized gain (loss) on investments (4.37) 1.11 -- Total from investment operations (4.33) 1.13 -- Distributions: Dividends from investment income -- net (.06) -- -- Dividends from net realized gain on investments (.01) -- -- Total distributions (.07) -- -- Net asset value, end of period 9.23 13.63 9.23 Total return (%) (31.81) 9.04(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 2.00 .09(4) -- Ratio of net investment income to average net assets (%) .36 .18(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) 1.86 1.51(4) -- Portfolio turnover rate (%) 123.49 .43(4) 123.49 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 2,172 2,181 1 (1) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
The Portfolio [Page 7] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: EMERGING MARKETS PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) and account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. Foreign securities held by the portfolio may trade on days when the portfolio does not calculate its NAV and thus affect the portfolio's NAV on days when investors have no access to the portfolio. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. [Page 8] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information [Page 9] For More Information Dreyfus Investment Portfolios Emerging Markets Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 191P0501 Dreyfus Investment Portfolios European Equity Portfolio Seeks long-term capital growth by investing in European companies PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. [Page] The Portfolio Dreyfus Investment Portfolios European Equity Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 6 Account Information - -------------------------------------------------------------------------------- Account Policies 7 Distributions and Taxes 7 Exchange Privilege 8 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment advisers, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks long-term capital growth. To pursue this goal, the portfolio generally invests at least 80% of its total assets in stocks included within the universe of the 300 largest European companies. The portfolio may invest up to 10% of its total assets in the stocks of non-European companies. The portfolio's stock investments may include common stocks, preferred stocks and convertible securities, including those issued in initial public offerings. In choosing stocks, the portfolio manager identifies and forecasts: key trends in economic variables, such as gross domestic product, inflation and interest rates; investment themes, such as the impact of new technologies and the globalization of industries and brands; relative values of equity securities, bonds and cash; company fundamentals; and long-term trends in currency movements. Within markets and sectors determined to be relatively attractive, the portfolio manager seeks what are believed to be attractively priced companies that possess a sustainable competitive advantage in their market or sector. The portfolio manager generally sells securities when themes or strategies change or when the portfolio manager determines that the company's prospects have changed or that its stock is fully valued by the market. Concepts to understand EUROPEAN COMPANY: a company organized under the laws of a European country or for which the principal securities trading market is in Europe; or a company, wherever organized, with a majority of its assets or business in Europe. PREFERRED STOCK: stock that pays dividends at a specified rate and has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock ordinarily does not carry voting rights. CONVERTIBLE SECURITIES: corporate securities, usually preferred stock or bonds, that are exchangeable for a set amount of another form of security, usually common stock, at a prestated price. The Portfolio [Page 1] MAIN RISKS While stocks have historically been a choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. The portfolio's performance will be influenced by political, social and economic factors affecting companies in European countries and throughout the world. These risks include changes in currency exchange rates, a lack of comprehensive company information, political instability, less liquidity and differing auditing and legal standards. The portfolio expects to invest primarily in the stocks of companies located in developed European countries. However, the portfolio may invest in the stocks of companies located in certain European countries which are considered to be emerging markets. These countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of companies located in emerging markets are often subject to rapid and large changes in price; however, these markets may provide higher rates of return to investors. The portfolio may purchase securities of companies in initial public offerings (IPOs). The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. The portfolio also may invest in foreign currencies and engage in short-selling. While used primarily to hedge certain of the portfolio's investments and manage exposure to certain markets, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the performance of the portfolio's Initial shares for the portfolio's first full calendar year of operations. The table compares the average annual total return of the Initial shares to that of the Financial Times EuroTop 300 Index, a broad measure of European stock performance. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES -2.00 91 92 93 49 95 96 97 98 99 00 BEST QUARTER: Q1 '00 +9.94% WORST QUARTER: Q2 '00 -6.81% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (4/30/99) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES -2.00% 15.08% FINANCIAL TIMES EUROTOP 300 INDEX -7.47% 9.13%
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 1.00% 1.00% Rule 12b-1 fee none 0.25% Other expenses 0.60% 0.60% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.60% 1.85% Fee waiver and/or expense reimbursement (0.35%) (0.60%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.25% 1.25% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.25%. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, THE NET OPERATING EXPENSES OF THE PORTFOLIO' S INITIAL SHARES WERE 1.27% PURSUANT TO CONTRACTUAL ARRANGEMENTS THEN IN EFFECT. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $127 $471 $838 $1,871 SERVICE SHARES $127 $523 $945 $2,120
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual returns and expenses will be different, the example is for comparison only. The one-year numbers are based on net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.67% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. Dreyfus has engaged its affiliate, Newton Capital Management Limited, to serve as the portfolio's sub-investment adviser. Newton, located at 71 Queen Victoria Street, London, EC4V 4DR, England, was formed in 1977 and, as of December 31, 2000, together with its parent and its parent' s subsidiaries, managed approximately $32 billion in discretionary separate accounts and other investment accounts. The portfolio's primary portfolio manager is Joanna Bowen. Ms. Bowen has been a primary portfolio manager for the portfolio since its inception. She joined Newton in 1993 as a European fund manager, was appointed an associate director of Newton in 1997, and was appointed a director of Newton in 1999. The portfolio, Dreyfus, Newton and Dreyfus Service Corporation (the portfolio's distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio [Page 5] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ------------------------ -------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 15.96 12.50 14.98 Investment operations: Investment income -- net .10(3) .04(3) -- Net realized and unrealized gain (loss) on investments (.37) 3.61 -- Total from investment operations (.27) 3.65 -- Distributions: Dividends from investment income -- net (.03) (.03) -- Dividends from net realized gain on investments (.68) (.16) -- Total distributions (.71) (.19) -- Net asset value, end of period 14.98 15.96 14.98 Total return (%) (2.00) 29.20(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 1.27 1.01(4) -- Ratio of net investment income to average net assets (%) .62 .32(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .33 2.38(4) -- Portfolio turnover rate (%) 144.74 99.89(4) 144.74 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 30,689 6,592 1 (1) FROM APRIL 30, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
[Page 6] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: EUROPEAN EQUITY PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead), account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. Foreign securities held by the portfolio may trade on days when the portfolio does not calculate its NAV and thus affect the portfolio's NAV on days when investors have no access to the portfolio. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. Account Information [Page 7] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the appli- cable insurance company prospectus for more information on exchanging portfolio shares. [Page 8] NOTES [Page] For More Information Dreyfus Investment Portfolios European Equity Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 181P0501 Dreyfus Investment Portfolios Founders Discovery Portfolio Seeks capital appreciation by investing in stocks of small-cap growth companies PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. [Page] The Portfolio Dreyfus Investment Portfolios Founders Discovery Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment advisers, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks capital appreciation. To pursue this goal, the portfolio invests primarily in equity securities of small, U.S.-based companies which are characterized as "growth" companies. The portfolio may purchase securities of companies in initial public offerings or shortly thereafter. The portfolio manager seeks investment opportunities for the portfolio in companies with fundamental strengths that indicate the potential for growth in earnings per share. The portfolio manager focuses on individual stock selection (a "bottom-up" approach) rather than on forecasting stock market trends (a "top-down" approach). The portfolio may invest up to 30% of its assets in foreign securities. The portfolio may invest in securities of larger issuers if the portfolio manager believes these securities offer attractive opportunities for capital appreciation. The portfolio also may invest in investment grade debt securities of domestic or foreign issuers that the portfolio manager believes -- based on market conditions, the financial condition of the issuer, general economic conditions, and other relevant factors -- offer opportunities for capital appreciation. Concepts to understand GROWTH COMPANIES: companies whose earnings are expected to grow faster than the overall market. Often, growth stocks have relatively high price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more volatile than value stocks. SMALL COMPANIES: generally, those companies with market capitalizations of less than $2.2 billion. This range may fluctuate depending on changes in the value of the stock market as a whole. Small companies tend to grow faster than large-cap companies, but frequently are more volatile, are more vulnerable to major setbacks, and have a higher failure rate than large companies. EQUITY SECURITIES: common stocks, preferred stocks and convertible securities. The portfolio may invest in preferred stocks and convertible securities rated at the time of purchase at least B by a credit rating agency or the unrated equivalent as determined by the portfolio's sub-adviser. The Portfolio [Page 1] MAIN RISKS While stocks have historically been a leading choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder' s investment in the portfolio will go up and down, sometimes dramatically, which means that shareholders could lose money. Small companies carry additional risks because their operating histories tend to be more limited, their earnings less predictable, their share prices more volatile and their securities less liquid than those of larger, more established companies. Some of the portfolio' s investments will rise and fall based on investor perceptions rather than economics. Because the portfolio may allocate relatively more assets to certain industry sectors than others, the portfolio's performance may be more susceptible to any developments which affect those sectors emphasized by the portfolio. Growth companies are expected to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. Any foreign securities purchased by the portfolio are subject to special risks, such as exposure to currency fluctuations, changing political climate, lack of comprehensive company information and potentially less liquidity. The portfolio may purchase securities of companies in initial public offerings (IPOs) . The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the performance of the portfolio's Initial shares for the portfolio's first full calendar year of operations. The table compares the average annual total return of the Initial shares to that of the Russell 2000 Index, a widely recognized, unmanaged small-cap index. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES -13.02 91 92 93 94 95 96 97 98 99 00 BEST QUARTER: Q1 '00 +25.20% WORST QUARTER: Q4 '00 -20.00% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (12/15/99) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES -13.02% -3.19% RUSSELL 2000 INDEX -3.02% 7.32%* * FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99.
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.90% 0.90% Rule 12b-1 fee none 0.25% Other expenses 1.03% 1.03% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.93% 2.18% Fee waiver and/or expense reimbursement (0.43%) (0.68%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.50% 1.50% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.50%. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, DREYFUS FURTHER REIMBURSED THE PORTFOLIO FOR OTHER EXPENSES SO THAT TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES FOR INITIAL SHARES WERE 1.41% INSTEAD OF 1.50%. THIS ADDITIONAL EXPENSE REIMBURSEMENT WAS VOLUNTARY. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $153 $564 $1,002 $2,219 SERVICE SHARES $153 $617 $1,107 $2,460
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.38% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. Dreyfus has engaged its growth specialist affiliate, Founders Asset Management LLC, to serve as the portfolio's sub-investment adviser. Founders, located at Founders Financial Center, 2930 East Third Avenue, Denver, Colorado 80206, and its predecessor companies have been offering tools to help investors pursue their financial goals since 1938. As of December 31, 2000, Founders managed mutual funds and other client accounts having aggregate assets of approximately $7.11 billion. The portfolio's primary portfolio manager is Robert T. Ammann, C.F.A. He has been the portfolio's primary portfolio manager since the portfolio's inception and has been employed by Founders since 1993. He is a vice president of investments at Founders. The portfolio, Dreyfus, Founders and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus and Founders codes of ethics restrict the personal securities transactions of their employees, and require portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Each code's primary purpose is to ensure that personal trading by Dreyfus or Founders employees does not disadvantage any Dreyfus- or Founders-managed fund. The Portfolio [Page 5] MANAGEMENT (CONTINUED) Performance Information for Public Fund and Portfolio The portfolio has the same investment objective and follows substantially the same investment policies and strategies as a corresponding series of another open-end investment company advised by Founders, the Dreyfus Founders Discovery Fund (the "Public Fund"). The portfolio currently has the same primary portfolio manager as the Public Fund. The first table at right shows average annual total return information for the Public Fund's Class F shares and for the Russell 2000 Index and the Russell 2000 Growth Index. The second table shows average annual total return information for the portfolio and for the Russell 2000 Index and the Russell 2000 Growth Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund reflect the deduction of the historical fees and expenses paid by the Public Fund, and not those paid by the portfolio. The Public Fund's Class F shares total annual operating expenses, after fee waiver and expense reimbursement, if any, for the year ended December 31, 2000 were 1.28% of its average daily net assets. The performance figures for the Public Fund and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio and the Public Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund and the portfolio reflects the reinvestment of dividends and other distributions. The performance figures of the Public Fund were due in part to the purchase by the Public Fund of securities sold in IPOs. There is no guarantee that the Public Fund' s investments in IPOs will continue to have a similar impact on performance, and such returns should not be expected over the long term. PUBLIC FUND Historical performance information for the Public Fund and for the Russell 2000 Index and the Russell 2000 Growth Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
1 Year 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ FOUNDERS DISCOVERY FUND -- CLASS F* -8.26% 22.57% 21.39% RUSSELL 2000 INDEX** -3.02% 10.31% 15.53% RUSSELL 2000 GROWTH INDEX*** -22.43% 7.14% 12.80% PORTFOLIO
Average annual total returns for the portfolio's Initial shares and for the Russell 2000 Index and the Russell 2000 Growth Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (12/15/99) - -------------------------------------------------------------------------------- FOUNDERS DISCOVERY PORTFOLIO -- INITIAL SHARES -13.02% -3.19% RUSSELL 2000 INDEX** -3.02% 7.32%(+) RUSSELL 2000 GROWTH INDEX*** -22.43% -8.76%(+) - -------------------------------------------------------------------------------- * CLASS F SHARES ARE GENERALLY CLOSED TO NEW INVESTORS. ** THE RUSSELL 2000 INDEX IS A WIDELY RECOGNIZED, UNMANAGED SMALL-CAP INDEX COMPRISED OF THE COMMON STOCKS OF THE 2,000 U.S. PUBLIC COMPANIES NEXT IN SIZE AFTER THE LARGEST 1,000 PUBLICLY TRADED U.S. COMPANIES. ALL PERFORMANCE FIGURES REFLECT THE REINVESTMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. *** THE RUSSELL 2000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. (+) FOR COMPARATIVE PURPOSES, THE VALUE OF EACH INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. [Page 6] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial Shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ------------------------ ------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 13.89 12.50 12.04 Investment operations: Investment income (loss) -- net (.08)(3) .01 -- Net realized and unrealized gain (loss) on investments (1.71) 1.38 -- Total from investment operations (1.79) 1.39 -- Distributions: Dividends from investment income -- net (.01) -- -- Dividends from net realized gain on investments (.05) -- -- Total distributions (.06) -- -- Net asset value, end of period 12.04 13.89 12.04 Total return (%) (13.02) 11.12(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 1.41 .07(4) -- Ratio of net investment income (loss) to average net assets (%) (.60) .06(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .52 1.45(4) -- Portfolio turnover rate (%) 123.96 7.49(4) 123.96 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 13,960 2,223 1 (1) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
The Portfolio [Page 7] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: FOUNDERS DISCOVERY PORTFOLIO/SHARE CLASS), for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) and account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. [Page 8] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information [Page 9] For More Information Dreyfus Investment Portfolios Founders Discovery Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 193P0501 Founders Growth Portfolio Seeks long-term capital growth by investing in stocks of growth companies PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. [Page] The Portfolio Dreyfus Investment Portfolios Founders Growth Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment advisers, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks long-term growth of capital. To pursue this goal, the portfolio invests primarily in equity securities of well-established, high quality "growth" companies. These companies tend to have strong performance records, solid market positions and reasonable financial strength, and have continuous operating records of three years or more. The portfolio will seek investment opportunities, generally, in companies which the portfolio managers believe have fundamental strengths that indicate the potential for growth in earnings per share. The portfolio managers focus on individual stock selection (a "bottom-up" approach) rather than on forecasting stock market trends (a "top-down" approach). The portfolio may invest up to 30% of its assets in foreign securities, and up to 25% of its assets in any one foreign country. The portfolio also may invest in investment grade debt securities of domestic or foreign issuers that the portfolio managers believe -- based on market conditions, the financial condition of the issuer, general economic conditions, and other relevant factors - -- offer opportunities for capital growth. Concepts to understand GROWTH COMPANIES: companies whose earnings are expected to grow faster than the overall market. Often, growth stocks have relatively high price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more volatile than value stocks. EQUITY SECURITIES: common stocks, preferred stocks and convertible securities. The portfolio will invest in preferred stocks and convertible securities that are rated at the time of purchase at least B by a credit rating agency or the unrated equivalent as determined by the portfolio's sub-adviser. The Portfolio [Page] MAIN RISKS While stocks have historically been a leading choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. Growth companies are expected to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. Because the portfolio may allocate relatively more assets to certain industry sectors than others, the portfolio's performance may be more susceptible to any developments which affect those sectors emphasized by the portfolio. Any foreign securities purchased by the portfolio include special risks, such as exposure to currency fluctuations, changing political climate, lack of comprehensive company information and potentially less liquidity. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the changes in the performance of the portfolio's Initial shares from year to year. The table compares the average annual total return of the Initial shares to that of the Standard & Poor's 500/BARRA Growth Index (S& P 500 BARRA Growth Index), a broad measure of growth-oriented stocks. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES 39.01 -25.40 91 92 93 94 95 96 97 98 99 00 BEST QUARTER: Q4 '99 +30.13% WORST QUARTER: Q4 '00 -23.68% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (9/30/98) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES -25.40% 13.04% S&P 500 BARRA GROWTH INDEX -22.08% 10.21%
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.75% 0.75% Rule 12b-1 fee none 0.25% Other expenses 0.33% 0.33% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.08% 1.33% Fee waiver and/or expense reimbursement (0.08%) (0.33%) ------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.00% 1.00% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, DREYFUS FURTHER REIMBURSED THE PORTFOLIO FOR OTHER EXPENSES SO THAT TOTAL ANNUAL PORTFOLIO OPERATING EXPENSEES FOR INITIAL SHARES WERE 0.97% INSTEAD OF 1.00% . THIS ADDITIONAL EXPENSE REIMBURSEMENT WAS VOLUNTARY. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $102 $336 $588 $1,310 SERVICE SHARES $102 $389 $697 $1,573
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual returns and expenses will be different, the example is for comparison only. The one-year numbers are based on net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.64% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. Dreyfus has engaged its growth specialist affiliate, Founders Asset Management LLC, to serve as the portfolio's sub-investment adviser. Founders, located at Founders Financial Center, 2930 East Third Avenue, Denver, Colorado 80206, and its predecessor companies have been offering tools to help investors pursue their financial goals since 1938. As of December 31, 2000, Founders managed mutual funds and other client accounts having aggregate assets of approximately $7.11 billion. The portfolio's primary portfolio managers are Scott A. Chapman, C.F.A. and Thomas M. Arrington, C.F.A. Mr. Chapman and Mr. Arrington have been the portfolio' s primary portfolio managers, and have been employed by Founders, since December 1998. Mr. Chapman is a vice president of investments at Founders. Mr. Arrington is a vice president of investments at Founders. Prior to joining Founders, Mr. Chapman was employed for seven years at HighMark Capital Management, Inc., a subsidiary of Union BanCal Corporation, most recently as a vice president and director of growth strategy. Prior to joining Founders, Mr. Arrington was employed for eight years at HighMark Capital where he held various positions, including vice president and director of income and growth strategy, securities research analyst and, most recently, vice president and director of income equity strategy. The portfolio, Dreyfus, Founders and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus and Founders codes of ethics restrict the personal securities transactions of their employees, and require portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Each code's primary purpose is to ensure that personal trading by Dreyfus or Founders employees does not disadvantage any Dreyfus- or Founders-managed fund. The Portfolio [Page 5] MANAGEMENT (CONTINUED) Performance information for Public Fund and Portfolio The portfolio has the same investment objective and follows substantially the same investment policies and strategies as a corresponding series of another open-end investment company advised by Founders, the Dreyfus Founders Growth Fund (the "Public Fund"). The portfolio currently has the same primary portfolio managers as the Public Fund. The first table at right shows average annual total return information for the Public Fund's Class F shares and for the S&P 500 BARRA Growth Index, the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index" ) and the Russell 1000 Growth Index. The second table shows average annual total return information for the portfolio's Initial shares and the S&P 500 BARRA Growth Index, the S&P 500 Index and the Russell 1000 Growth Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund reflect the deduction of the historical fees and expenses paid by the Public Fund, and not those paid by the portfolio. The Public Fund's Class F shares total annual operating expenses, after fee waiver and expense reimbursement, if any, for the year ended December 31, 2000 were 1.07% of its average daily net assets. The performance figures for the Public Fund and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio and the Public Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund and the portfolio reflects the reinvestment of dividends and other distributions. PUBLIC FUND Historical performance information for the Public Fund and for the S&P 500 BARRA Growth Index, the S&P 500 Index and the Russell 1000 Growth Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
1 Year 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS FOUNDERS GROWTH FUND -- CLASS F* -27.23% 13.30% 17.63% S&P 500 BARRA GROWTH INDEX** -22.08% 19.16% 17.60% S&P 500 INDEX*** -9.12% 18.32% 17.44% RUSSELL 1000 GROWTH INDEX((+)) -22.42% 18.15% 17.33%
PORTFOLIO Average annual total returns for the portfolio's Initial shares and for the S&P BARRA Growth Index, the S&P 500 Index and the Russell 1000 Growth Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (9/30/98) - -------------------------------------------------------------------------------- FOUNDERS GROWTH PORTFOLIO -- INITIAL SHARES -25.40% 13.04% S&P 500 BARRA GROWTH INDEX** -22.08% 10.21% S&P 500 INDEX*** -9.12% 13.67% RUSSELL 1000 GROWTH INDEX(+) -22.42% 12.72% - -------------------------------------------------------------------------------- * CLASS F SHARES ARE GENERALLY CLOSED TO NEW INVESTORS. ** THE S&P BARRA GROWTH INDEX IS A CAPITALIZATION-WEIGHTED INDEX OF ALL THOSE STOCKS IN THE S&P 500 INDEX THAT HAVE HIGH PRICE-TO-BOOK RATIOS. ALL PERFORMANCE FIGURES REFLECT THE REINVESTMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. *** THE S&P 500 INDEX IS A MARKET VALUE WEIGHTED, UNMANAGED INDEX OF COMMON STOCKS CONSIDERED REPRESENTATIVE OF THE BROAD MARKET. (+) THE RUSSELL 1000 GROWTH INDEX IS AN UNMANAGED INDEX THAT MEASURES THE PERFORMANCE OF THE COMMON STOCKS OF THE LARGEST 1,000 PUBLICLY TRADED U.S. COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. [Page 6] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ---------------------------------- --------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 1998(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 19.87 15.90 12.50 14.73 Investment operations: Investment income (loss) -- net .02(3) (.02)(3) .01 -- Net realized and unrealized gain (loss) on investments (5.03) 5.79 3.39 -- Total from investment operations (5.01) 5.77 3.40 -- Distributions: Dividends from investment income -- net -- (.01) -- -- Dividends from net realized gain on investments (.13) (1.79) -- -- Total distributions (.13) (1.80) -- -- Net asset value, end of period 14.73 19.87 15.90 14.73 Total return (%) (25.40) 39.01 27.20(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) .97 1.00 .25(4) -- Ratio of net investment income (loss) to average net assets (%) .11 (.11) .05(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .11 1.33 .31(4) -- Portfolio turnover rate (%) 171.96 115.08 75.65(4) 171.96 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 28,583 7,485 2,544 --(5) (1) FROM SEPTEMBER 30, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED. (5) AMOUNT REPRESENTS LESS THAN $1,000.
The Portfolio [Page 7] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: FOUNDERS GROWTH PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead), account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. [Page 8] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the appli- cable insurance company prospectus for more information on exchanging portfolio shares. Account Information [Page 9] For More Information Dreyfus Investment Portfolios Founders Growth Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio managers discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 176P0501 Dreyfus Investment Portfolios Founders International Equity Portfolio Seeks long-term capital growth by investing in stocks of foreign growth companies PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. [Page] The Portfolio Dreyfus Investment Portfolios Founders International Equity Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment advisers, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks long-term growth of capital. To pursue this goal, the portfolio invests primarily in equity securities of foreign issuers which are characterized as "growth" companies. The portfolio may purchase securities of companies in initial public offerings or shortly thereafter. The portfolio will seek investment opportunities, generally, in companies which the portfolio manager believes have fundamental strengths that indicate the potential for growth in earnings per share. The portfolio manager focuses on individual stock selection (a "bottom-up" approach) rather than on forecasting stock market trends (a "top-down" approach). The portfolio will invest primarily in foreign issuers from at least three foreign countries with established or emerging economies, but will not invest more than 50% of its assets in issuers in any one foreign country. Although the portfolio intends to invest substantially all of its assets in issuers located outside the United States, at times it may invest in U.S.-based companies. The portfolio also may invest in investment grade debt securities of foreign issuers that the portfolio manager believes -- based on market conditions, the financial condition of the issuer, general economic conditions, and other relevant factors - -- offer opportunities for capital growth. Concepts to understand GROWTH COMPANIES: companies whose earnings are expected to grow faster than the overall market. Often, growth stocks have relatively high price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more volatile than value stocks. EQUITY SECURITIES: common stocks, preferred stocks and convertible securities. The portfolio will invest in preferred stocks and convertible securities that are rated at the time of purchase at least B by a credit rating agency or the unrated equivalent as determined by the portfolio's sub-adviser. The Portfolio [Page 1] MAIN RISKS The portfolio's performance will be influenced by political, social and economic factors affecting companies in foreign countries. Like the stocks of U.S. companies, the securities of foreign issuers fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. Unlike investing in U.S. companies, foreign securities include special risks such as exposure to currency fluctuations, a lack of comprehensive company information, political instability, and differing auditing and legal standards. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. Because the portfolio may allocate relatively more assets to certain industry sectors than others, the portfolio's performance may be more susceptible to any developments which affect those sectors emphasized by the portfolio. Growth companies are expected to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. The portfolio may invest in the stocks of companies located in developed countries and in emerging markets. Emerging market countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of companies located in emerging markets are often subject to rapid and large changes in price; however, these markets also may provide higher long-term rates of return. The portfolio may purchase securities of companies in initial public offerings (IPOs) . The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the changes in the performance of the portfolio's Initial shares from year to year. The table compares the average annual total return of the Initial shares to that of the Morgan Stanley Capital International (MSCI) World (ex. US) Index, a broad measure of international stock performance. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES 60.69 -17.41 91 92 93 94 95 96 97 98 99 00 BEST QUARTER: Q4 '99 +40.36% WORST QUARTER: Q3 '00 -8.65% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (9/30/98) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES -17.41% 20.52% MSCI WORLD (EX. US) INDEX -13.37% 13.70%
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 1.00% 1.00% Rule 12b-1 fee none 0.25% Other expenses 1.07% 1.07% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 2.07% 2.32% Fee waiver and/or expense reimbursement (0.57%) (0.82%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.50% 1.50% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.50%. --------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $153 $594 $1,061 $2,355 SERVICE SHARES $153 $646 $1,166 $2,593
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual returns and expenses will be different, the example is for comparison only. The one-year numbers are based on net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as the principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.43% of the portfolio's average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. Dreyfus has engaged its growth specialist affiliate, Founders Asset Management LLC, to serve as the portfolio's sub-investment adviser. Founders, located at Founders Financial Center, 2930 East Third Avenue, Denver, Colorado 80206, and its predecessor companies have been offering tools to help investors pursue their financial goals since 1938. As of December 31, 2000, Founders managed mutual funds and other client accounts having aggregate assets of approximately $7.11 billion. The portfolio's primary portfolio manager is Douglas A. Loeffler, C.F.A. He has been the portfolio's primary portfolio manager since the portfolio's inception and has been employed by Founders since 1995. He is a vice president of investments at Founders. Prior to joining Founders, Mr. Loeffler was employed for seven years at Scudder, Stevens & Clark as an international equities and quantitative analyst. The portfolio, Dreyfus, Founders and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus and Founders codes of ethics restrict the personal securities transactions of their employees, and require portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Each code's primary purpose is to ensure that personal trading by Dreyfus or Founders employees does not disadvantage any Dreyfus- or Founders-managed fund. The Portfolio [Page 5] MANAGEMENT (CONTINUED) Performance information for Public Fund and Portfolio The portfolio has the same investment objective and follows substantially the same investment policies and strategies as a corresponding series of another open-end investment company advised by Founders, the Dreyfus Founders International Equity Fund (the "Public Fund"). The portfolio currently has the same primary portfolio manager as the Public Fund. The first table at right shows average annual total return information for the Public Fund's Class F shares and for the MSCI World (ex. US) Index, the benchmark index of the portfolio and the Public Fund. The second table shows average annual total return information for the portfolio and the MSCI World (ex. US) Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund reflect the deduction of the historical fees and expenses paid by the Public Fund, and not those paid by the portfolio. The Public Fund's Class F shares total annual operating expenses, after fee waiver and expense reimbursement, for the year ended December 31, 2000 were 1.80% of its average daily net assets. The performance figures for the Public Fund and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio and the Public Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund and the portfolio reflects the reinvestment of dividends and other distributions. The performance figures of the Public Fund and the portfolio were due in part to the purchase by the Public Fund and the portfolio of securities sold in IPOs. There is no guarantee that investments in IPOs by the Public Fund or the portfolio will continue to have a similar impact on performance, and such returns should not be expected over the long term. PUBLIC FUND Historical performance information for the Public Fund's Class F shares and for the MSCI World (ex. US) Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year 5 Years (12/29/95) - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS FOUNDERS INTERNATIONAL EQUITY FUND -- CLASS F* -17.65% 16.06% 16.06% MSCI WORLD (EX. US) INDEX** -13.37% 7.54% 7.54%***
PORTFOLIO Average annual total return for the portfolio's Initial shares and for the MSCI World (Ex. US) Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (9/30/98) - -------------------------------------------------------------------------------- FOUNDERS INTERNATIONAL EQUITY PORTFOLIO -- INITIAL SHARES -17.41% 20.52% MSCI WORLD (EX. US) INDEX** -13.37% 13.70% - -------------------------------------------------------------------------------- * CLASS F SHARES ARE GENERALLY CLOSED TO NEW INVESTORS. ** THE MSCI WORLD (EX. US) INDEX IS AN ARITHMETICAL AVERAGE OF THE PERFORMANCE OF OVER 1,000 SECURITIES LISTED ON THE STOCK EXCHANGES OF EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. TOTAL RETURN FIGURES FOR THE INDEX ASSUME CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AFTER DEDUCTION OF LOCAL TAXES, BUT DO NOT DEDUCT ANY FEES OR EXPENSES WHICH ARE CHARGED TO THE PUBLIC FUND AND THE PORTFOLIO. *** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/95 IS USED AS THE BEGINNING VALUE ON 12/29/95. [Page 6] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio's financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ------------------------------------ -------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 1998(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 21.65 14.36 12.50 17.00 Investment operations: Investment income (loss) -- net .00(3,4) (.02)(4) (.01) -- Net realized and unrealized gain (loss) on investments (3.55) 8.73 1.87 -- Total from investment operations (3.55) 8.71 1.86 -- Distributions: Dividends from net realized gain on investments (1.10) (1.42) -- -- Net asset value, end of period 17.00 21.65 14.36 17.00 Total return (%) (17.41) 60.69 14.88(5) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 1.50 1.50 .38(5) -- Ratio of net investment income (loss) to average net assets (%) .02 (.11) (.08)(5) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .57 2.27 .81(5) -- Portfolio turnover rate (%) 171.34 190.80 29.25(5) 171.34 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 11,888 4,608 2,297 1 (1) FROM SEPTEMBER 30, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (4) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (5) NOT ANNUALIZED.
The Portfolio [Page 7] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: FOUNDERS INTERNATIONAL EQUITY PORTFOLIO/SHARE CLASS), for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) , account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. Foreign securities held by the portfolio may trade on days when the portfolio does not calculate its NAV and thus affect the portfolio's NAV on days when investors have no access to the portfolio. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. [Page 8] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information [Page 9] For More Information Dreyfus Investment Portfolios Founders International Equity Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 177P0501 Dreyfus Investment Portfolios Founders Passport Portfolio Seeks capital appreciation by investing in stocks of smaller foreign growth companies PROSPECTUS May 1, 2001 _ As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Founders Passport Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment advisers, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. GOAL/APPROACH The portfolio seeks capital appreciation. To pursue this goal, the portfolio invests primarily in equity securities of foreign small-cap companies that are characterized as "growth" companies. The portfolio may purchase securities of companies in initial public offerings (IPOs) or shortly thereafter. The portfolio seeks investment opportunities, generally, in companies which the portfolio manager believes have fundamental strengths that indicate the potential for growth in earnings per share. The portfolio manager focuses on individual stock selection (a "bottom-up" approach) rather than on forecasting stock market trends (a "top-down" approach). The portfolio will invest primarily in foreign issuers from at least three foreign countries with established or emerging economies. The portfolio may invest in securities of larger foreign issuers or in U.S. issuers, if the portfolio manager believes these securities offer attractive opportunities for capital appreciation. The portfolio also may invest in investment grade debt securities of domestic or foreign issuers that the portfolio manager believes -- based on market conditions, the financial condition of the issuer, general economic conditions, and other relevant factors -- offer opportunities for capital appreciation. Concepts to understand FOREIGN SMALL-CAP COMPANIES: generally those foreign companies with market capitalizations of less than $1.5 billion. This range may fluctuate depending on changes in the value of the stock market as a whole. GROWTH COMPANIES: companies whose earnings are expected to grow faster than the overall market. Often, growth stocks have relatively high price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more volatile than value stocks. EQUITY SECURITIES: common stocks, preferred stocks and convertible securities. The portfolio will invest in preferred stocks and convertible securities that are rated at the time of purchase at least B by a credit rating agency or the unrated equivalent as determined by the portfolio's sub-adviser. The Portfolio Page 1 MAIN RISKS The portfolio's performance will be influenced by political, social and economic factors affecting companies in foreign countries. Like the stocks of U.S. companies, the securities of foreign issuers fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. Unlike investing in U.S. companies, foreign securities include special risks such as exposure to currency fluctuations, a lack of comprehensive company information, political instability, and differing auditing and legal standards. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. Because the portfolio may allocate relatively more assets to certain industry sectors than others, the portfolio's performance may be more susceptible to any developments which affect those sectors emphasized by the portfolio. Growth companies are expected to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. The portfolio may invest in the stocks of companies located in developed countries and in emerging markets. Emerging market countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of companies located in emerging markets are often subject to rapid and large changes in price; however, these markets also may provide higher long-term rates of return. The portfolio invests primarily in securities issued by companies with relatively small market capitalizations. Smaller companies typically carry additional risks because their operating histories tend to be more limited, their earnings less predictable, their share prices more volatile and their securities less liquid than those of larger, more-established companies. The portfolio may purchase securities of companies in IPOs. The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. Page 2 PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the changes in the performance of the portfolio's Initial shares from year to year. The table compares the average annual total return of the Initial shares to that of the Morgan Stanley Capital International (MSCI) World (ex. US) Index, a broad measure of international stock performance. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) 76.05 -25.76 91 92 93 94 95 96 97 98 99 00 INITIAL SHARES BEST QUARTER: Q4 '99 +53.13% WORST QUARTER: Q2 '00 -20.29% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (9/30/98) - -------------------------------------------------------------------------------- INITIAL SHARES -25.76% 20.12% MSCI WORLD (EX. US) INDEX -13.37% 13.70% Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio Page 3 EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 1.00% 1.00% Rule 12b-1 fee none 0.25% Other expenses 2.59% 2.59% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 3.59% 3.84% Fee waiver and/or expense reimbursement (2.09%) (2.34%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.50% 1.50% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.50%. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------------------------------------------------------- INITIAL SHARES $153 $906 $1,681 $3,717 SERVICE SHARES $153 $957 $1,780 $3,922
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual returns and expenses will be different, the example is for comparison only. The one-year numbers are based on net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. Page 4 MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio did not pay Dreyfus a management fee as a result of a fee waiver/expense reimbursement in effect. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. Dreyfus has engaged its growth specialist affiliate, Founders Asset Management LLC, to serve as the portfolio's sub-investment adviser. Founders, located at Founders Financial Center, 2930 East Third Avenue, Denver, Colorado 80206, and its predecessor companies have been offering tools to help investors pursue their financial goals since 1938. As of December 31, 2000, Founders managed mutual funds and other client accounts having aggregate assets of approximately $7.11 billion. The portfolio's primary portfolio manager is Tracy P. Stouffer. She has been the portfolio' s primary portfolio manager, and has been employed by Founders, since July 1999. Prior to joining Founders, Ms. Stouffer was a vice president and portfolio manager with Federated Global Incorporated from 1995 to July 1999, and a vice president and portfolio manager with Clariden Asset Management, Inc. from 1988 to 1995. The portfolio, Dreyfus, Founders and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus and Founders codes of ethics restrict the personal securities transactions of their employees, and require portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Each code's primary purpose is to ensure that personal trading by Dreyfus or Founders employees does not disadvantage any Dreyfus- or Founders-managed fund. The Portfolio Page 5 MANAGEMENT (CONTINUED) Performance information for Public Fund and Portfolio The portfolio has the same investment objective and follows substantially the same investment policies and strategies as a corresponding series of another open-end investment company advised by Founders, the Dreyfus Founders Passport Fund (the "Public Fund"). The portfolio currently has the same primary portfolio manager as the Public Fund. The first table at right shows average annual total return information for the Public Fund's Class F shares and for the MSCI World (ex. US) Index, the benchmark index of the portfolio and the Public Fund. The second table shows average annual total return information for the portfolio and the MSCI World (ex. US) Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Public Fund reflect the deduction of the historical fees and expenses paid by the Public Fund, and not those paid by the portfolio. The Public Fund's Class F shares total annual operating expenses, after fee waiver and expense reimbursement, if any, for the year ended December 31, 2000 were 1.61% of its average daily net assets. The performance figures for the Public Fund and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Additionally, although it is anticipated that the portfolio and the Public Fund will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Public Fund and the portfolio reflects the reinvestment of dividends and other distributions. The performance figures of the Public Fund and the portfolio were due in part to the purchase by the Public Fund and to the portfolio of securities sold in IPOs. There is no guarantee that investments in IPOs by the Public Fund or the portfolio will continue to have a similar impact on performance, and such returns should not be expected over the long term. PUBLIC FUND Historical performance information for the Public Fund's Class F shares and for the MSCI World (ex. US) Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year 5 Years (11/16/93) - --------------------------------------------------------------------------------------------------------------------------------- DREYFUS FOUNDERS PASSPORT FUND --CLASS F* -29.65% 12.61% 11.71% MSCI WORLD (EX. US) INDEX** -13.37% 7.54% 9.02%***
PORTFOLIO Average annual total returns for the portfolio's Initial shares and for the MSCI World (ex. US) Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (9/30/98) - -------------------------------------------------------------------------------- FOUNDERS PASSPORT PORTFOLIO -- INITIAL SHARES -25.76% 20.12% MSCI WORLD (EX. US) INDEX** -13.37% 13.70% - -------------------------------------------------------------------------------- * CLASS F SHARES ARE GENERALLY CLOSED TO NEW INVESTORS. ** THE MSCI WORLD (EX. US) INDEX IS AN ARITHMETICAL AVERAGE OF THE PERFORMANCE OF OVER 1,000 SECURITIES LISTED ON THE STOCK EXCHANGES OF EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. TOTAL RETURN FIGURES FOR THE INDEX ASSUME CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AFTER DEDUCTION OF LOCAL TAXES, BUT DO NOT DEDUCT ANY FEES OR EXPENSES WHICH ARE CHARGED TO THE PUBLIC FUND AND THE PORTFOLIO. *** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/93 IS USED AS THE BEGINNING VALUE ON 11/16/93. Page 6 FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARE PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 1998(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) Net asset value, beginning of period 23.82 14.46 12.50 16.99 Investment operations: Investment income (loss) -- net (.11)(3) (.10)(3) .00(4) -- Net realized and unrealized gain (loss) on investments (5.61) 11.04 1.97 -- Total from investment operations (5.72) 10.94 1.97 -- Distributions: Dividends from investment income -- net -- -- .00(4) -- Dividends from net realized gain on investments (1.11) (1.58) (.01) -- Total distributions (1.11) (1.58) (.01) -- Net asset value, end of period 16.99 23.82 14.46 16.99 Total return (%) (25.76) 76.05 15.79(5) -- - -------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 1.50 1.50 .38(5) -- Ratio of net investment income (loss) to average net assets (%) (.47) (.60) .02(5) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) 2.09 2.14 .30(5) -- Portfolio turnover rate (%) 493.10 319.31 3.98(5) 493.10 - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ x 1,000) 26,281 14,836 5,788 1 (1) FROM SEPTEMBER 30, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (5) NOT ANNUALIZED.
The Portfolio Page 7 Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: FOUNDERS PASSPORT PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead), account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. Foreign securities held by the portfolio may trade on days when the portfolio does not calculate its NAV and thus affect the portfolio's NAV on days when investors have no access to the portfolio. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. Page 8 EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information Page 9 For More Information Dreyfus Investment Portfolios Founders Passport Portfolio - --------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 178P0501 Dreyfus Investment Portfolios Japan Portfolio Seeks long-term capital growth by investing in stocks of Japanese companies PROSPECTUS May 1, 2001 _ As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Japan Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 7 Account Information - -------------------------------------------------------------------------------- Account Policies 8 Distributions and Taxes 8 Exchange Privilege 9 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment advisers, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. GOAL/APPROACH The portfolio seeks long-term capital growth. To pursue this goal, the portfolio invests at least 65% of its total assets in stocks of Japanese companies. Generally, the portfolio invests at least 60% of its assets in Japanese companies with market caps of at least $1.5 billion at the time of investment. The portfolio' s investments may include common stocks, preferred stocks and convertible securities, including those issued in initial public offerings. In choosing stocks, the portfolio manager identifies and forecasts: key trends in economic variables, such as gross domestic product, inflation and interest rates; investment themes, such as the impact of new technologies and the globalization of industries and brands; relative values of equity securities, bonds and cash; company fundamentals; and long-term trends in currency movements. Within markets and sectors determined to be relatively attractive, the portfolio manager seeks what are believed to be attractively priced companies that possess a sustainable competitive advantage in their market or sector. The portfolio manager generally sells securities when themes or strategies change or when the portfolio manager determines that a company's prospects have changed or that its stock is fully valued by the market. Many of the securities in which the portfolio invests are denominated in yen. To protect the portfolio against potential depreciation of the yen versus the U.S. dollar, the portfolio manager may engage in currency hedging. Concepts to understand JAPANESE COMPANY: a company organized under the laws of Japan or for which the principal securities trading market is Japan; or a company, wherever organized, with a majority of its assets or business in Japan. CURRENCY HEDGING: the value of the yen can fluctuate significantly relative to the U.S. dollar and potentially result in losses for investors. To help offset such losses, the portfolio manager may employ certain techniques designed to reduce the portfolio's foreign currency exposure. Generally, this involves buying options, futures, or forward contracts for the foreign currency. The Portfolio PAGE 1 MAIN RISKS While stocks have historically been a choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. The portfolio's performance will be influenced by political, social and economic factors affecting investments in Japanese companies. These risks include changes in currency exchange rates, a lack of comprehensive company information, political instability, less liquidity and differing auditing and legal standards. Each of those risks could result in more volatility for the portfolio. While investments in all foreign countries are subject to those risks, the portfolio' s concentration in Japanese securities could cause the portfolio' s performance to be more volatile than that of more geographically diversified funds. Small companies carry additional risks because their operating histories tend to be more limited, their earnings less predictable, their share prices more volatile and their securities less liquid than those of larger, more established companies. Some of the portfolio' s investments will rise and fall based on investor perceptions rather than economics. The portfolio may purchase securities of companies in initial public offerings (IPOs) . The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. The portfolio also may invest in foreign currencies and engage in short-selling. While used primarily to hedge certain of the portfolio's investments and manage its foreign currency exposure and exposure to certain markets, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. The portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the portfolio's gains or losses. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. PAGE 2 PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the performance of the portfolio's Initial shares for the portfolio's first full calendar year of operations. The table compares the average annual total return of the Initial shares to that of the Morgan Stanley Capital International (MSCI) Japan Index, a capitalization-weighted index of stocks of Japanese companies. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) -8.92 91 92 93 94 95 96 97 98 99 00 INITIAL SHARES BEST QUARTER: Q1 '00 +33.57% WORST QUARTER: Q2 '00 -12.52% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (12/15/99) - --------------------------------------------------------------------------------------------------------------------------------- INITIAL SHARES -8.92% -6.22% MSCI JAPAN INDEX -28.16% -22.10%* * FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99.
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio PAGE 3 EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 1.00% 1.00% Rule 12b-1 fee none 0.25% Other expenses 2.40% 2.40% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 3.40% 3.65% Fee waiver and/or expense reimbursement (1.90%) (2.15%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.50% 1.50% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.50%. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------------------------------------------------------- INITIAL SHARES $153 $868 $1,606 $3,557 SERVICE SHARES $153 $918 $1,705 $3,766
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. PAGE 4 MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio did not pay Dreyfus a management fee as a result of a fee waiver/expense reimbursement in effect. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. Dreyfus has engaged its affiliate, Newton Capital Management Limited, to serve as the portfolio's sub-investment adviser. Newton, located at 71 Queen Victoria Street, London, EC4V 4DR, England, was formed in 1977 and, as of December 31, 2000, together with its parent and its parent' s subsidiaries, managed approximately $32 billion in discretionary separate accounts and other investment accounts. The portfolio's primary portfolio manager is Miki Sugimoto. She has been the portfolio' s primary portfolio manager since the portfolio's inception and has been employed by Newton since 1995. Prior to joining Newton, Ms. Sugimoto was employed for five years at S.G. Warburg where she worked primarily in the corporate finance department. The portfolio, Dreyfus, Newton and Dreyfus Service Corporation (the portfolio's distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio PAGE 5 MANAGEMENT (CONTINUED) Performance Information for Investment Accounts and Portfolio The portfolio has a substantially similar investment objective and follows substantially similar investment policies and strategies as two investment accounts advised by Newton, the Newton Japan Fund and Newton Universal Growth Funds (UGF) Japanese Equity Fund (collectively, the "Investment Accounts"). The portfolio currently has the same portfolio managers as the Investment Accounts. The first table at right shows composite average annual total return information for the Investment Accounts and for the MSCI Japan Index, the benchmark index of the portfolio and the Investment Accounts. The second table shows average annual total return information for the portfolio's Initial shares and for the MSCI Japan Index. Investors should not consider this performance data as an indication of the future performance of the portfolio. The performance figures for the Investment Accounts were calculated by Micropal on a "bid-bid" basis (i.e., the price at which an investor can sell its shares) with the accounts' gross income reinvested in U.S. dollars. The performance figures were then adjusted to reflect the deduction of the historical annual management fee paid by the Investment Accounts (1.50% of each Investment Account's net assets), and not those paid by the portfolio. The performance figures for the Investment Accounts and the portfolio also do not reflect the deduction of charges or expenses attributable to VA contracts or VLI policies, which would lower the performance quoted. Policy owners should refer to the applicable insurance company prospectus for information on any such charges and expenses. Moreover, the performance of the Investment Accounts could have been adversely affected by the imposition of certain regulatory requirements, restrictions and limitations if the accounts had been regulated as investment companies under the U.S. federal securities and tax laws. Additionally, although it is anticipated that the portfolio and the Investment Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and in cash flow resulting from purchases and redemptions of portfolio shares may result in different security selections, differences in the relative weightings of securities or differences in the price paid for particular portfolio holdings. Performance information for the Investment Accounts and the portfolio reflects the reinvestment of dividends and other distributions. INVESTMENT ACCOUNTS Historical performance information for the Investment Accounts and for the MSCI Japan Index for various periods ended December 31, 2000 is as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since 1 Year 5 Years 11/22/94* - -------------------------------------------------------------------------------------------------------------------------------- NEWTON JAPAN FUND -31.70% 2.40% 0.55% NEWTON UGF JAPANESE EQUITY FUND -32.40% 2.10% -5.56% MSCI JAPAN INDEX** -28.16% -28.07% -19.16%
PORTFOLIO Average annual total returns for the portfolio's Initial shares and for the MSCI Japan Index for various periods ended December 31, 2000, as calculated pursuant to SEC guidelines, are as follows: - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (12/15/99) - -------------------------------------------------------------------------------- JAPAN PORTFOLIO -- INITIAL SHARES -8.92% -6.22% MSCI JAPAN INDEX** -28.16% -22.10%*** - -------------------------------------------------------------------------------- * NEWTON BEGAN MANAGING THE INVESTMENT ACCOUNTS ON NOVEMBER 22, 1994. PRIOR THERETO, THE INVESTMENT ACCOUNTS WERE MANAGED BY CAPITAL HOUSE, LLC, A SUBSIDIARY OF THE ROYAL BANK OF SCOTLAND. PERFORMANCE FOR THE MSCI JAPAN INDEX IS CALCULATED FROM OCTOBER 31, 1994. ** THE MSCI JAPAN INDEX IS A CAPITALIZATION-WEIGHTED INDEX (ADJUSTED IN U.S. DOLLARS) OF COMPANIES IN JAPAN INTENDED TO REPLICATE THE INDUSTRY COMPOSITION OF THE LOCAL MARKET. THE CHOSEN LIST OF STOCKS INCLUDES A REPRESENTATIVE SAMPLING OF LARGE, MEDIUM AND SMALL-CAPITALIZATION WEIGHTED STOCKS, TAKING EACH STOCK' S LIQUIDITY INTO ACCOUNT. THE RETURNS OF THE INDEX ASSUME REINVESTMENT NET OF WITHHOLDING TAX AND, UNLIKE FUND RETURNS, DO NOT REFLECT ANY FEES OR EXPENSES. *** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. PAGE 6 FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio' s financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999(1) 2000(2) - -------------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) Net asset value, beginning of period 12.84 12.50 11.22 Investment operations: Investment income (loss) -- net (.08)(3) .00(4) -- Net realized and unrealized gain (loss) on investments (1.06) .34 -- Total from investment operations (1.14) .34 -- Distributions: Dividends from investment income -- net (.05) -- -- Dividends from net realized gain on investments (.43) -- -- Total distributions (.48) -- -- Net asset value, end of period 11.22 12.84 11.22 Total return (%) (8.92) 2.64(5) -- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) 1.50 .07(5) -- Ratio of net investment income (loss) to average net assets (%) (.80) .03(5) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) 1.90 1.35(5) -- Portfolio turnover rate (%) 378.54 -- 378.54 - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ x 1,000) 2,254 2,054 1 (1) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (5) NOT ANNUALIZED.
The Portfolio PAGE 7 Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is with a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: JAPAN PORTFOLIO/SHARE CLASS), for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead) and account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. Foreign securities held by the portfolio may trade on days when the portfolio does not calculate its NAV and thus affect the portfolio's NAV on days when investors have no access to the portfolio. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. PAGE 8 EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. Account Information PAGE 9 For More Information Dreyfus Investment Portfolios Japan Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 189P0501 Dreyfus Investment Portfolios MidCap Stock Portfolio Seeks investment results that exceed the total return performance of the S&P 400 by investing in stocks of medium-size companies PROSPECTUS May 1, 2001 _ As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios MidCap Stock Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 6 Account Information - -------------------------------------------------------------------------------- Account Policies 7 Distributions and Taxes 7 Exchange Privilege 8 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment adviser, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. GOAL/APPROACH The portfolio seeks investment results that are greater than the total return performance of publicly traded common stocks of medium-size domestic companies in the aggregate, as represented by the Standard & Poor's MidCap 400((reg.tm)) Index (" S& P 400"). To pursue this goal, the portfolio invests primarily in a blended portfolio of growth and value stocks of medium-size companies, those whose market values generally range between $200 million and $10 billion. Stocks are chosen through a disciplined process combining computer modeling techniques, fundamental analysis and risk management. Consistency of returns and stability of the portfolio's share price compared to the S&P 400 are primary goals of the process. The portfolio's stock investments may include common stocks, preferred stocks, convertible securities and depositary receipts. Dreyfus uses a computer model to identify and rank stocks within an industry or sector, based on: * VALUE, or how a stock is priced relative to its perceived intrinsic worth * GROWTH, in this case the sustainability or growth of earnings * FINANCIAL PROFILE, which measures the financial health of the company Next, Dreyfus uses fundamental analysis to select the most attractive of the top-ranked securities. Dreyfus then manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry. The portfolio is structured so that its sector weightings and risk characteristics, such as growth, size, quality and yield, are similar to those of the S&P 400. Concepts to understand MIDCAP COMPANIES: established companies that may not be well known. Midcap companies have the potential to grow faster than large-cap companies, but may lack the resources to weather economic shifts, and are more volatile than large companies. COMPUTER MODEL: a proprietary computer model that evaluates and ranks a universe of over 2,000 stocks. Dreyfus reviews each of the screens on a regular basis. Dreyfus also maintains the flexibility to adapt the screening criteria to changes in market conditions. The Portfolio PAGE 1 MAIN RISKS While stocks have historically been a leading choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. The value of a shareholder's investment in the portfolio will go up and down, which means that shareholders could lose money. Medium-size companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than those of larger, more established companies. Some of the portfolio's investments will rise and fall based on investor perception rather than economics. Although the portfolio seeks to manage risk by broadly diversifying among industries and by maintaining a risk profile very similar to the S&P 400, the portfolio is expected to hold fewer securities than the index. Owning fewer securities and the ability to purchase stocks of companies not listed in the S&P 400 can cause the portfolio to underperform the index. By investing in a mix of growth and value companies, the portfolio assumes the risks of both and may achieve more modest gains than funds that use only one investment style. Because the stock prices of growth companies are based in part on future expectations, they may fall sharply if earnings expectations are not met or investors believe the prospects for a stock, industry or the economy in general are weak. Growth stocks also typically lack the dividend yield that could cushion stock prices in market downturns. With value stocks, there is the risk that they may never reach what the manager believes is their full market value, or that their intrinsic values may fall. While investments in value stocks may limit downside risk over time, they may produce smaller gains than riskier stocks. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. While used to hedge certain of the portfolio's investments and increase returns, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. The portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the portfolio's gains or losses. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. PAGE 2 PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the changes in the performance of the portfolio's Initial shares from year to year. The table compares the average annual total return of the Initial shares to that of the S&P 400, a broad measure of midcap stock performance. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) 10.82 8.28 91 92 93 94 95 96 97 98 99 00 INITIAL SHARES BEST QUARTER: Q4 '99 +14.67% WORST QUARTER: Q3 '99 -7.11% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00 Since inception 1 Year (5/1/98) - -------------------------------------------------------------------------------- INITIAL SHARES 8.28% 6.04% S&P 400 17.50% 14.07%* * FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/98 IS USED AS THE BEGINNING VALUE ON 5/1/98. Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio PAGE 3 EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.75% 0.75% Rule 12b-1 fee none 0.25% Other expenses 0.29% 0.29% - -------------------------------------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.04% 1.29% Fee waiver and/or expense reimbursement (0.04%) (0.29%) - -------------------------------------------------------------------------------- NET OPERATING EXPENSES* 1.00% 1.00% * THE DREYFUS CORPORATION HAS AGREED, UNTIL DECEMBER 31, 2001, TO WAIVE RECEIPT OF ITS FEES AND/OR ASSUME THE EXPENSES OF THE PORTFOLIO SO THAT THE EXPENSES OF NEITHER CLASS (EXCLUDING TAXES, BROKERAGE COMMISSIONS, EXTRAORDINARY EXPENSES, INTEREST EXPENSES AND COMMITMENT FEES ON BORROWINGS) EXCEED 1.00%. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, DREYFUS FURTHER REIMBURSED THE PORTFOLIO FOR OTHER EXPENSES SO THAT TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES FOR INITIAL SHARES WERE 0.98% INSTEAD OF 1.00%. THIS ADDITIONAL EXPENSE REIMBURSEMENT WAS VOLUNTARY. - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - --------------------------------------------------------------------------------------------------------------------------------- INITIAL SHARES $102 $327 $570 $1,267 SERVICE SHARES $102 $380 $680 $1,531
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual returns and expenses will be different, the example is for comparison only. The one-year numbers are based on the net operating expenses. The longer-term numbers are based on total annual portfolio operating expenses. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. PAGE 4 MANAGEMENT The investment adviser for the fund is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.69% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. John O' Toole is the portfolio's primary portfolio manager, a position he has held since the portfolio' s inception. He has been employed by Dreyfus since October 1994. Mr. O' Toole also is a senior vice president and a portfolio manager for Mellon Equity Associates, an affiliate of Dreyfus, and has been employed by Mellon Bank, N.A. since 1979. The portfolio, Dreyfus and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio PAGE 5 FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio's financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARE PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 1998(1) 2000(2) - -------------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) Net asset value, beginning of period 13.44 12.16 12.50 14.29 Investment operations: Investment income -- net .05(3) .03(3) .02 -- Net realized and unrealized gain (loss) on investments 1.05 1.28 (.34) -- Total from investment operations 1.10 1.31 (.32) -- Distributions: Dividends from investment income -- net (.03) (.03) (.02) -- Dividends from net realized gain on investments (.13) -- -- -- Dividends in excess of net realized gain on investments (.09) -- -- -- Total distributions (.25) (.03) (.02) -- Net asset value, end of period 14.29 13.44 12.16 14.29 Total return (%) 8.28 10.82 (2.53)(4) -- - -------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) .98 .97 .67(4) -- Ratio of net investment income to average net assets (%) .34 .26 .18(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) .06 .49 .60(4) -- Portfolio turnover rate (%) 102.89 77.73 75.74(4) 102.89 - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ x 1,000) 76,784 15,563 10,506 1 (1) FROM MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
PAGE 6 Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: MIDCAP STOCK PORTFOLIO/ SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead), account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. Account Information PAGE 7 EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. PAGE 8 NOTES For More Information Dreyfus Investment Portfolios MidCap Stock Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 174P0501 Dreyfus Investment Portfolios Technology Growth Portfolio Seeks capital appreciation by investing in technology companies PROSPECTUS May 1, 2001 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Portfolio Dreyfus Investment Portfolios Technology Growth Portfolio Contents The Portfolio - -------------------------------------------------------------------------------- Goal/Approach 1 Main Risks 2 Past Performance 3 Expenses 4 Management 5 Financial Highlights 6 Account Information - -------------------------------------------------------------------------------- Account Policies 7 Distributions and Taxes 7 Exchange Privilege 8 For More Information - -------------------------------------------------------------------------------- INFORMATION ON THE PORTFOLIO'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL REPORT. SEE BACK COVER. Portfolio shares are offered only to separate accounts established by insurance companies to fund variable annuity contracts ("VA contracts") and variable life insurance policies (" VLI policies" ). Individuals may not purchase shares directly from, or place sell orders directly with, the portfolio. The VA contracts and the VLI policies are described in the separate prospectuses issued by the participating insurance companies, as to which the portfolio assumes no responsibility. Conflicts may arise between the interests of VA contract holders and VLI policyholders. The board of trustees will monitor events to identify any material conflicts and, if such conflicts arise, determine what action, if any, should be taken. The portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policyholders should consult the applicable prospectus of the separate account of the participating insurance company to determine which class of portfolio shares may be purchased by the separate account. While the portfolio's investment objective and policies may be similar to those of other funds managed by the investment adviser, the portfolio's investment results may be higher or lower than, and may not be comparable to, those of the other funds. [Page] GOAL/APPROACH The portfolio seeks capital appreciation. To pursue this goal, the portfolio invests primarily in the stocks of growth companies of any size that Dreyfus believes to be leading producers or beneficiaries of technological innovation. Up to 25% of the portfolio's assets may be invested in foreign securities. The portfolio's stock investments may include common stocks, preferred stocks and convertible securities. In choosing stocks, the portfolio looks for technology companies with the potential for strong earnings or revenue growth rates, although some of the portfolio' s investments may currently be experiencing losses. The portfolio focuses on the technology sectors that are expected to outperform on a relative scale. The more attractive sectors are overweighted. Among the sectors evaluated are those that develop, produce or distribute products or services in the computer, semi-conductor, electronics, communications, healthcare, biotechnology, computer software and hardware, electronic components and systems, network and cable broadcasting, telecommunications, defense and aerospace, and environmental sectors. The portfolio typically sells a stock when there is a negative change in the fundamental factors surrounding the company, such as an earnings or revenue shortfall, industry downturn or change in the competitive landscape, or when the portfolio manager believes the stock is fully valued by the market. Although the portfolio looks for companies with the potential for strong earnings growth rates, some of the portfolio's investments may currently be experiencing losses. Moreover, the portfolio may invest in small-, mid- and large-cap securities in all available trading markets, including initial public offerings (IPOs) and the aftermarket. Concepts to understand SMALL AND MIDSIZE COMPANIES: new and often entrepreneurial companies. These companies tend to grow faster than large-cap companies and typically use any profits for expansion rather than for paying dividends. They are also more volatile than larger companies and fail more often. GROWTH COMPANIES: companies whose earnings are expected to grow faster than the overall market. Often, growth stocks have relatively high price-to-earnings, price-to-book and price-to-sales ratios, and tend to be more volatile than value stocks. The Portfolio [Page 1] MAIN RISKS While stocks have historically been a leading choice of long-term investors, they do fluctuate in price depending on the performance of the companies that issued them, general market and economic conditions and investor confidence. In fact, the technology sector has been among the most volatile sectors of the stock market. The value of a shareholder's investment in the portfolio will go up and down, sometimes dramatically, which means that shareholders could lose money. Technology companies, especially small-cap technology companies, involve greater risk because their earnings tend to be less predictable (and some companies may be experiencing significant losses) and their share prices tend to be more volatile. Certain technology companies may have limited product lines, markets or financial resources, or may depend on a limited management group. In addition, these companies are strongly affected by worldwide technological developments, and their products and services may not be economically successful or may quickly become outdated. Investor perception may play a greater role in determining the day-to-day value of tech stocks than it does in other sectors. Portfolio investments made in anticipation of future products and services may decline dramatically in value if the anticipated products or services are delayed or cancelled. The risks associated with technology companies are magnified in the case of small-cap technology companies. The shares of smaller companies tend to trade less frequently than those of larger companies, which can have an adverse effect on the pricing of these securities and on the fund's ability to sell these securities. Growth companies are expected to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. Any foreign securities purchased by the portfolio include special risks, such as exposure to currency fluctuations, changing political climate, lack of comprehensive company information and potentially less liquidity. The portfolio may purchase securities of companies in IPOs. The prices of securities purchased in IPOs can be very volatile. The effect of IPOs on the portfolio's performance depends on a variety of factors, including the number of IPOs the portfolio invests in, whether and to what extent a security purchased in an IPO appreciates in value, and the asset base of the portfolio. As a portfolio' s asset base increases, IPOs often have a diminished effect on such portfolio's performance. Under adverse market conditions, the portfolio could invest some or all of its assets in money market securities. Although the portfolio would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the portfolio may not achieve its investment objective. Other potential risks The portfolio may invest in derivatives, such as options and futures contracts. The portfolio also may invest in foreign currencies and engage in short-selling. While used primarily to hedge certain of the portfolio's investments and manage exposure to certain markets, such strategies can increase the portfolio's volatility and lower its returns. Derivatives can be illiquid, and a small investment in certain derivatives can have a large impact on the portfolio's performance. At times, the portfolio may engage in short-term trading, which could produce higher transaction costs. The portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the portfolio's gains or losses. What the portfolio is -- and isn't The portfolio is a mutual fund: a pooled investment that is professionally managed and gives shareholders the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in the portfolio is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. Shareholders could lose money in the portfolio, but shareholders also have the potential to make money. [Page 2] PAST PERFORMANCE The bar chart and table below show some of the risks of investing in the portfolio. The bar chart shows the performance of the portfolio's Initial shares for the portfolio's first full calendar year of operations. The table compares the average annual total return of the Initial shares to that of the Standard & Poor' s 500 Composite Stock Price Index (S&P 500), a broad measure of stock performance, and the Morgan Stanley High Technology 35 Index, an unmanaged, equal dollar-weighted index of 35 U.S. stocks from the electronics-based subsectors. Of course, past performance is no guarantee of future results. Since Service shares have less than one calendar year of performance, past performance information for that class is not included in this prospectus. Performance for each share class will vary due to differences in expenses. - -------------------------------------------------------------------------------- Year-by-year total return AS OF 12/31 EACH YEAR (%) INITIAL SHARES -26.98 91 92 93 94 95 97 98 99 00 BEST QUARTER: Q1 '00 +22.68% WORST QUARTER: Q4 '00 -35.56% - -------------------------------------------------------------------------------- Average annual total return AS OF 12/31/00
Since inception 1 Year (8/31/99) - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES -26.98% 10.00% S&P 500 -9.10% 1.16% MORGAN STANLEY HIGH TECHNOLOGY 35 INDEX -27.32% 8.99%
Additional costs Performance information reflects the portfolio's expenses only and does not reflect the fees and charges imposed by participating insurance companies under their VA contracts or VLI policies. Because these fees and charges will reduce total return, VA contract holders and VLI policyholders should consider them when evaluating and comparing the portfolio's performance. VA contract holders and VLI policyholders should consult the prospectus for their contract or policy for more information. The Portfolio [Page 3] EXPENSES Investors using this portfolio to fund a VA contract or a VLI policy will pay certain fees and expenses in connection with the portfolio, which are described in the table below. Annual portfolio operating expenses are paid out of portfolio assets, so their effect is included in the portfolio's share price. As with the performance information given previously, these figures do not reflect any fees or charges imposed by participating insurance companies under their VA contracts or VLI policies. - -------------------------------------------------------------------------------- Fee table Initial Service shares shares - -------------------------------------------------------------------------------- ANNUAL PORTFOLIO OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Management fees 0.75% 0.75% Rule 12b-1 fee none 0.25% Other expenses 0.09% 0.09% - -------------------------------------------------------------------------------- TOTAL 0.84% 1.09% - -------------------------------------------------------------------------------- Expense example
1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES $86 $268 $466 $1,037 SERVICE SHARES $111 $347 $601 $1,329
This example shows what an investor could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether investors sold their shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand MANAGEMENT FEE: the fee paid to the investment adviser for managing the portfolio and assisting in all aspects of the portfolio's operations. RULE 12B-1 FEE: the fee paid to the portfolio's distributor for distributing Service shares, for advertising and marketing related to Service shares, and for providing account service and maintenance for holders of Service shares. The distributor may pay all or part of this fee to participating insurance companies, and the broker-dealer acting as principal underwriter for their variable insurance products. Because this fee is paid on an ongoing basis out of portfolio assets attributable to Service shares, over time it will increase the cost of an investment in Service shares and could cost investors more than paying other types of sales charges. OTHER EXPENSES: fees paid by the portfolio for miscellaneous items such as transfer agency, custody, professional and registration fees. Other expenses for Service shares are based on other expenses for Initial shares for the past fiscal year. [Page 4] MANAGEMENT The investment adviser for the portfolio is The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $158 billion in over 190 mutual fund portfolios. For the past fiscal year, the portfolio paid Dreyfus a management fee at the annual rate of 0.75% of the portfolio' s average daily net assets. Dreyfus is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $530 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. The portfolio's primary portfolio manager is Mark Herskovitz. Mr. Herskovitz has been the primary portfolio manager of the portfolio since its inception and has been employed by Dreyfus since 1996. From 1992 to 1996, he served as a senior technology analyst at National City Bank. The portfolio, Dreyfus and Dreyfus Service Corporation (the portfolio' s distributor) have each adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by the portfolio. The Dreyfus code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by Dreyfus employees does not disadvantage any Dreyfus-managed fund. The Portfolio [Page 5] FINANCIAL HIGHLIGHTS The following table describes the performance of the portfolio's Initial shares for the fiscal periods indicated. Certain information reflects financial results for a single portfolio share. "Total return" shows how much an investment in the portfolio would have increased (or decreased) during each period, assuming the investor had reinvested all dividends and distributions. These figures have been independently audited by Ernst & Young LLP, whose report, along with the portfolio's financial statements, is included in the annual report, which is available upon request. Keep in mind that fees and charges imposed by participating insurance companies, which are not reflected in the table, would reduce the investment returns that are shown.
INITIAL SHARES SERVICE SHARES ---------------------- ------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999(1) 2000(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) Net asset value, beginning of period 19.45 12.50 14.19 Investment operations: Investment income (loss) -- net (.06)(3) (.02)(3) -- Net realized and unrealized gain (loss) on investments (5.18) 6.97 -- Total from investment operations (5.24) 6.95 -- Distributions: Dividends from net realized gain on investments (.02) -- -- Net asset value, end of period 14.19 19.45 14.19 Total return (%) (26.98) 55.60(4) -- - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (%) .84 .36(4) -- Ratio of net investment income (loss) to average net assets (%) (.30) (.14)(4) -- Decrease reflected in above expense ratios due to actions by Dreyfus (%) -- .09(4) -- Portfolio turnover rate (%) 121.88 20.01(4) 121.88 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period ($ x 1,000) 139,547 65,707 1 (1) FROM AUGUST 31, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (2) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (3) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (4) NOT ANNUALIZED.
[Page 6] Account Information ACCOUNT POLICIES Buying/Selling shares PORTFOLIO SHARES MAY BE PURCHASED or sold (redeemed) by separate accounts of participating insurance companies. VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company for more information about buying or selling portfolio shares. THE PRICE FOR PORTFOLIO SHARES is the net asset value per share (NAV) of the relevant class, which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Purchase and sale orders from separate accounts received in proper form by the participating insurance company on a given business day are priced at the NAV calculated on such day, provided that the orders are received by the portfolio in proper form on the next business day. The participating insurance company is responsible for properly transmitting purchase and sale orders. WIRE PURCHASE PAYMENTS MAY BE MADE if the bank account of the participating insurance company is in a commercial bank that is a member of the Federal Reserve System or any other bank having a correspondent bank in New York City. Immediately available funds may be transmitted by wire to The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS: TECHNOLOGY GROWTH PORTFOLIO/SHARE CLASS) , for purchase of portfolio shares. The wire must include the portfolio account number (for new accounts, a taxpayer identification number should be included instead), account registration and dealer number, if applicable, of the participating insurance company. The portfolio's investments are generally 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 trustees. DISTRIBUTIONS AND TAXES THE PORTFOLIO USUALLY PAYS DIVIDENDS from its net investment income and distributes any net capital gains it has realized once a year. EACH SHARE CLASS WILL GENERATE a different dividend because each has different expenses. Distributions will be reinvested in the portfolio unless the participating insurance company instructs otherwise. Since the portfolio's shareholders are the participating insurance companies and their separate accounts, the tax treatment of dividends and distributions will depend on the tax status of the participating insurance company. Accordingly, no discussion is included as to the federal income tax consequences to VA contract holders or VLI policyholders. For this information, VA contract holders and VLI policyholders should consult the prospectus of the separate account of the participating insurance company or their tax advisers. Participating insurance companies should consult their tax advisers about federal, state and local tax consequences. Who the shareholders are The participating insurance companies and their separate accounts are the shareholders of the portfolio. From time to time, a shareholder may own a substantial number of portfolio shares. The sale of a large number of shares could hurt the portfolio's NAV. Account Information [Page 7] EXCHANGE PRIVILEGE SHAREHOLDERS CAN EXCHANGE SHARES of a class of the portfolio for shares of the same class of any other portfolio or fund managed by Dreyfus that is offered only to separate accounts established by insurance companies to fund VA contracts and VLI policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges of the applicable insurance company prospectus. Owners of VA contracts or VLI policies should refer to the applicable insurance company prospectus for more information on exchanging portfolio shares. [Page 8] NOTES [Page] For More Information Dreyfus Investment Portfolios Technology Growth Portfolio - ---------------------------------------- SEC file number: 811-08673 More information on the portfolio is available free upon request, including the following: Annual/Semiannual Report Describes the portfolio's performance, lists portfolio holdings and contains a letter from the portfolio manager discussing recent market conditions, economic trends and portfolio strategies that significantly affected the portfolio's performance during the last fiscal year. Statement of Additional Information (SAI) Provides more details about the portfolio and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). To obtain information: BY TELEPHONE Call 1-800-554-4611 or 516-338-3300 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 Attn: Institutional Servicing ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies, after paying a duplicating fee, by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090) or by E-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. (c) 2001 Dreyfus Service Corporation 175P0501 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ DREYFUS INVESTMENT PORTFOLIOS CORE BOND PORTFOLIO CORE VALUE PORTFOLIO EMERGING LEADERS PORTFOLIO EMERGING MARKETS PORTFOLIO EUROPEAN EQUITY PORTFOLIO JAPAN PORTFOLIO MIDCAP STOCK PORTFOLIO TECHNOLOGY GROWTH PORTFOLIO FOUNDERS DISCOVERY PORTFOLIO FOUNDERS GROWTH PORTFOLIO FOUNDERS INTERNATIONAL EQUITY PORTFOLIO FOUNDERS PASSPORT PORTFOLIO STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2001 - ------------------------------------------------------------------------------ (FOR INITIAL SHARES AND SERVICE SHARES) This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the relevant current Prospectus of the Core Bond, Core Value, Emerging Leaders, Emerging Markets, European Equity, Japan, MidCap Stock, Technology Growth, Founders Growth, Founders International Equity, Founders Passport and Founders Discovery Portfolios, each dated May 1, 2001 (each, a "Portfolio", and collectively, the "Portfolios"), each a separate series of Dreyfus Investment Portfolios (the "Fund"), as each Prospectus may be revised from time to time. To obtain a copy of the relevant Portfolio's Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call 1-800-554-4611 or 516-338-3300. Portfolio shares are offered only to variable annuity and variable life insurance separate accounts established by insurance companies ("Participating Insurance Companies") to fund variable annuity contracts ("VA contracts") and variable life insurance policies ("VLI policies", and together with VA contracts, the "Policies"). Individuals may not purchase shares of any Portfolio directly from the Fund. The Policies are described in the separate prospectuses issued by the Participating Insurance Companies. Each Portfolio currently offers two classes of shares: Initial shares and Service shares. VA contract holders and VLI policy holders should consult the applicable prospectus of the separate account of the Participating Insurance Company to determine which class of Portfolio shares may be purchased by the separate account. The most recent Annual Report and Semi-Annual Report to Shareholders for each Portfolio are separate documents supplied with this Statement of Additional Information, and the financial statements, accompanying notes and report of independent auditors appearing in the Annual Report are incorporated by reference into this Statement of Additional Information. TABLE OF CONTENTS Page Description of the Fund and Portfolios.....................................B-3 Management of the Fund....................................................B-34 Management Arrangements...................................................B-39 How to Buy Shares.........................................................B-46 Distribution Plan (Service Shares Only)...................................B-47 How to Redeem Shares......................................................B-48 Exchange Privilege........................................................B-49 Determination of Net Asset Value..........................................B-49 Dividends, Distributions and Taxes........................................B-51 Portfolio Transactions....................................................B-53 Performance Information...................................................B-56 Information About the Fund and Portfolios.................................B-59 Counsel and Independent Auditors..........................................B-61 Appendix..................................................................B-62 DESCRIPTION OF THE FUND AND PORTFOLIOS The Fund is a Massachusetts business trust that commenced operations on May 1, 1998. Each Portfolio is a separate series of the Fund, an open-end management investment company, known as a mutual fund. Each Portfolio, except the Emerging Markets Portfolio, is a diversified fund, which means that, with respect to 75% of the Portfolio's total assets, the Portfolio will not invest more than 5% of its assets in the securities of any single issuer nor hold more than 10% of the outstanding voting securities of any single issuer. The Emerging Markets Portfolio is a non-diversified fund, which means that the proportion of the Portfolio's assets that may be invested in the securities of a single issuer is not limited by the Investment Company Act of 1940, as amended (the "1940 Act"). The Dreyfus Corporation (the "Manager") serves as each Portfolio's investment adviser. The Manager has engaged Founders Asset Management LLC ("Founders") to serve as sub-investment adviser to each of the Founders Discovery, Founders Growth, Founders International Equity and Founders Passport Portfolios (collectively, the "Founders Portfolios") and to provide day-to-day management of the Founders Portfolios' investments, subject to the supervision of the Manager. The Manager has engaged Newton Capital Management Limited ("Newton") to serve as sub-investment adviser to each of the European Equity and Japan Portfolios and to provide day-to-day management of the European Equity and Japan Portfolios' investments, subject to the supervision of the Manager. Dreyfus Service Corporation (the "Distributor") is the distributor of the Portfolios' shares. Certain Portfolio Securities The following information supplements (except as noted) and should be read in conjunction with the relevant Portfolio's Prospectus. Depositary Receipts. (All Portfolios, except the Core Bond and Emerging Leaders Portfolios) Each of these Portfolios may invest in the securities of foreign issuers in the form of American Depositary Receipts and American Depositary Shares (collectively, "ADRs") and Global Depositary Receipts and Global Depositary Shares (collectively, "GDRs") and other forms of depositary receipts. 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. GDRs are receipts issued outside the United States 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 GDRs in bearer form are designed for use outside the United States. These securities may be purchased through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the underlying security and a depositary. 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. Foreign Government Obligations; Securities of Supranational Entities. (Core Bond Portfolio, Founders Portfolios, Emerging Markets Portfolio, European Equity Portfolio and Japan Portfolio only) Each of these Portfolios 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 Founders (in the case of the Founders Portfolios), the Manager (in the case of the Core Bond and Emerging Markets Portfolios) or Newton (in the case of the European Equity and Japan Portfolios) 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. Mortgage-Related Securities. (Core Bond Portfolio only) Mortgage-related securities are a form of derivative collateralized by pools of commercial or residential mortgages. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. These securities may include complex instruments such as collateralized mortgage obligations and stripped mortgage-backed securities, mortgage pass-through securities, interests in real estate mortgage investment conduits ("REMICs"), adjustable rate mortgages, real estate investment trusts ("REITs"), or other kinds of mortgage-backed securities, including those with fixed, floating and variable interest rates, those with interest rates based on multiples of changes in a specified index of interest rates and those with interest rates that change inversely to changes in interest rates, as well as those that do not bear interest. See "Investment Considerations and Risks" below. Residential Mortgage-Related Securities--The Core Bond Portfolio may invest in mortgage-related securities representing participation interests in pools of one- to four-family residential mortgage loans issued or guaranteed by governmental agencies or instrumentalities, such as the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by private entities. Similar to commercial mortgage-related securities, residential mortgage-related securities have been issued using a variety of structures, including multi-class structures featuring senior and subordinated classes. Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through Certificates (also know as "Ginnie Maes") which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. GNMA certificates also are supported by the authority of GNMA to borrow funds from the U.S. Treasury to make payments under its guarantee. Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are solely the obligations of FNMA and are not backed by or entitled to the full faith and credit of the United States. Fannie Maes are guaranteed as to timely payment of principal and interest by FNMA. Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs"). Freddie Macs are not guaranteed by the United States or by any Federal Home Loan Bank and do not constitute a debt or obligation of the United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC may remit the amount due on account of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable. Commercial Mortgage-Related Securities--The Core Bond Portfolio may invest in commercial mortgage-related securities which generally are multi-class debt or pass-through certificates secured by mortgage loans on commercial properties. These mortgage-related securities generally are constructed to provide protection to the senior classes investors against potential losses on the underlying mortgage loans. This protection generally is provided by having the holders of subordinated classes of securities ("Subordinated Securities") take the first loss if there are defaults on the underlying commercial mortgage loans. Other protection, which may benefit all of the classes or particular classes, may include issuer guarantees, reserve funds, additional Subordinated Securities, cross-collateralization and over-collateralization. Subordinated Securities--The Core Bond Portfolio may invest in Subordinated Securities issued or sponsored by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Subordinated Securities have no governmental guarantee, and are subordinated in some manner as to the payment of principal and/or interest to the holders of more senior mortgage-related securities arising out of the same pool of mortgages. The holders of Subordinated Securities typically are compensated with a higher stated yield than are the holders of more senior mortgage-related securities. On the other hand, Subordinated Securities typically subject the holder to greater risk than senior mortgage-related securities and tend to be rated in a lower rating category, and frequently a substantially lower rating category, than the senior mortgage-related securities issued in respect of the same pool of mortgage. Subordinated Securities generally are likely to be more sensitive to changes in prepayment and interest rates and the market for such securities may be less liquid than is the case for traditional fixed-income securities and senior mortgage-related securities. Collateralized Mortgage Obligations ("CMOs") and Multi-Class Pass-Through-Securities--The Core Bond Portfolio may invest in CMOs which are multiclass bonds backed by pools of mortgage pass-through certificates or mortgage loans. CMOs may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through certificates, (b) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other mortgage-related securities, or (e) any combination thereof. Each class of CMOs, often referred to as a "tranche," is issued at a specific coupon rate and has a stated maturity or final distribution date. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than the stated maturities or final distribution dates. The principal and interest on the underlying mortgages may be allocated among the several classes of a series of a CMO in many ways. One or more tranches of a CMO may have coupon rates which reset periodically at a specified increment over an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs typically are issued with lifetime caps on the coupon rate thereon. The Portfolio also may invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index such a LIBOR. Accordingly, the coupon rate thereon will increase as interest rates decrease. Inverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs. Many inverse floating rate CMOs have coupons that move inversely to a multiple of the applicable indexes. The effect of the coupon varying inversely to a multiple of an applicable index creates a leverage factor. Inverse floaters based on multiples of a stated index are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and loss of principal. The markets for inverse floating rate CMOs with highly leveraged characteristics at times may be very thin. The Portfolio's ability to dispose of its positions in such securities will depend on the degree of liquidity in the markets for such securities. It is impossible to predict the amount of trading interest that may exist in such securities, and therefore the future degree of liquidity. Stripped Mortgage-Backed Securities--The Core Bond Portfolio also may invest in stripped mortgage-backed securities which are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the underlying security's principal or interest payments. Mortgage securities may be partially stripped so that each investor class receives some interest and some principal. When securities are completely stripped, however, all of the interest is distributed to holders of one type of security, known as an interest-only security, or IO, and all of the principal is distributed to holders of another type of security known as a principal-only security, or PO. Strips can be created in a pass-through structure or as tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Portfolio may not fully recoup its initial investment in IOs. Conversely, if the underlying mortgage assets experience less than anticipated prepayments of principal, the yield on POs could be materially and adversely affected. Real Estate Investment Trusts ("REITs")--The Core Bond Portfolio may invest in REITs. A REIT is a corporation, or a business trust that would otherwise be taxed as a corporation, which meets the definitional requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level Federal income tax and making the REIT a pass-through vehicle for Federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities, derive most of its income from rents from real property or interest on loans secured by mortgages on real property, and distribute to shareholders annually a substantial portion of its otherwise taxable income. REITs are characterized as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which may include operating or finance companies, own real estate directly and the value of, and income earned by, the REITs depends upon the income of the underlying properties and the rental income they earn. Equity REITs also can realize capital gains (or losses) by selling properties that have appreciated (or depreciated) in value. Mortgage REITs can make construction, development or long-term mortgage loans and are sensitive to the credit quality of the borrower. Mortgage REITs derive their income from interest payments on such loans. Hybrid REITs combine the characteristics of both equity and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate. The value of securities issued by REITs are affected by tax and regulatory requirements and by perceptions of management skill. They also are subject to heavy cash flow dependency, defaults by borrowers or tenants, self-liquidation and the possibility of failing to qualify for tax-free status under the Code or to maintain exemption from the 1940 Act. Adjustable-Rate Mortgage Loans ("ARMs")--The Core Bond Portfolio may invest in ARMs. ARMs eligible for inclusion in a mortgage pool will generally provide for a fixed initial mortgage interest rate for a specified period of time, generally for either the first three, six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter, the interest rates are subject to periodic adjustment based on changes in an index. ARMs typically have minimum and maximum rates beyond which the mortgage interest rate may not vary over the lifetime of the loans. Certain ARMs provide for additional limitations on the maximum amount by which the mortgage interest rate may adjust for any single adjustment period. Negatively amortizing ARMs may provide limitations on changes in the required monthly payment. Limitations on monthly payments can result in monthly payments that are greater or less than the amount necessary to amortize a negatively amortizing ARM by its maturity at the interest rate in effect during any particular month. Private Entity Securities--The Core Bond Portfolio may invest in mortgage-related securities issued by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Timely payment of principal and interest on mortgage-related securities backed by pools created by non-governmental issuers often is supported partially by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. There can be no assurance that the private insurers or mortgage poolers can meet their obligations under the policies, so that if the issuers default on their obligations the holders of the security could sustain a loss. No insurance or guarantee covers the Portfolio or the price of the Portfolio's shares. Mortgage-related securities issued by non-governmental issuers generally offer a higher rate of interest than government-agency and government-related securities because there are no direct or indirect government guarantees of payment. Other Mortgage-Related Securities--Other mortgage-related securities in which the Core Bond Portfolio may invest include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including CMO residuals. Other mortgage-related securities may be equity or debt securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts and special purpose entities of the foregoing. Asset-Backed Securities. (Core Bond Portfolio only) Asset-backed securities are a form of derivative. The securitization techniques used for asset-backed securities are similar to those used for mortgage-related securities. These securities include debt securities and securities with debt-like characteristics. The collateral for these securities has included home equity loans, automobile and credit card receivables, boat loans, computer leases, airplane leases, mobile home loans, recreational vehicle loans and hospital account receivables. The Portfolio may invest in these and other types of asset-backed securities that may be developed in the future. Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may provide the Portfolio with a less effective security interest in the related collateral than do mortgage-backed securities. Therefore, there is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities. Variable and Floating Rate Securities. (Core Bond Portfolio only) Variable and floating rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations must provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective obligations. The adjustment intervals may be regular, and range from daily up to annually, or may be event based, such as based on a change in the prime rate. The Portfolio may invest in floating rate debt instruments ("floaters"). The interest rate on a floater is a variable rate which is tied to another interest rate, such as a money-market index or Treasury bill rate. The interest rate on a floater resets periodically, typically every six months. Because of the interest rate reset feature, floaters provide the Portfolio with a certain degree of protection against rises in interest rates, although the Portfolio will participate in any declines in interest rates as well. The Portfolio also may invest in inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed or inversely to a multiple of the applicable index. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of similar credit quality. Investment Companies. (All Portfolios) Each Portfolio may invest in securities issued by investment companies. The Emerging Markets Portfolio may invest in securities issued by closed-end investment companies which principally invest in securities in which it invests. Under the 1940 Act, a 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 total assets with respect to any one investment company and (iii) 10% of the Portfolio's total assets in the aggregate. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. Convertible Securities. (All Portfolios) Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have characteristics similar to both fixed-income and equity securities. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. Because of the subordination feature, however, convertible securities typically have lower ratings than similar non-convertible securities. Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. Convertible securities provide for a stable stream of income with generally higher yields than common stocks, but there can be no assurance of current income because the issuers of the convertible securities may default on their obligations. A convertible security, in addition to providing fixed income, offers the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying common stock. There can be no assurance of capital appreciation, however, because securities prices fluctuate. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital appreciation. Warrants. (All Portfolios) A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the corporation's capital stock at a set price for a specified period of time. Each Portfolio may invest up to 5% of its net assets in warrants, except that this limitation does not apply to warrants purchased by the Portfolio that are sold in units with, or attached to, other securities. Participation Interests. (Core Bond Portfolio only) The Core Bond Portfolio may invest in short-term corporate obligations denominated in U.S. and foreign currencies that are originated, negotiated and structured by a syndicate of lenders ("Co-Lenders"), consisting of commercial banks, thrift institutions, insurance companies, financial companies or other financial institutions one or more of which administers the security on behalf of the syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third parties called "Participants." The Portfolio may invest in such securities either by participating as a Co-Lender at origination or by acquiring an interest in the security from a Co-Lender or a Participant (collectively, "participation interests"). Co-Lenders and Participants interposed between the Portfolio and the corporate borrower (the "Borrower"), together with Agent Banks, are referred herein as "Intermediate Participants." The Portfolio also may purchase a participation interest in a portion of the rights of an Intermediate Participant, which would not establish any direct relationship between the Portfolio and the Borrower. A participation interest gives the Portfolio an undivided interest in the security in the proportion that the Portfolio's participation interest bears to the total principal amount of the security. These instruments may have fixed, floating or variable rates of interest. The Portfolio would be required to rely on the Intermediate Participant that sold the participation interest not only for the enforcement of the Portfolio's rights against the Borrower but also for the receipt and processing of payments due to the Portfolio under the security. Because it may be necessary to assert through an Intermediate Participant such rights as may exist against the Borrower, in the event the Borrower fails to pay principal and interest when due, the Portfolio may be subject to delays, expenses and risks that are greater than those that would be involved if the Portfolio would enforce its rights directly against the Borrower. Moreover, under the terms of a participation interest, the Portfolio may be regarded as a creditor of the Intermediate Participant (rather than of the Borrower), so that the Portfolio may also be subject to the risk that the Intermediate Participant may become insolvent. Similar risks may arise with respect to the Agent Bank if, for example, assets held by the Agent Bank for the benefit of the Portfolio were determined by the appropriate regulatory authority or court to be subject to the claims of the Agent Bank's creditors. In such case, the Portfolio might incur certain costs and delays in realizing payment in connection with the participation interest or suffer a loss of principal and/or interest. Further, in the event of the bankruptcy or insolvency of the Borrower, the obligation of the Borrower to repay the loan may be subject to certain defenses that can be asserted by such Borrower as a result of improper conduct by the Agent Bank or Intermediate Participant. Municipal Obligations. (Core Bond Portfolio) Municipal obligations are debt obligations issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, or multistate agencies or authorities, to obtain funds for various public purposes, and include certain industrial development bonds issued by or on behalf of public authorities. Municipal obligations are classified as general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Industrial development bonds, in most cases, are revenue bonds that do not carry the pledge of the credit of the issuing municipality, but generally are guaranteed by the corporate entity on whose behalf they are issued. Notes are short-term instruments which are obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. Municipal obligations include municipal lease/purchase agreements which are similar to installment purchase contracts for property or equipment issued by municipalities. Municipal obligations bear fixed, floating or variable rates of interest, which are determined in some instances by formulas under which the municipal obligation's interest rate will change directly or inversely to changes in interest rates or an index, or multiples thereof, in many cases subject to a maximum and minimum. Certain municipal obligations are subject to redemption at a date earlier than their stated maturity pursuant to call options, which may be separated from the related municipal obligation and purchased and sold separately. The Core Bond Portfolio also may acquire call options on specific municipal obligations. The Portfolio generally would purchase these call options to protect the Portfolio from the issuer of the related municipal obligation redeeming, or other holder of the call option from calling away, the municipal obligation before maturity. While, in general, municipal obligations are tax exempt securities having relatively low yields as compared to taxable, non-municipal obligations of similar quality, certain municipal obligations are taxable obligations, offering yields comparable to, and in some cases greater than, the yields available on other permissible Portfolio investments. Dividends received by shareholders on Portfolio shares which are attributable to interest income received by the Portfolio from municipal obligations generally will be subject to Federal income tax. The Portfolio may invest in municipal obligations, the ratings of which correspond with the ratings of other permissible Fund investments. The Portfolio currently intends to invest no more than 25% of its assets in municipal obligations. However, this percentage may be varied from time to time without shareholder approval. Zero Coupon, Pay-In-Kind and Step-Up Securities. (Core Bond Portfolio only) The Core Bond 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. Zero coupon securities also are issued by corporations and financial institutions which constitute a proportionate ownership of the issuer's pool of underlying U.S. Treasury securities. A zero coupon security pays no interest to its holders during its life and is sold at a discount to its face value at maturity. The Core Bond Portfolio may invest in pay-in-kind bonds which are bonds which generally pay interest through the issuance of additional bonds. The Portfolio also may purchase step-up coupon bonds which are debt securities which typically do not pay interest for a specified period of time and then pay interest at a series of different rates. The market prices of these securities generally are more volatile and are likely to respond to a greater degree to changes in interest rates than the market prices of securities that pay interest periodically having similar maturities and credit qualities. In addition, unlike bonds that pay interest throughout the period to maturity, the Portfolio will realize no cash until the cash payment date unless a portion of such securities are sold and, if the issuer defaults, the Portfolio may obtain no return at all on its investment. Federal income tax law requires the holder of a zero coupon security or of certain pay-in-kind or step-up 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, the Portfolio may be required to distribute such income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements. Illiquid Securities. (All Portfolios) 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. These securities may include securities that are not readily marketable, such as securities that are subject to legal or contractual restrictions on resale, repurchase agreements providing for settlement in more than seven days after notice, and certain privately negotiated, non-exchange traded options and securities used to cover such options. As to these securities, the Portfolio is subject to a risk that should the Portfolio desire to sell them when a ready buyer is not available at a price the Portfolio deems representative of their value, the value of the Portfolio's net assets could be adversely affected. Money Market Instruments. (All Portfolios) When the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) determines that adverse market conditions exist, the Portfolio may adopt a temporary defensive position and invest some or all of its assets in money market instruments, including the securities described below ("Money Market Instruments"). Each Portfolio also may purchase Money Market Instruments when it has cash reserves or in anticipation of taking a market position. U.S. Government Securities--Securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities include U.S. Treasury securities that differ in their interest rates, maturities and times of issuance. Some obligations issued or guaranteed by U.S. Government agencies and instrumentalities are supported by the full faith and credit of the U.S. Treasury; others by the right of the issuer to borrow from the Treasury; others by discretionary authority of the U.S. Government to purchase certain obligations from the agency or instrumentality; and others only by the credit of the agency or instrumentality. These securities bear fixed, floating or variable rates of interest. While the U.S. Government provides financial support for such U.S. Government-sponsored agencies and instrumentalities, no assurance can be given that it will always do so since it is not obligated by law. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to timely payment of interest and principal when held to maturity. Neither the market value of such securities nor the Portfolio's share price is guaranteed. Repurchase Agreements--Each Portfolio may enter into repurchase agreements with certain banks or non-bank dealers. In a repurchase agreement, the Portfolio buys, and the seller agrees to repurchase, a security at a mutually agreed upon time and price (usually within seven days). The repurchase agreement thereby determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. The Portfolio's custodian or sub-custodian will have custody of, and will hold in a segregated account, securities acquired by the 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. Repurchase agreements could involve risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the Portfolio's ability to dispose of the underlying securities. 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 $1 billion, or primary government securities dealers reporting to the Federal Reserve Bank of New York, with respect to securities of the type in which the Portfolio may invest, and will require that additional securities be deposited with it if the value of the securities purchased should decrease below resale price. Bank Obligations--Each Portfolio may purchase certificates of deposit ("CDs"), time deposits ("TDs"), bankers' acceptances and other short-term obligations issued by domestic banks, foreign subsidiaries or foreign branches of domestic banks, domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such securities issued by foreign subsidiaries or foreign branches of domestic banks, and domestic and foreign branches of foreign banks, the Portfolio 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. CDs are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time. TDs are non-negotiable deposits maintained in a banking institution for a specified period of time (in no event longer than seven days) at a stated interest rate. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of a bank and the drawer to pay the face amount of the instruments 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--Each Portfolio may purchase commercial paper consisting of short-term, unsecured promissory notes issued to finance short-term credit needs. The commercial paper purchased by the Portfolio will consist only of direct obligations which, at the time of their purchase, are rated at least Prime-1 by Moody's Investors Service, Inc. ("Moody's"), A-1 by Standard & Poor's Ratings Services ("S&P") or F-1 by Fitch IBCA, Duff & Phelps ("Fitch" and, together with Moody's and S&P, the "Rating Agencies"), or issued by companies having an outstanding unsecured debt issue currently rated at least A by Moody's, S&P or Fitch, or, if unrated, determined by the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) to be of comparable quality to those rated obligations which may be purchased by the Portfolio. These instruments also 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. 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 Portfolio's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies, and the Portfolio may invest in them only if at the time of an investment the borrower meets the criteria set forth above for other commercial paper issuers. Investment Techniques The following information supplements (except as noted) and should be read in conjunction with the relevant Portfolio's Prospectus. Duration. (Core Bond Portfolio only) As a measure of a fixed-income security's cash flow, duration is an alternative to the concept of "term to maturity" in assessing the price volatility associated with changes in interest rates. Generally, the longer the duration, the more volatility an investor should expect. For example, the market price of a bond with a duration of three years would be expected to decline 3% if interest rates rose 1%. Conversely, the market price of the same bond would be expected to increase 3% if interest rates fell 1%. The market price of a bond with a duration of six years would be expected to increase or decline twice as much as the market price of a bond with a three-year duration. Duration is a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments as opposed to its term to maturity. The maturity of a security measures only the time until final payment is due; it does not take account of the pattern of a security's cash flows over time, which would include how cash flow is affected by prepayments and by changes in interest rates. Incorporating a security's yield, coupon interest payments, final maturity and option features into one measure, duration is computed by determining the weighted average maturity of a bond's cash flows, where the present values of the cash flows serve as weights. In computing the duration of the Core Bond Portfolio, the Manager will estimate the duration of obligations that are subject to features such as prepayment or redemption by the issuer, put options retained by the investor or other imbedded options, taking into account the influence of interest rates on prepayments and coupon flows. Portfolio Maturity. (Core Bond Portfolio only) The Core Bond Portfolio typically will maintain an average effective maturity ranging between five and ten years. However, to the extent the maturity of the Portfolio's benchmark index is outside this range at a particular time (generally, this may occur during other than usual market conditions), the Portfolio's average effective maturity also may fall outside such range. For purposes of calculating average effective portfolio maturity, a security that is subject to redemption at the option of the issuer on a particular date (the "call date") which is prior to the security's stated maturity may be deemed to mature on the call date rather than on its stated maturity date. The call date of a security will be used to calculate average effective portfolio maturity when the Manager reasonably anticipates, based upon information available to it, that the issuer will exercise its right to redeem the security. The Manager may base its conclusion on such factors as the interest-rate paid on the security compared to prevailing market rates, the amount of cash available to the issuer of the security, events affecting the issuer of the security, and other factors that may compel or make it advantageous for the issuer to redeem a security prior to its stated maturity. Foreign Currency Transactions. (All Portfolios, except the MidCap Stock Portfolio) Each of these Portfolios may enter into foreign currency transactions for a variety of purposes, including: to fix in U.S. dollars, between trade and settlement date, the value of a security the Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of securities the Portfolio already owns, particularly if it expects a decrease in the value of the currency in which the foreign security is denominated; or to gain exposure to the foreign currency in an attempt to realize gains. Foreign currency transactions may involve, for example, the Portfolio's purchase of foreign currencies for U.S. dollars or the maintenance of short positions in foreign currencies. A short position would involve the Portfolio agreeing to exchange an amount of a currency it did not currently own for another currency at a future date in anticipation of a decline in the value of the currency sold relative to the currency the Portfolio contracted to receive. The Portfolio's success in these transactions will depend principally on the ability of the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) to predict accurately the future exchange rates between foreign currencies and the U.S. dollar. Currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad. Borrowing Money. (All Portfolios) Each Portfolio is permitted to borrow to the extent permitted under the 1940 Act, which permits an investment company to borrow in an amount up to 33-1/3% of the value of its total assets. Each Founders Portfolio currently intends to borrow money only for temporary or emergency (not leveraging) purposes. While such borrowings exceed 5% of the Portfolio's total assets, the Portfolio will not make any additional investments. Money borrowed will be subject to interest costs. The Core Bond, Core Value, Emerging Leaders, Emerging Markets, European Equity, Japan, MidCap Stock and Technology Growth Portfolios may borrow money for investment purposes as described below under "Leverage." Leverage. (Core Bond, Core Value, Emerging Leaders, Emerging Markets, European Equity, Japan, MidCap Stock and Technology Growth Portfolios only) Leveraging (that is, buying securities using borrowed money) exaggerates the effect on net asset value of any increase or decrease in the market value of a Portfolio's investments. These borrowings will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased; in certain cases, interest costs may exceed the return received on the securities purchased. For borrowings for investment purposes, the 1940 Act requires the Portfolio to maintain continuous asset coverage (total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed. If the required coverage should decline as a result of market fluctuations or other reasons, the Portfolio may be required to sell some of its portfolio securities within three days to reduce the amount of its borrowings and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. The Portfolio also may be required to maintain minimum average balances in connection with such borrowing or pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. Reverse Repurchase Agreements. (All Portfolios, except the Founders Portfolios) Each of these Portfolios may enter into reverse repurchase agreements with banks, brokers or dealers. This form of borrowing involves the transfer by the Portfolio of an underlying debt instrument in return for cash proceeds based on a percentage of the value of the security. The Portfolio retains the right to receive interest and principal payments on the security. At an agreed upon future date, the Portfolio repurchases the security at principal plus accrued interest. To the extent a Portfolio enters into a reverse repurchase agreement, the Portfolio will segregate permissible liquid assets at least equal to the aggregate amount of its reverse repurchase obligations, plus accrued interest, in certain cases, in accordance with releases promulgated by the Securities and Exchange Commission. The Securities and Exchange Commission views reverse repurchase transactions as collateralized borrowings by a Portfolio. Except for these transactions, borrowings by the Portfolios generally will be unsecured. Reverse repurchase agreements may be preferable to a regular sale and later repurchase of the securities because it avoids certain market risks and transaction costs. Such transactions, however, may increase the risk of potential fluctuations in the market value of the Portfolio's assets. In addition, interest costs on the cash received may exceed the return on the securities purchased. Lending Portfolio Securities. (All Portfolios, except Emerging Leaders Portfolio) Each of these Portfolios may lend securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. The Portfolio continues to be entitled to payments in amounts equal to the interest, dividends or other distributions payable on the loaned securities, which affords the Portfolio an opportunity to earn interest on the amount of the loan and on the loaned securities' collateral. Loans of portfolio securities may not exceed 33-1/3% of the value of the Portfolio's total assets, and the Portfolio will receive collateral consisting of cash, U.S. Government securities or irrevocable letters of credit which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. Such loans are terminable by the Portfolio at any time upon specified notice. The 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. In connection with its securities lending transactions, a Portfolio may return to the borrower or a third party which is unaffiliated with the Portfolio, and which is acting as a "placing broker," a part of the interest earned from the investment of collateral received for securities loaned. Short-Selling. (Core Bond, Emerging Leaders, Emerging Markets, European Equity, Japan and Technology Growth Portfolios only) In these transactions, a Portfolio sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the Portfolio must borrow the security to make delivery to the buyer. The Portfolio is obligated to replace the security borrowed by purchasing it subsequently at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Portfolio, which would result in a loss or gain, respectively. No Portfolio will sell securities short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Portfolio's net assets. The Portfolio also may make short sales "against the box," in which the Portfolio enters into a short sale of a security it owns. At no time will more than 15% of the value of the Portfolio's net assets be in deposits on short sales against the box. Until the Portfolio closes its short position or replaces the borrowed security, the Portfolio will: (a) segregate permissible liquid assets in an amount that, together with the amount deposited as collateral, always equals the current value of the security sold short; or (b) otherwise cover its short position. Derivatives. (All Portfolios) Each Portfolio may invest in, or enter into, derivatives, such as options and futures, for a variety of reasons, including to hedge certain market risks, to provide a substitute for purchasing or selling particular securities or to increase potential income gain. Derivatives may provide a cheaper, quicker or more specifically focused way for the Portfolio to invest than "traditional" securities would. Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the level of risk, or change the character of the risk, to which its portfolio is exposed in much the same way as the Portfolio can increase or decrease the level of risk, or change the character of the risk, of its portfolio by making investments in specific securities. However, derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in derivatives could have a large potential impact on a Portfolio's performance. If a Portfolio invests in derivatives at inopportune times or judges market conditions incorrectly, such investments may lower the Portfolio's return or result in a loss. A Portfolio also could experience losses if its derivatives were poorly correlated with its other investments, or if the Portfolio were unable to liquidate its position because of an illiquid secondary market. The market for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives. Although neither the Fund nor any Portfolio will be a commodity pool, certain derivatives subject the Portfolios to the rules of the Commodity Futures Trading Commission which limit the extent to which a Portfolio can invest in such derivatives. A Portfolio may invest in futures contracts and options with respect thereto for hedging purposes without limit. However, a Portfolio may not invest in such contracts and options for other purposes if the sum of the amount of initial margin deposits and premiums paid for unexpired options with respect to such contracts, other than for bona fide hedging purposes, exceeds 5% of the liquidation value of the Portfolio's assets, after taking into account unrealized profits and unrealized losses on such contracts and options; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. Derivatives may be purchased on established exchanges or through privately negotiated transactions referred to as over-the-counter derivatives. Exchange-traded derivatives generally are guaranteed by the clearing agency which is the issuer or counterparty to such derivatives. This guarantee usually is supported by a daily variation margin system operated by the clearing agency in order to reduce overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty credit risk associated with derivatives purchased on an exchange. In contrast, no clearing agency guarantees over-the-counter derivatives. Therefore, each party to an over-the-counter derivative bears the risk that the counterparty will default. Accordingly, the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) will consider the creditworthiness of counterparties to over-the-counter derivatives in the same manner as it would review the credit quality of a security to be purchased by a Portfolio. Over-the-counter derivatives are less liquid than exchange-traded derivatives since the other party to the transaction may be the only investor with sufficient understanding of the derivative to be interested in bidding for it. Futures Transactions--In General. Each Portfolio may enter into futures contracts in U.S. domestic markets, or, except for the MidCap Stock Portfolio, on exchanges located outside the United States. Foreign markets may offer advantages such as trading opportunities or arbitrage possibilities not available in the United States. Foreign markets, however, may have greater risk potential than domestic markets. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits a 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. Transactions on foreign exchanges may include both commodities which are traded on domestic exchanges and those which are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges is not regulated by the Commodity Futures Trading Commission. Engaging in these transactions involves risk of loss to a Portfolio which could adversely affect the value of the Portfolio's net assets. 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 the Portfolio to substantial losses. Successful use of futures by a Portfolio also is subject to the ability of the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) to predict correctly movements in the direction of the relevant market and, to the extent the transaction is entered into for hedging purposes, to ascertain the appropriate correlation between the position being hedged and the price movements of the futures contract. For example, if a Portfolio uses futures to hedge against the possibility of a decline in the market value of securities held in its portfolio and the prices of such securities instead increase, the 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. A Portfolio may have to sell such securities at a time when it may be disadvantageous to do so. Pursuant to regulations and/or published positions of the Securities and Exchange Commission, a Portfolio may be required to segregate permissible liquid assets to cover its obligations relating to its transactions in derivatives. To maintain this required cover, the Portfolio may have to sell portfolio securities at disadvantageous prices or times since it may not be possible to liquidate a derivative position at a reasonable price. In addition, the segregation of such assets will have the effect of limiting a Portfolio's ability otherwise to invest those assets. Specific Futures Transactions. Each Portfolio may purchase and sell stock index futures contracts. A stock index future obligates the Portfolio to pay or receive an amount of cash equal to a fixed dollar amount specified in the futures contract multiplied by the difference between the settlement price of the contract on the contract's last trading day and the value of the index based on the stock prices of the securities that comprise it at the opening of trading in such securities on the next business day. Each Portfolio, except the MidCap Stock Portfolio, may purchase and sell currency futures. A foreign currency future obligates the Portfolio to purchase or sell an amount of a specific currency at a future date at a specific price. Each Portfolio, except the Emerging Markets Portfolio, may purchase and sell interest rate futures contracts. An interest rate future obligates the Portfolio to purchase or sell an amount of a specific debt security at a future date at a specific price. Successful use by the Portfolio of futures contracts will be subject to the ability of the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) to predict correctly movements in the prices of individual stocks, the stock market generally, foreign currencies or interest rates. To the extent such predictions are incorrect, the Portfolio may incur losses. Options--In General. Each Portfolio may invest up to 5% of its assets, represented by the premium paid, in the purchase of call and put options. A Portfolio may write (i.e., sell) covered call and put option contracts to the extent of 20% of the value of its net assets at the time such option contracts are written. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying security or securities at the exercise price at any time during the option period, or at a specific date. Conversely, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security or securities at the exercise price at any time during the option period, or at a specific date. A covered call option written by a Portfolio is a call option with respect to which the Portfolio owns the underlying security or otherwise covers the transaction by segregating permissible liquid assets. A put option written by a Portfolio is covered when, among other things, the Portfolio segregates permissible liquid assets having a value equal to or greater than the exercise price of the option to fulfill the obligation undertaken. The principal reason for writing covered call and put options is to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. A Portfolio receives a premium from writing covered call or put options which it retains whether or not the option is exercised. There is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and for some options no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, at times have rendered certain of the clearing facilities inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders or trading halts or suspensions in one or more options. There can be no assurance that similar events, or events that may otherwise interfere with the timely execution of 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. Specific Options Transactions. Each Portfolio, except the Core Bond Portfolio, may purchase and sell call and put options in respect of specific securities (or groups or "baskets" of specific securities) or stock indices listed on national securities exchanges or traded in the over-the-counter market. An option on a stock index is similar to an option in respect of specific securities, except that settlement does not occur by delivery of the securities comprising the index. Instead, the option holder receives an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. Thus, the effectiveness of purchasing or writing stock index options will depend upon price movements in the level of the index rather than the price of a particular stock. Each Portfolio, except the MidCap Stock Portfolio, may purchase and sell call and put options on foreign currency. These options convey the right to buy or sell the underlying currency at a price which is expected to be lower or higher than the spot price of the currency at the time the option is exercised or expires. Each Portfolio, except the Core Bond Portfolio, may purchase cash-settled options on equity index swaps in pursuit of its investment objective. Equity index swaps involve the exchange by the Portfolio with another party of cash flows based upon the performance of an index or a portion of an index of securities which usually includes dividends. The European Equity and Japan Portfolios also may purchase cash-settled options on interest rate swaps and interest rate swaps denominated in foreign currency. Interest rate swaps involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest (for example, an exchange of floating-rate payments for fixed-rate payments) denominated in U.S. dollars or foreign currency. A cash-settled option on a swap gives the purchaser the right, but not the obligation, in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date. These options typically are purchased in privately negotiated transactions from financial institutions, including securities brokerage firms. Successful use by a Portfolio of options will be subject to the ability of the Manager (or Founders with respect to the Founders Portfolios or Newton with respect to the European Equity and Japan Portfolios) to predict correctly movements in the prices of individual stocks, the stock market generally, foreign currencies or interest rates. To the extent such predictions are incorrect, a Portfolio may incur losses. Future Developments. (All Portfolios) A Portfolio may take advantage of opportunities in options and futures contracts and options on futures contracts and any other derivatives which are not presently contemplated for use by the Portfolio 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 or Statement of Additional Information. Forward Commitments. (All Portfolios) Each Portfolio may purchase or sell securities on a forward commitment or when-issued basis, which means that delivery and payment take place a number of days after the date of the commitment to purchase or sell the securities. The payment obligation and the interest rate receivable on a forward commitment or when-issued security are fixed when the Portfolio enters into the commitment, but the purchaser does not make a payment until it receives delivery from the counter party. The Portfolio will commit 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. The Portfolio will segregate permissible liquid assets at least equal at all times to the amount of the Portfolio's purchase commitments. The Core Bond Portfolio intends to engage in forward commitments to increase its portfolio's financial exposure to changes in interest rates and will increase the volatility of its returns. If the Portfolio is fully or almost fully invested when forward commitment purchases are outstanding, such purchases may result in a form of leverage. At no time will the Portfolio have more than 33-1/3% of its assets committed to purchase securities on a forward commitment basis. Securities purchased on a forward commitment or when-issued basis are subject to changes in value (generally changing in the same way, i.e., appreciating when interest rates decline and depreciating when interest rates rise) based upon the public's perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities purchased on a forward commitment or when-issued basis may expose a Portfolio to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a when-issued basis can involve the additional risk that the yield available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself. Purchasing securities on a forward commitment or when-issued basis when 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. Forward Roll Transactions. (Core Bond Portfolio only) To enhance current income, the Portfolio may enter into forward roll transactions with respect to mortgage-related securities. In a forward roll transaction, the Portfolio sells a mortgage-related security to a financial institution, such as a bank or broker-dealer, and simultaneously agrees to purchase a similar security from the institution at a later date at an agreed upon price. The securities that are purchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different pre-payment histories than those sold. During the period between the sale and purchase, the Portfolio will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale typically will be invested in short-term instruments, particularly repurchase agreements, and the income from these investments, together with any additional fee income received on the sale will be expected to generate income for the Portfolio exceeding the yield on the securities sold. Forward roll transactions involve the risk that the market value of the securities sold by the Portfolio may decline below the purchase price of those securities. The Portfolio will segregate permissible liquid assets at least equal to the amount of the repurchase price (including accrued interest). Certain Investment Considerations and Risks Equity Securities. (All Portfolios) Equity securities, including common stock, preferred stock, convertible securities and warrants, fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, and such fluctuations can be pronounced. Changes in the value of the Portfolio's investments will result in changes in the value of its shares and thus the Portfolio's total return to investors. Fixed-Income Securities. (All Portfolios) The Core Value Portfolio may invest up to 5% of its total net assets in fixed-income securities, including those of companies that are close to entering, or already in, reorganization proceedings which are rated below investment grade by the Rating Agencies. The MidCap Stock Portfolio also may invest in corporate obligations rated at least Baa by Moody's or BBB by S&P or Fitch, or, if unrated, of comparable quality as determined by the Manager. Each Founders Portfolio may invest in debt securities of foreign issuers that management believes, based on market conditions, the financial condition of the issuer, general economic conditions and other relevant factors, offer opportunities for capital growth. The bonds, debentures and corporate obligations (other than convertible securities and preferred stock) in which each Founders Portfolio may invest must be rated not lower than Baa by Moody's or BBB by S&P and Fitch, or, if unrated, deemed to be of comparable quality by Founders. 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 a 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 issuer. Certain securities that may be purchased by each Portfolio, such as those rated Baa or lower by Moody's and BBB or lower by S&P and Fitch, may be subject to such risk with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated fixed-income securities. Once the rating of a portfolio security has been changed, the Fund will consider all circumstances deemed relevant in determining whether to continue to hold the security. Technology Sector. (Technology Growth Portfolio only) The technology sector has been among the most volatile sectors of the stock market. You should recognize that returns are likely to be highly volatile and that, depending upon when you purchase and sell your Portfolio shares, you may make or lose money. The Portfolio may purchase securities of companies in initial public offerings or shortly thereafter. The prices of these companies' securities may be very volatile, rising and falling rapidly based, among other reasons, solely on investor perceptions rather than economic reasons. The Portfolio may purchase securities of companies which have no earnings or have experienced losses. The Portfolio generally will make these investments based on a belief that actual anticipated products or services will produce future earnings. If the anticipated event is delayed or does not occur, or if investor perception about the company change, the company's stock price may decline sharply and its securities may become less liquid. The Portfolio may purchase securities of smaller capitalization companies, the prices of which may be subject to more abrupt or erratic market movements than larger, more established companies, because these securities typically are traded in lower volume and the issuers typically are more subject to changes in earnings and prospects. The Portfolio is not limited in the amount it may invest in these securities or companies. The Portfolio, together with other investment companies advised by the Manager and its affiliates, may own significant positions in portfolio companies which, depending on market conditions, may affect adversely the Portfolio's ability to dispose of some or all of its position should it desire to do so. Lower Rated Securities. (Core Bond Portfolio, Core Value Portfolio, Emerging Markets Portfolio and Founders Portfolios only) Each of these Portfolios may invest a portion of its assets in higher yielding (and, therefore, higher risk) debt securities (convertible securities and preferred stocks with respect to the Founders Portfolios) such as those rated Ba by Moody's or BB by S&P or Fitch, or as low as those rated B by a Rating Agency in the case of the Founders Portfolios, or as low as the lowest rating assigned by a Rating Agency in the case of the Core Bond, Core Value and Emerging Markets Portfolios. They may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated fixed-income securities. The retail secondary market for these securities may be less liquid than that of higher rated securities; adverse conditions could make it difficult at times for the Portfolio to sell certain securities or could result in lower prices than those used in calculating the Portfolio's net asset value. Bond prices are inversely related to interest rate changes; however, bond price volatility also is inversely related to coupon. Accordingly, below investment grade securities may be relatively less sensitive to interest rate changes than higher quality securities of comparable maturity, because of their higher coupon. This higher coupon is what the investor receives in return for bearing greater credit risk. The higher credit risk associated with below investment grade securities potentially can have a greater effect on the value of such securities than may be the case with higher quality issues of comparable maturity, and will be a substantial factor in the Portfolio's relative share price volatility. Although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of these securities. The Portfolio will rely on the judgment, analysis and experience of the Manager (or Founders with respect to the Founders Portfolios) in evaluating the creditworthiness of an issuer. Companies that issue certain of these securities often are highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities and will fluctuate over time. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of these securities may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be affected adversely by specific corporate developments, or the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss because of default by the issuer is significantly greater for the holders of these securities because such securities generally are unsecured and often are subordinated to other creditors of the issuer. Because there is no established retail secondary market for many of these securities, the Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market for these securities does exist, it generally is not as liquid as the secondary market for higher rated securities. The lack of a liquid secondary market may have an adverse impact on market price and yield and the Portfolio's ability to dispose of particular issues when necessary to meet such Portfolio's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid security market for certain securities also may make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of these securities. In such cases, judgment may play a greater role in valuation because less reliable, objective data may be available. These securities may be particularly susceptible to economic downturns. An economic recession could adversely affect the ability of the issuers of lower rated bonds to repay principal and pay interest thereon and increase the incidence of default for such securities. It is likely that any economic recession also could disrupt severely the market for such securities and have an adverse impact on their value. Each of these Portfolios may acquire these securities during an initial offering. Such securities may involve special risks because they are new issues. The Fund has no arrangement with any persons concerning the acquisition of such securities, and the Manager (or Founders with respect to the Founders Portfolios) will review carefully the credit and other characteristics pertinent to such new issues. The ratings of the Ratings Agencies represent their opinions as to the quality of the obligations which they undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. Although these ratings may be an initial criterion for selection of portfolio investments, the Manager (or Founders with respect to the Founders Portfolios) also will evaluate these securities and the ability of the issuers of such securities to pay interest and principal. With respect to Core Bond Portfolio, the average distribution of investments of the Portfolio in corporate bonds (excluding convertible preferred stocks and convertible bonds) by ratings for the fiscal year ended December 31, 2000, calculated monthly on a dollar weighted basis, was as follows: Core Bond Portfolio Moody's or S&P or Fitch Percentage Aaa AAA 93.8% Aa AA 2.1% A A 8.7% Baa BBB 5.0% Ba BB 4.5% B B 3.4% -------- 117.5%* ======== * The Portfolio also owns equity securities (.3%). Foreign Securities. (All Portfolios) Foreign securities markets generally are not as developed or efficient as those in the United States. Securities of some foreign issuers, including depositary receipts, foreign government obligations and securities of supranational entities, are less liquid and more volatile than securities of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less than in the United States and, at times, volatility of price can be greater than in the United States. Because evidences of ownership of such securities usually are held outside the United States, the Portfolio will be subject to additional risks which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions which might adversely affect or restrict the payment of principal and interest on the foreign securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Moreover, foreign securities held by a Portfolio may trade on days when the Portfolio does not calculate its net asset value and thus affect the Portfolio's net asset value on days when investors have no access to the Portfolio. With respect to the securities purchased by the Emerging Markets Portfolio and certain securities that may be purchased by the Founders Portfolios and the Core Bond, European Equity and Japan Portfolios only, developing countries have economic structures that are generally less diverse and mature, and political systems that are less stable, than those of developed countries. The markets of developing countries may be more volatile than the markets of more mature economies; however, such markets may provide higher rates of return to investors. Many developing countries providing investment opportunities for the Portfolio have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain of these countries. Since foreign securities often are purchased with and payable in currencies of foreign countries, the value of these assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. Mortgage-Related Securities. (Core Bond Portfolio only) Mortgage-related securities are complex derivative instruments, subject to both credit and prepayment risk, and may be more volatile and less liquid, and more difficult to price accurately, than more traditional debt securities. Although certain mortgage-related securities are guaranteed by a third party (such as a U.S. Government agency or instrumentality with respect to government-related mortgage-backed securities) or otherwise similarly secured, the market value of the security, which may fluctuate, is not secured. These securities may be particularly susceptible to economic downturns. It is likely that an economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. Mortgage-related securities generally are subject to credit risks associated with the performance of the underlying mortgage properties and to prepayment risk. In certain instances, the credit risk associated with mortgage-related securities can be reduced by third party guarantees or other forms of credit support. Improved credit risk does not reduce prepayment risk which is unrelated to the rating assigned to the mortgage-related security. Prepayment risk can lead to fluctuations in value of the mortgage-related security which may be pronounced. If a mortgage-related security is purchased at a premium, all or part of the premium may be lost if there is a decline in the market value of the security, whether resulting from changes in interest rates or prepayments on the underlying mortgage collateral. Certain mortgage-related securities that may be purchased by the Portfolio, such as inverse floating rate collateralized mortgage obligations, have coupons that move inversely to a multiple of a specific index which may result in a form of leverage. As with other interest-bearing securities, the prices of certain mortgage-related securities are inversely affected by changes in interest rates. However, although the value of a mortgage-related security may decline when interest rates rise, the converse is not necessarily true, since in periods of declining interest rates the mortgages underlying the security are more likely to be prepaid. For this and other reasons, a mortgage-related security's stated maturity may be shortened by unscheduled prepayments on the underlying mortgages, and, therefore, it is not possible to predict accurately the security's return to the Portfolio. Moreover, with respect to certain stripped mortgage-backed securities, if the underlying mortgage securities experience greater than anticipated prepayments of principal, the Portfolio may fail to fully recoup its initial investment even if the securities are rated in the highest rating category by a nationally recognized statistical rating organization. During periods of rapidly rising interest rates, prepayments of mortgage-related securities may occur at slower than expected rates. Slower prepayments effectively may lengthen a mortgage-related security's expected maturity which generally would cause the value of such security to fluctuate more widely in response to changes in interest rates. Were the prepayments on the Portfolio's mortgage-related securities to decrease broadly, the Portfolio's effective duration, and thus sensitivity to interest rate fluctuations, would increase. Commercial real property loans, however, often contain provisions that reduce the likelihood that such securities will be prepaid. The provisions generally impose significant prepayment penalties on loans and in some cases there may be prohibitions on principal prepayments for several years following origination. State Insurance Regulation. (All Portfolios) The Fund is intended to be a funding vehicle for VA contracts and VLI policies to be offered by Participating Insurance Companies and will seek to be offered in as many jurisdictions as possible. Certain states have regulations concerning concentration of investments, purchase and sale of future contracts and short sales of securities, among other techniques. If applied to a Portfolio, the Portfolio may be limited in its ability to engage in such techniques and to manage its portfolio with the flexibility provided herein. It is the Fund's intention that each Portfolio operate in material compliance with current insurance laws and regulations, as applied, in each jurisdiction in which the Portfolio is offered. Simultaneous Investments. (All Portfolios) Investment decisions for each Portfolio are made independently from those of the other Portfolios and investment companies managed by the Manager (and, where applicable, Founders or Newton). If, however, such other Portfolios or investment companies desire to invest in, or dispose of, the same securities as the 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 a Portfolio or the price paid or received by a Portfolio. Investment Restrictions Each Portfolio's investment objective is a fundamental policy, which cannot be changed without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. In addition, each Portfolio has adopted certain investment restrictions as fundamental policies and certain other investment restrictions as non-fundamental policies, as described below. Core Value Portfolio, MidCap Stock Portfolio, Technology Growth Portfolio, Founders Discovery Portfolio, Founders Growth Portfolio, Founders International Equity Portfolio and Founders Passport Portfolio only. Each of these Portfolios has adopted investment restrictions numbered 1 through 10 as fundamental policies which cannot be changed, as to a Portfolio, without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. Investment restrictions numbered 11 through 15 are not fundamental policies and may be changed, as to a Portfolio, by a vote of a majority of the Fund's Board members at any time. None of these Portfolios may: 1. Invest more than 25% of the value of its total assets in the securities of issuers in any single industry, provided that there shall be no limitation on the purchase of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. For purposes of this Investment Restriction with respect to the Technology Growth Portfolio, the technology sector in general is not considered an industry. 2. Invest more than 5% of its assets in the obligations of any one 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 limitations. 3. Purchase the securities of any issuer if such purchase would cause the Portfolio to hold more than 10% of the voting securities of such issuer. This restriction applies only with respect to 75% of the Portfolio's total assets. 4. Invest in commodities, except that a Portfolio may purchase and sell options, forward contracts, futures contracts, including those relating to indices, and options on futures contracts or indices. 5. Purchase, hold or deal in real estate, or oil, gas or other mineral leases or exploration or development programs, but a Portfolio may purchase and sell securities that are secured by real estate or issued by companies that invest or deal in real estate or real estate investment trusts. 6. Borrow money, except to the extent permitted under the 1940 Act (which currently limits borrowing to no more than 33-1/3% of the value of the 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. 7. Make loans to others, except through the purchase of debt obligations and the entry into repurchase agreements. However, a 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. 8. Act as an underwriter of securities of other issuers, except to the extent a Portfolio may be deemed an underwriter under the Securities Act of 1933, as amended, by virtue of disposing of portfolio securities. 9. Issue any senior security (as such term is defined in Section 18(f) of the 1940 Act), except to the extent the activities permitted in Investment Restriction Nos. 4, 6, 12 and 13 may be deemed to give rise to a senior security. 10. Purchase securities on margin, but a 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 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 described in the Prospectus and Statement of Additional Information. 14. 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 its net assets would be so invested. 15. Purchase securities of other investment companies, except to the extent permitted under the 1940 Act. * * * Core Bond Portfolio, Emerging Leaders Portfolio, European Equity Portfolio and Japan Portfolio. Each of these Portfolios has adopted investment restrictions numbered 1 through 10 as fundamental policies which cannot be changed, as to a Portfolio, without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. Investment restrictions numbered 11 through 13 are not fundamental policies and may be changed, as to a Portfolio, by a vote of a majority of the Fund's Board members at any time. None of these Portfolios may: 1. Invest more than 25% of the value of its total assets in the securities of issuers in any single industry, provided that there shall be no limitation on the purchase of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. 2. Invest more than 5% of its assets in the obligations of any one 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 limitations. 3. Purchase the securities of any issuer if such purchase would cause the Portfolio to hold more than 10% of the voting securities of such issuer. This restriction applies only with respect to 75% of the Portfolio's total assets. 4. 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. 5. 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 or real estate investment trusts. 6. Borrow money, except to the extent permitted under the 1940 Act (which currently limits borrowing to no more than 33-1/3% of the value of the 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. 7. Lend any securities or make any other loans if, as a result, more than 33-1/3% of its total assets would be lent to others, except that this limitation does not apply to the purchase of debt obligations and the entry into repurchase agreements. Any loans of portfolio securities will be made according to guidelines established by the Securities and Exchange Commission and the Fund's Board. 8. 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. 9. Issue any senior security (as such term is defined in Section 18(f) of the 1940 Act), except to the extent the activities permitted in Investment Restriction Nos. 4, 6 and 12 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 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. 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 its net assets would be so invested. * * * Emerging Markets Portfolio only. The Portfolio has adopted investment restrictions numbered 1 through 8 as fundamental policies which cannot be changed without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. Investment restrictions numbered 9 through 11 are not fundamental policies and may be changed by a vote of a majority of the Fund's Board members at any time. The Emerging Markets Portfolio may not: 1. Invest more than 25% of the value of its total assets in the securities of issuers in any single industry, provided that there shall be no limitation on the purchase of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. 2. Invest in commodities, except that the Portfolio may purchase and sell options, forward contracts, futures contracts, including those relating to indices, and options on futures contracts or indices. 3. 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 or real estate investment trusts. 4. Borrow money, except to the extent permitted under the 1940 Act (which currently limits borrowing to no more than 33-1/3% of the value of the 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. 5. Lend any securities or make any other loans if, as a result, more than 33-1/3% of its total assets would be lent to others, except that this limitation does not apply to the purchase of debt obligations and the entry into repurchase agreements. Any loans of portfolio securities will be made according to guidelines established by the Securities and Exchange Commission and the Fund's Board. 6. 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. 7. Issue any senior security (as such term is defined in Section 18(f) of the 1940 Act), except to the extent the activities permitted in Investment Restriction Nos. 2, 4 and 10 may be deemed to give rise to a senior security. 8. 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. 9. Invest in the securities of a company for the purpose of exercising management or control, but the Portfolio will vote the securities it owns as a shareholder in accordance with its views. 10. 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. 11. 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 its net assets would be so invested. * * * 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. In addition, each Portfolio has adopted the following policies as non-fundamental policies. Each Portfolio intends (i) to comply with the diversification requirements prescribed in regulations under Section 817(h) of the Code, and (ii) to comply in all material respects with insurance laws and regulations that the Fund has been advised are applicable to investments of separate accounts of Participating Insurance Companies. As non-fundamental policies, these policies may be changed by vote of a majority of the Board members at any time. MANAGEMENT OF THE FUND The Fund's Board is responsible for the management and supervision of each Portfolio. The Board approves all significant agreements with those companies that furnish services to the Fund. These companies are as follows: The Dreyfus Corporation........... Investment Adviser Founders Asset Management LLC..... Sub-Investment Adviser to the Founders Portfolios Newton Capital Management Limited. Sub-Investment Adviser to the European Equity and Japan Portfolios Dreyfus Service Corporation....... Distributor Dreyfus Transfer, Inc............. Transfer Agent The Bank of New York.............. Custodian for the Emerging Markets, European Equity, Founders International Equity, Founders Passport and Japan Portfolios Mellon Bank, N.A.................. Custodian for the Core Bond, Core Value, Emerging Leaders, Founders Discovery, Founders Growth, MidCap Stock and Technology Growth Portfolios Board members and officers of the Fund, together with information as to their principal business occupations during at least the last five years, are shown below. Board Members of the Fund JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of the Board of various funds in the Dreyfus Family of Funds. He also is a director of The Muscular Dystrophy Association, HealthPlan Services Corporation, a provider of marketing, administrative and risk management services to health and other benefit programs, Carlyle Industries, Inc. (formerly, Belding Heminway, Inc.), a button packager and distributor, Century Business Services, Inc., a provider of various outsourcing functions for small and medium sized companies, The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants, and QuikCAT.com, Inc., a private company engaged in the development of high speed movement, routing, storage and encryption of data across all modes of data transport. Prior to January 1995, he was President, a director and, until August 1994, Chief Operating Officer of the Manager and Executive Vice President and a director of the Distributor. From August 1994 to December 1994, he was a director of Mellon Financial Corporation. He is 57 years old and his address is 200 Park Avenue, New York, New York 10166. CLIFFORD L. ALEXANDER, JR., Board Member. Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation and President of Alexander & Associates, Inc., a management consulting firm. From 1977 to 1981, Mr. Alexander served as Secretary of the Army and Chairman of the Board of the Panama Canal Company, and from 1975 to 1977, he was a member of the Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson and Alexander. He is a director of American Home Products Corporation, IMS Health, a service provider of marketing information and information technology, MCI WorldCom and Mutual of America Life Insurance Company. He is 67 years old and his address is 400 C. Street, N.E., Washington, D.C. 20002. LUCY WILSON BENSON, Board Member. President of Benson and Associates, consultants to business and government. Mrs. Benson is a director of The International Executive Service Corps. She is also Vice Chairman of the Citizens Network for Foreign Affairs and of The Atlantic Council of the U.S., and a member of the Council on Foreign Relations. Mrs. Benson is also a member of the Town Meeting, Town of Amherst Massachusetts. From 1987 to 2000, Mrs. Benson was a director of COMSAT Corporation, a telecommunications company, and was a Trustee of the Alfred P. Sloan Foundation from 1975 to 1977 and from 1981 to 2000. She was also a member of the Board of Trustees of Lafayette College from 1985 to 2000, for which she served as Vice Chairman of the Board of Trustees from 1990 to 2000. Mrs. Benson was a director of The Grumman Corporation, from 1980 to 1994, General RE Corporation from 1990 to 1998, and Logistics Management Institute from 1987 to 1999. Mrs. Benson served as a consultant to the U.S. Department of State and to SRI International from 1980 and 1981. From 1977 to 1980, she was Under Secretary of State for Security Assistance, Science and Technology. She is 73 years old and her address is 46 Sunset Avenue, Amherst, Massachusetts 01002. The Fund has a standing nominating committee comprised of its Board members who are not "interested persons" of the Fund, as defined in the 1940 Act. The function of the nominating committee is to select and nominate all candidates who are not "interested persons" of the Fund for election to the Fund's Board. Currently, the Fund typically pays its Board members its allocated portion of an annual retainer of $25,000 and a fee of $4,000 per meeting ($500 per telephone meeting) attended for the Fund and four other funds (comprised of 18 portfolios) in the Dreyfus Family of Funds, and reimburses them for their expenses. The Chairman of the Board receives an additional 25% of such compensation. Emeritus Board members, if any, are entitled to receive an annual retainer and a per meeting fee of one-half the amount paid to them as Board members. The aggregate amount of compensation paid to each Board member by the Fund, and by all funds in the Dreyfus Family of Funds for which such person is a Board member (the number of portfolios of such funds is set forth in parenthesis next to each Board member's total compensation)* for the year ended December 31, 2000, pursuant to the compensation schedule then in effect, were as follows: Total Compensation From Aggregate Fund and Fund Complex Name of Board Member Compensation From Fund** Paid to Board Member - -------------------- ---------------------- -------------------- Joseph S. DiMartino $2,970 $805,537 (194) Clifford L. Alexander, Jr. $2,377 $124,277 (48) Lucy Wilson Benson $2,377 $107,283 (33) - ------------------- * Represents the number of separate portfolios comprising the investment companies in the Fund Complex, including the Portfolios, for which the Board member serves. ** Amount does not include reimbursed expenses for attending Board meetings, which amounted to $2,893 for all Board members as a group. Officers of the Fund STEPHEN E. CANTER, President. President, Chief Operating Officer, Chief Investment Officer and a director of the Manager, and an officer of 93 investment companies (comprised of 181 portfolios) managed by the Manager. Mr. Canter also is a Director and Executive Committee Member of the other investment management subsidiaries of Mellon Financial Corporation, each of which is an affiliate of the Manager. He is 55 years old. MARK N. JACOBS, Vice President. Executive Vice President, Secretary, and General Counsel of the Manager, and an officer of 94 investment companies (comprised of 194 portfolios) managed by the Manager. He is 55 years old. JOSEPH CONNOLLY, Vice President and Treasurer. Director - Mutual Fund Accounting of the Manager, and an officer of 94 investment companies (comprised of 194 portfolios) managed by the Manager. He is 43 years old. STEVEN F. NEWMAN, Secretary. Assistant Secretary and Associate General Counsel of the Manager, and an officer of 94 investment companies (comprised of 194 portfolios) managed by the Manager. He is 51 years old. JEFF PRUSNOFSKY, Assistant Secretary. Associate General Counsel of the Manager, and an officer of 10 investment companies (comprised of 59 portfolios) managed by the Manager. He is 35 years old. MICHAEL A. ROSENBERG, Assistant Secretary. Associate General Counsel of the Manager, and an officer of 93 investment companies (comprised of 181 portfolios) managed by the Manager. He is 41 years old. WILLIAM MCDOWELL, Assistant Treasurer. Senior Accounting Manager - Taxable Fixed Income of the Manager, and an officer of 18 investment companies (comprised of 74 portfolios) managed by the Manager. He is 42 years old. JAMES WINDELS, Assistant Treasurer. Senior Treasury Manager of the Manager, and an officer of 25 investment companies (comprised of 99 portfolios) managed by the Manager. He is 42 years old. The address of each officer of the Fund is 200 Park Avenue, New York, New York 10166. The Fund's Board members and officers, as a group, owned less than 1% of each Portfolio's shares outstanding on April 3, 2001. The following shareholders are known by the Fund to own of record 5% or more of the indicated Portfolio's shares outstanding on April 3, 2001: Shareholder Portfolio Percentage Allmerica Financial MidCap Stock-Initial shares 29.98% Life & Annuity Co. Attn: Separate Accounts Mail Station S310 440 Lincoln Street Worcester, MA 01653 First TransAmerica Life Core Bond-Initial shares 18.78% Insurance Company Core Bond-Service shares 25.62% Separate Account VA-2LNY Core Value-Initial shares 13.73% Accounting Department Core Value-Service shares 5.39% P.O. Box 33849 Emerging Leaders-Initial shares 24.67% Charlotte, NC 28233 Emerging Leaders-Service shares 34.48% European Equity-Initial shares 5.37% European Equity-Service shares 31.71% Founders Discovery-Initial shares 15.18% Founders Discovery-Service shares 6.49% Founders Growth-Initial shares 17.16% Founders International Equity-Initial 15.30% shares Founders International Equity-Service 9.47% shares Founders Passport-Initial shares 20.57% Japan-Service shares 25.41% MidCap Stock-Initial shares 6.21% MidCap Stock-Service shares 7.78% Technology Growth-Initial shares 24.58% Technology Growth-Service shares 16.39% GE Life Annuity Assurance Emerging Markets-Initial shares 9.89% Company 6610 West Broad Street Richmond, VA 23230 Kemper Investors Life MidCap Stock-Initial shares 22.80% Insurance Company 1 Kemper Drive Long Grove, IL 60049 MBCIC Core Bond-Initial shares 26.30% c/o Mellon Bank, N.A. Emerging Leaders-Initial shares 16.57% 919 North Market Street Emerging Markets-Initial shares 60.59% Wilmington, DE 19801 Japan-Initial shares 84.85% Japan-Service shares 14.88% Nationwide Insurance Co. European Equity-Initial shares 64.47% NWVA9 c/o IPO Portfolio Accounting P.O. Box 182029 Columbus, OH 43218 Nationwide Insurance Co European Equity-Initial shares 7.12% NWVAII c/o IPO Portfolio Accounting P.O. Box 182029 Columbus, OH 43218 Nationwide Insurance Co. European Equity-Initial shares 6.03% NWVL14 c/o IPO Portfolio Accounting P.O. Box 182029 Columbus, OH 43218 Safeco Life Insurance Co. MidCap Stock-Initial shares 10.22% 10865 Willows Road NE Redmond, WA 98052 TransAmerica Accidental Core Bond-Initial shares 53.92% Life Insurance Co. Emerging Markets-Initial shares 25.42% Separate Account VA-2L Emerging Leaders-Initial shares 58.75% Accounting Department Japan-Initial shares 12.31% P.O. Box 33849 Charlotte, NC 28233 TransAmerica Occidental Core Bond-Service shares 74.34% Life Insurance Company Core Value-Initial shares 86.27% Separate Account VA-2L Core Value-Service shares 94.59% Accounting Department Emerging Leaders-Service shares 65.23% P.O. Box 33849 Emerging Markets-Service shares 98.72% Charlotte, NC 28233 European Equity-Initial shares 15.64% European Equity-Service shares 67.22% Founders Discovery-Initial shares 84.82% Founders Discovery-Service shares 93.43% Founders Growth-Initial shares 82.84% Founders Growth-Service shares 95.20% Founders International Equity-Initial 84.70% shares Founders International Equity-Service 90.42% shares Founders Passport-Initial shares 79.42% Founders Passport-Service shares 96.09% Japan-Service shares 59.72% MidCap Stock-Initial shares 29.60% MidCap Stock-Service shares 92.18% Technology Growth-Initial shares 71.80% Technology Growth-Service shares 83.59% MANAGEMENT ARRANGEMENTS Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Financial Corporation ("Mellon"). Mellon is a global multibank financial 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 largest bank holding companies in the United States based on total assets. The Manager provides management services pursuant to a Management Agreement (the "Agreement") between the Fund and the Manager. As to each Portfolio, the Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Portfolio, provided that in either event the continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund or the Manager, by vote cast in person at a meeting called for the purpose of voting on such approval. As to each Portfolio, the Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of the holders of a majority of the shares of such Portfolio, or, upon not less than 90 days' notice, by the Manager. The Agreement will terminate automatically, as to the relevant Portfolio, in the event of its assignment (as defined in the 1940 Act). The following persons are officers and/or directors of the Manager: Christopher M. Condron, Chairman of the Board and Chief Executive Officer; Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer and a director; Thomas F. Eggers, Vice Chairman-Institutional and a director; Lawrence S. Kash, Vice Chairman; J. David Officer, Vice Chairman and a director; Ronald P. O'Hanley III, Vice Chairman; Mark N. Jacobs, Executive Vice President, General Counsel and Secretary; William T. Sandalls, Jr., Executive Vice President; Stephen R. Byers, Senior Vice President; Diane P. Durnin, Senior Vice President; Patrice M. Kozlowski, Senior Vice President-Corporate Communications; Mary Beth Leibig, Vice President-Human Resources; Theodore A. Schachar, Vice President-Tax; Wendy H. Strutt, Vice President; Ray Van Cott, Vice President-Information Systems; William H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven F. Newman, Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt, Steven G. Elliott, Martin G. McGuinn, Richard W. Sabo and Richard F. Syron, directors. Sub-Investment Advisers. With respect to the Founders Portfolios, the Manager has entered into a Sub-Investment Advisory Agreement with Founders (the "Founders Sub-Advisory Agreement"). As to each Founders Portfolio, the Founders Sub-Advisory Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting securities, provided that in either event the continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund or Founders, by vote cast in person at a meeting called for the purpose of voting on such approval. As to each Founders Portfolio, the Founders Sub-Advisory Agreement is terminable without penalty, (i) by the Manager on 60 days' notice, (ii) by the Fund's Board or by vote of the holders of a majority of the Portfolio's outstanding voting securities on 60 days' notice, or (iii) upon not less than 90 days' notice, by Founders. The Founders Sub-Advisory Agreement will terminate automatically, as to the relevant Founders Portfolio, in the event of its assignment (as defined in the 1940 Act). The following persons are officers of Founders: Christopher M. Condron, Chairman; Richard W. Sabo, President and Chief Executive Officer; Robert T. Ammann, Vice President; Curtis J. Anderson, Vice President; Thomas M. Arrington, Vice President; Marissa A. Banuelos, Vice President; Angelo Barr, Senior Vice President and National Sales Manager; Scott A. Chapman, Vice President; Kenneth R. Christoffersen, Senior Vice President, General Counsel and Secretary; Gregory P. Contillo, Executive Vice President and Chief Marketing Officer; Julie D. DiIorio, Vice President; Francis P. Gaffney, Senior Vice President; Laurine M. Garrity, Senior Vice President; Robert T. Kelly, Vice President; Douglas A. Loeffler, Vice President; Andra C. Ozols, Vice President; David L. Ray, Senior Vice President and Treasurer; Bridget M. Richards, Vice President; Richard A. Sampson, Senior Vice President; Kevin S. Sonnett, Vice President; Tracy P. Stouffer, Vice President; and Lisa G. Warshafsky, Vice President. With respect to the European Equity and Japan Portfolios, the Manager has entered into a Sub-Investment Advisory Agreement with Newton (the "Newton Sub-Advisory Agreement"). As to each of these Portfolios, the Newton Sub-Advisory Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting securities, provided that in either event the continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund or Newton, by vote cast in person at a meeting called for the purpose of voting on such approval. As to each of the European Equity and Japan Portfolios, the Newton Sub-Advisory Agreement is terminable without penalty, (i) by the Manager on 60 days' notice, (ii) by the Fund's Board or by vote of the holders of a majority of the Portfolio's outstanding voting securities on 60 days' notice, or (iii) upon not less than 90 days' notice, by Newton. The Newton Sub-Advisory Agreement will terminate automatically, as to the relevant Portfolio, in the event of its assignment (as defined in the 1940 Act). The following persons are officers and/or directors of Newton: Colin Harris, Director; Guy Hudson, Director; Joanna Bowen, Officer; Keiran Gallagher, Officer; Philip Collins, Officer; Guy Christie, Officer; Helena Morrisey, Officer; April Larusse, Officer; Alexander Stanic, Officer; Paul Butler, Officer; Susan Ritchie, Officer; Julian Campbell, Compliance Officer; and Derek Hardy, Chief Financial Officer. Portfolio Management. The Manager manages the investments of each Portfolio in accordance with the stated policies of the Portfolio, subject to the approval of the Fund's Board. Founders, with respect to each Founders Portfolio, and Newton, with respect to each of the European Equity and Japan Portfolios, provide day-to-day management of the Portfolio's investments, subject to the supervision of the Manager and the Fund's Board. Each Portfolio's adviser is responsible for investment decisions and provides the Fund with portfolio managers who are authorized by the Fund's Board to execute purchases and sales of securities for the relevant Portfolio. The portfolio managers of Core Bond Portfolio are Michael Hoeh, John Koerber, Gerald E. Thunelius and William Howarth. The portfolio managers of Core Value Portfolio are Francis DeAngelis, William Goldenberg and Valerie Sill. The portfolio managers of Emerging Leaders Portfolio are Paul Kandel and Hilary Woods. The primary portfolio manager of Emerging Markets Portfolio is D. Kirk Henry. The portfolio managers of European Equity Portfolio are Joanna Bowen and Keiran Gallagher. The primary portfolio manager of Founders Discovery Portfolio is Robert T. Ammann. The primary portfolio managers of Founders Growth Portfolio are Scott A. Chapman and Thomas M. Arrington. The primary portfolio manager of Founders International Equity Portfolio is Douglas A. Loeffler. The primary portfolio manager of Founders Passport Portfolio is Tracy Stouffer. The portfolio managers of Japan Portfolio are Miki Sugimoto and Martin Batty. The portfolio managers of MidCap Stock Portfolio are John O'Toole, Ronald Gala, Steven Falci, Robert Wilke, Mark Sickorski, Harry Grosse and Jocelyn Reed. The primary portfolio manager of Technology Growth Portfolio is Mark Herskovitz. The Manager, Founders and Newton maintain research departments with professional portfolio managers and securities analysts who provide research services for the Portfolios and for other funds advised by the Manager, Founders or Newton. Mellon Bank, N.A., the Manager's parent, and its affiliates may have deposit, loan and commercial banking or other relationships with the issuers of securities purchased by a Portfolio. The Manager has informed the Fund that in making its investment decisions it does not obtain or use material inside information that Mellon Bank, N.A. or its affiliates may possess with respect to such issuers. The Fund, the Manager, Founders, Newton and the Distributor each have adopted a code of ethics that permits its personnel, subject to such respective code, to invest in securities, including securities that may be purchased or held by a Portfolio. The Manager's Code of Ethics subjects its employees' personal securities transactions to various restrictions to ensure that such trading does not disadvantage any fund advised by the Manager. In that regard, the Manager's portfolio managers and other investment personnel must preclear and report their personal securities transactions and holdings, which are reviewed for compliance with the Manager's Code of Ethics and are also subject to the oversight of Mellon's Investment Ethics Committee. Portfolio managers and other investment personnel who comply with the preclearance and disclosure procedures of the Manager's Code of Ethics, and the requirements of the Committee, may be permitted to purchase, sell or hold securities which also may be or are held in fund(s) they manage or for which they otherwise provide investment advice. The Manager maintains office facilities on behalf of the Fund, and furnishes statistical and research data, clerical help, accounting, data processing, bookkeeping and internal auditing and certain other required services to the Fund. The Manager, from time to time, may make payments from its own assets to Participating Insurance Companies in connection with the provision of certain administrative services to one or more Portfolios or servicing and/or maintaining shareholder accounts. The Manager also may make such advertising and promotional expenditures, using its own resources, as it from time to time deems appropriate. Expenses. All expenses incurred in the operation of the Fund are borne by the Fund, except to the extent specifically assumed by the Manager (or, if applicable, the Portfolio's sub-investment adviser). The expenses borne by the Fund include: organizational costs, taxes, interest, loan commitment fees, dividends and interest on securities sold short, brokerage fees and commissions, if any, fees of Board members who are not officers, directors, employees or holders of 5% or more of the outstanding voting securities of the Manager or Founders or any of their affiliates, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's existence, costs of independent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of shareholders' reports and meetings, costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders, and any extraordinary expenses. In addition, each Portfolio's Service shares are subject to an annual distribution fee. See "Distribution Plan (Service Shares Only)." 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 Fund's Board, including, but not limited to, proportionately in relation to the net assets of each Portfolio. As compensation for its services, the Fund has agreed to pay the Manager a monthly fee at the annual rate set forth below as a percentage of the relevant Portfolio's average daily net assets. Name of Portfolio Management Fee Core Bond Portfolio .60% Core Value Portfolio .75% Emerging Leaders Portfolio .90% Emerging Markets Portfolio 1.25% European Equity Portfolio 1.00% Japan Portfolio 1.00% MidCap Stock Portfolio .75% Technology Growth Portfolio .75% Founders Discovery Portfolio .90% Founders Growth Portfolio .75% Founders International Equity Portfolio 1.00% Founders Passport Portfolio 1.00% The fees payable by the Fund to the Manager with respect to each Portfolio indicated below for the periods from its commencement of operations through December 31, 1998, 1999 and/or 2000, were as follows:
Management Fee Payable ---------------------- 1998* 1999 2000 ----- ---- ---- Core Value Portfolio $26,068(1) $80,234 $141,578 Midcap Stock Portfolio $40,453(1) $92,701 $292,611 Founders Growth Portfolio $4,286(2) $30,158 $145,465 Founders International Equity Portfolio $5,388(2) $27,223 $87,346 Founders Passport Portfolio $13,578(2) $73,558 $275,381 European Equity Portfolio N/A $17,955(3) $201,252 Emerging Leaders Portfolio N/A $871(4) $30,529 Emerging Markets Portfolio N/A $1,216(4) $26,868 Founders Discovery Portfolio N/A $886(4) $66,148 Japan Portfolio N/A $925(4) $23,612 Technology Growth Portfolio N/A $57,840(5) $1,151,112 Core Bond Portfolio N/A N/A $27,989(6) Reduction in Fee ---------------- 1998 1999 2000 ---- ---- ---- Core Value Portfolio $26,068(1) $53,959 $13,924 Midcap Stock Portfolio $40,453(1) $59,994 $24,288 Founders Growth Portfolio $4,286(2) $30,158 $21,770 Founders International Equity Portfolio $5,388(2) $27,223 $49,569 Founders Passport Portfolio $13,578(2) $73,558 $275,381 European Equity Portfolio N/A $17,955(3) $65,652 Emerging Leaders Portfolio N/A $871(4) $23,673 Emerging Markets Portfolio N/A $1,216(4) $26,868 Founders Discovery Portfolio N/A $886(4) $38,291 Japan Portfolio N/A $925(4) $23,612 Technology Growth Portfolio N/A $19,780(5) $0 Core Bond Portfolio N/A N/A $27,989(6) Net Fee Paid ------------ 1998 1999 2000 ---- ---- ---- Core Value Portfolio $0(1) $26,275 $127,654 Midcap Stock Portfolio $0(1) $32,707 $268,323 Founders Growth Portfolio $0(2) $0 $123,695 Founders International Equity Portfolio $0(2) $0 $37,777 Founders Passport Portfolio $0(2) $0 $0 European Equity Portfolio N/A $0(3) $135,600 Emerging Leaders Portfolio N/A $0(4) $6,856 Emerging Markets Portfolio N/A $0(4) $0 Founders Discovery Portfolio N/A $0(4) $27,857 Japan Portfolio N/A $0(4) $0 Technology Growth Portfolio N/A $38,060(5) $1,151,112 Core Bond Portfolio N/A N/A $0(6)
- ----------------- * The management fees payable by each Portfolio to the Manager for the fiscal year ended December 31, 1998 were waived pursuant to undertakings by the Manager, resulting in no management fees being paid by the Portfolios for the fiscal year ended December 31, 1998. (1) From May 1, 1998 (commencement of operations) through December 31, 1998. (2) From September 30, 1998 (commencement of operations) through December 31, 1998. (3) From April 30, 1999 (commencement of operations) through December 31, 1999. (4) From December 15, 1999 (commencement of operations) through December 31, 1999. (5) From August 31, 1999 (commencement of operations) through December 31, 1999. (6) From May 1, 2000 (commencement of operations) through December 31, 2000. As compensation for Founders' services, the Manager has agreed to pay Founders a monthly sub-advisory fee at the annual rate set forth below as a percentage of the relevant Founders Portfolio's average daily net assets: Sub-Investment Name of Portfolio Advisory Fee Founders Discovery Portfolio and Founders Growth Portfolio 0 to $100 million of average daily net assets .25% $100 million to $1 billion of average daily net assets .20% $1 billion to $1.5 billion of average daily net assets .16% $1.5 billion or more of average daily net assets .10% Founders International Equity Portfolio and Founders Passport Portfolio 0 to $100 million of average daily net assets .35% $100 million to $1 billion of average daily net assets .30% $1 billion to $1.5 billion of average daily net assets .26% $1.5 billion or more of average daily net assets .20% The fees payable by the Manager to Founders with respect to the Founders Growth, Founders International Equity and Founders Passport Portfolios for the period September 30, 1998 (commencement of operations) through December 31, 1998, for the fiscal year ended December 31, 1999 and for the period December 15, 1999 (commencement of operations) through December 31, 1999 with respect to Founders Discovery Portfolio, were waived in their entirety by Founders pursuant to an undertaking. For the fiscal year ended December 31, 2000 with respect to Founders Discovery, Founders Growth, Founders International Equity and Founders Passport Portfolios, the Manager paid Founders $18,379, $48,492, $30,577 and $96,399, respectively, in sub-advisory fees. As compensation for Newton's services, the Manager has agreed to pay Newton a monthly sub-advisory fee at the annual rate set forth below as a percentage of each of the European Equity and Japan Portfolio's average daily net assets: European Equity Portfolio and Japan Portfolio Sub-Investment Advisory Fee 0 to $100 million of average daily net assets .35% $100 million to $1 billion of average daily net assets .30% $1 billion to $1.5 billion of average daily net assets .26% $1.5 billion or more of average daily net assets .20% The fees payable by the Manager to Newton for the period May 1, 1999 (commencement of operations) through December 31, 1999 with respect to the European Equity Portfolio and for the period December 15, 1999 (commencement of operations) through December 31, 1999 and for the fiscal year ended December 31, 2000 with respect to the Japan Portfolio, were waived in their entirety by Newton pursuant to an undertaking. For the fiscal year ended December 31, 2000 with respect to the European Equity, the Manager paid Newton $45,862 in sub-advisory fees. The aggregate of the fees payable to the Manager is not subject to reduction as the value of a Portfolio's assets increases. Distributor. Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager located at 200 Park Avenue, New York, New York 10166, serves as the Fund's distributor on a best efforts basis pursuant to an agreement with the Fund which is renewable annually. Transfer and Dividend Disbursing Agent and Custodian. Dreyfus Transfer, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the Manager, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and dividend disbursing agent. Under a transfer agency agreement with the Fund, the Transfer Agent arranges for the maintenance of shareholder account records for the Fund, the handling of certain communications between shareholders and the Fund and the payment of dividends and distributions payable by the Fund. For these services, the Transfer Agent receives a monthly fee computed on the basis of the number of shareholder accounts it maintains for the Fund during the month, and is reimbursed for certain out-of-pocket expenses. Mellon Bank, N.A., the Manager's parent, One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with respect to the Core Bond, Core Value, Emerging Leaders, Founders Discovery, Founders Growth, MidCap Stock and Technology Growth Portfolios. Under a custody agreement with the Fund, Mellon Bank, N.A. holds each such Portfolio's securities and keeps all necessary accounts and records. For its custody services, Mellon Bank, N.A. receives a monthly fee based on the market value of each such Portfolio's assets held in custody and receives certain securities transaction charges. The Bank of New York, 100 Church Street, New York, New York 10286, serves as the Fund's custodian with respect to the Emerging Markets, European Equity, Founders International Equity, Founders Passport and Japan Portfolios. The Bank of New York has no part in determining the investment policies of the Portfolios or which securities are to be purchased or sold by the Portfolios. HOW TO BUY SHARES Each Portfolio offers two classes of shares--Initial shares and Service shares. The classes are identical, except as to the expenses borne by each class which may affect performance. See "Distribution Plan (Service Shares Only)." Portfolio shares currently are offered only to separate accounts of Participating Insurance Companies. Separate accounts of the Participating Insurance Companies place orders based on, among other things, the amount of premium payments to be invested pursuant to Policies. See the prospectus of the separate account of the applicable Participating Insurance Company for more information on the purchase of Portfolio shares and with respect to the availability for investment in specific classes of the Portfolios and in specific Portfolios of the Fund. The Fund does not issue share certificates. INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS DIRECTLY WITH THE FUND. Purchase orders from separate accounts based on premiums and transaction requests received by the Participating Insurance Company on a given business day in accordance with procedures established by the Participating Insurance Company will be effected at the net asset value of the applicable Portfolio determined on such business day if the orders are received by the Fund in proper form and in accordance with applicable requirements on the next business day and Federal Funds (monies of member banks within the Federal Reserve System which are held on deposit at a Federal Reserve Bank) in the net amount of such orders are received by the Fund on the next business day in accordance with applicable requirements. It is each Participating Insurance Company's responsibility to properly transmit purchase orders and Federal Funds in accordance with applicable requirements. Policy holders should refer to the prospectus for their contracts or policies in this regard. Portfolio shares are sold on a continuous basis. Net asset value per share is determined as of the close of trading on the floor of the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern time), on each day that the NYSE is open for business. For purposes of determining net asset value, options and futures will be valued 15 minutes after the close of trading on the floor of the NYSE. Net asset value per share of each class of shares is computed by dividing the value of a 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. For information regarding methods employed in valuing each Portfolio's investments, see "Determination of Net Asset Value." DISTRIBUTION PLAN (SERVICE SHARES ONLY) Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission under the 1940 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 has adopted such a plan (the "Distribution Plan") with respect to each Portfolio's Service shares pursuant to which the Portfolio pays the Distributor at an annual rate of 0.25% of the value of the average daily net assets of the Portfolio's Service shares for distributing Service shares, for advertising and marketing related to Service shares and for servicing and/or maintaining accounts of Service class shareholders. Under the Distribution Plan, the Distributor may make payments to Participating Insurance Companies and the principal underwriters for their variable insurance products in respect of these services. The fees payable under the Distribution Plan are payable without regard to actual expenses incurred. The Board believes that there is a reasonable likelihood that the Fund's Distribution Plan will benefit each Portfolio and the holders of its Service shares. A quarterly report of the amounts expended under the Distribution Plan, and the purposes for which such expenditures were incurred, must be made to the Fund's Board for its review. The Distribution Plan provides that it may not be amended to increase materially the costs which holders of Service shares may bear without the approval of the holders of Service shares and that other material amendments of the Distribution Plan must be approved by the Board, and by the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect financial interest in the operation of the Distribution Plan or in any agreements entered into in connection with the Distribution Plan, by vote cast in person at a meeting called for the purpose of considering such amendments. The Distribution Plan is subject to annual approval by such vote of the Board members cast in person at a meeting called for the purpose of voting on the Distribution Plan. As to each Portfolio, the Distribution Plan may be terminated at any time by vote of a majority of the Board members who are not "interested persons" and have no direct or indirect financial interest in the operation of the Distribution Plan or in any agreements entered into in connection with the Distribution Plan or by vote of the holders of a majority of such Portfolio's Service shares. No payments were made pursuant to the Distribution Plan for the fiscal year ended December 31, 2000 for any Portfolio's Service shares. HOW TO REDEEM SHARES Portfolio shares may be redeemed at any time by the separate accounts of the Participating Insurance Companies. INDIVIDUALS MAY NOT PLACE REDEMPTION ORDERS DIRECTLY WITH THE FUND. Redemption requests received by the Participating Insurance Company from separate accounts on a given business day in accordance with procedures established by the Participating Insurance Company will be effected at the net asset value of the applicable Portfolio determined on such business day if the requests are received by the Fund in proper form and in accordance with applicable requirements on the next business day. It is each Participating Insurance Company's responsibility to properly transmit redemption requests in accordance with applicable requirements. Policy holders should consult their Participating Insurance Company prospectus in this regard. The value of the shares redeemed may be more or less than their original cost, depending on the Portfolio's then-current net asset value. No charges are imposed by the Fund when shares are redeemed. 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. Should any conflict between VA contract holders and VLI policy holders arise which would require that a substantial amount of net assets be withdrawn, orderly portfolio management could be disrupted to the potential detriment of such contract holders and policy holders. Redemption Commitment. The Fund has committed to pay in cash all redemption requests by any shareholder of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the value of a 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 Fund's Board reserves the right to make payments in whole or part in securities or other assets of the Portfolio 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 such event, the securities would be valued in the same manner as the Portfolio's investments are valued. If the recipient sells such securities, brokerage charges would be incurred. Suspension of Redemptions. The right of redemption may be suspended or the date of payment postponed (a) during any period when the NYSE is closed (other than customary weekend and holiday closings), (b) when trading in the markets the Fund ordinarily utilizes is restricted, or when an emergency exists as determined by the Securities and Exchange Commission so that disposal of the Fund's investments or determination of its net asset value is not reasonably practicable, or (c) for such other periods as the Securities and Exchange Commission by order may permit to protect the Fund's shareholders. EXCHANGE PRIVILEGE Investors can exchange shares of a class for shares of the same class of any other portfolio or fund managed by the Manager that is offered only to separate accounts established by Participating Insurance Companies to fund Policies, or for shares of any such portfolio or fund for which only one share class is available, subject to the terms and conditions relating to exchanges set forth in the applicable Participating Insurance Company prospectus. Policy holders should refer to the applicable Participating Insurance Company prospectus for more information on exchanging Portfolio shares. The Fund reserves the right to modify or discontinue its exchange program at any time upon 60 days' notice to the Participating Insurance Companies. DETERMINATION OF NET ASSET VALUE Each Portfolio's investment securities are valued at the last sale price on the securities exchange or national securities market on which such securities are primarily traded. Securities not listed on an exchange or national securities market, or securities in which there were no transactions, are valued at the average of the most recent bid and asked prices, except in the case of open short positions where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Market quotations for foreign securities denominated in foreign currencies are translated into U.S. dollars at the prevailing rates of exchange. 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 may not take place contemporaneously with the determination of prices of certain of the foreign investment securities of the Core Bond Portfolio, Core Value Portfolio, Emerging Leaders Portfolio, Emerging Markets Portfolio, European Equity Portfolio, Japan Portfolio or any Founders Portfolio. If events materially affecting the value of such securities occur between the time when their price is determined and the time when the Portfolio's net asset value is calculated, such securities may be valued at fair value as determined in good faith by the Board. Short-term investments are carried at amortized cost, which approximates value. Any securities or other assets for which recent market quotations are not readily available are valued at fair value as determined in good faith by the Fund's Board. Expenses and fees, including the management fee (reduced by any fee waiver or expense reimbursement arrangement), and fees pursuant to the Distribution Plan, with respect to each Portfolio's Service shares, are accrued daily and taken into account for the purpose of determining the net asset value of the relevant Portfolio's shares. Substantially all of the Core Bond Portfolio's investments (excluding short-term investments) are valued each business day by an independent pricing service (the "Service") approved by the Fund's Board. Securities valued by the Service for which quoted bid prices in the judgment of the Service are readily available and are representative of the bid side of the market are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other debt securities valued by the Service are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Debt securities that are not valued by the Service are valued at the average of the most recent bid and asked prices in the market in which such investments are primarily traded, or at the last sales price for securities traded primarily on an exchange. In the absence of reported sales of investments traded primarily on an exchange, the average of the most recent bid and asked prices is used. Bid price is used when no asked price is available. 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 Fund's Board, are valued at fair value as determined in good faith by the Fund's Board. The Fund's Board will review the method of valuation on a current basis. In making their good faith valuation of restricted securities, the Board members generally will take the following factors into consideration: restricted securities which are, or are convertible into, securities of the same class of securities for which a public market exists usually will be valued at market value less the same percentage discount at which purchased. This discount will be revised periodically by the Fund's Board if the Board members 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 Fund's Board. NYSE Closings. The holidays (as observed) on which the NYSE is closed currently are: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. DIVIDENDS, DISTRIBUTIONS AND TAXES Management believes that each Portfolio has qualified as a regulated investment company under the Code for the fiscal period ended December 31, 2000. Each Portfolio intends to continue to so qualify as long as such qualification is in the best interests of its shareholders. As a regulated investment company, each Portfolio will pay no Federal income tax on net investment income and net realized securities gains to the extent that such income and gains are distributed to shareholders in accordance with applicable provisions of the Code. To qualify as a regulated investment company, the Portfolio must meet several requirements. These requirements include the following: (1) at least 90% of the Portfolio's gross income must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or disposition of stock, securities or foreign currencies or other income (including gain from options, futures or forward contracts) derived in connection with the Portfolio's investment business, (2) at the close of each quarter of the Portfolio's taxable year, (a) at least 50% of the value of the Portfolio's assets must consist of cash, United States Government securities, securities of other regulated investment companies and other securities (limited generally with respect to any one issuer to not more than 5% of the total assets of the Portfolio and not more than 10% of the outstanding voting securities of such issuer) and (b) not more than 25% of the value of the Portfolio's assets may be invested in the securities of any one issuer (other than United States Government securities or securities of other regulated investment companies) or of two or more issuers which the Portfolio controls and which are determined to be engaged in similar or related trades or businesses and (3) at least 90% of the Portfolio's net income (consisting of net investment income and net short-term capital gain) must be distributed to its shareholders. The term "regulated investment company" does not imply the supervision of management or investment practices or policies by any government agency. Each Portfolio intends to comply with the diversification requirements imposed by section 817(h) of the Code and the regulations thereunder. These requirements, which are in addition to the diversification requirements mentioned above, place certain limitations on the proportion of each Portfolio's assets that may be represented by any single investment (which includes all securities of the same issuer). For purposes of section 817(h), all securities of the same issuer, all interests in the same real property project, and all interest in the same commodity are treated as a single investment. In addition, each U.S. Government agency or instrumentality is treated as a separate issuer, while the securities of a particular foreign government and its agencies, instrumentalities and political subdivisions all will be considered securities issued by the same issuer. Generally, a regulated investment company must distribute substantially all of its ordinary income and capital gains in accordance with a calendar year distribution requirement in order to avoid a nondeductible 4% excise tax. However, the excise tax does not apply to a fund whose only shareholders are certain tax exempt trusts or segregated asset accounts of life insurance companies held in connection with variable contracts. In order to avoid this excise tax, each Portfolio intends to qualify for this exemption or to make its distributions in accordance with the calendar year. In order to maintain its qualifications as a regulated investment company, a Portfolio's ability to invest in certain types of financial instruments (for example, securities issued or acquired at a discount) may be restricted and a Portfolio may be required to maintain or dispose of its investments in certain types of financial instruments beyond the time when it might otherwise be advantageous to do so. If a Portfolio fails to qualify as a regulated investment company, the Portfolio will be subject to Federal, and possibly state, corporate taxes on its taxable income and gains, distributions to its shareholders will be taxed as ordinary dividend income to the extent of such Portfolio's available earnings and profits, and Policy owners could lose the benefit of tax deferral on distributions made to the separate accounts of Participating Insurance Companies. Similarly, if a Portfolio failed to comply with the diversification requirements of section 817(h) of the Code and the regulations thereunder, Policy owners could be subject to current tax on distributions made to the separate accounts of Participating Insurance Companies. Portfolios investing in foreign securities or currencies may be required to pay withholding, income or other taxes to foreign governments or U.S. possessions. Foreign tax withholding from dividends and interest, if any, is generally at a rate between 10% and 35%. The investment yield of any Portfolio that invests in foreign securities or currencies is reduced by these foreign taxes. Policy owners investing in such Portfolios bear the cost of any foreign taxes but will not be able to claim a foreign tax credit or deduction for these foreign taxes. Tax conventions between certain countries and the United States may reduce or eliminate these foreign taxes, however, and foreign countries generally do not impose taxes on capital gains in respect of investments by foreign investors. Certain Portfolios may invest in securities of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. A Portfolio investing in securities of PFICs may be subject to U.S. Federal income taxes and interest charges, which would reduce the investment yield of a Portfolio making such investments. Policy owners investing in such Portfolios would bear the cost of these taxes and interest charges. In certain cases, a Portfolio may be eligible to make certain elections with respect to securities of PFICs which could reduce taxes and interest charges payable by the Portfolio. However, a Portfolio's intention to qualify annually as a regulated investment company may limit a Portfolio's elections with respect to PFIC securities and no assurance can be given that such elections can or will be made. The foregoing is only a general summary of some of the important Federal income tax considerations generally affecting the Portfolios and their shareholders. No attempt is made to present a complete explanation of the Federal tax treatment of the Portfolios' activities or to discuss state and local tax matters affecting the Portfolios. Policy owners are urged to consult their own tax advisers for more detailed information concerning tax implications of investments in the Portfolios. For more information concerning the Federal income tax consequences, Policy owners should refer to the prospectus for their contracts or policies. PORTFOLIO TRANSACTIONS General. (All Portfolios) The Manager or applicable sub-investment adviser assumes general supervision over the placement of securities buy and sell orders on behalf of the funds it manages. In choosing brokers, the Manager or applicable sub-investment adviser evaluates the ability of the broker to execute the particular transaction (taking into account the market for the stock and the size of the order) at the best combination of price and quality of execution. In selecting brokers no factor is necessarily determinative, and seeking to obtain best execution for all trades takes precedence over all other considerations. Brokers are selected after a review of all relevant criteria, including: the actual price to be paid for the shares; the broker's knowledge of the market for the particular stock; the broker's reliability; the broker's integrity or ability to maintain confidentiality; the broker's research capability; commission rates; the broker's ability to ensure that the shares will be delivered on settlement date; the broker's ability to handle specific orders of various size and complexity; the broker's financial condition; the broker's willingness to commit capital; and the sale by the broker of funds managed by the Manager or applicable sub-investment adviser. At various times and for various reasons, certain factors will be more important than others in determining which broker to use. The Manager and each sub-investment adviser have adopted written trade allocation procedures for their equity trading desks. Under the procedures, portfolio managers and the trading desks ordinarily will seek to aggregate (or "bunch") orders that are placed or received concurrently for more than one account. In some cases, this policy may adversely affect the price paid or received by an account, or the size of the position obtained or liquidated. Generally, bunched trades will be allocated among the participating accounts based on the number of shares designated for each account on the trade order. If securities available are insufficient to satisfy the requirements of the participating accounts, available securities generally are allocated among accounts pro rata, based on order sizes. In allocating trades made on a combined basis, the trading desks typically seek to achieve the same net unit price of the securities for each participating account. Because a pro rata allocation may not always adequately accommodate all facts and circumstances, the trade allocation procedures may allow the allocation of securities on a basis other than pro rata. For example, adjustments may be made to eliminate de minimis positions, to give priority to accounts with specialized investment policies and objectives or to consider the unique characteristics of certain accounts (e.g., available cash, industry or issuer concentration, duration, credit exposure). Core Value Portfolio, Emerging Leaders Portfolio and MidCap Stock Portfolio are each managed by dual employees of the Manager and an affiliated entity in the Mellon organization. Funds managed by dual employees use the research and trading facilities, and are subject to the internal policies and procedures, of the affiliated entities. While the policies and procedures of the affiliated entities are different than those of the Manager or the sub-investment advisers, they are based on the same principles, and are substantially similar. The Manager or applicable sub-investment adviser may deem it appropriate for one of its accounts to sell a security while another of its accounts is purchasing the same security. Under such circumstances, the Manager or sub-investment adviser may arrange to have the purchase and sale transaction effected directly between its accounts ("cross transactions"). Cross transactions will be effected pursuant to procedures adopted under Rule 17a-7 under the 1940 Act. For the fiscal period ended December 31, 1998, 1999 and 2000, the amounts paid by the indicated Portfolios for brokerage commissions, gross spreads and concessions on principal transactions none of which was paid directly to the Manager or sub-investment adviser or the Distributor, were as follows: Name of Portfolio Brokerage Commissions Paid - ----------------- -------------------------- 1998 1999 2000 ---- ---- ---- Core Value $9,350(2) $24,894 $51,322 MidCap Stock $20,261(2) $21,859 $91,426 Founders Growth $4,258(3) $6,510 $43,910 Founders International Equity $7,518(3) $23,532 $97,918 Founders Passport $11,415(3) $134,550 $737,471 European Equity N/A $12,362(4) $114,711 Emerging Leaders N/A $2,569(5) $27,242 Emerging Markets N/A $5,818(5) $13,786 Founders Discovery N/A $664(5) $10,718 Japan N/A $3,445(5) $29,093 Technology Growth N/A $10,889(6) $128,528 Core Bond Portfolio N/A N/A $0(6) Name of Portfolio Concessions on Principal Transactions - ----------------- ------------------------------------- 1998 1999 2000 ---- ---- ---- Core Value $0 $23,159 $8,244 MidCap Stock $0 $0 $0 Founders Growth $0 $1,488 $214 Founders International Equity $0 $0 $0 Founders Passport $0 $0 $677 European Equity N/A $0 $0 Emerging Leaders N/A $0 $8,702 Emerging Markets N/A $0 $0 Founders Discovery N/A $0 $18,244 Japan N/A $0 $0 Technology Growth N/A $7,978 $111,118 Core Bond Portfolio N/A N/A $0(6) 1) From May 1, 1998 (commencement of operations) through December 31, 1998. ( 2) From September 30, 1998 (commencement of operations) through December 31, 1998. (3) From April 30, 1999 (commencement of operations) through December 31, 1999. (4) From December 15, 1999 (commencement of operations) through December 31, 1999. (5) From August 31, 1999 (commencement of operations) through December 31, 1999. (6) From May 1, 2000 (commencement of operations) through December 31, 2000. The brokerage commissions for certain funds were significantly greater than the previous fiscal year due to increased market volatility and increased cash flows into and out of the Funds. The Fund contemplates that, consistent with the policy of obtaining the most favorable net price, brokerage transactions may be conducted through the Manager, Founders or Newton or their affiliates, including Dreyfus Investment Services Corporation and Dreyfus Brokerage Services, Inc. ("DBS"). The Fund's Board has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to the Manager, Founders, Newton or their affiliates are reasonable and fair. For the fiscal period ended December 31, 2000, Technology Growth Portfolio paid to DBS brokerage commissions of $6,696. During this period, this amounted to approximately 5% of the aggregate brokerage commissions paid by Technology Growth Portfolio for transactions involving approximately 8% of the aggregate dollar amount of transactions for which the Technology Growth Portfolio paid brokerage commissions. IPO Allocations. (Core Bond Portfolio, Emerging Markets Portfolio, and Technology Growth Portfolio) Under the Manager's special trade allocation rprocedures applicable to domestic and foreign initial and secondary public offerings and Rule 144A transactions (collectively herein "IPOs"), all portfolio managers seeking to participate in an IPO must use reasonable efforts to indicate their interest in the IPO, by account and in writing, to the Equity Trading Desk at least 24 hours prior to the pricing of a deal. Except upon prior written authorization from the Director of Investments or his designee, an indication of interest submitted on behalf of any account must not exceed an amount based on the account's approximate median position size. Portfolio managers may specify by account the minimum number of shares deemed to be an adequate allocation. Portfolio managers may not decline any allocation in excess of the minimum number of shares specified on the ground that too few shares are available, and will not receive an allocation of fewer than the minimum number of shares specified. If a portfolio manager does not specify a minimum number of shares deemed to be an adequate allocation, a "default minimum" equal to ten percent of the requested number of shares is assumed. De minimis adjustments may result in larger accounts participating in IPOs to a lesser extent than smaller accounts. Based on the indications of interest received by the Equity Trading Desk, the Chief Investment Officer's designee prepares an IPO Allocation Worksheet indicating an appropriate order size for each account, taking into consideration (i) the number of shares requested for each account; (ii) the relative size of each account; (iii) each account's investment objectives, style and portfolio composition, and (iv) any other factors that may lawfully be considered in allocating IPO shares among accounts. If there are insufficient securities to satisfy all orders as reflected on the IPO Allocation Worksheet, the Manager's allocation generally will be distributed among participating accounts pro rata on the basis of each account's order. Allocations may deviate from a strict pro rata allocation if the Chief Investment Officer or his designee determines that it is fair and equitable to allocate on other than a pro rata basis. Funds managed by dual employees of the Manager and an affiliated entity are subject to the IPO procedures of the affiliated entities. While the IPO policies and procedures may differ from those of the Manager, they are based on the same principles and are substantially similar. IPO Allocations. (Core Value Portfolio and Emerging Leaders Portfolio) Each of these Portfolios' portfolio managers are dual employees of the Manager and The Boston Company Asset Management ("TBCAM") and each such Portfolio is subject to the IPO procedures of TBCAM. Under the procedures, all portfolio managers seeking to participate in an IPO must indicate their interest in the IPO to the equity trader prior to the pricing of the offering. Portfolio managers may specify for each account the minimum position deemed to be an adequate allocation. Shares received in an offering are allocated among participating accounts on a pro rata basis based on account size, with a minimum domestic equity allocation of ten shares to any one account. IPO Allocations. (MidCap Stock Portfolio) The Portfolio's portfolio manager is a dual employee of the Manager and Mellon Equity Associates ("MEA"). Portfolio managers seeking to participate in an IPO must indicate their interest in the IPO, by account or fund and in writing, to the MEA trading operation prior to the pricing of a deal. Shares received in an offering are allocated among accounts with similar investment objectives on a pro rata basis. If a pro rata allocation among all accounts that indicated an interest in the offering would result in a position that is not meaningful to an account, MEA may allocate the shares received to less than all those accounts indicating an interest. IPO Allocations. (European Equity Portfolio and Japan Portfolio) Each of these Portfolios is subject to the IPO procedures of Newton. Generally, under the procedures, all portfolio managers seeking to participate in an IPO must indicate their interest in the IPO to the equity trader prior to the pricing of the offering. Portfolio managers may specify for each account the minimum position deemed to be an adequate allocation. Shares received in an offering are allocated among participating accounts on a pro rata basis based on account size, with a minimum domestic equity allocation of ten shares to any one account. IPO Allocations. (Founders Discovery Portfolio, Founders Growth Portfolio, Founders International Equity Portfolio and Founders Passport Portfolio) Each Founders Portfolio is subject to the IPO procedures of Founders. Under the procedures, all portfolio managers seeking to participate in an IPO must inform the Trading Department Manager, or her designee, of the accounts for which the offering would be suitable at least 24 hours prior to the time the offering is to be priced or the books are to be closed, whichever occurs first. If it is not possible to give this notice, the portfolio manager shall give notice as soon as practicable under the circumstances. The key criterion for determining the eligibility of an account to participate in an IPO is the suitability of the investment for the account. Guidelines based on the estimated market capitalization of the issuer are used to help determine the accounts for which offerings are most suitable. If the portfolio manager of an account for which a particular offering would be most suitable based on the market capitalization guidelines determines not to have that account participate in the offering, other accounts may participate in the offering. Allocations among accounts with the same or a similar investment objective managed by the same portfolio manager generally are allocated pro rata based on the net asset values of the applicable accounts. However, a portfolio manager may determine not to participate in an offering for an account based on the circumstances affecting that account including, without limitation, cash availability, desired position size, the account's investment policies and restrictions, or tax considerations. If an offering is suitable for accounts managed by different portfolio managers and more than one portfolio manager wants to participate in the offering, the shares are allocated to the accounts for which the offering is deemed most suitable. Such offerings generally are then allocated pro rata based on net asset value. In the case of secondary public offerings, allocations may be based on position weightings desired for each participating account. If under the procedures an account would receive an allocation equal to or less than the greater of (a) a portfolio position of .25 of 1%; or (b) 100 shares, the portfolio manager may decline the allocation for that account. Shares not taken as a result of this rule are reallocated to the other accounts participating in the allocation on a pro rata basis based on their net asset values. From time to time, special circumstances may arise in which deviations from these policies are appropriate. Any such exceptions must by approved by Founders' President or his designee. Soft Dollars. (All Portfolios) Subject to the policy of seeking the best combination of price and execution, a Portfolio may execute transactions with brokerage firms that provide, along with brokerage services, research services and products, as defined in Section 28(e) of the Securities Exchange Act of 1934. Section 28(e) provides a "safe harbor" to investment managers who use commission dollars of their advised accounts to obtain investment research and brokerage services and products. These arrangements are often called soft dollar arrangements. Research and brokerage services and products that provide lawful and appropriate assistance to the manager in performing investment decision-making responsibilities fall within the safe harbor. The services and products provided under these arrangements permit the Manager or applicable sub-investment adviser to supplement its own research and analysis activities, and provide it with information from individuals and research staffs of many securities firms. Some of the research products or services received by the Manager or a sub-investment adviser may have both a research function and a non-research administrative function (a "mixed use"). If the Manager or sub-investment adviser determines that any research product or service has a mixed use, the Manager or sub-investment adviser will allocate in good faith the cost of such service or product accordingly. The portion of the product or service that the Manager or sub-investment adviser determines will assist it in the investment decision-making process may be paid for in soft dollars. The non-research portion is paid for by the Manager or sub-investment adviser in hard dollars. Any such allocation may create a conflict of interest for the Manager or sub-investment adviser. Certain funds are managed by dual employees of the Manager and an affiliated entity in the Mellon organization. The affiliated entity effects trades for funds managed by these dual employees. Because those funds may benefit from the research products and services the affiliated entity receives from brokers, commissions generated by those funds may be used to help pay for research products and services used by the affiliated entity. The Manager or applicable sub-investment adviser generally considers the amount and nature of research, execution and other services provided by brokerage firms, as well as the extent to which such services are relied on, and attempts to allocate a portion of the brokerage business of its clients on the basis of that consideration. Neither the research services nor the amount of brokerage given to a particular brokerage firm are made pursuant to any agreement or commitment with any of the selected firms that would bind the Manager or sub-investment adviser to compensate the selected brokerage firm for research provided. The Manager or applicable sub-investment adviser endeavors to direct sufficient commissions to broker/dealers that have provided it with research to ensure continued receipt of research the Manager or sub-investment adviser believes is useful. Actual brokerage commissions received by a broker/dealer may be more or less than the suggested allocations. The Manager or applicable sub-investment adviser may receive a benefit from the research services and products that is not passed on to a Portfolio in the form of a direct monetary benefit. Further, research services and products may be useful to the Manager or applicable sub-investment adviser in providing investment advice to any of the Portfolio's or clients it advises. Likewise, information made available to the Manager or applicable sub-investment adviser from brokerage firms effecting securities transactions for a Portfolio may be utilized on behalf of another fund or client. Thus, there may be no correlation between the amount of brokerage commissions generated by a particular Portfolio or client and the indirect benefits received by that Portfolio or client. The aggregate amount of transactions during the fiscal period ended December 31, 2000 in securities effected on an agency basis through a broker for, among other things, research services, and the commissions and concessions related to such transactions were as follows: Name of Portfolio Transaction Amount Commissions and Concessions Core Value $0 $0 MidCap Stock $0 $0 Founders Growth $0 $0 Founders International Equity $0 $0 Founders Passport $0 $0 European Equity $0 $0 Emerging Leaders $2,170,193 $6,265 Emerging Markets $1,738,679 $3,484 Founders Discovery $0 $0 Japan $0 $0 Technology Growth $58,779,201 $35,280 Core Bond(1) $0 $0 - ---------------- (1) From May 1, 2000 (commencement of operations) through December 31, 2000. PERFORMANCE INFORMATION Performance figures for the Portfolios will not reflect the separate charges applicable to the Policies offered by Participating Insurance Companies. The current yield for the 30-day period ended December 31, 2000 for Core Bond Portfolio was 5.89%, which reflects the waiver of a portion of the management fee by the Manager. Had a portion of its management fee not been waived, Core Bond Portfolio's current yield for the 30-day period ended December 31, 2000 would have been 5.55%. Current yield is computed pursuant to a formula which operates as follows: The amount of the relevant Portfolio's expenses accrued for the 30-day period (net of reimbursements) is subtracted from the amount of the dividends and interest earned (computed in accordance with regulatory requirements) by such Portfolio during the period. That result is then divided by the product of: (a) the average daily number of such Portfolio's shares outstanding during the period that were entitled to receive dividends, and (b) the net asset value per share on the last day of the period less any undistributed earned income per share reasonably expected to be declared as a dividend shortly thereafter. The quotient is then added to 1, and that sum is raised to the 6th power, after which 1 is subtracted. The current yield is then arrived at by multiplying the result by 2. The average annual total return for the periods indicated ended December 31, 2000, for Initial shares of the indicated Portfolios was as follows: Average Annual Average Annual Name of Portfolio/Class Total Return Total Return - ----------------------- One Year Since Inception -------------- ---------------- Core Value - Initial shares 12.06% 9.26%(1) Midcap Stock - Initial shares 8.28% 6.04%(1) Founders Growth - Initial shares -25.40% 13.04%(2) Founders International Equity - Initial shares -17.41% 20.52%(2) Founders Passport - Initial shares -25.76% 20.12%(2) European Equity - Initial shares -2.00% 15.08%(3) Emerging Leaders - Initial Shares 31.70% 39.28%(4) Emerging Markets - Initial Shares -31.81% -24.59%(4) Founders Discovery - Initial Shares -13.02% 3.19%(4) Japan - Initial Shares -8.92% -6.22%(4) Technology Growth - Initial Shares -26.98% 10.00%(5) - ------------------------------------ (1) From May 1, 1998 (commencement of operations) through December 31, 2000. (2) From September 30, 1998 (commencement of operations) through December 31, 2000. (3) From April 30, 1999 (commencement of operations) through December 31, 2000. (4) From December 15, 1999 (commencement of operations) through December 31, 2000 (5) From August 31, 1999 (commencement of operations) through December 31, 2000 No average annual total return figures are provided for the Core Bond Portfolio since it had not completed a full year of operations as of the date of the performance figures provided for the other Portfolios. Average annual total return is calculated by determining the ending redeemable value of an investment purchased with a hypothetical $1,000 payment made at the beginning of the period (assuming the reinvestment of dividends and distributions), dividing by the amount of the initial investment, taking the "n"th root of the quotient (where "n" is the number of years in the period) and subtracting 1 from the result. Total return (not annualized) for the periods indicated ended December 31, 2000, for Initial shares of the indicated Portfolios was as follows: Total Return Name of Portfolio/Class (Not Annualized) Core Value - Initial shares 26.67%(1) Midcap Stock - Initial shares 16.95%(1) Founders Growth - Initial shares 31.91%(2) Founders International Equity - Initial shares 52.46%(2) Founders Passport - Initial shares 51.34%(2) European Equity - Initial shares 26.62%(3) Emerging Leaders - Initial shares 41.61%(4) Emerging Markets - Initial shares -25.64%(4) Founders Discovery - Initial shares -3.35%(4) Japan - Initial shares -6.52%(4) Technology Growth - Initial shares 13.62%(5) Core Bond - Initial Shares 8.61%(6) - ------------------- (1) From May 1, 1998 (commencement of operations) through December 31, 2000. (2) From September 30, 1998 (commencement of operations) through December 31, 2000. (3) From April 30, 1999 (commencement of operations) through December 31, 2000. (4) From December 15, 1999 (commencement of operations) through December 31, 2000. (5) From August 31, 1999 (commencement of operations) through December 31, 2000. (6) From May 1, 2000 (commencement of operations) through December 31, 2000. Total return is calculated by subtracting the amount of the relevant 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. No performance data has been provided for Service shares of the Portfolios because the Fund commenced offering such shares on December 31, 2000. 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. The effective yield and total return for a Portfolio should be distinguished from the rate of return of a corresponding sub-account or investment division of a separate account of a Participating Insurance Company, which rate will reflect the deduction of additional charges, including mortality and expense risk charges, and will therefore be lower. Policy owners should consult the prospectus for their Policy. Calculations of the Portfolios' performance information may reflect absorbed expenses pursuant to any undertaking that may be in effect. Comparative performance information may be used from time to time in advertising a Portfolio's shares, including data from Lipper Analytical Services, Inc., the Aggregate Bond Index, Government/Corporate Bond Index, CDA Technologies Indexes, Consumer Price Index, IBC's Money Fund Report(TM), International Finance Corporation Index, Money Magazine, Bank Rate Monitor(TM), Standard & Poor's 500 Composite Stock Price Index, Standard & Poor's MidCap 400 Index, Russell 2000(R) Index, Russell 2500(R) Index, Morgan Stanley Capital International (MSCI) Emerging Markets (Free) Index, MSCI Europe Index, MSCI World (ex US) Index, MSCI Japan Index, the Dow Jones Industrial Average, Morningstar, Inc., Value Line Mutual Fund Survey and other industry publications. From time to time, advertising materials for a Portfolio may refer to or discuss then-current or past economic or financial conditions, developments and/or events. From time to time, advertising materials for a Portfolio also may refer to Morningstar ratings and related analyses supporting the rating, and may refer to, or include, commentary by the Portfolio's portfolio managers relating to their investment strategy, asset growth of the Portfolio, current or past business, political, economic or financial conditions and other matters of general interest to shareholders. INFORMATION ABOUT THE FUND AND PORTFOLIOS Each Portfolio's shares are classified into two classes. Each Portfolio share has one vote and shareholders will vote in the aggregate and not by class, except as otherwise required by law or with respect to any matter which affects only one class. Each Portfolio share, when issued and paid for in accordance with the terms of the offering, is fully paid and non-assessable. Portfolio shares have equal rights as to dividends and in liquidation. Shares have no preemptive, subscription or conversion rights and are freely transferable. Under Massachusetts law, shareholders, under certain circumstances, could be held personally liable for the obligations of the Fund. However, the Fund's Agreement and Declaration of Trust (the "Trust Agreement") disclaims shareholder liability for acts or obligations of the Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or a Trustee. The Trust Agreement provides for indemnification from the Fund's property for all losses and expenses of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations, a possibility which management believes is remote. Upon payment of any liability incurred by the Fund, the shareholder paying such liability will be entitled to reimbursement from the general assets of the Fund. The Fund intends to conduct its operations in such a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Fund. Unless otherwise required by the 1940 Act, ordinarily it will not be necessary for the Fund to hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Board members or the appointment of auditors. However, 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 Board member from office. Shareholders may remove a Board member by the affirmative vote of two-thirds of the Fund's outstanding voting shares. In addition, the Board will call a meeting of shareholders for the purpose of electing Board members if, at any time, less than a majority of the Board members then holding office have been elected by shareholders. The Fund is a "series fund," which is a mutual fund divided into separate portfolios, each of which is treated as a separate entity for certain matters under the 1940 Act and for other purposes. A shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. For certain matters shareholders vote together as a group; as to others they vote separately by portfolio. To date, the Board has authorized the creation of 12 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 income attributable to, and the expenses of, one Portfolio would be treated separately from those of the other Portfolios. The Fund has the ability to create, from time to time, new series without shareholder approval. Rule 18f-2 under the 1940 Act provides that any matter required to be submitted under the provisions of the 1940 Act or applicable state law or otherwise to the holders of the outstanding voting securities of any 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, the Rule exempts the selection of independent accountants and the election of Board members from the separate voting requirements of the rule. The Fund sends annual and semi-annual financial statements to all its shareholders. COUNSEL AND INDEPENDENT AUDITORS Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982, as counsel for the Fund, has rendered its opinion as to certain legal matters regarding the due authorization and valid issuance of the shares being sold pursuant to the Fund's Prospectuses. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, independent auditors, have been selected as independent auditors of the Fund. The auditors examine the Fund's financial statements and provide other audit, tax and related services. APPENDIX Rating Categories Description of certain ratings assigned by Standard & Poor's Ratings Services ("S&P"), Moody's Investors Service ("Moody's"), and Fitch IBCA, Duff & Phelps ("Fitch"): S&P Long-term AAA An obligation rated 'AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated 'CC' is currently highly vulnerable to nonpayment. C A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. D An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. R The symbol 'r' is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk--such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. N.R. The designation 'N.R.' indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular obligation as a matter of policy. Note: The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign designation to show relative standing within the major rating categories. Short-term A-1 A short-term obligation rated 'A-1' is rated in the highest category by S&P. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are given a plus sign (+) designation. This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2 A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3 A short-term obligation rated 'A-3' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. B A short-term obligation rated 'B' is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet is financial commitment on the obligation. C A short-term obligation rated 'C' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D A short-term obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. MOODY'S Long-term AAA Bonds rated 'Aaa' are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds rated 'Aa' are judged to be of high quality by all standards. Together with the 'Aaa' group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in 'Aaa' securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the 'Aaa' securities. A Bonds rated 'A' possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. BAA Bonds rated 'Baa' are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA Bonds rated 'Ba' are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds rated 'B' generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA Bonds rated 'Caa' are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA Bonds rated 'Ca' represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds rated 'C' are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from 'Aa' through 'Caa'. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Prime rating system (short-term) Issuers rated PRIME-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: Leading market positions in well-established industries. High rates of return on funds employed. Conservative capitalization structure with moderate reliance on debt and ample asset protection. Broad margins in earnings coverage of fixed financial charges and high internal cash generation. Well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated PRIME-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated PRIME-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. FITCH Long-term investment grade AAA HIGHEST CREDIT QUALITY. 'AAA' ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA VERY HIGH CREDIT QUALITY. 'AA' ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A HIGH CREDIT QUALITY. 'A' ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB GOOD CREDIT QUALITY. 'BBB' ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. Long-term speculative grade BB SPECULATIVE. 'BB' ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B HIGHLY SPECULATIVE. 'B' ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C HIGH DEFAULT RISK. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. 'CC' ratings indicate that default of some kind appears probable. 'C' ratings signal imminent default. DDD, DD, D DEFAULT. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. 'DDD' obligations have the highest potential for recovery, around 90% - 100% of outstanding amounts and accrued interest. 'DD' ratings indicate potential recoveries in the range of 50% - 90% and 'D' the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated 'DDD' have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated 'DD' and 'D' are generally undergoing a formal reorganization or liquidation process; those rated 'DD' are likely to satisfy a higher portion of their outstanding obligations, while entities rated 'D' have a poor prospect of repaying all obligations. Short-term A short-term rating has a time horizon of less than 12 months for most obligations, or up to three years for U.S. public finance securities, and thus places greater emphasis on the liquidity necessary to meet financial commitments in a timely manner. F1 HIGHEST CREDIT QUALITY. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2 GOOD CREDIT QUALITY. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F3 FAIR CREDIT QUALITY. The capacity for timely payment of financial commitment is adequate; however, near-term adverse changes could result in a reduction non-investment grade. B SPECULATIVE. Minimal capacity for timely payment of financial commitments plus vulnerability to near-term adverse changes in financial and economic conditions. C HIGH DEFAULT RISK. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. D DEFAULT. Denotes actual or imminent payment default. 'NR' indicates that Fitch does not rate the issuer or issue in question. Notes to long-term and short-term ratings: A plus (+) or minus (-) sign designation may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the 'AAA' long-term rating category, to categories below 'CCC', or to short-term ratings other than 'F1.' DREYFUS INVESTMENT PORTFOLIOS PART C. OTHER INFORMATION -------------------------------- Item 23. Exhibits - ------- ---------- (a) Registrant's Agreement and Declaration of Trust is incorporated by reference to the Registration Statement on Form N-1A, filed on February 28, 1998. (b) Registrant's By-Laws, as amended, are incorporated by reference to Exhibit (b) of Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A, filed on February 14, 2000. (d)(1) Revised Management Agreement is incorporated by reference to Exhibit (d)(1) of Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A, filed on February 14, 2000. (d)(2) Sub-Investment Advisory Agreements are incorporated by reference to Exhibit (d)(2) of Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A, filed on December 15, 1999. (e) Distribution Agreement. (g) Form of Custody Agreement. (i) Opinion and consent of Registrant's counsel is incorporated by reference to Exhibit (10) of Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A, filed on April 24, 1998. (j) Consent of Independent Auditors. (m) Distribution (12b-1 Plan) is incorporated by reference to Exhibit (m) of Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A, filed on October 31, 2000. (o) Rule 18f-3 Plan is incorporated by reference to Exhibit (o) of Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A, filed on October 31, 2000. (p)(1) Code of Ethics adopted by the Registrant. (p)(2) Code of Ethics adopted by the Sub-Investment Advisers to the Registrant. Item 23. Exhibits. - List (continued) - ------- ----------------------------------------------------- Other Exhibits -------------- (a) Powers of Attorney are incorporated by reference to Other Exhibits (a) of Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A, filed on February 14, 2000. (b) Certificate of Assistant Secretary is incorporated by reference to Other Exhibits (b) of Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A, filed on February 14, 2000. Item 24. Persons Controlled by or under Common Control with Registrant. - ------- ------------------------------------------------------- Not Applicable Item 25. Indemnification - ------- --------------- The Statement as to the general effect of any contract, arrangements or statute under which a Board member, officer, underwriter or affiliated person of the Registrant is insured or indemnified in any manner against any liability which may be incurred in such capacity, other than insurance provided by any Board member, officer, affiliated person or underwriter for their own protection, is incorporated by reference to Item 27 of Part C of Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A, filed on September 15, 1998. Reference is also made to the Distribution Agreement attached as Exhibit (e). Item 26. Business and Other Connections of Investment Adviser. - ------- ---------------------------------------------------- The Dreyfus Corporation ("Dreyfus") and subsidiary companies comprise a financial service organization whose business consists primarily of providing investment management services as the investment adviser and manager for sponsored investment companies registered under the Investment Company Act of 1940 and as an investment adviser to institutional and individual accounts. Dreyfus also serves as sub-investment adviser to and/or administrator of other investment companies. Dreyfus Service Corporation, a wholly-owned subsidiary of Dreyfus, serves primarily as a registered broker-dealer and distributor of other investment companies advised and administered by Dreyfus. Dreyfus Investment Advisors, Inc., another wholly-owned subsidiary, provides investment management services to various pension plans, institutions and individuals
ITEM 26. Business and Other Connections of Investment Adviser (continued) - ---------------------------------------------------------------------------------- Officers and Directors of Investment Adviser Name and Position With Dreyfus Other Businesses Position Held Dates CHRISTOPHER M. CONDRON Franklin Portfolio Associates, Director 1/97 - Present Chairman of the Board and LLC* Chief Executive Officer TBCAM Holdings, Inc.* Director 10/97 - Present President 10/97 - 6/98 Chairman 10/97 - 6/98 The Boston Company Director 1/98 - Present Asset Management, LLC* Chairman 1/98 - 6/98 President 1/98 - 6/98 The Boston Company President 9/95 - 1/98 Asset Management, Inc.* Chairman 4/95 - 1/98 Director 4/95 - 1/98 Franklin Portfolio Holdings, Inc.* Director 1/97 - Present Certus Asset Advisors Corp.** Director 6/95 - Present Mellon Capital Management Director 5/95 - Present Corporation*** Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present Member Mellon Bond Associates+ Trustee 5/95 - 1/98 Mellon Equity Associates, LLP+ Executive Committee 1/98 - Present Member Mellon Equity Associates+ Trustee 5/95 - 1/98 Boston Safe Advisors, Inc.* Director 5/95 - Present President 5/95 - Present Mellon Bank, N.A. + Director 1/99 - Present Chief Operating Officer 3/98 - Present President 3/98 - Present Vice Chairman 11/94 - 3/98 Mellon Financial Corporation+ Chief Operating Officer 1/99 - Present President 1/99 - Present Director 1/98 - Present Vice Chairman 11/94 - 1/99 Founders Asset Management, Chairman 12/97 - Present LLC**** Director 12/97 - Present The Boston Company, Inc.* Vice Chairman 1/94 - Present Director 5/93 - Present Laurel Capital Advisors, LLP+ Executive Committee 1/98 - 8/98 Member Laurel Capital Advisors+ Trustee 10/93 - 1/98 Boston Safe Deposit and Trust Director 5/93 - Present Company* The Boston Company Financial President 6/89 - 1/97 Strategies, Inc. * Director 6/89 - 1/97 MANDELL L. BERMAN Self-Employed Real Estate Consultant, 11/74 - Present Director 29100 Northwestern Highway Residential Builder and Suite 370 Private Investor Southfield, MI 48034 BURTON C. BORGELT DeVlieg Bullard, Inc. Director 1/93 - Present Director 1 Gorham Island Westport, CT 06880 Mellon Financial Corporation+ Director 6/91 - Present Mellon Bank, N.A. + Director 6/91 - Present Dentsply International, Inc. Director 2/81 - Present 570 West College Avenue York, PA Quill Corporation Director 3/93 - Present Lincolnshire, IL STEPHEN E. CANTER Dreyfus Investment Chairman of the Board 1/97 - Present President, Chief Operating Advisors, Inc.++ Director 5/95 - Present Officer, Chief Investment President 5/95 - Present Officer, and Director Newton Management Limited Director 2/99 - Present London, England Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present Member Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present Member Franklin Portfolio Associates, Director 2/99 - Present LLC* Franklin Portfolio Holdings, Inc.* Director 2/99 - Present The Boston Company Asset Director 2/99 - Present Management, LLC* TBCAM Holdings, Inc.* Director 2/99 - Present Mellon Capital Management Director 1/99 - Present Corporation*** Founders Asset Management, Member, Board of 12/97 - Present LLC**** Managers Acting Chief Executive 7/98 - 12/98 Officer The Dreyfus Trust Company+++ Director 6/95 - Present Chairman 1/99 - Present President 1/99 - Present Chief Executive Officer 1/99 - Present THOMAS F. EGGERS Dreyfus Service Corporation++ Chief Executive Officer 3/00 - Present Vice Chairman - Institutional and Chairman of the and Director Board Executive Vice President 4/96 - 3/00 Director 9/96 - Present Founders Asset Management, Member, Board of 2/99 - Present LLC**** Managers Dreyfus Investment Advisors, Inc. Director 1/00 - Present Dreyfus Service Organization, Director 3/99 - Present Inc.++ Dreyfus Insurance Agency of Director 3/99 - Present Massachusetts, Inc. +++ Dreyfus Brokerage Services, Inc. Director 11/97 - 6/98 401 North Maple Avenue Beverly Hills, CA. STEVEN G. ELLIOTT Mellon Financial Corporation+ Director 1/01 - Present Director Senior Vice Chairman 1/99 - Present Chief Financial Officer 1/90 - Present Vice Chairman 6/92 - 1/99 Mellon Bank, N.A.+ Director 1/01 - Present Senior Vice Chairman 3/98 - Present Chief Financial Officer 1/90 - Present Mellon EFT Services Corporation Director 10/98 - Present Mellon Bank Center, 8th Floor 1735 Market Street Philadelphia, PA 19103 Mellon Financial Services Director 1/96 - Present Corporation #1 Vice President 1/96 - Present Mellon Bank Center, 8th Floor 1735 Market Street Philadelphia, PA 19103 Boston Group Holdings, Inc.* Vice President 5/93 - Present APT Holdings Corporation Treasurer 12/87 - Present Pike Creek Operations Center 4500 New Linden Hill Road Wilmington, DE 19808 Allomon Corporation Director 12/87 - Present Two Mellon Bank Center Pittsburgh, PA 15259 Collection Services Corporation Controller 10/90 - 2/99 500 Grant Street Director 9/88 - 2/99 Pittsburgh, PA 15258 Vice President 9/88 - 2/99 Treasurer 9/88 - 2/99 Mellon Financial Company+ Principal Exec. Officer 1/88 - Present Chief Executive Officer 8/87 - Present Director 8/87 - Present President 8/87 - Present Mellon Overseas Investments Director 4/88 - Present Corporation+ Mellon Financial Services Treasurer 12/87 - Present Corporation # 5+ Mellon Financial Markets, Inc.+ Director 1/99 - Present Mellon Financial Services Director 1/99 - Present Corporation #17 Fort Lee, NJ Mellon Mortgage Company Director 1/99 - Present Houston, TX Mellon Ventures, Inc. + Director 1/99 - Present LAWRENCE S. KASH Dreyfus Investment Director 4/97 - 12/99 Vice Chairman Advisors, Inc.++ Dreyfus Brokerage Services, Inc. Chairman 11/97 - 2/99 401 North Maple Ave. Chief Executive Officer 11/97 - 2/98 Beverly Hills, CA Dreyfus Service Corporation++ Director 1/95 - 2/99 President 9/96 - 3/99 Dreyfus Precious Metals, Inc.+++ Director 3/96 - 12/98 President 10/96 - 12/98 Dreyfus Service Director 12/94 - 3/99 Organization, Inc.++ President 1/97 - 3/99 Seven Six Seven Agency, Inc. ++ Director 1/97 - 4/99 Dreyfus Insurance Agency of Chairman 5/97 - 3/99 Massachusetts, Inc.++++ President 5/97 - 3/99 Director 5/97 - 3/99 The Dreyfus Trust Company+++ Chairman 1/97 - 1/99 President 2/97 - 1/99 Chief Executive Officer 2/97 - 1/99 Director 12/94 - Present The Dreyfus Consumer Credit Chairman 5/97 - 6/99 Corporation++ President 5/97 - 6/99 Director 12/94 - 6/99 Founders Asset Management, Member, Board of 12/97 - 12/99 LLC**** Managers The Boston Company Advisors, Chairman 12/95 - 1/99 Inc. Chief Executive Officer 12/95 - 1/99 Wilmington, DE President 12/95 - 1/99 The Boston Company, Inc.* Director 5/93 - 1/99 President 5/93 - 1/99 Mellon Bank, N.A.+ Executive Vice President 6/92 - Present Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98 Executive Committee 1/98 - 8/98 Member Chief Executive Officer 1/98 - 8/98 President 1/98 - 8/98 Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98 Chairman 9/93 - 1/98 President and CEO 12/91 - 1/98 Boston Group Holdings, Inc.* Director 5/93 - Present President 5/93 - Present Boston Safe Deposit and Trust Director 6/93 - 1/99 Company+ Executive Vice President 6/93 - 4/98 MARTIN G. MCGUINN Mellon Financial Corporation+ Chairman 1/99 - Present Director Chief Executive Officer 1/99 - Present Director 1/98 - Present Vice Chairman 1/90 - 1/99 Mellon Bank, N. A. + Chairman 3/98 - Present Chief Executive Officer 3/98 - Present Director 1/98 - Present Vice Chairman 1/90 - 3/98 Mellon Leasing Corporation+ Vice Chairman 12/96 - Present Mellon Bank (DE) National Director 4/89 - 12/98 Association Wilmington, DE Mellon Bank (MD) National Director 1/96 - 4/98 Association Rockville, Maryland J. DAVID OFFICER Dreyfus Service Corporation++ President 3/00 - Present Vice Chairman Executive Vice President 5/98 - 3/00 and Director Director 3/99 - Present Dreyfus Service Organization, Director 3/99 - Present Inc.++ Dreyfus Insurance Agency of Director 5/98 - Present Massachusetts, Inc.++++ Dreyfus Brokerage Services, Inc. Chairman 3/99 - Present 401 North Maple Avenue Beverly Hills, CA Seven Six Seven Agency, Inc.++ Director 10/98 - Present Mellon Residential Funding Corp. + Director 4/97 - Present Mellon Trust of Florida, N.A. Director 8/97 - Present 2875 Northeast 191st Street North Miami Beach, FL 33180 Mellon Bank, NA+ Executive Vice President 7/96 - Present The Boston Company, Inc.* Vice Chairman 1/97 - Present Director 7/96 - Present Mellon Preferred Capital Director 11/96 - 1/99 Corporation* RECO, Inc.* President 11/96 - Present Director 11/96 - Present The Boston Company Financial President 8/96 - 6/99 Services, Inc.* Director 8/96 - 6/99 Boston Safe Deposit and Trust Director 7/96 - Present Company* President 7/96 - 1/99 Mellon Trust of New York Director 6/96 - Present 1301 Avenue of the Americas New York, NY 10019 Mellon Trust of California Director 6/96 - Present 400 South Hope Street Suite 400 Los Angeles, CA 90071 Mellon United National Bank Director 3/98 - Present 1399 SW 1st Ave., Suite 400 Miami, Florida Boston Group Holdings, Inc.* Director 12/97 - Present Dreyfus Financial Services Corp. + Director 9/96 - Present Dreyfus Investment Services Director 4/96 - Present Corporation+ RICHARD W. SABO Founders Asset Management, President 12/98 - Present Director LLC**** Chief Executive Officer 12/98 - Present Prudential Securities Senior Vice President 07/91 - 11/98 New York, NY Regional Director 07/91 - 11/98 RICHARD F. SYRON Thermo Electron President 6/99 - Present Director 81 Wyman Street Chief Executive Officer 6/99 - Present Waltham, MA 02454-9046 American Stock Exchange Chairman 4/94 - 6/99 86 Trinity Place Chief Executive Officer 4/94 - 6/99 New York, NY 10006 RONALD P. O'HANLEY Franklin Portfolio Holdings, Inc.* Director 3/97 - Present Vice Chairman Franklin Portfolio Associates, Director 3/97 - Present LLC* Boston Safe Deposit and Trust Executive Committee 1/99 - Present Company* Member Director 1/99 - Present The Boston Company, Inc.* Executive Committee 1/99 - Present Member 1/99 - Present Director Buck Consultants, Inc.++ Director 7/97 - Present Newton Asset Management LTD Executive Committee 10/98 - Present (UK) Member London, England Director 10/98 - Present Mellon Asset Management Non-Resident Director 11/98 - Present (Japan) Co., LTD Tokyo, Japan TBCAM Holdings, Inc.* Director 10/97 - Present The Boston Company Asset Director 1/98 - Present Management, LLC* Boston Safe Advisors, Inc.* Chairman 6/97 - Present Director 2/97 - Present Pareto Partners Partner Representative 5/97 - Present 271 Regent Street London, England W1R 8PP Mellon Capital Management Director 2/97 -Present Corporation*** Certus Asset Advisors Corp.** Director 2/97 - Present Mellon Bond Associates, LLP+ Trustee 1/98 - Present Chairman 1/98 - Present Mellon Equity Associates, LLP+ Trustee 1/98 - Present Chairman 1/98 - Present Mellon-France Corporation+ Director 3/97 - Present Laurel Capital Advisors+ Trustee 3/97 - Present MARK N. JACOBS Dreyfus Investment Director 4/97 - Present General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98 Executive Vice President, and Secretary The Dreyfus Trust Company+++ Director 3/96 - Present The TruePenny Corporation++ President 10/98 - Present Director 3/96 - Present Dreyfus Service Director 3/97 - 3/99 Organization, Inc.++ WILLIAM T. SANDALLS, JR. Dreyfus Transfer, Inc. Chairman 2/97 - Present Executive Vice President One American Express Plaza, Providence, RI 02903 Dreyfus Service Corporation++ Director 1/96 - 8/00 Executive Vice President 2/97 - Present Chief Financial Officer 2/97 - 12/98 Dreyfus Investment Director 1/96 - Present Advisors, Inc.++ Treasurer 1/96 - 10/98 Dreyfus-Lincoln, Inc. Director 12/96 - Present 4500 New Linden Hill Road President 1/97 - Present Wilmington, DE 19808 Seven Six Seven Agency, Inc.++ Director 1/96 - 10/98 Treasurer 10/96 - 10/98 The Dreyfus Consumer Director 1/96 - Present Credit Corp.++ Vice President 1/96 - Present Treasurer 1/97 - 10/98 The Dreyfus Trust Company +++ Director 1/96 - Present Dreyfus Service Organization, Treasurer 10/96 - 3/99 Inc.++ Dreyfus Insurance Agency of Director 5/97 - 3/99 Massachusetts, Inc.++++ Treasurer 5/97 - 3/99 Executive Vice President 5/97 - 3/99 STEPHEN R. BYERS Dreyfus Service Corporation++ Senior Vice President 3/00 - Present Director of Investments and Senior Vice President Gruntal & Co., LLC Executive Vice President 5/97 - 11/99 New York, NY Partner 5/97 - 11/99 Executive Committee 5/97 - 11/99 Member Board of Directors 5/97 - 11/99 Member Treasurer 5/97 - 11/99 Chief Financial Officer 5/97 - 6/99 DIANE P. DURNIN Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99 Senior Vice President - Product Marketing and Advertising Development Division PATRICE M. KOZLOWSKI None Senior Vice President - Corporate Communications WILLIAM H. MARESCA The Dreyfus Trust Company+++ Chief Financial Officer 3/99 - Present Controller Treasurer 9/98 - Present Director 3/97 - Present Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present Director 8/00 - Present Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 - Present Dreyfus Investment Treasurer 10/98 - Present Advisors, Inc. ++ Dreyfus-Lincoln, Inc. Vice President 10/98 - Present 4500 New Linden Hill Road Wilmington, DE 19808 The TruePenny Corporation++ Vice President 10/98 - Present Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98 The Trotwood Corporation++ Vice President 10/98 - Present Trotwood Hunters Corporation++ Vice President 10/98 - Present Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present One American Express Plaza, Providence, RI 02903 Dreyfus Service Treasurer 3/99 - Present Organization, Inc.++ Assistant Treasurer 3/93 - 3/99 Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present Massachusetts, Inc.++++ MARY BETH LEIBIG None Vice President - Human Resources THEODORE A. SCHACHAR Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present Vice President - Tax The Dreyfus Consumer Credit Chairman 6/99 - Present Corporation ++ President 6/99 - Present Dreyfus Investment Advisors, Vice President - Tax 10/96 - Present Inc.++ Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98 Dreyfus Service Organization, Vice President - Tax 10/96 - Present Inc.++ WENDY STRUTT None Vice President RAYMOND J. VAN COTT Mellon Financial Corporation+ Vice President 7/98 - Present Vice President - Information Systems Computer Sciences Corporation Vice President 1/96 - 7/98 El Segundo, CA JAMES BITETTO The TruePenny Corporation++ Secretary 9/98 - Present Assistant Secretary Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present Dreyfus Investment Assistant Secretary 7/98 - Present Advisors, Inc.++ Dreyfus Service Assistant Secretary 7/98 - Present Organization, Inc.++ STEVEN F. NEWMAN Dreyfus Transfer, Inc. Vice President 2/97 - Present Assistant Secretary One American Express Plaza Director 2/97 - Present Providence, RI 02903 Secretary 2/97 - Present Dreyfus Service Secretary 7/98 - Present Organization, Inc.++ Assistant Secretary 5/98 - 7/98 * The address of the business so indicated is One Boston Place, Boston, Massachusetts, 02108. ** The address of the business so indicated is One Bush Street, Suite 450, San Francisco, California 94104. *** The address of the business so indicated is 595 Market Street, Suite 3000, San Francisco, California 94105. **** The address of the business so indicated is 2930 East Third Avenue, Denver, Colorado 80206. + The address of the business so indicated is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258. ++ The address of the business so indicated is 200 Park Avenue, New York, New York 10166. +++ The address of the business so indicated is 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144. ++++ The address of the business so indicated is 53 State Street, Boston, Massachusetts 02109.
Item 27. Principal Underwriters - -------- ---------------------- (a) Other investment companies for which Registrant's principal underwriter (exclusive distributor) acts as principal underwriter or exclusive distributor: 1) Dreyfus A Bonds Plus, Inc. 2) Dreyfus Appreciation Fund, Inc. 3) Dreyfus Balanced Fund, Inc. 4) Dreyfus BASIC GNMA Fund 5) Dreyfus BASIC Money Market Fund, Inc. 6) Dreyfus BASIC Municipal Fund, Inc. 7) Dreyfus BASIC U.S. Government Money Market Fund 8) Dreyfus California Intermediate Municipal Bond Fund 9) Dreyfus California Tax Exempt Bond Fund, Inc. 10) Dreyfus California Tax Exempt Money Market Fund 11) Dreyfus Cash Management 12) Dreyfus Cash Management Plus, Inc. 13) Dreyfus Connecticut Intermediate Municipal Bond Fund 14) Dreyfus Connecticut Municipal Money Market Fund, Inc. 15) Dreyfus Florida Intermediate Municipal Bond Fund 16) Dreyfus Florida Municipal Money Market Fund 17) Dreyfus Founders Funds, Inc. 18) The Dreyfus Fund Incorporated 19) Dreyfus Global Bond Fund, Inc. 20) Dreyfus Global Growth Fund 21) Dreyfus GNMA Fund, Inc. 22) Dreyfus Government Cash Management Funds 23) Dreyfus Growth and Income Fund, Inc. 24) Dreyfus Growth and Value Funds, Inc. 25) Dreyfus Growth Opportunity Fund, Inc. 26) Dreyfus Premier Fixed Income Funds 27) Dreyfus Index Funds, Inc. 28) Dreyfus Institutional Money Market Fund 29) Dreyfus Institutional Preferred Money Market Funds 30) Dreyfus Institutional Short Term Treasury Fund 31) Dreyfus Insured Municipal Bond Fund, Inc. 32) Dreyfus Intermediate Municipal Bond Fund, Inc. 33) Dreyfus International Funds, Inc. 34) Dreyfus Investment Grade Bond Funds, Inc. 35) Dreyfus Investment Portfolios 36) The Dreyfus/Laurel Funds, Inc. 37) The Dreyfus/Laurel Funds Trust 38) The Dreyfus/Laurel Tax-Free Municipal Funds 39) Dreyfus LifeTime Portfolios, Inc. 40) Dreyfus Liquid Assets, Inc. 41) Dreyfus Massachusetts Intermediate Municipal Bond Fund 42) Dreyfus Massachusetts Municipal Money Market Fund 43) Dreyfus Massachusetts Tax Exempt Bond Fund 44) Dreyfus MidCap Index Fund 45) Dreyfus Money Market Instruments, Inc. 46) Dreyfus Municipal Bond Fund, Inc. 47) Dreyfus Municipal Cash Management Plus 48) Dreyfus Municipal Money Market Fund, Inc. 49) Dreyfus New Jersey Intermediate Municipal Bond Fund 50) Dreyfus New Jersey Municipal Bond Fund, Inc. 51) Dreyfus New Jersey Municipal Money Market Fund, Inc. 52) Dreyfus New Leaders Fund, Inc. 53) Dreyfus New York Municipal Cash Management 54) Dreyfus New York Tax Exempt Bond Fund, Inc. 55) Dreyfus New York Tax Exempt Intermediate Bond Fund 56) Dreyfus New York Tax Exempt Money Market Fund 57) Dreyfus U.S. Treasury Intermediate Term Fund 58) Dreyfus U.S. Treasury Long Term Fund 59) Dreyfus 100% U.S. Treasury Money Market Fund 60) Dreyfus Pennsylvania Intermediate Municipal Bond Fund 61) Dreyfus Pennsylvania Municipal Money Market Fund 62) Dreyfus Premier California Municipal Bond Fund 63) Dreyfus Premier Equity Funds, Inc. 64) Dreyfus Premier International Funds, Inc. 65) Dreyfus Premier GNMA Fund 66) Dreyfus Premier Opportunity Funds 67) Dreyfus Premier Worldwide Growth Fund, Inc. 68) Dreyfus Premier Municipal Bond Fund 69) Dreyfus Premier New York Municipal Bond Fund 70) Dreyfus Premier State Municipal Bond Fund 71) Dreyfus Premier Value Equity Funds 72) Dreyfus Short-Intermediate Government Fund 73) Dreyfus Short-Intermediate Municipal Bond Fund 74) The Dreyfus Socially Responsible Growth Fund, Inc. 75) Dreyfus Stock Index Fund 76) Dreyfus Tax Exempt Cash Management 77) The Dreyfus Premier Third Century Fund, Inc. 78) Dreyfus Treasury Cash Management 79) Dreyfus Treasury Prime Cash Management 80) Dreyfus Variable Investment Fund 81) Dreyfus Worldwide Dollar Money Market Fund, Inc. 82) General California Municipal Bond Fund, Inc. 83) General California Municipal Money Market Fund 84) General Government Securities Money Market Funds, Inc. 85) General Money Market Fund, Inc. 86) General Municipal Bond Fund, Inc. 87) General Municipal Money Market Funds, Inc. 88) General New York Municipal Bond Fund, Inc. 89) General New York Municipal Money Market Fund
(b) Positions and Name and principal offices with business address Positions and offices with the Distributor Registrant - ---------------- ------------------------------------------ ---------- Thomas F. Eggers * Chief Executive Officer and Chairman of the Board None J. David Officer * President and Director None Stephen Burke * Executive Vice President None Charles Cardona * Executive Vice President and Director None Anthony DeVivio ** Executive Vice President and Director None Michael Millard ** Executive Vice President and Director None David K. Mossman ** Executive Vice President and Director None Jeffrey N. Nachman *** Executive Vice President and Chief Operations Officer None William T. Sandalls, Jr. * Executive Vice President None William H. Maresca * Chief Financial Officer and Director None James Book ** Senior Vice President None Ken Bradle ** Senior Vice President None Stephen R. Byers * Senior Vice President None Joseph Connolly * Senior Vice President Vice President and Treasurer Joseph Eck + Senior Vice President None William Glenn * Senior Vice President None Bradley Skapyak * Senior Vice President None Jane Knight * Chief Legal Officer and Secretary None Stephen Storen * Chief Compliance Officer None Jeffrey Cannizzaro * Vice President - Compliance None John Geli ** Vice President None Maria Georgopoulos * Vice President - Facilities Management None William Germenis * Vice President - Compliance None Walter T. Harris * Vice President None Janice Hayles * Vice President None Hal Marshall * Vice President - Compliance None Paul Molloy * Vice President None B.J. Ralston ** Vice President None Theodore A. Schachar * Vice President - Tax None James Windels * Vice President Assistant Treasurer James Bitetto * Assistant Secretary None Ronald Jamison * Assistant Secretary None * Principal business address is 200 Park Avenue, New York, NY 10166. ** Principal business address is 144 Glenn Curtiss Blvd., Uniondale, NY 11556-0144. *** Principal business address is 401 North Maple Avenue, Beverly Hills, CA 90210. **** Principal business address is One Mellon Bank Center, Pittsburgh, PA 15258 + Principal business address is One Boston Place, Boston, MA 02108
Item 28. Location of Accounts and Records - ------- -------------------------------- 1. Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, Pennsylvania 15258 2. The Bank of New York 100 Church Street New York, New York 10286 3. Dreyfus Transfer, Inc. P.O. Box 9671 Providence, Rhode Island 02940-9671 4. The Dreyfus Corporation 200 Park Avenue New York, New York 10166 5. Founders Asset Management Founders Financial Center 2930 East Third Avenue Denver, Colorado 80206 Item 29. Management Services - ------- ------------------- Not Applicable Item 30. Undertakings - ------- ------------ None SIGNATURES ------------- Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York on the 25th day of April, 2001. DREYFUS INVESTMENT PORTFOLIOS BY: /s/ STEPHEN E. CANTER* ---------------------- STEPHEN E. CANTER, PRESIDENT Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signatures Title Date /s/Stephen E. Canter* President (Principal Executive 04/25/01 - ------------------------------ Officer) Stephen E. Canter /s/Joseph Connolly* Treasurer (Principal Financial 04/25/01 - ------------------------------ and Accounting Officer) Joseph Connolly /s/Joseph S. DiMartino* Chairman of the Board 04/25/01 - ------------------------------ Joseph S. DiMartino /s/Clifford L. Alexander, Jr.* Trustee 04/25/01 - ------------------------------ Clifford L. Alexander, Jr. /s/Lucy Wilson Benson* Trustee 04/25/01 - ------------------------------ Lucy Wilson Benson *BY: /s/Jeff Prusnofsky ------------------- Jeff Prusnofsky Attorney-in-Fact EXHIBIT INDEX Exhibits (e) Distribution Agreement. (g) Form of Custody Agreement. (j) Consent of Independent Auditors. (p)(1) Code of Ethics adopted by the Registrant. (p)(2) Code of Ethics adopted by the Sub-Investment Advisers to the Registrant. EX-99 2 disagmt.txt DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT Dreyfus Investment Portfolios 200 Park Avenue New York, New York 10166 March 22, 2000 Dreyfus Service Corporation 200 Park Avenue New York, New York 10166 Dear Sirs: This is to confirm that, in consideration of the agreements hereinafter contained, the above-named investment company (the "Fund") has agreed that you shall be, for the period of this agreement, the distributor of (a) shares of each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be revised from time to time (each, a "Series") or (b) if no Series are set forth on such Exhibit, shares of the Fund. For purposes of this agreement the term "Shares" shall mean the authorized shares of the relevant Series, if any, and otherwise shall mean the Fund's authorized shares. 1. Services as Distributor 1.1 You will act as agent for the distribution of Shares covered by, and in accordance with, the registration statement and prospectus then in effect under the Securities Act of 1933, as amended, and will transmit promptly any orders received by you for purchase or redemption of Shares to the Transfer and Dividend Disbursing Agent for the Fund of which the Fund has notified you in writing. 1.2 You agree to use your best efforts to solicit orders for the sale of Shares. It is contemplated that you will enter into sales or servicing agreements with securities dealers, financial institutions and other industry professionals, such as investment advisers, accountants and estate planning firms, and in so doing you will act only on your own behalf as principal. 1.3 You shall act as distributor of Shares in compliance with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the Investment Company Act of 1940, as amended, by the Securities and Exchange Commission or any securities association registered under the Securities Exchange Act of 1934, as amended. 1.4 Whenever in their judgment such action is warranted by market, economic or political conditions, or by abnormal circumstances of any kind, the Fund's officers may decline to accept any orders for, or make any sales of, any Shares until such time as they deem it advisable to accept such orders and to make such sales and the Fund shall advise you promptly of such determination. 1.5 The Fund agrees to pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933, as amended, and all expenses in connection with maintaining facilities for the issue and transfer of Shares and for supplying information, prices and other data to be furnished by the Fund hereunder, and all expenses in connection with the preparation and printing of the Fund's prospectuses and statements of additional information for regulatory purposes and for distribution to shareholders; provided, however, that nothing contained herein shall be deemed to require the Fund to pay any of the costs of advertising the sale of Shares. 1.6 The Fund agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions which may be reasonably necessary in the discretion of the Fund's officers in connection with the qualification of Shares for sale in such states as you may designate to the Fund and the Fund may approve, and the Fund agrees to pay all expenses which may be incurred in connection with such qualification. You shall pay all expenses connected with your own qualification as a dealer under state or Federal laws and, except as otherwise specifically provided in this agreement, all other expenses incurred by you in connection with the sale of Shares as contemplated in this agreement. 1.7 The Fund shall furnish you from time to time, for use in connection with the sale of Shares, such information with respect to the Fund or any relevant Series and the Shares as you may reasonably request, all of which shall be signed by one or more of the Fund's duly authorized officers; and the Fund warrants that the statements contained in any such information, when so signed by the Fund's officers, shall be true and correct. The Fund also shall furnish you upon request with: (a) semi-annual reports and annual audited reports of the Fund's books and accounts made by independent public accountants regularly retained by the Fund, (b) quarterly earnings statements prepared by the Fund, (c) a monthly itemized list of the securities in the Fund's or, if applicable, each Series' portfolio, (d) monthly balance sheets as soon as practicable after the end of each month, and (e) from time to time such additional information regarding the Fund's financial condition as you may reasonably request. 1.8 The Fund represents to you that all registration statements and prospectuses filed by the Fund with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and under the Investment Company Act of 1940, as amended, with respect to the Shares have been carefully prepared in conformity with the requirements of said Acts and rules and regulations of the Securities and Exchange Commission thereunder. As used in this agreement the terms "registration statement" and "prospectus" shall mean any registration statement and prospectus, including the statement of additional information incorporated by reference therein, filed with the Securities and Exchange Commission and any amendments and supplements thereto which at any time shall have been filed with said Commission. The Fund represents and warrants to you that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with said Acts and the rules and regulations of said Commission; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement becomes effective; and that neither any registration statement nor any prospectus when such registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Fund may but shall not be obligated to propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus as, in the light of future developments, may, in the opinion of the Fund's counsel, be necessary or advisable. If the Fund shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Fund of a written request from you to do so, you may, at your option, terminate this agreement or decline to make offers of the Fund's securities until such amendments are made. The Fund shall not file any amendment to any registration statement or supplement to any prospectus without giving you reasonable notice thereof in advance; provided, however, that nothing contained in this agreement shall in any way limit the Fund's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional. 1.9 The Fund authorizes you to use any prospectus in the form furnished to you from time to time, in connection with the sale of Shares. The Fund agrees to indemnify, defend and hold you, your several officers and directors, and any person who controls you within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which you, your officers and directors, or any such controlling person, may incur under the Securities Act of 1933, as amended, or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any prospectus or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in either any registration statement or any prospectus or necessary to make the statements in either thereof not misleading; provided, however, that the Fund's agreement to indemnify you, your officers or directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or prospectus in reliance upon and in conformity with written information furnished to the Fund by you specifically for use in the preparation thereof. The Fund's agreement to indemnify you, your officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Fund's being notified of any action brought against you, your officers or directors, or any such controlling person, such notification to be given by letter or by telegram addressed to the Fund at its address set forth above within ten days after the summons or other first legal process shall have been served. The failure so to notify the Fund of any such action shall not relieve the Fund from any liability which the Fund may have to the person against whom such action is brought by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of the Fund's indemnity agreement contained in this paragraph 1.9. The Fund will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Fund and approved by you. In the event the Fund elects to assume the defense of any such suit and retain counsel of good standing approved by you, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Fund does not elect to assume the defense of any such suit, or in case you do not approve of counsel chosen by the Fund, the Fund will reimburse you, your officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by you or them. The Fund's indemnification agreement contained in this paragraph 1.9 and the Fund's representations and warranties in this agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you, your officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to your benefit, to the benefit of your several officers and directors, and their respective estates, and to the benefit of any controlling persons and their successors. The Fund agrees promptly to notify you of the commencement of any litigation or proceedings against the Fund or any of its officers or Board members in connection with the issue and sale of Shares. 1.10 You agree to indemnify, defend and hold the Fund, its several officers and Board members, and any person who controls the Fund within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its officers or Board members, or any such controlling person, may incur under the Securities Act of 1933, as amended, or under common law or otherwise, but only to the extent that such liability or expense incurred by the Fund, its officers or Board members, or such controlling person resulting from such claims or demands, shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished in writing by you to the Fund specifically for use in the Fund's registration statement and used in the answers to any of the items of the registration statement or in the corresponding statements made in the prospectus, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished in writing by you to the Fund and required to be stated in such answers or necessary to make such information not misleading. Your agreement to indemnify the Fund, its officers and Board members, and any such controlling person, as aforesaid, is expressly conditioned upon your being notified of any action brought against the Fund, its officers or Board members, or any such controlling person, such notification to be given by letter or telegram addressed to you at your address set forth above within ten days after the summons or other first legal process shall have been served. You shall have the right to control the defense of such action, with counsel of your own choosing, satisfactory to the Fund, if such action is based solely upon such alleged misstatement or omission on your part, and in any other event the Fund, its officers or Board members, or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. The failure so to notify you of any such action shall not relieve you from any liability which you may have to the Fund, its officers or Board members, or to such controlling person by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of your indemnity agreement contained in this paragraph 1.10. This agreement of indemnity will inure exclusively to the Fund's benefit, to the benefit of the Fund's officers and Board members, and their respective estates, and to the benefit of any controlling persons and their successors. You agree promptly to notify the Fund of the commencement of any litigation or proceedings against you or any of your officers or directors in connection with the issue and sale of Shares. 1.11 No Shares shall be offered by either you or the Fund under any of the provisions of this agreement and no orders for the purchase or sale of such Shares hereunder shall be accepted by the Fund if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act of 1933, as amended, or if and so long as a current prospectus as required by Section 10 of said Act, as amended, is not on file with the Securities and Exchange Commission; provided, however, that nothing contained in this paragraph 1.11 shall in any way restrict or have an application to or bearing upon the Fund's obligation to repurchase any Shares from any shareholder in accordance with the provisions of the Fund's prospectus or charter documents. 1.12 The Fund agrees to advise you immediately in writing: (a) of any request by the Securities and Exchange Commission for amendments to the registration statement or prospectus then in effect or for additional information; (b) in the event of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or the initiation of any proceeding for that purpose; (c) of the happening of any event which makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; and (d) of all actions of the Securities and Exchange Commission with respect to any amendments to any registration statement or prospectus which may from time to time be filed with the Securities and Exchange Commission. 2. Offering Price Shares of any class of the Fund offered for sale by you shall be offered for sale at a price per share (the "offering price") approximately equal to (a) their net asset value (determined in the manner set forth in the Fund's charter documents) plus (b) a sales charge, if any and except to those persons set forth in the then-current prospectus, which shall be the percentage of the offering price of such Shares as set forth in the Fund's then-current prospectus. The offering price, if not an exact multiple of one cent, shall be adjusted to the nearest cent. In addition, Shares of any class of the Fund offered for sale by you may be subject to a contingent deferred sales charge as set forth in the Fund's then-current prospectus. You shall be entitled to receive any sales charge or contingent deferred sales charge in respect of the Shares. Any payments to dealers shall be governed by a separate agreement between you and such dealer and the Fund's then-current prospectus. 3. Term This agreement shall continue until the date (the "Reapproval Date") set forth on Exhibit A hereto (and, if the Fund has Series, a separate Reapproval Date shall be specified on Exhibit A for each Series), and thereafter shall continue automatically for successive annual periods ending on the day (the "Reapproval Day") of each year set forth on Exhibit A hereto, provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of the Shares of the Fund or the relevant Series, as the case may be, provided that in either event its continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in said Act) of any party to this agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement is terminable without penalty, on 60 days' notice, (a) by vote of holders of a majority of the Fund's or, as to any relevant Series, such Series' outstanding voting securities, or (b) by the Fund's Board as to the Fund or the relevant Series, as the case may be, or (c) by you. This agreement also will terminate automatically, as to the Fund or relevant Series, as the case may be, in the event of its assignment (as defined in said Act). 4. Miscellaneous 4.1 The Fund recognizes that from time to time your directors, officers, and employees may serve as trustees, directors, partners, officers, and employees of other business trusts, corporations, partnerships, or other entities (including other investment companies) and that such other entities may include the name "Dreyfus" as part of their name, and that your corporation or its affiliates may enter into distribution or other agreements with such other entities. If you cease to act as the distributor of the Fund's shares or if The Dreyfus Corporation or any of its affiliates ceases to act as the Fund's investment adviser, the Fund agrees that, at the request of The Dreyfus Corporation, the Fund will take all necessary action to change the name of the Fund to a name not including "Dreyfus" in any form or combination of words. 4.2 This agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any Trustee, officer or shareholder of the Fund individually. Please confirm that the foregoing is in accordance with your understanding and indicate your any acceptance hereof by signing below, whereupon it shall become a binding agreement between us. Very truly yours, Dreyfus Investment Portfolios By: /s/ Jeff Prusnofsky ------------------------------------- Jeff Prusnofsky, Assistant Secretary Accepted: DREYFUS SERVICE CORPORATION By: /s/ Noreen Ross ------------------------------- Noreen Ross, Senior Vice President EXHIBIT A Name of Series Reapproval Date Reapproval Day Core Bond Portfolio April 16, 2002 April 16th Core Value Portfolio April 16, 2000 April 16th Emerging Leaders Portfolio August 31, 2001 August 31st Emerging Markets Portfolio August 31, 2001 August 31st European Equity Portfolio April 16, 2001 April 16th MidCap Stock Portfolio April 16, 2000 April 16th Technology Growth Portfolio July 29, 2001 July 29th Founders Discovery Portfolio August 31, 2001 August 31st Founders Growth Portfolio April 16, 2000 April 16th Founders International April 16, 2000 April 16th Equity Portfolio Founders Passport Portfolio April 16, 2000 April 16th Japan Portfolio August 31, 2001 August 31st Revised as of: April 16, 2000 EX-99.G 3 custodyagreement172.txt CUSTODY AGREEMENT Exhibit A FOREIGN CUSTODY MANAGER AGREEMENT AGREEMENT made as of ______________________, 2001 between each of those funds in the Dreyfus Family of Funds listed on Schedule 2 hereto, as such Schedule may be revised from time to time (each a "Fund") and The Bank of New York ("BNY"). W I T N E S S E T H: WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager on the terms and conditions contained herein; WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform the duties set forth herein on the terms and conditions contained herein; NOW THEREFORE, in consideration of the mutual promises hereinafter contained in this Agreement, the Fund and BNY hereby agree as follows: DEFINITIONS Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: =============================================================================== "BOARD" SHALL MEAN THE BOARD OF DIRECTORS OR BOARD OF TRUSTEES, AS THE CASE MAY BE, OF THE FUND. "ELIGIBLE FOREIGN CUSTODIAN" SHALL HAVE THE MEANING PROVIDED IN THE RULE. "MONITORING SYSTEM" SHALL MEAN A SYSTEM ESTABLISHED BY BNY TO FULFILL THE RESPONSIBILITIES SPECIFIED IN CLAUSES (D) AND (E) OF SECTION 1 OF ARTICLE III OF THIS AGREEMENT. "RESPONSIBILITIES" SHALL MEAN THE RESPONSIBILITIES DELEGATED TO BNY UNDER THE RULE AS A FOREIGN CUSTODY MANAGER WITH RESPECT TO EACH SPECIFIED COUNTRY AND EACH ELIGIBLE FOREIGN CUSTODIAN SELECTED BY BNY, AS SUCH RESPONSIBILITIES ARE MORE FULLY DESCRIBED IN ARTICLE III OF THIS AGREEMENT. "RULE" SHALL MEAN RULE 17F-5 UNDER THE INVESTMENT COMPANY ACT OF 1940, AS EFFECTIVE ON JUNE 12, 2000, WITH COMPLIANCE REQUIRED NO LATER THAN JULY 2, 2001. "SPECIFIED COUNTRY" SHALL MEAN EACH COUNTRY LISTED ON SCHEDULE I ATTACHED HERETO AND EACH COUNTRY, OTHER THAN THE UNITED STATES, CONSTITUTING THE PRIMARY MARKET FOR A SECURITY WITH RESPECT TO WHICH THE FUND HAS GIVEN, OR MAY GIVE, SETTLEMENT INSTRUCTIONS TO BNY AS CUSTODIAN (THE "CUSTODIAN") UNDER ITS CUSTODY AGREEMENT WITH THE FUND. BNY AS A FOREIGN CUSTODY MANAGER ================================================================================ THE FUND ON BEHALF OF ITS BOARD HEREBY DELEGATES THE RESPONSIBILITIES TO BNY WITH RESPECT TO EACH SPECIFIED COUNTRY. BNY ACCEPTS THE BOARD'S DELEGATION OF RESPONSIBILITIES WITH RESPECT TO EACH SPECIFIED COUNTRY AND AGREES IN PERFORMING THE RESPONSIBILITIES AS A FOREIGN CUSTODY MANAGER TO EXERCISE REASONABLE CARE, PRUDENCE AND DILIGENCE SUCH AS A PERSON HAVING RESPONSIBILITY FOR THE SAFEKEEPING OF THE FUND'S ASSETS WOULD EXERCISE. RESPONSIBILITIES ================================================================================ SUBJECT TO THE PROVISIONS OF THIS AGREEMENT, BNY SHALL WITH RESPECT TO EACH SPECIFIED COUNTRY SELECT AN ELIGIBLE FOREIGN CUSTODIAN. IN CONNECTION THEREWITH, BNY SHALL: (A) DETERMINE THAT ASSETS OF THE FUND HELD BY SUCH ELIGIBLE FOREIGN CUSTODIAN WILL BE SUBJECT TO REASONABLE CARE, BASED ON THE STANDARDS APPLICABLE TO CUSTODIANS IN THE RELEVANT MARKET IN WHICH SUCH ELIGIBLE FOREIGN CUSTODIAN OPERATES, AFTER CONSIDERING ALL FACTORS RELEVANT TO THE SAFEKEEPING OF SUCH ASSETS, INCLUDING, WITHOUT LIMITATION, THOSE CONTAINED IN PARAGRAPH (C)(1) OF THE RULE; (B) DETERMINE THAT THE FUND'S FOREIGN CUSTODY ARRANGEMENTS WITH EACH ELIGIBLE FOREIGN CUSTODIAN ARE GOVERNED BY A WRITTEN CONTRACT WITH THE CUSTODIAN WHICH WILL PROVIDE REASONABLE CARE FOR THE FUND'S ASSETS BASED ON THE STANDARDS SPECIFIED IN PARAGRAPH (C)(1) OF THE RULE; (C) DETERMINE THAT EACH CONTRACT WITH AN ELIGIBLE FOREIGN CUSTODIAN SHALL INCLUDE THE PROVISIONS SPECIFIED IN PARAGRAPH (C)(2)(I)(A) THROUGH (F) OF THE RULE OR, ALTERNATIVELY, IN LIEU OF ANY OR ALL OF SUCH (C)(2)(I)(A) THROUGH (F) PROVISIONS, SUCH OTHER PROVISIONS AS BNY DETERMINES WILL PROVIDE, IN THEIR ENTIRETY, THE SAME OR A GREATER LEVEL OF CARE AND PROTECTION FOR THE ASSETS OF THE FUND AS SUCH SPECIFIED PROVISIONS; (D) MONITOR PURSUANT TO THE MONITORING SYSTEM AND IN ACCORDANCE WITH PARAGRAPH (C)(3)(I) OF THE RULE THE APPROPRIATENESS OF MAINTAINING THE ASSETS OF THE FUND WITH A PARTICULAR ELIGIBLE FOREIGN CUSTODIAN AND THE PERFORMANCE OF THE CONTRACT GOVERNING SUCH ARRANGEMENT; AND (E) ADVISE THE FUND AS SOON AS REASONABLY POSSIBLE WHENEVER BNY DETERMINES UNDER THE MONITORING SYSTEM THAT AN ARRANGEMENT (INCLUDING ANY MATERIAL CHANGE IN THE CONTRACT GOVERNING SUCH ARRANGEMENT) WITH AN ELIGIBLE FOREIGN CUSTODIAN NO LONGER MEETS THE REQUIREMENTS OF THE RULE. FOR PURPOSES OF CLAUSE (D) OF PRECEDING SECTION 1 OF THIS ARTICLE, BNY'S DETERMINATION OF APPROPRIATENESS SHALL NOT INCLUDE, NOR BE DEEMED TO INCLUDE, ANY EVALUATION OF COUNTRY RISKS ASSOCIATED WITH INVESTMENT IN A PARTICULAR COUNTRY. FOR PURPOSES HEREOF, "COUNTRY RISKS" SHALL MEAN SYSTEMIC RISKS OF HOLDING ASSETS IN A PARTICULAR COUNTRY INCLUDING BUT NOT LIMITED TO (A) AN ELIGIBLE FOREIGN CUSTODIAN'S USE OF AN ELIGIBLE SECURITIES DEPOSITORY (AS DEFINED IN RULE 17F-7 UNDER THE INVESTMENT COMPANY ACT OF 1940) OR ANY DEPOSITORY LOCATED OUTSIDE THE UNITED STATES THAT ACTS AS OR OPERATES A SYSTEM OR A TRANSNATIONAL SYSTEM FOR THE CENTRAL HANDLING OF SECURITIES OR ANY EQUIVALENT BOOK-ENTRIES; (B) SUCH COUNTRY'S FINANCIAL INFRASTRUCTURE; (C) SUCH COUNTRY'S PREVAILING CUSTODY AND SETTLEMENT PRACTICES; (D) NATIONALIZATION, EXPROPRIATION OR OTHER GOVERNMENTAL ACTIONS; (E) SUCH COUNTRY'S REGULATION OF THE BANKING OR SECURITIES INDUSTRY; (F) CURRENCY CONTROLS, RESTRICTIONS, DEVALUATIONS OR FLUCTUATIONS; AND (G) MARKET CONDITIONS WHICH AFFECT THE ORDERLY EXECUTION OF SECURITIES TRANSACTIONS OR AFFECT THE VALUE OF SECURITIES. BNY MAY ASSUME THAT THE BOARD OR THE FUND'S INVESTMENT ADVISOR HAS CONSIDERED THE COUNTRY RISKS ASSOCIATED WITH INVESTMENT IN EACH SPECIFIED COUNTRY AND WILL HAVE CONSIDERED SUCH RISKS PRIOR TO ANY SETTLEMENT INSTRUCTIONS BEING GIVEN TO THE CUSTODIAN WITH RESPECT TO ANY OTHER SPECIFIED COUNTRY. BNY SHALL PROVIDE TO THE BOARD QUARTERLY WRITTEN REPORTS NOTIFYING THE BOARD OF THE PLACEMENT OF ASSETS OF THE FUND WITH A PARTICULAR ELIGIBLE FOREIGN CUSTODIAN WITHIN A SPECIFIED COUNTRY AND OF ANY MATERIAL CHANGE IN THE ARRANGEMENTS (INCLUDING THE CONTRACT GOVERNING SUCH ARRANGEMENTS) WITH RESPECT TO ASSETS OF THE FUND WITH ANY SUCH ELIGIBLE FOREIGN CUSTODIAN. REPRESENTATIONS ================================================================================ THE FUND HEREBY REPRESENTS THAT: (A) THIS AGREEMENT HAS BEEN DULY AUTHORIZED, EXECUTED AND DELIVERED BY THE FUND, CONSTITUTES A VALID AND LEGALLY BINDING OBLIGATION OF THE FUND ENFORCEABLE IN ACCORDANCE WITH ITS TERMS, AND NO STATUTE, REGULATION, RULE, ORDER, JUDGMENT OR CONTRACT BINDING ON THE FUND PROHIBITS THE FUND'S EXECUTION OR PERFORMANCE OF THIS AGREEMENT; AND (B) THIS AGREEMENT HAS BEEN APPROVED AND RATIFIED BY THE BOARD AT A MEETING DULY CALLED AND AT WHICH A QUORUM WAS AT ALL TIMES PRESENT. BNY HEREBY REPRESENTS THAT: (A) BNY IS DULY ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF NEW YORK, WITH FULL POWER TO CARRY ON ITS BUSINESSES AS NOW CONDUCTED, AND TO ENTER INTO THIS AGREEMENT AND TO PERFORM ITS OBLIGATIONS HEREUNDER; (B) THIS AGREEMENT HAS BEEN DULY AUTHORIZED, EXECUTED AND DELIVERED BY BNY, CONSTITUTES A VALID AND LEGALLY BINDING OBLIGATION OF BNY ENFORCEABLE IN ACCORDANCE WITH ITS TERMS, AND NO STATUTE, REGULATION, RULE, ORDER, JUDGMENT OR CONTRACT BINDING ON BNY PROHIBITS BNY'S EXECUTION OR PERFORMANCE OF THIS AGREEMENT; (C) BNY HAS ESTABLISHED AND WILL MAINTAIN THE MONITORING SYSTEM; AND (D) BNY IS A U.S. BANK AS DEFINED IN PARAGRAPH (A) (7) OF THE RULE. CONCERNING BNY ================================================================================ BNY SHALL NOT BE LIABLE FOR ANY COSTS, EXPENSES, DAMAGES, LIABILITIES OR CLAIMS, INCLUDING ATTORNEYS' AND ACCOUNTANTS' FEES, SUSTAINED OR INCURRED BY, OR ASSERTED AGAINST, THE FUND EXCEPT TO THE EXTENT THE SAME ARISES OUT OF THE FAILURE OF BNY TO EXERCISE THE CARE, PRUDENCE AND DILIGENCE REQUIRED BY SECTION 2 OF ARTICLE II HEREOF. IN NO EVENT SHALL BNY BE LIABLE TO THE FUND, THE BOARD, OR ANY THIRD PARTY FOR SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR FOR LOST PROFITS OR LOSS OF BUSINESS, ARISING IN CONNECTION WITH THIS AGREEMENT. THE FOREGOING PROVISIONS OF THIS SECTION 1 SHALL NOT IN ANY WAY MODIFY OR SUPERSEDE BNY'S OBLIGATIONS TO HOLD HARMLESS AND INDEMNIFY THE FUND IN ACCORDANCE WITH ARTICLE XV, PARAGRAPH 7 OF THE CUSTODY AGREEMENT. THE FUND SHALL INDEMNIFY BNY AND HOLD IT HARMLESS FROM AND AGAINST ANY AND ALL COSTS, EXPENSES, DAMAGES, LIABILITIES OR CLAIMS, INCLUDING ATTORNEYS' AND ACCOUNTANTS' FEES, SUSTAINED OR INCURRED BY, OR ASSERTED AGAINST, BNY BY REASON OR AS A RESULT OF ANY ACTION OR INACTION, OR ARISING OUT OF BNY'S PERFORMANCE HEREUNDER, PROVIDED THAT THE FUND SHALL NOT INDEMNIFY BNY TO THE EXTENT ANY SUCH COSTS, EXPENSES, DAMAGES, LIABILITIES OR CLAIMS ARISES OUT OF BNY'S FAILURE TO EXERCISE THE REASONABLE CARE, PRUDENCE AND DILIGENCE REQUIRED BY SECTION 2 OF ARTICLE II HEREOF, NOR SHALL THE FUND BE LIABLE TO BNY OR ANY THIRD PARTY FOR SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR FOR LOST PROFITS OR LOSS OF BUSINESS, ARISING IN CONNECTION WITH THIS AGREEMENT. THE FOREGOING PROVISIONS OF THIS SECTION 2 SHALL NOT IN ANY WAY MODIFY OR SUPERSEDE BNY'S OBLIGATIONS TO HOLD HARMLESS AND INDEMNIFY THE FUND IN ACCORDANCE WITH ARTICLE XV, PARAGRAPH 7 OF THE CUSTODY AGREEMENT. FOR ITS SERVICES HEREUNDER, THE FUND AGREES TO PAY TO BNY SUCH COMPENSATION AND OUT-OF-POCKET EXPENSES AS SHALL BE MUTUALLY AGREED. BNY SHALL HAVE ONLY SUCH DUTIES AS ARE EXPRESSLY SET FORTH HEREIN. IN NO EVENT SHALL BNY BE LIABLE FOR ANY COUNTRY RISKS ASSOCIATED WITH INVESTMENTS IN A PARTICULAR COUNTRY. MISCELLANEOUS ================================================================================ THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE FUND AND BNY WITH RESPECT TO BNY'S RIGHTS AND RESPONSIBILITIES AS THE FUND'S FOREIGN CUSTODY MANAGER, AND NO PROVISION IN THE CUSTODY AGREEMENT BETWEEN THE FUND AND THE CUSTODIAN SHALL AFFECT THE DUTIES AND OBLIGATIONS OF BNY HEREUNDER, NOR SHALL ANY PROVISION IN THIS AGREEMENT AFFECT THE DUTIES OR OBLIGATIONS OF THE CUSTODIAN UNDER THE CUSTODY AGREEMENT. BY WAY OF EXAMPLE ONLY, THIS AGREEMENT DOES NOT IN ANY WAY MODIFY OR SUPERSEDE BNY'S OBLIGATION TO HOLD HARMLESS AND INDEMNIFY THE FUND IN ACCORDANCE WITH ARTICLE XV, PARAGRAPH 7 OF THE CUSTODY AGREEMENT. ANY NOTICE OR OTHER INSTRUMENT IN WRITING, AUTHORIZED OR REQUIRED BY THIS AGREEMENT TO BE GIVEN TO BNY, SHALL BE SUFFICIENTLY GIVEN IF RECEIVED BY IT AT ITS OFFICES AT 100 CHURCH STREET, 10TH FLOOR,, NEW YORK, NEW YORK 10286, OR AT SUCH OTHER PLACE AS BNY MAY FROM TIME TO TIME DESIGNATE IN WRITING. ANY NOTICE OR OTHER INSTRUMENT IN WRITING, AUTHORIZED OR REQUIRED BY THIS AGREEMENT TO BE GIVEN TO THE FUND SHALL BE SUFFICIENTLY GIVEN IF RECEIVED BY IT AT ITS OFFICES AT 200 PARK AVENUE, NEW YORK, N.Y. 10166 OR AT SUCH OTHER PLACE AS THE FUND MAY FROM TIME TO TIME DESIGNATE IN WRITING. IN CASE ANY PROVISION IN OR OBLIGATION UNDER THIS AGREEMENT SHALL BE INVALID, ILLEGAL OR UNENFORCEABLE IN ANY JURISDICTION, THE VALIDITY, LEGALITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS SHALL NOT IN ANY WAY BE AFFECTED THEREBY. THIS AGREEMENT MAY NOT BE AMENDED OR MODIFIED IN ANY MANNER EXCEPT BY A WRITTEN AGREEMENT EXECUTED BY BOTH PARTIES. THIS AGREEMENT SHALL EXTEND TO AND SHALL BE BINDING UPON THE PARTIES HERETO, AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS; PROVIDED HOWEVER, THAT THIS AGREEMENT SHALL NOT BE ASSIGNABLE BY EITHER PARTY WITHOUT THE WRITTEN CONSENT OF THE OTHER. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. THE FUND AND BNY HEREBY CONSENT TO THE JURISDICTION OF A STATE OR FEDERAL COURT SITUATED IN NEW YORK CITY, NEW YORK IN CONNECTION WITH ANY DISPUTE ARISING HEREUNDER. THE FUND AND BNY EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE FUND AND BNY EACH HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE PARTIES HERETO AGREE THAT IN PERFORMING HEREUNDER, BNY IS ACTING SOLELY ON BEHALF OF THE FUND AND NO CONTRACTUAL OR SERVICE RELATIONSHIP SHALL BE DEEMED TO BE ESTABLISHED HEREBY BETWEEN BNY AND ANY OTHER PERSON BY REASON OF THIS AGREEMENT. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED TO BE AN ORIGINAL, BUT SUCH COUNTERPARTS SHALL, TOGETHER, CONSTITUTE ONLY ONE INSTRUMENT. THIS AGREEMENT SHALL TERMINATE SIMULTANEOUSLY WITH THE TERMINATION OF THE CUSTODY AGREEMENT BETWEEN THE FUND AND THE CUSTODIAN, AND MAY OTHERWISE BE TERMINATED BY EITHER PARTY GIVING TO THE OTHER PARTY A NOTICE IN WRITING SPECIFYING THE DATE OF SUCH TERMINATION, WHICH SHALL BE NOT LESS THAN TWO HUNDRED SEVENTY (270) DAYS AFTER THE DATE OF SUCH NOTICE. ================================================================================ THE OBLIGATIONS OF THE FUND HEREUNDER SHALL BE BINDING ONLY UPON THE ASSETS AND PROPERTY OF THE FUND AND SHALL NOT BE BINDING UPON THIS ASSETS OR PROPERTY OR ANY BOARD MEMBER, OFFICER OR SHAREHOLDER OF THE FUND INDIVIDUALLY. IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the date first above written. EACH FUND LISTED ON SCHEDULE 2 HERETO By: __________________________ Title: THE BANK OF NEW YORK By: _______________________ Title: SCHEDULE 1 SPECIFIED COUNTRIES (To Be Provided) SCHEDULE 2 DREYFUS BASIC MONEY MARKET FUND, INC. DREYFUS BASIC MUNICIPAL FUND, INC. DREYFUS BASIC MUNICIPAL MONEY MARKET PORTFOLIO DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO DREYFUS BASIC MUNICIPAL BOND PORTFOLIO DREYFUS BASIC NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO DREYFUS BASIC U.S. GOVERNMENT MONEY MARKET FUND DREYFUS CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND DREYFUS CALIFORNIA TAX EXEMPT BOND FUND, INC. DREYFUS CALIFORNIA TAX EXEMPT MONEY MARKET FUND DREYFUS CASH MANAGEMENT DREYFUS CASH MANAGEMENT PLUS, INC. DREYFUS CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND DREYFUS CONNECTICUT MUNICIPAL MONEY MARKET FUND, INC. DREYFUS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND DREYFUS FLORIDA MUNICIPAL MONEY MARKET FUND DREYFUS GLOBAL GROWTH FUND DREYFUS GOVERNMENT CASH MANAGEMENT FUNDS DREYFUS GOVERNMENT CASH MANAGEMENT DREYFUS GOVERNMENT PRIME CASH MANAGEMENT DREYFUS GROWTH AND VALUE FUNDS, INC. DREYFUS INTERNATIONAL VALUE FUND DREYFUS INSTITUTIONAL MONEY MARKET FUND GOVERNMENT SECURITIES SERIES MONEY MARKET SERIES DREYFUS INSTITUTIONAL PREFERRED MONEY MARKET FUNDS DREYFUS INSTITUTIONAL PREFERRED MONEY MARKET FUND DREYFUS INSTITUTIONAL PREFERRED PLUS MONEY MARKET FUND DREYFUS INSURED MUNICIPAL BOND FUND, INC. DREYFUS INTERMEDIATE MUNICIPAL BOND FUND, INC. DREYFUS INTERNATIONAL FUNDS, INC. DREYFUS EMERGING MARKETS FUND DREYFUS INTERNATIONAL GROWTH FUND DREYFUS INVESTMENT PORTFOLIOS EMERGING MARKETS PORTFOLIO EUROPEAN EQUITY PORTFOLIO FOUNDERS INTERNATIONAL EQUITY PORTFOLIO FOUNDERS PASSPORT PORTFOLIO JAPAN PORTFOLIO DREYFUS LIQUID ASSETS, INC. DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND DREYFUS MONEY MARKET INSTRUMENTS, INC. GOVERNMENT SECURITIES SERIES MONEY MARKET SERIES DREYFUS MUNICIPAL BOND FUND, INC. DREYFUS MUNICIPAL CASH MANAGEMENT PLUS DREYFUS MUNICIPAL MONEY MARKET FUND, INC. DREYFUS NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND DREYFUS NEW JERSEY MUNICIPAL BOND FUND, INC. DREYFUS NEW JERSEY MUNICIPAL MONEY MARKET FUND, INC. DREYFUS NEW YORK MUNICIPAL CASH MANAGEMENT DREYFUS NEW YORK TAX EXEMPT BOND FUND, INC. DREYFUS NEW YORK TAX EXEMPT INTERMEDIATE BOND FUND DREYFUS NEW YORK TAX EXEMPT MONEY MARKET FUND DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND DREYFUS PENNSYLVANIA MUNICIPAL MONEY MARKET FUND DREYFUS PREMIER CALIFORNIA MUNICIPAL BOND FUND DREYFUS PREMIER EQUITY FUNDS, INC. DREYFUS PREMIER EMERGING MARKETS FUND DREYFUS PREMIER INTERNATIONAL FUNDS, INC. DREYFUS PREMIER EUROPEAN EQUITY FUND DREYFUS PREMIER GREATER CHINA FUND DREYFUS PREMIER INTERNATIONAL GROWTH FUND DREYFUS PREMIER JAPAN FUND DREYFUS PREMIER MUNICIPAL BOND FUND DREYFUS PREMIER NEW YORK MUNICIPAL BOND FUND DREYFUS PREMIER STATE MUNICIPAL BOND FUND CONNECTICUT SERIES FLORIDA SERIES MARYLAND SERIES MASSACHUSETTS SERIES MICHIGAN SERIES MINNESOTA SERIES NEW JERSEY SERIES NORTH CAROLINA SERIES OHIO SERIES PENNSYLVANIA SERIES TEXAS SERIES VIRGINIA SERIES DREYFUS PREMIER VALUE EQUITY FUNDS DREYFUS PREMIER INTERNATIONAL VALUE FUND DREYFUS PREMIER WORLDWIDE GROWTH FUND, INC. DREYFUS SHORT-INTERMEDIATE MUNICIPAL BOND FUND DREYFUS TAX EXEMPT CASH MANAGEMENT DREYFUS TREASURY CASH MANAGEMENT DREYFUS TREASURY PRIME CASH MANAGEMENT DREYFUS 100% U.S. TREASURY MONEY MARKET FUND DREYFUS VARIABLE INVESTMENT FUND INTERNATIONAL EQUITY PORTFOLIO INTERNATIONAL VALUE PORTFOLIO MONEY MARKET PORTFOLIO SPECIAL VALUE PORTFOLIO DREYFUS WORLDWIDE DOLLAR MONEY MARKET FUND, INC. GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC. GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND GENERAL GOVERNMENT SECURITIES MONEY MARKET FUNDS, INC. GENERAL GOVERNMENT SECURITIES MONEY MARKET FUND GENERAL TREASURY PRIME MONEY MARKET FUND GENERAL MONEY MARKET FUND, INC. GENERAL MUNICIPAL BOND FUND, INC. GENERAL MUNICIPAL MONEY MARKET FUNDS, INC. GENERAL MUNICIPAL MONEY MARKET FUND GENERAL NEW YORK MUNICIPAL BOND FUND, INC. Exhibit B AMENDMENT AMENDMENT made as of ______________, 2001 to those certain Custody Agreements between each fund in the Dreyfus Family of Funds listed on Schedule I hereto (each a "Fund") and The Bank of New York ("Custodian") (each such Custody Agreement hereinafter referred to as the "Custody Agreement"). W I T N E S S E T H : WHEREAS, Rule 17f-7 under the Investment Company Act of 1940, as amended (the "Rule"), was adopted on June 12, 2000 by the Securities and Exchange Commission; WHEREAS, the Fund and Custodian desire to amend the Custody Agreement to conform with the Rule; NOW, THEREFORE, the Fund and Custodian hereby agree as follows: ================================================================================ THE FOLLOWING NEW ARTICLE IS HEREBY ADDED TO THE CUSTODY AGREEMENT: FOREIGN DEPOSITORIES 1. As used in this Article, the term "Foreign Depository" shall mean each Eligible Securities Depository as defined in Rule 17f-7 under the Investment Company Act of 1940, as amended (the "Rule"), identified to the Fund from time to time, and their respective successors and nominees. 2. Custodian may assume in connection with any delivery of a Certificate or any giving of Oral Instructions or Written Instructions, as the case may be, that the Fund or its investment adviser has determined based upon and in reliance on information provided by the Custodian that the custody arrangements of each Foreign Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Foreign Depository within the meaning of the Rule. 3. With respect to each Foreign Depository, Custodian shall exercise reasonable care, prudence, and diligence such as a person having responsibilities for the safekeeping of the Fund's assets would exercise (i) to provide the Fund with a written analysis of the custody risks associated with maintaining assets with the Foreign Depository, (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund in writing of any material change in such risks, and (iii) to notify the Fund as soon as reasonably possible whenever a Foreign Depository ceases to be a Foreign Depository so that the Fund may withdraw its assets as soon as reasonably possible. The Fund acknowledges and agrees that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from Subcustodians, trade associations of which Custodian is a member from time to time, or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial infrastructure of the country in which it is organized, but not of any Foreign Depository to the extent covered by an analysis described in clause (i) of this Section, (b) such country's prevailing settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking or securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the orderly execution of securities transactions or affect the value of securities. ================================================================================ THIS AMENDMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED TO BE AN ORIGINAL, BUT SUCH COUNTERPARTS, SHALL, TOGETHER, CONSTITUTE ONLY ONE AMENDMENT. FOR EACH FUND ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST, A COPY OF ITS DECLARATION OF TRUST IS ON FILE WITH THE SECRETARY OF THE COMMONWEALTH OF MASSACHUSETTS. NOTICE IS HEREBY GIVEN THAT EACH SUCH INSTRUMENT IS EXECUTED ON BEHALF OF THE TRUSTEES OF EACH SUCH FUND AND NOT INDIVIDUALLY AND THAT THE OBLIGATIONS OF THIS AGREEMENT ARE NOT BINDING UPON ANY OF THE TRUSTEES OR SHAREHOLDERS INDIVIDUALLY BUT ARE BINDING ONLY UPON THE RESPECTIVE FUND. THE PARTIES EXPRESSLY AGREE THAT BNY AND ITS ASSIGNEES AND AFFILIATES SHALL LOOK SOLELY TO THE RESPECTIVE FUND'S ASSETS AND PROPERTY WITH RESPECT TO ENFORCEMENT OF ANY CLAIM. ================================================================================ IN WITNESS WHEREOF, the Fund and Custodian have caused this Amendment to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written. ================================================================================ EACH FUND LISTED ON SCHEDULE I HERETO BY: ---------------------------------- Title: ================================================================================ THE BANK OF NEW YORK BY: --------------------- Title: SCHEDULE 1 DREYFUS BASIC MONEY MARKET FUND, INC. DREYFUS BASIC MUNICIPAL FUND, INC. DREYFUS BASIC MUNICIPAL MONEY MARKET PORTFOLIO DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO DREYFUS BASIC MUNICIPAL BOND PORTFOLIO DREYFUS BASIC NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO DREYFUS BASIC U.S. GOVERNMENT MONEY MARKET FUND DREYFUS CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND DREYFUS CALIFORNIA TAX EXEMPT BOND FUND, INC. DREYFUS CALIFORNIA TAX EXEMPT MONEY MARKET FUND DREYFUS CASH MANAGEMENT DREYFUS CASH MANAGEMENT PLUS, INC. DREYFUS CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND DREYFUS CONNECTICUT MUNICIPAL MONEY MARKET FUND, INC. DREYFUS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND DREYFUS FLORIDA MUNICIPAL MONEY MARKET FUND DREYFUS GLOBAL GROWTH FUND DREYFUS GOVERNMENT CASH MANAGEMENT FUNDS DREYFUS GOVERNMENT CASH MANAGEMENT DREYFUS GOVERNMENT PRIME CASH MANAGEMENT DREYFUS GROWTH AND VALUE FUNDS, INC. DREYFUS INTERNATIONAL VALUE FUND DREYFUS INSTITUTIONAL MONEY MARKET FUND GOVERNMENT SECURITIES SERIES MONEY MARKET SERIES DREYFUS INSTITUTIONAL PREFERRED MONEY MARKET FUNDS DREYFUS INSTITUTIONAL PREFERRED MONEY MARKET FUND DREYFUS INSTITUTIONAL PREFERRED PLUS MONEY MARKET FUND DREYFUS INSURED MUNICIPAL BOND FUND, INC. DREYFUS INTERMEDIATE MUNICIPAL BOND FUND, INC. DREYFUS INTERNATIONAL FUNDS, INC. DREYFUS EMERGING MARKETS FUND DREYFUS INTERNATIONAL GROWTH FUND DREYFUS INVESTMENT PORTFOLIOS EMERGING MARKETS PORTFOLIO EUROPEAN EQUITY PORTFOLIO FOUNDERS INTERNATIONAL EQUITY PORTFOLIO FOUNDERS PASSPORT PORTFOLIO JAPAN PORTFOLIO DREYFUS LIQUID ASSETS, INC. DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND DREYFUS MONEY MARKET INSTRUMENTS, INC. GOVERNMENT SECURITIES SERIES MONEY MARKET SERIES DREYFUS MUNICIPAL BOND FUND, INC. DREYFUS MUNICIPAL CASH MANAGEMENT PLUS DREYFUS MUNICIPAL MONEY MARKET FUND, INC. DREYFUS NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND DREYFUS NEW JERSEY MUNICIPAL BOND FUND, INC. DREYFUS NEW JERSEY MUNICIPAL MONEY MARKET FUND, INC. DREYFUS NEW YORK MUNICIPAL CASH MANAGEMENT DREYFUS NEW YORK TAX EXEMPT BOND FUND, INC. DREYFUS NEW YORK TAX EXEMPT INTERMEDIATE BOND FUND DREYFUS NEW YORK TAX EXEMPT MONEY MARKET FUND DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND DREYFUS PENNSYLVANIA MUNICIPAL MONEY MARKET FUND DREYFUS PREMIER CALIFORNIA MUNICIPAL BOND FUND DREYFUS PREMIER EQUITY FUNDS, INC. DREYFUS PREMIER EMERGING MARKETS FUND DREYFUS PREMIER INTERNATIONAL FUNDS, INC. DREYFUS PREMIER EUROPEAN EQUITY FUND DREYFUS PREMIER GREATER CHINA FUND DREYFUS PREMIER INTERNATIONAL GROWTH FUND DREYFUS PREMIER JAPAN FUND DREYFUS PREMIER MUNICIPAL BOND FUND DREYFUS PREMIER NEW YORK MUNICIPAL BOND FUND DREYFUS PREMIER STATE MUNICIPAL BOND FUND CONNECTICUT SERIES FLORIDA SERIES MARYLAND SERIES MASSACHUSETTS SERIES MICHIGAN SERIES MINNESOTA SERIES NEW JERSEY SERIES NORTH CAROLINA SERIES OHIO SERIES PENNSYLVANIA SERIES TEXAS SERIES VIRGINIA SERIES DREYFUS PREMIER VALUE EQUITY FUNDS DREYFUS PREMIER INTERNATIONAL VALUE FUND DREYFUS PREMIER WORLDWIDE GROWTH FUND, INC. DREYFUS SHORT-INTERMEDIATE MUNICIPAL BOND FUND DREYFUS TAX EXEMPT CASH MANAGEMENT DREYFUS TREASURY CASH MANAGEMENT DREYFUS TREASURY PRIME CASH MANAGEMENT DREYFUS 100% U.S. TREASURY MONEY MARKET FUND DREYFUS VARIABLE INVESTMENT FUND INTERNATIONAL EQUITY PORTFOLIO INTERNATIONAL VALUE PORTFOLIO MONEY MARKET PORTFOLIO SPECIAL VALUE PORTFOLIO DREYFUS WORLDWIDE DOLLAR MONEY MARKET FUND, INC. GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC. GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND GENERAL GOVERNMENT SECURITIES MONEY MARKET FUNDS, INC. GENERAL GOVERNMENT SECURITIES MONEY MARKET FUND GENERAL TREASURY PRIME MONEY MARKET FUND GENERAL MONEY MARKET FUND, INC. GENERAL MUNICIPAL BOND FUND, INC. GENERAL MUNICIPAL MONEY MARKET FUNDS, INC. GENERAL MUNICIPAL MONEY MARKET FUND GENERAL NEW YORK MUNICIPAL BOND FUND, INC. Exhibit C MUTUAL FUND CUSTODY AND SERVICES AGREEMENT TABLE OF CONTENTS SECTION PAGE DEFINITIONS......................................................................................................20 ARTICLE I - CUSTODY PROVISIONS...................................................................................22 1. Appointment of Custodian................................................................................22 2. Custody of Cash and Securities..........................................................................22 3. Settlement of Fund Transactions.........................................................................26 4. Lending of Securities...................................................................................27 5. Persons Having Access to Assets of the Fund.............................................................27 6. Standard of Care; Limit of Custodial Responsibilities...................................................27 7. Appointment of Subcustodians...........................................................................29 8. Overdraft Facility and Security for Payment.............................................................29 9. Tax Obligations.........................................................................................30 ARTICLE II - FOREIGN CUSTODY MANAGER SERVICES....................................................................31 1. Delegation..............................................................................................31 2. Changes to Appendix B...................................................................................31 3. Reports to Board........................................................................................31 4. Monitoring System.......................................................................................31 5. Standard of Care.......................................................................................31 6. Use of Securities Depositories..........................................................................32 ARTICLE III - INFORMATION SERVICES...............................................................................33 1. Risk Analysis..........................................................................................33 2. Monitoring of Securities Depositories..................................................................33 3. Use of Agents..........................................................................................33 4. Exercise of Reasonable Care............................................................................33 5. Liabilities and Warranties.............................................................................33 ARTICLE IV - GENERAL PROVISIONS..................................................................................34 1. Compensation............................................................................................34 2. Insolvency of Foreign Custodians........................................................................34 3. Liability for Depositories..............................................................................34 4. Damages.................................................................................................34 5. Indemnification; Liability of the Fund..................................................................34 6. Force Majeure...........................................................................................34 7. Termination.............................................................................................35 8. Books and Records.......................................................................................35 9. Miscellaneous..........................................................................................35 APPENDIX A List of Authorized Persons..........................................................................39 APPENDIX B Selected Countries..................................................................................40 APPENDIX C Self Custody Rider..................................................................................41
MUTUAL FUND CUSTODY AND SERVICES AGREEMENT ================================================================================ THIS AGREEMENT IS EFFECTIVE AS OF _______________________, 2001, AND IS BETWEEN DREYFUS INVESTMENT PORTFOLIOS, (the "Fund") a business trust organized under the laws of the State of Maryland having its principal office and place of business AT 200 PARK AVENUE, NEW YORK, NEW YORK 10166, AND MELLON BANK, N.A., (the "Custodian"), a national banking association with its principal place of business at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258. W I T N E S S E T H: WHEREAS, the Fund and the Custodian desire to set forth their agreement with respect to the custody of the Fund's Securities and cash and the processing of Securities transactions; WHEREAS, the Board desires to delegate certain of its responsibilities for performing the services set forth in paragraphs (c)(1), (c)(2) and (c)(3) of Rule 17f-5 to the Custodian as a Foreign Custody Manager (as defined in Rule 17f-5); WHEREAS, the Custodian agrees to accept such delegation with respect to Assets, including those held by Foreign Custodians in the Selected Countries; and WHEREAS, the Custodian meets the requirements of a Primary Custodian and agrees to perform the function of a Primary Custodian under Rule 17f-7; NOW THEREFORE, the Fund and the Custodian agree as follows: DEFINITIONS The following words and phrases, unless the context requires otherwise, shall have the following meanings: 1. "ACT": the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time. 2. "AGREEMENT": this agreement and any amendments. 3. "ASSETS": any of the Fund's investments, including foreign currencies and investments for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments. 4. "AUTHORIZED PERSON": any person, whether or not any such person is an officer or employee of the Fund, duly authorized by the Board to give Instructions on behalf of the Fund, who is listed in the Certificate ANNEXED HERETO AS APPENDIX A or such other Certificate as may be received by the Custodian from time to time. 5. "BOARD": the Board of Directors (or the body authorized to exercise authority similar to that of the board of directors of a corporation) of the Fund. 6. "BOOK-ENTRY SYSTEM": the Federal Reserve/Treasury book-entry system for United States and federal agency Securities, its successor or successors and its nominee or nominees. 7. "BUSINESS DAY": each day on which the Fund is required to determine its net asset value, and any other day on which the Securities and Exchange Commission may require the Fund to be open for business. 8. "CERTIFICATE": any notice, instruction or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, which is actually received by the Custodian and signed on behalf of the Fund by an Authorized Person. 9. "COUNTRY RISK": all factors reasonably related to the systemic risk of holding assets in a particular country including, but not limited to, such country's financial infrastructure (including Securities Depositories), prevailing or developing custody and settlement practices and laws applicable to the safekeeping and recovery of Assets held in custody. 10. "ELIGIBLE SECURITIES DEPOSITORY": the meaning of the term set forth in Rule 17f-7(b)(1). 11. "FOREIGN CUSTODIAN": (a) a banking institution or trust company incorporated or organized under the laws of a country other than the United States, that is regulated as such by the country's government or an agency of the country's government; (b) a majority-owned direct or indirect subsidiary of a U.S. Bank or bank holding company; or (c) any entity other than a Securities Depository with respect to which exemptive or no-action relief has been granted by the Securities and Exchange Commission to permit it to hold Assets of a registered investment company. For the avoidance of doubt, the term "Foreign Custodian" shall not include Euroclear, Clearstream, or any other transnational system for the central handling of securities or equivalent book-entries regardless of whether or not such entities or their service providers are acting in a custodial capacity with respect to Assets, Securities or other property of the Fund. 12. "INSTRUCTIONS": directions and instructions to the Custodian from an Authorized Person in writing by facsimile or electronic transmission subject to the Custodian's practices or any other method specifically agreed upon, provided that the Custodian may, in its discretion, accept oral directions and instructions from an individual it reasonably believes to be an Authorized Person and may require confirmation in writing. 13. "PRIMARY CUSTODIAN": the meaning set forth in Rule 17f-7(b)(2). 14. "PROSPECTUS": the Fund's current prospectus and statement of additional information relating to the registration of the Fund's Shares under the Securities Act of 1933, as amended. 15. "RISK ANALYSIS": the analysis required under Rule 17f-7(a)(1)(i)(A). 16. "RULES 17F-4, 17F-5 AND 17F-7": such Rules as promulgated under Section 17(f) of the Act, as such rules (and any successor rules or regulations) may be amended from time to time. 17. "SECURITY" OR "SECURITIES": bonds, debentures, notes, stocks, shares, evidences of indebtedness, options, futures, warrants and other securities, commodities, interests and investments from time to time owned by the Fund. 18. "SECURITIES DEPOSITORY": a system for the central handling of securities as defined in Rule 17f-4. 19. "SELECTED COUNTRIES": THE JURISDICTIONS LISTED ON APPENDIX B as such may be amended from time to time in accordance with Article II. 20. "SHARES" shares of the Fund, however designated. 21. "TRANSFER AGENT": the person which performs the transfer agent functions for the Fund. 22. "U.S. BANK": the meaning set forth in Rule 17f-5(a)(7). ARTICLE I CUSTODY PROVISIONS 1. APPOINTMENT OF CUSTODIAN. The Board appoints the Custodian, and the Custodian accepts such appointment, as custodian of all the Securities and monies at the time owned by or in the possession of the Fund during the period of this Agreement. 2. CUSTODY OF CASH AND SECURITIES. (A) RECEIPT AND HOLDING OF ASSETS. The Fund will deliver or cause to be delivered to the Custodian all Securities and monies owned by it at any time during the period of this Agreement. The Custodian will not be responsible for such Securities and monies until actually received. The Custodian shall establish and maintain a separate account for the Fund and shall credit to the separate account all Securities and monies so received. The Board specifically authorizes the Custodian to hold Securities, Assets or other property of the Fund with any domestic subcustodian, or Securities Depository; and Foreign Custodians or Eligible Securities Depositories in the Selected Countries as provided in Article II. Securities and monies of the Fund deposited in a Securities Depository or Eligible Securities Depositories will be reflected in an account or accounts which include only assets held by the Custodian or a Foreign Custodian for its customers. (B) DISBURSEMENTS OF CASH AND DELIVERY OF SECURITIES. The Custodian shall disburse cash or deliver out Securities only for the purposes listed below. Instructions must specify or evidence the purpose for which any transaction is to be made and the Fund shall be solely responsible to assure that Instructions are in accord with any limitations or restrictions applicable to the Fund. (1) In payment for Securities purchased for the Fund, upon receipt of such Securities in accord with market practice; (2) In payment of dividends or distributions with respect to Shares; (3) In payment for Shares which have been redeemed by the Fund; (4) In payment of taxes; (5) When Securities are called, redeemed, retired, or otherwise become payable; (6) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or readjustment; (7) Upon conversion of Securities pursuant to their terms into other securities; (8) Upon exercise of subscription, purchase or other similar rights represented by Securities; (9) For the payment of interest, management or supervisory fees, distributions or operating expenses; (10) In payment of fees and in reimbursement of the expenses and liabilities of the Custodian attributable to the Fund; (11) In connection with any borrowings by the Fund or short sales of securities requiring a pledge of Securities, but only against receipt of amounts borrowed; (12) In connection with any loans, but only against receipt of adequate collateral as specified in Instructions which shall reflect any restrictions applicable to the Fund; (13) For the purpose of redeeming Shares of the Fund and the delivery to, or the crediting to the account of, the Custodian or the Fund's transfer agent, net amounts payable with respect to such Shares to be redeemed; (14) For the purpose of redeeming in kind Shares of the Fund against delivery to the Custodian or the Transfer Agent of such Shares to be so redeemed; (15) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund. The Custodian will act only in accordance with Instructions in the delivery of Securities to be held in escrow and will have no responsibility or liability for any such Securities which are not returned promptly when due other than to make proper requests for such return; (16) For spot or forward foreign exchange transactions to facilitate security trading, receipt of income from Securities or related transactions; (17) When Securities are sold by the Fund, upon receipt of the total amount payable to the Fund therefore, in accord with market practice; (18) Upon the termination of this Agreement; and (19) Pursuant to a Certificate setting forth the name and address of the person to whom the payment is to be made, the account from which payment is to be made, the amount to be paid and the purpose for which payment is to be made, provided that in the event of disbursements pursuant to this paragraph 19 of Section 2(b), the Fund shall indemnify and hold the Custodian harmless from any claims or losses arising out of such disbursements in reliance on such Certificate. (C) ACTIONS WHICH MAY BE TAKEN WITHOUT INSTRUCTIONS. Unless an Instruction to the contrary is received, the Custodian shall: (1) Collect all income due or payable, provided that the Custodian shall not be responsible for the failure to receive payment of (or late payment of) distributions or other payments with respect to Securities or other property held in the account; (2) Present for payment and collect the amount payable upon all Securities which may mature or be called, redeemed, retired or otherwise become payable. Notwithstanding the foregoing, the Custodian shall have no responsibility to the Fund for monitoring or ascertaining any call, redemption or retirement dates with respect to put bonds or similar instruments which are owned by the Fund and held by the Custodian or its nominees where such dates are not published in sources routinely used by the Custodian. The Custodian shall have no responsibility or liability to the Fund for any loss by the Fund for any missed payments or other defaults resulting therefrom when information is not published in sources routinely used by the Custodian, unless the Custodian received timely notification from the Fund specifying the time, place and manner for the presentment of any such put bond owned by the Fund and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability for the accuracy or completeness of any notification the Custodian may furnish to the Fund with respect to put bonds or similar instruments; (3) Surrender Securities in temporary form for definitive Securities; (4) Hold directly, or through a Securities Depository with respect to Securities therein deposited, for the account of the Fund all rights and similar Securities issued with respect to any Securities held by the Custodian hereunder for the Fund; (5) Submit or cause to be submitted to Fund or its investment advisor, as designated by Fund, information actually received by the Custodian regarding ownership rights pertaining to property held for the Fund; (6) Deliver or cause to be delivered any Securities held for the Fund in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; (7) Deliver Securities upon the receipt of payment in connection with any repurchase agreement related to such Securities entered into by the Fund; (8) Deliver Securities owned by the Fund to the issuer thereof or its agent when such Securities are called, redeemed, retired or otherwise become payable; provided, however, that in any such case the cash or other consideration is to be delivered to the Custodian. Notwithstanding the foregoing, the Custodian shall have no responsibility to the Fund for monitoring or ascertaining any call, redemption or retirement dates with respect to put bonds or similar instruments which are owned by the Fund and held by the Custodian or its nominee where such dates are not published in sources routinely used by the Custodian. The Custodian shall have no responsibility or liability to the Fund for any loss by the Fund for any missed payment or other default resulting therefrom when information is not published in sources routinely used by the Custodian, unless the Custodian received timely notification from the Fund specifying the time, place and manner for the presentment of any such put bond owned by the Fund and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability to the Fund for the accuracy or completeness of any notification the Custodian may furnish to the Fund with respect to put bonds or similar investments; (9) Endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Fund; and (10) Execute any and all documents, agreements or other instruments as may be necessary or desirable for the accomplishment of the purposes of this Agreement. (D) CONFIRMATION AND STATEMENTS. Promptly after the close of business on each day, the Custodian shall furnish the Fund with confirmations and a summary of all transfers to or from the account of the Fund during the day. Where securities purchased by the Fund are in a fungible bulk of securities registered in the name of the Custodian (or its nominee) or shown in the Custodian's account on the books of a Securities Depository, the Custodian shall by book-entry or otherwise identify the quantity of those securities belonging to the Fund. At least monthly, the Custodian shall furnish the Fund with a detailed statement of the Securities and monies held for the Fund under this Agreement. (E) REGISTRATION OF SECURITIES. The Custodian is authorized to hold all Securities, Assets, or other property of the Fund in nominee name, in bearer form or in book-entry form. The Custodian may register any Securities, Assets or other property of the Fund in the name of the Fund, in the name of the Custodian, any domestic subcustodian, or Foreign Custodian, in the name of any duly appointed registered nominee of such entity, or in the name of a Securities Depository or its successor or successors, or its nominee or nominees. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of a Securities Depository, any Securities which it may hold for the account of the Fund and which may from time to time be registered in the name of the Fund. (F) SEGREGATED ACCOUNTS. Upon receipt of Instruction, the Custodian will, from time to time establish segregated accounts on behalf of the Fund to hold and deal with specified assets as shall be directed. 3. SETTLEMENT OF FUND TRANSACTIONS. (A) CUSTOMARY PRACTICES. Settlement of transactions may be effected in accordance with trading and processing practices customary in the jurisdiction or market where the transaction occurs. The Fund acknowledges that this may, in certain circumstances, require the delivery of cash or Securities (or other property) without the concurrent receipt of Securities (or other property) or cash. In such circumstances, the Custodian shall have no responsibility for nonreceipt of payments (or late payment) or nondelivery of Securities or other property (or late delivery) by the counterparty. (B) CONTRACTUAL INCOME. Unless the parties agree to the contrary, the Custodian shall credit the Fund; in accordance with the Custodian's standard operating procedure, with income and maturity proceeds on securities on contractual payment date, net of any taxes, or upon actual receipt. To the extent the Custodian credits income on contractual payment date, the Custodian may reverse such accounting entries with back value to the contractual payment date if the Custodian reasonably believes that such amount will not be received. (C) CONTRACTUAL SETTLEMENT. Unless the parties agree to the contrary, the Custodian will attend to the settlement of securities transactions in accordance with the Custodian's standard operating procedure, on the basis of either contractual settlement date accounting or actual settlement date accounting. To the extent the Custodian settles certain securities transactions on the basis of contractual settlement date accounting, the Custodian may reverse with back value to the contractual settlement date any entry relating to such contractual settlement if the Custodian reasonably believes that such amount will not be received. 4. LENDING OF SECURITIES. The Custodian may lend the assets of the Fund in accordance with the terms and conditions of a separate securities lending agreement. 5. PERSONS HAVING ACCESS TO ASSETS OF THE FUND. (a) No trustee or agent of the Fund, and no officer, director, employee or agent of the Fund's investment adviser, of any sub-investment adviser of the Fund, or of the Fund's administrator, shall have physical access to the assets of the Fund held by the Custodian or be authorized or permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of the Fund to any such person. No officer, director, employee or agent of the Custodian who holds any similar position with the Fund's investment adviser, with any sub-investment adviser of the Fund or with the Fund's administrator shall have access to the assets of the Fund. (b) Nothing in this Section 5 shall prohibit any duly authorized officer, employee or agent of the Fund, or any duly authorized officer, director, employee or agent of the investment adviser, of any sub-investment adviser of the Fund or of the Fund's administrator, from giving Instructions to the Custodian or executing a Certificate so long as it does not result in delivery of or access to assets of the Fund prohibited by paragraph (a) of this Section 5. 6. STANDARD OF CARE; LIMIT OF CUSTODIAL RESPONSIBILITIES. (A) STANDARD OF CARE. In connection with its duties and responsibilities under this Article I, the Custodian shall not be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, except for any such loss or damage arising out of the negligence or willful misconduct of the Custodian, its employees, agents or domestic subcustodians. The Custodian may, with respect to questions of law, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything reasonably done or omitted by it in conformity with such advice or opinion. (B) LIMIT OF DUTIES. Without limiting the generality of the foregoing, the Custodian shall be under no duty or obligation to inquire into, and shall not be liable for: (1) The acts or omissions of any agent appointed pursuant to Instructions of the Fund or its investment advisor including, but not limited to, any broker-dealer or other entity to hold any Securities or other property of the Fund as collateral or otherwise pursuant to any investment strategy; (2) The validity of the issue of any Securities purchased by the Fund, the legality of the purchase thereof, or the propriety of the amount paid therefor; (3) The legality of the sale of any Securities by the Fund or the propriety of the amount for which the same are sold; (4) The legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefor; (5) The legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; (6) The legality of the declaration or payment of any distribution of the Fund; (7) The legality of any borrowing for temporary or emergency purposes. (C) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money, directly or by the final crediting of the account representing the Fund's interest in the Book- Entry System or Securities Depository. (D) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be required to effect collection of any amount due to the Fund from the Transfer Agent nor be required to cause payment or distribution by the Transfer Agent of any amount paid by the Custodian to the Transfer Agent. (E) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be required to take action to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until it shall be directed to take such action and it shall be assured to its satisfaction of reimbursement of its related costs and expenses. (F) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under any duty or obligation to ascertain whether any Securities at any time delivered to or held by it for the Fund are such as may properly be held by the Fund under the provisions of its governing instruments or Prospectus. (G) RELIANCE ON INSTRUCTIONS. The Custodian shall be entitled to rely upon any Certificate, Instruction, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be genuine and to be signed by an Authorized Person of the Fund. Where the Custodian is issued Instructions orally, the Fund acknowledges that if written confirmation is requested, the validity of the transactions or enforceability of the transactions authorized by the Fund shall not be affected if such confirmation is not received or is contrary to oral Instructions given. The Custodian shall be under no duty to question any direction of an Authorized Person, to review any property held in the Fund's account, to make any suggestions with respect to the investment of the Assets in the Fund's account, or to evaluate or question the performance of any Authorized Person. The Custodian shall not be responsible or liable for any diminution of value of any Securities or other property held by the Custodian, absent a breach of the Custodian's duties under this Agreement. 7. APPOINTMENT OF SUBCUSTODIANS. The Custodian is hereby authorized to appoint one or more domestic subcustodians (which may be an affiliate of the Custodian) to hold Securities and monies at any time owned by the Fund. The Custodian is also hereby authorized when acting pursuant to Instructions to: 1) place Assets with any Foreign Custodian located in a jurisdiction which is not a Selected Country and with Euroclear, Clearstream, or any other transnational depository; and 2) place Assets with a broker or other agent as subcustodian in connection with futures, options, short selling or other transactions. When acting pursuant to such Instructions, the Custodian shall not be liable for the acts or omissions of any subcustodian so appointed. 8. OVERDRAFT FACILITY AND SECURITY FOR PAYMENT. In the event that the Custodian receives Instructions to make payments or transfers of monies on behalf of the Fund for which there would be, at the close of business on the date of such payment or transfer, insufficient monies held by the Custodian on behalf of the Fund, the Custodian may, in its sole discretion, provide an overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the completion of such payment or transfer. Any Overdraft provided hereunder: (a) shall be payable on the next Business Day, unless otherwise agreed by the Fund and the Custodian; and (b) shall accrue interest from the date of the Overdraft to the date of payment in full by the Fund at a rate agreed upon from time to time, by the Custodian and the Fund or, in the absence of specific agreement, at such rate as charged to other customers of Custodian under procedures uniformly applied. The Custodian and the Fund acknowledge that the purpose of such Overdraft is to temporarily finance the purchase of Securities for prompt delivery in accordance WITH THE TERMS HEREOF, TO MEET UNANTICIPATED OR UNUSUAL REDEMPTIONS, TO ALLOW THE SETTLEMENT OF FOREIGN EXCHANGE CONTRACTS or to meet other unanticipated Fund expenses. The Custodian shall promptly notify the Fund (an "Overdraft Notice") of any Overdraft. To secure payment of any Overdraft, the Fund hereby grants to the Custodian a continuing security interest in and right of setoff against the Securities and cash in the Fund's account from time to time in the full amount of such Overdraft. Should the Fund fail to pay promptly any amounts owed hereunder, the Custodian shall be entitled to use available cash in the Fund's account and to liquidate Securities in the account as necessary to meet the Fund's obligations under the Overdraft. In any such case, and without limiting the foregoing, the Custodian shall be entitled to take such other actions(s) or exercise such other options, powers and rights as the Custodian now or hereafter has as a secured creditor UNDER THE MASSACHUSETTS UNIFORM COMMERCIAL CODE OR ANY OTHER APPLICABLE LAW. 9. TAX OBLIGATIONS. For purposes of this Agreement, "Tax Obligations" shall mean taxes, withholding, certification and reporting requirements, claims for exemptions or refund, interest, penalties, additions to tax and other related expenses. To the extent that the Custodian has received relevant and necessary information with respect to the Fund's account, the Custodian shall perform the following services with respect to Tax Obligations: a. the Custodian shall file claims for exemptions or refunds with respect to withheld foreign (non-U.S.) taxes in instances in which such claims are appropriate; b. the Custodian shall withhold appropriate amounts, as required by U.S. tax laws, with respect to amounts received on behalf of nonresident aliens; and c. the Custodian shall provide to the Fund or an Authorized Person such information received by the Custodian which could, in the Custodian's reasonable belief, assist the Fund or the Authorized Person in the submission of any reports or returns with respect to Tax Obligations. The Fund shall inform the Custodian in writing as to which party or parties shall receive information from the Custodian. The Custodian shall provide such other services with respect to Tax Obligations, including preparation and filing of tax returns and reports and payment of amounts due (to the extent funded), as requested by the Fund and agreed to by the Custodian in writing. The Custodian shall have no independent obligation to determine the existence of any information with respect to, or the extent of, any Tax Obligations now or hereafter imposed on the Fund or its account by any taxing authority. Except as specifically provided herein or agreed to in writing by the Custodian, the Custodian shall have no obligations or liability with respect to Tax Obligations, including, without limitation, any obligation to file or submit returns or reports with any taxing authorities. In making payments to service providers pursuant to Instructions, the Fund acknowledges that the Custodian is acting as a paying agent and not as the payor, for tax information reporting and withholding purposes. ARTICLE II FOREIGN CUSTODY MANAGER SERVICES 1. DELEGATION. THE BOARD DELEGATES TO THE CUSTODIAN, AND THE CUSTODIAN HEREBY AGREES TO ACCEPT, RESPONSIBILITY as the Fund's Foreign Custody Manager for selecting, contracting with and monitoring Foreign Custodians in Selected Countries set forth in Appendix B (except as noted therein) in accordance with Rule 17f-5(c). 2. CHANGES TO APPENDIX B. Appendix B may be amended from time to time to add or delete jurisdictions by written agreement signed by an Authorized Person of the Fund and the Custodian, but the Custodian RESERVES THE RIGHT TO DELETE JURISDICTIONS UPON REASONABLE NOTICE TO THE FUND. 3. REPORTS TO BOARD. Custodian shall provide written reports notifying the Board of the placement of Assets with a particular Foreign Custodian. Such reports shall be provided to the Board quarterly, except as otherwise agreed by the Custodian and the Fund. The Custodian shall promptly notify the Board, in writing, of any material change in Fund's foreign custody arrangements. 4. MONITORING SYSTEM. IN each case in which the Custodian has exercised delegated authority to place Assets with a Foreign Custodian, the Custodian shall monitor the appropriateness of maintaining the Assets with such Foreign Custodian, and THE PERFORMANCE OF THE FOREIGN CUSTODIAN UNDER ITS CONTRACT WITH THE CUSTODIAN, IN ACCORDANCE WITH RULE 17f-5(c)(3). The Custodian will notify the Fund as soon as possible if an arrangement with a Foreign Custodian no longer meets the requirements of Rule 17f-5, so that the Fund may withdraw its Assets in accordance with Rule 17f-5(c)(3)(ii). 5. STANDARD OF CARE; INDEMNITY. In exercising the delegated authority under this Article of the Agreement, the Custodian agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Assets would exercise in like circumstances. Contracts with Foreign Custodians shall comply with Rule 17f-5(c)(2), and provide for reasonable care for Assets based on the standards applicable to Foreign Custodians in the Selected Country. In making this determination, the Custodian shall consider the factors set forth in Rule 17f-5(c)(1). In addition, the Custodian shall hold the Fund harmless from, and indemnify the Fund against, any loss, action, claim, demand, expense and proceeding, including counsel fees, that occurs as a result of the failure of any Foreign Custodian to exercise reasonable care with respect to the safekeeping of Securities and monies of the Fund. Notwithstanding the generality of the foregoing, however, the Custodian shall not be liable for any losses resulting from Country Risk. 6. USE OF SECURITIES DEPOSITORIES. In exercising its delegated authority, Custodian may assume, unless instructed in writing to the contrary, that the Board or the Fund's investment adviser has determined, pursuant to Rule 17f-7, to place and maintain foreign assets with any Securities Depository as to which the Custodian has provided the Fund with a Risk Analysis. [BALANCE OF PAGE INTENTIONALLY BLANK] ARTICLE III INFORMATION SERVICES 1. RISK ANALYSIS. The Custodian will provide the Fund with a Risk Analysis with respect to Securities Depositories OPERATING IN THE COUNTRIES LISTED IN APPENDIX B. If the Custodian is unable to provide a Risk Analysis with respect to a particular Securities Depository, it will notify the Fund. If a new Securities Depository commences operation in one of the Appendix B countries, the Custodian will provide the Fund with a Risk Analysis in a reasonably practicable time after such Securities Depository becomes operational. If a new country is added to Appendix B, the Custodian will provide the Fund with a Risk Analysis with respect to each Securities Depository in that country within a reasonably practicable time after the addition of the country to Appendix B. 2. MONITORING OF SECURITIES DEPOSITORIES. The Custodian will monitor, on a continuing basis, the custody risks associated with maintaining assets with each Securities Depository for which it has provided the Fund with a Risk Analysis, as required under Rule 17f-7. The Custodian will promptly notify Fund or its investment adviser of any material change in these risks, or if the custody arrangements with a Securities Depository may no longer meet the requirements of Rule 17f-7. 3. USE OF AGENTS. SUBJECT TO ITS STANDARD OF CARE IN SECTION 4, BELOW, The Custodian may employ agents, including, but not limited to Foreign Custodians, to perform its responsibilities under Sections 1 and 2 above. 4. EXERCISE OF REASONABLE CARE. The Custodian will exercise reasonable care, prudence, and diligence in performing its responsibilities under this Article III. With respect to the Risk Analyses provided or monitoring performed by an agent, the Custodian will exercise reasonable care in the selection of such agent, and shall be entitled to rely upon information provided by agents so selected in the performance of its duties and responsibilities under this Article III, unless the Custodian knows or should have known such information to be incorrect, incomplete or misleading. 5. LIABILITIES AND WARRANTIES. While the Custodian will take reasonable precautions to ensure that information provided is accurate, the Custodian shall have no liability with respect to information provided to it by third parties, unless the Custodian knows or should have known such information to be incorrect, incomplete or misleading. Except as provided, due to the nature and source of information, and the necessity of relying on various information sources, most of which are external to the Custodian, the Custodian shall have no liability for direct or indirect use of such information. ================================================================================ ARTICLE IV GENERAL PROVISIONS 1. COMPENSATION. (a) The Fund will compensate the Custodian for its services rendered under this Agreement in accordance with the fees, including out of pocket disbursements, set forth in a separate Fee Schedule, which schedule may be modified by the Custodian upon not less than sixty days prior written notice to the Fund. The Custodian shall also be entitled to reimbursement from the Fund for the amount of any loss, damage, liability or expense incurred with respect to the Fund, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. (b) The Custodian will bill the Fund as soon as practicable after the end of each calendar month. The Fund will promptly pay to the Custodian the amount of such billing. (c) If not paid timely by the Fund, and unless otherwise reasonably disputed by the Fund, the Custodian may charge against assets held on behalf of the Fund compensation and any expenses incurred by the Custodian in the performance of its duties pursuant to this Agreement. 2. INSOLVENCY OF FOREIGN CUSTODIANS. The Custodian shall be responsible for losses or damages suffered by the Fund arising as a result of the insolvency of a Foreign Custodian only to the extent that the Custodian failed to comply with the standard of care set forth in Article II with respect to the selection and monitoring of such Foreign Custodian. 3. LIABILITY FOR DEPOSITORIES. The Custodian shall not be responsible for any losses resulting from the deposit or maintenance of Securities, Assets or other property of the Fund with a Securities Depository. Nothing in this provision shall preclude damages for a breach of duties under Article III. 4. DAMAGES. The Custodian shall not be liable for any indirect, consequential or special damages with respect to its role as Foreign Custody Manager, Custodian or information vendor, except as may arise from its bad faith or willful misconduct in performing its responsibilities hereunder. 5. LIABILITY OF THE FUND. The Fund and the Custodian agree that the obligations of the Fund under this Agreement shall not be binding upon any of the Directors, Trustees, shareholders, nominees, officers, employees or agents, whether past, present or future, of the Fund individually, but are binding only upon the assets and property of the Fund. 6. FORCE MAJEURE. The Custodian shall not be liable for any losses resulting from or caused by events or circumstances beyond its reasonable control, including, but not limited to, losses resulting from nationalization, strikes, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or the breakdown, failure or malfunction of any utilities or telecommunications systems; or any order or regulation of any banking or securities industry including changes in market rules and market conditions affecting the execution or settlement of transactions; or acts of war, terrorism, insurrection or revolution; or any other similar event. 7. TERMINATION. (a) Either party may terminate this Agreement by giving the other party two hundred seventy (270) days notice in writing, specifying the date of such termination. In the event notice is given by the Fund, it shall be accompanied by a Certificate evidencing the vote of the Fund's Board to terminate this Agreement. (b) The Fund shall, on or before a specified termination date, deliver to the Custodian a Certificate evidencing the vote of the Board designating a successor custodian. In the absence of such designation, the Custodian may designate a successor custodian, which shall be a person qualified to so act under the Act, or the Fund. If both the Custodian and the Fund fail to designate a successor custodian, the Fund shall, upon the date specified in the notice of termination, and upon the delivery by the Custodian of all Securities and monies then owned by the Fund, be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and responsibilities under this Agreement, other than the duty with respect to Securities held in the Book-Entry System which cannot be delivered to the Fund. (c) Upon termination of the Agreement, the Custodian shall, upon receipt of a notice of acceptance by the successor custodian, deliver to the successor all Securities and monies then held by the Custodian on behalf of the Fund, after deducting all fees, expenses and other amounts owed which have not been reasonably disputed. (d) In the event of a dispute following the termination of this Agreement, all relevant provisions shall be deemed to continue to apply to the obligations and liabilities of the parties with respect thereto. 8. BOOKS AND RECORDS. The books and records pertaining to the Fund which are in the possession of the Custodian shall be the property of the Fund. (The Custodian may, however, to the extent required by law or regulation retain copies of the same if the Fund requests the return of its books and records.) Such books and records shall be prepared and maintained as required by the Act, and other applicable securities laws, rules and regulations. Such books and records shall be open to inspection and audit at reasonable times by officers and auditors employed by the Fund at its own expense and with prior written notice to the Custodian, and by the appropriate employees of the Securities and Exchange Commission. 9. MISCELLANEOUS. (A) APPENDIX A is a Certificate signed by the Secretary of the Fund setting forth the names and the signatures of Authorized Persons. The Fund shall furnish a new Certificate when the list of Authorized Persons is changed in any way. Until a new certification is received, the Custodian shall be fully protected in acting upon Instructions from Authorized Persons as set forth in the last delivered Certificate. (b) Any required written notice or other instrument shall be sufficiently given if addressed to the Custodian or the Fund as the case may be and delivered to it at its offices at: The Custodian: Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, Pennsylvania 15258 Attn: ____________________________ The Fund: 200 Park Avenue New York, New York 10166 Attn. Joseph Connolly or at such other place as the parties may from time to time designate to the other in writing. (c) This Agreement may not be amended or modified except by a written agreement executed by both parties. (d) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund authorized or approved by a vote of the Board, provided, however, that the Custodian may assign the Agreement or any function thereof to any corporation or entity which directly or indirectly is controlled by, or is under common control with, the Custodian and any other attempted assignment without written consent shall be null and void. (e) Nothing in this Agreement shall give or be construed to give or confer upon any third party any rights hereunder. (f) The Custodian represents that it is a U.S. Bank within the meaning of paragraph (a)(7) of Rule 17f-5. (g) The Fund acknowledges and agrees that, except as expressly set forth in this Agreement, the Fund is solely responsible to assure that the maintenance of the Fund's Securities and cash hereunder complies with applicable laws and regulations, including without limitation the Act and the rules and regulations promulgated thereunder and applicable interpretations thereof or exemptions therefrom. The Fund represents that it has determined that it is reasonable to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement. (h) This Agreement shall be construed in accordance with the laws of The Commonwealth of Pennsylvania. (i) The captions of the Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (j) Each party represents to the other that it has all necessary power and authority, and has obtained any consent or approval necessary, to permit it to enter into and perform this Agreement and that this Agreement does not violate, give rise to a default or right of termination under or otherwise conflict with, any applicable law, regulation, ruling, decree or other governmental authorization or any contract to which it is a party or by which any of its assets is bound. (k) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives duly authorized as of the day and year first above written. DREYFUS INVESTMENT PORTFOLIOS BY: --------------------------- Name: Title: MELLON BANK, N.A. BY: --------------------------- Name: Title: APPENDIX A LIST OF AUTHORIZED PERSONS I, ______________________, the Secretary of ______________________, a [corporation/business trust] organized under the laws of the [State of Maryland/Commonwealth of Massachusetts] (the "Fund"), do hereby certify that: The following individuals have been duly authorized as Authorized Persons to give Instructions on behalf of the Fund and the specimen signatures set forth opposite their respective names are their true and correct signatures: NAME SIGNATURE ------------------------- BY: --------------------------- Secretary Dated: APPENDIX B SELECTED COUNTRIES [List] [TO BE PROVIDED] "*Note, Custodian will not act as a Foreign Custody Manager with respect to assets held in this country. Holding assets and use of Mellon's usual subcustodian in this country is subject to Instructions by the Fund and its execution of a separate letter-agreement pertaining to custody and market risks." APPENDIX C SELF CUSTODY RIDER Notwithstanding any other provisions of this Agreement to the contrary, the following provisions shall apply to this Agreement as being subject to Rule 17f-2 under the Act. 1. PHYSICAL SEPARATIONS OF SECURITIES. EXCEPT AS PERMITTED BY RULE 17F-2 OR RULE 17F-4, THE CUSTODIAN SHALL HOLD ALL SECURITIES DEPOSITED WITH IT PHYSICALLY SEGREGATED AT ALL TIMES FROM THOSE OF ANY OTHER PERSON. 2. ACCESS TO SECURITIES. Except as otherwise provided by law, no person shall be authorized or permitted to have access to the Securities deposited with the Custodian except pursuant to a Board resolution. Each such resolution shall designate not more than five persons who shall be either officers or responsible employees of the Fund and shall provide that access to such investments shall be had only by two or more such persons jointly, at least one of whom shall be an officer; except that access to such investments shall be permitted (1) to properly authorized officers and employees of the Custodian and (2) to the Fund's independent public accountant jointly with any two persons so designated or with such officer or employee of the Custodian. 3. DEPOSITS AND WITHDRAWALS. Each person when depositing such securities or similar investments in or withdrawing them from a Securities Depository or when ordering their withdrawal and delivery from the safekeeping of the Custodian, shall comply with the requirements of Rule 17f-2(e). 4. EXAMINATION. The Fund shall comply with the requirements of Rule 17f-2(f) with regard to examinations by an independent public accountant. Acknowledged: - ---------------------------- --------------- Fund Custodian EX-23 4 e485b.txt CONSENT OF INDEPENDENT ACCOUNTANT CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Counsel and Independent Auditors" and to the use of our reports dated February 9, 2001 for Core Bond Portfolio, Core Value Portfolio, Emerging Leaders Portfolio, Emerging Markets Portfolio, European Equity Portfolio, Founders Discovery Portfolio, Founders Growth Portfolio, Founders International Equity Portfolio, Founders Passport Portfolio, Japan Portfolio, MidCap Stock Portfolio and Technology Growth Portfolio, each a Portfolio of Dreyfus Investment Portfolios, which are incorporated by reference in this Registration Statement (Form N-1A 333-47011) of Dreyfus Investment Portfolios. ERNST & YOUNG LLP New York, New York April 23, 2001 EX-99.P 5 codeofethics.txt CODE OF ETHICS MELLON SECURITIES TRADING POLICY Questions Concerning the Securities Trading Policy? Contact Corporate Compliance, (412) 234-1661 AIM 151-4340, Mellon Bank, Pittsburgh, PA 15258-0001 Dear Colleague: At Mellon, we take great pride in our transformation over the years from a regional bank to a global financial services company. Our growth makes us better able to meet customers' changing needs, gives us greater stability during any unexpected economic downturn and affords us the opportunity to be the best performing financial services company. This diversity of our businesses also makes us a complex organization, which is why it's more important than ever that you clearly understand Mellon's Securities Trading Policy. Mellon has long maintained strict policies regarding securities transactions, all with the same clear-cut objective: to establish and demonstrate our compliance with the high standards with which we conduct our business. If you are new to Mellon, please take the time to fully understand the Policy and consult it whenever you are unsure about appropriate actions. If you have seen the Policy previously, I urge you to renew your understanding of the entire document and its implications for you. Only by strict adherence to the Policy can we ensure that our well-deserved reputation for integrity is preserved. Sincerely yours, Martin G. McGuinn CONTENTS PAGE INTRODUCTION 1 CLASSIFICATION OF EMPLOYEES 2 -Insider Risk Employees -Investment Employees -Access Decision Makers -Other Employees -Consultants, Independent Contractors and Temporary Employees PERSONAL SECURITIES TRADING PRACTICES 3 SECTION ONE - APPLICABLE TO INSIDER RISK EMPLOYEES 3 Quick Reference - Insider Risk Employees 5 Standards of Conduct for Insider Risk Employees 6 Restrictions on Transactions in Mellon Securities 9 Restrictions on Transactions in Other Securities 11 Protecting Confidential Information 14 SECTION TWO - APPLICABLE TO INVESTMENT EMPLOYEES 17 Quick Reference - Investment Employees 19 Standards of Conduct for Investment Employees 20 Restrictions on Transactions in Mellon Securities 24 Restrictions on Transactions in Other Securities 26 Protecting Confidential Information 29 SECTION THREE - APPLICABLE TO OTHER EMPLOYEES 31 Quick Reference - Other Employees 33 Standards of Conduct for Other Employees 34 Restrictions on Transactions in Mellon Securities 35 Restrictions on Transactions in Other Securities 37 Protecting Confidential Information 39 GLOSSARY Definitions 43 Exhibit A - Sample Letter to Broker 49
- ------------------------------------------------------------------------------- INTRODUCTION The Securities Trading Policy (the "Policy") is designed to - ------------ reinforce Mellon Financial Corporation's ("Mellon's") reputation for integrity by avoiding even the appearance of impropriety in the conduct of Mellon's business. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Mellon Employee. Mellon and its employees are subject to certain laws and regulations governing personal securities trading. Mellon has developed this Policy to promote the highest standards of behavior and ensure compliance with applicable laws. Employees should be aware that they may be held personally liable for any improper or illegal acts committed during the course of their employment, and that "ignorance of the law" is not a defense. Employees may be subject to civil penalties such as fines, regulatory sanctions including suspensions, as well as criminal penalties. Employees outside the United States are also subject to applicable laws of foreign jurisdictions, which may differ substantially from US law and which may subject such employees to additional requirements. Such employees must comply with applicable requirements of pertinent foreign laws as well as with the provisions of the Policy. To the extent any particular portion of the Policy is inconsistent with foreign law, employees should consult the General Counsel or the Manager of Corporate Compliance. Any provision of this Policy may be waived or exempted at the discretion of the Manager of Corporate Compliance. Any such waiver or exemption will be evidenced in writing and maintained in the Audit and Risk Review Department. Employees must read the Policy and must comply with it. Failure to comply with the provisions of the Policy may result in the imposition of serious sanctions, including but not limited to disgorgement of profits, dismissal, substantial personal liability and referral to law enforcement agencies or other regulatory agencies. Employees should retain the Policy in their records for future reference. Any questions regarding the Policy should be referred to the Manager of Corporate Compliance or his/her designee. - ------------------------------------------------------------------------------- CLASSIFICATION OF The Policy is applicable to all employees of Mellon and all EMPLOYEES of its subsidiaries which are more than 50% owned by Mellon. This includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees. It does not include consultants and contract or temporary employees, nor employees of subsidiaries which are 50% or less owned by Mellon. Although the Policy provisions generally have worldwide applicability, some sections of the Policy may conflict with the laws or customs of the countries in which Mellon operations are located. The Policy may be amended for operations outside the United States only with the approval of the Manager of Corporate Compliance. Employees are engaged in a wide variety of activities for Mellon. In light of the nature of their activities and the impact of federal and state laws and the regulations thereunder, the Policy imposes different requirements and limitations on employees based on the nature of their activities for Mellon. To assist employees in complying with the requirements and limitations imposed on them in light of their activities, employees are classified into one of four categories: Insider Risk Employee, Investment Employee, Access Decision Maker and Other Employee. Appropriate requirements and limitations are specified in the Policy based upon an employee's classification. Business line management, in conjunction with the Manager of Corporate Compliance, will determine the classification of each employee based on the following guidelines. Employees should confirm their classification with their Preclearance Compliance Officer or the Manager of Corporate Compliance. INSIDER RISK You are considered to be an Insider Risk Employee if, in the EMPLOYEE normal conduct of your Mellon responsibilities, you are likely to receive or be perceived to possess or receive, material nonpublic information concerning Mellon's commercial credit or corporate finance customers. This will typically include certain employees in the credit, lending and leasing businesses, certain members of the Audit and Risk Review, and Legal Departments, and all members of the Senior Management Committee who are not Investment Employees. INVESTMENT You are considered to be an Investment Employee if, in the EMPLOYEE normal conduct of your Mellon responsibilities, you are likely to receive or be perceived to possess or receive, material nonpublic information concerning Mellon's trading in securities for Mellon's account or for the accounts of others, and/or if you provide investment advice. This will typically include: o certain employees in fiduciary securities sales and trading, investment management and advisory services, investment research and various trust or fiduciary functions; o an employee of a Mellon entity registered under the Investment Advisers Act of 1940 who is also an "Access Person" as defined by Rule 17j-1 of the Investment Company Act of 1940 (see glossary); and o any member of Mellon's Senior Management Committee who, as part of his/her usual duties, has management responsibility for fiduciary activities or routinely has access to information about customers' securities transactions. ACCESS DECISION A person designated as such by the Investment Ethics MAKER (ADM) Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for mutual funds and other managed accounts. See further details in the Access Decision Maker edition of the Policy. OTHER You are considered to be an Other Employee if you are an EMPLOYEE employee of Mellon Financial Corporation or any of its direct or indirect subsidiaries who is not an Insider Risk Employee, Investment Employee, or an ADM. CONSULTANTS, Managers should inform consultants, independent contractors INDEPENDENT and temporary employees of the general provisions of the CONTRACTORS AND Policy (such as the prohibition on trading while in TEMPORARY possession of material nonpublic information), but generally EMPLOYEES they will not be required to preclear trades or report their personal securities holdings. If one of these persons would be considered an Insider Risk Employee, Investment Employee or Access Decision Maker if the person were a Mellon employee, the person's manager should advise the Manager of Corporate Compliance who will determine whether such individual should be subject to the preclearance and reporting requirements of the Policy. PERSONAL SECURITIES TRADING PRACTICES SECTION ONE - APPLICABLE TO INSIDER RISK EMPLOYEES CONTENTS Page PERSONAL SECURITIES TRADING PRACTICES SECTION ONE - APPLICABLE TO INSIDER RISK EMPLOYEES Quick Reference - Insider Risk Employees 5 Standards of Conduct for Insider Risk Employees 6 --Conflict of Interest 6 --Material Nonpublic Information 6 --Brokers 6 --Personal Securities Transaction Reports 6 --Preclearance for Personal Securities Transactions 6 --Exemptions from Requirement to Preclear 7 --Gifting of Securities 8 --DRIPs, DPPs and AIPs 8 --Restricted List 8 --Confidential Treatment 9 Restrictions on Transactions in Mellon Securities 9 --Mellon 401(k) Plan 10 --Mellon Employee Stock Options 11 Restrictions on Transactions in Other Securities 11 --Prohibition on Investments in Securities of Financial 12 Services Organizations 13 Beneficial Ownership 13 Non-Mellon Employee Benefit Plans 13 Protecting Confidential Information 14 --Insider Trading and Tipping 15 --The "Chinese Wall" GLOSSARY Definitions 43 Exhibit A - Sample Letter to Broker 49
QUICK REFERENCE - INSIDER RISK EMPLOYEES - ------------------------------------------------------------------------------- SOME THINGS 1. Duplicate Statements & Confirmations - Instruct your broker, YOU MUST DO trust account manager or other entity through which you have a securities trading account to send directly to MANAGER OF CORPORATE COMPLIANCE, MELLON BANK, PO BOX 3130, PITTSBURGH, PA 15230-3130: o Trade confirmations summarizing each transaction o Periodic statements Exhibit B of this Policy can be used to notify your broker. This applies to all accounts in which you have a beneficial interest. (See Glossary) 2. Preclearance - Before initiating a securities transaction, written preclearance must be obtained from the Manager of Corporate Compliance. This can be done by completing a Preclearance Request Form and: o delivering the request to the Manager of Corporate Compliance, AIM 151-4340, o faxing the request to (412) 234-1516, or o contacting the Manager of Corporate Compliance for other available notification options. Preclearance Request Forms can be obtained from Corporate Compliance (412) 234-1661. If preclearance approval is received the trade must be executed before the end of the 3rd business day (with the date of approval being the 1st business day), at which time the preclearance approval will expire. 3. Special Approvals o Acquisition of securities in a Private Placement must be precleared by the employee's Department/Entity head and the Manager of Corporate Compliance. o Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. - -------------------------------------------------------------------------------- SOME THINGS Mellon Securities - The following transactions in Mellon YOU MUST NOT DO securities are prohibited for all Mellon Employees: o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities - New investments in financial services organizations are prohibited for certain employees only - see page 12. Other restrictions are detailed throughout Section One. Read the Policy! - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXEMPTIONS Preclearance is NOT required for: --- o Purchases or sales of municipal bonds, non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures, index securities, securities issued by investment companies, commercial paper; CDs; bankers' acceptances; repurchase agreements; and direct obligations of the government of the United States. o Transactions in any account over which the employee has no direct or indirect control over the investment decision making process. o Transactions that are non-volitional on the part of an employee (such as stock dividends). o Changes in elections under Mellon's 401(k) Retirement Savings Plan. o An exercise of an employee stock option administered by Human Resources. o Automatic reinvestment of dividends under a DRIP or Automatic Investment Plan. (Optional cash purchases under a DRIP or Direct Purchase Plan do require preclearance.) o Sales of securities pursuant to tender offers and sales or exercises of "Rights".(see page 8). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- QUESTIONS? (412) 234-1661 - -------------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. - -------------------------------------------------------------------------------- STANDARDS OF Because of their particular responsibilities, Insider Risk CONDUCT FOR Employees are subject to preclearance and personal securities INSIDER RISK reporting requirements, as discussed below. EMPLOYEES Every Insider Risk Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST tansaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may engage in or recommend a securities NONPUBLIC transaction, for his or her own benefit or for the benefit INFORMATION of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All Insider Risk Employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. PERSONAL Trading Accounts - All Insider Risk Employees are required SECURITIES to instruct their broker, trust account manager or other TRANSACTIONS entity through which they have a securities trading account REPORTS to submit directly to the Manager of Corporate Compliance copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other exempt securities as that term is defined by the Policy and the account has the capability to have reportable securities traded in it, the Insider Risk Employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance. An example of an instruction letter to a broker is contained in Exhibit A. PRECLEARANCE All Insider Risk Employees must notify the Manager of FOR PERSONAL Corporate Compliance in writing and receive preclearance SECURITIES before they engage in any purchase or sale of a TRANSACTIONS security. Insider Risk Employees should refer to the provisions under "Beneficial Ownership" below, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the Manager of Corporate Compliance. The Manager of Corporate Compliance will notify the Insider Risk Employee whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the Manager of Corporate Compliance to the Insider Risk Employee. A record of such notification will be maintained by the Manager of Corporate Compliance. However, it shall be the responsibility of the Insider Risk Employee to obtain a written record of the Manager of Corporate Compliance's notification within 24 hours of such notification. The Insider Risk Employee should retain a copy of this written record. As there could be many reasons for preclearance being granted or denied, Insider Risk Employees should not infer from the preclearance response anything regarding the security for which preclearance was requested. Although making a preclearance request does not obligate an Insider Risk Employee to do the transaction, it should be noted that: o preclearance requests should not be made for a transaction that the Insider Risk Employee does not intend to make. o preclearance authorization will expire at the end of the third business day after it is received. The day authorization is granted is considered the first business day. o Insider Risk Employees should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the Insider Risk Employee is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. o Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the three-day preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. EXEMPTIONS FROM Preclearance by Insider Risk Employees is not required for REQUIREMENT TO the following transactions: PRECLEAR o Purchases or sales of Exempt Securities (direct obligations of the government of the United States; high quality short-term debt instruments; bankers' acceptances; CDs; commercial paper; repurchase agreements; and securities issued by open-end investment companies); o Purchases or sales of municipal bonds, closed-end mutual funds; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; o Purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may only be exempted from preclearance procedures, when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; o Transactions that are non-volitional on the part of an employee (such as stock dividends); o The sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); o Changes to elections in the Mellon 401(k) plan; o Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; o Sales of rights acquired from an issuer, as described above; and/or o Sales effected pursuant to a bona fide tender offer. GIFTING OF Insider Risk Employees desiring to make a bona fide gift of SECURITIES securities or who receive a bona fide gift, including an inheritance, of securities do not need to preclear the transaction. However, Insider Risk Employees must report such bona fide gifts to the Manager of Corporate Compliance. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An Insider Risk Employee who purchases a security with the intention of making a gift must preclear the purchase transaction. DRIPS, DPPS AND Certain companies with publicly traded securities establish: AIPS o Dividend Reinvestment Plans (DRIPs) - These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). o Direct Purchase Plans (DPPs) - These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. o Automatic Investment Plans (AIPs) - These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. Insider Risk Employees who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. Insider Risk Employees must preclear all optional cash purchases through a DRIP and all purchases through a DPP. Insider Risk Employees must also preclear all sales through a DRIP, DPP or AIP. RESTRICTED LIST The Manager of Corporate Compliance will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for Insider Risk Employees. The Restricted List will not be distributed outside of the office of Corporate Compliance. From time to time, such trading restrictions may be appropriate to protect Mellon and its Insider Risk Employees from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information to avoid unwarranted inferences. To assist the Manager of Corporate Compliance in identifying companies that may be appropriate for inclusion on the Restricted List, the department/entity heads in which Insider Risk Employees are employed are required to inform the Manager of Corporate Compliance in writing of any companies they believe should be included on the Restricted List, based upon facts known or readily available to such department heads. Although the reasons for inclusion on the Restricted List may vary, they could typically include the following: o Mellon is involved as a lender, investor or adviser in a merger, acquisition or financial restructuring involving the company; o Mellon is involved as a selling shareholder in a public distribution of the company's securities; o Mellon is involved as an agent in the distribution of the company's securities; o Mellon has received material nonpublic information on the company; o Mellon is considering the exercise of significant creditors' rights against the company; or o The company is a Mellon borrower in Credit Recovery. Department heads of sections in which Insider Risk Employees are employed are also responsible for notifying the Manager of Corporate Compliance in writing of any change in circumstances making it appropriate to remove a company from the Restricted List. The Manager of Corporate Compliance will retain copies of the restricted lists for five years. CONFIDENTIAL The Manager of Corporate Compliance will use his or her best TREATMENT efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. - -------------------------------------------------------------------------------- RESTRICTIONS ON Employees who engage in transactions involving Mellon TRANSACTIONS IN securities should be aware of their unique responsibilities MELLON with respect to such transactions arising from the SECURITIES employment relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - Employees are prohibited from purchasing and selling, or from selling and purchasing, Mellon securities within any 60 calendar day period. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term PLAN trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However, changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o Employees are not required to preclear any elections or changes made in their 401(k) account. o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON EMPLOYEE Receipt - Your receipt of an employee stock option from STOCK OPTIONS Mellon is not deemed to be a purchase of a security. Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. - -------------------------------------------------------------------------------- RESTRICTIONS ON Purchases or sales by an employee of the securities of TRANSACTIONS IN issuers with which Mellon does business, or other third OTHER party issuers, could result in liability on the part of such SECURITIES employee. Employees should be sensitive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: o Credit, Consulting or Advisory Relationship - Employees may not buy or sell securities of a company if they are considering granting, renewing, modifying or denying any credit facility to that company, acting as a benefits consultant to that company, or acting as an adviser to that company with respect to the company's own securities. In addition, lending employees who have assigned responsibilities in a specific industry group are not permitted to trade securities in that industry. This prohibition does not apply to transactions in open end mutual funds. o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - Insider Risk Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Insider Risk Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Private Placements - Insider Risk Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance and the employee's department head. Approval must be given by both persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - All Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: - Corporate Strategy & Development - Legal (Pittsburgh only) - Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: - Commercial Banks other than - Thrifts Mellon - Savings and Loan - Bank Holding Companies other Associations than Mellon - Broker/Dealers - Insurance Companies - Transfer Agents - Investment Advisory Companies - Other Depository - Shareholder Servicing Companies Institutions The term "securities issued by a financial services organization" DOES NOT INCLUDE securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE BENEFIT done under a bona fide employee benefit plan administered by an PLANS organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - -------------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, its CONFIDENTIAL customers and other parties that, for various reasons, INFORMATION should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER TRADING Federal securities laws generally prohibit the trading of AND TIPPING securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider LEGAL trading). Any person who passes along material nonpublic PROHIBITIONS information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S POLICY Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS ON As a diversified financial services organization, Mellon THE faces unique challenges in complying with the prohibitions FLOW OF on insider trading and tipping of material non-public INFORMATION information, and misuse of confidential information. This is WITHIN because one Mellon unit might have material nonpublic MELLON information about a company while other Mellon units may (THE "CHINESE have a desire, or even a fiduciary duty, to buy or sell that WALL) company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. PERSONAL SECURITIES TRADING PRACTICES SECTION TWO - APPLICABLE TO INVESTMENT EMPLOYEES CONTENTS Page PERSONAL SECURITIES TRADING PRACTICES SECTION TWO - APPLICABLE TO INVESTMENT EMPLOYEES Quick Reference - Investment Employees .......................19 Standards of Conduct for Investment Employees ................20 --Conflict of Interest .....................................20 --Material Nonpublic Information ...........................20 --Brokers ..................................................20 --Personal Securities Transaction Reports ..................20 --Preclearance for Personal Securities Transactions ........21 --Blackout Policy ..........................................22 --Exemptions from Requirement to Preclear ..................22 --Gifting of Securities ....................................22 --DRIPs, DPPs and AIPs .....................................23 --Statement of Securities Accounts and Holdings ............23 --Restricted List ..........................................24 --Confidential Treatment ...................................24 Restrictions on Transactions in Mellon Securities ............24 --Mellon 401(k) Plan .......................................25 --Mellon Employee Stock Options ............................26 Restrictions on Transactions in Other Securities .............26 --Prohibition on Investments in Securities of Financial Services Organizations .........................27 Beneficial Ownership .........................................28 Non-Mellon Employee Benefit Plans ............................28 Protecting Confidential Information ..........................29 --Insider Trading and Tipping ..............................29 --The "Chinese Wall" .......................................30 Special Procedures for Access Decision Makers ................30 GLOSSARY Definitions ..................................................43 Exhibit A - Sample Letter to Broker ..........................49 QUICK REFERENCE - INVESTMENT EMPLOYEES - ----------------------------------------------------------------------------- SOME THINGS 1. Statement of Accounts and Holdings - Provide to your YOU MUST DO Preclearance Compliance Officer a statement of all securities accounts and holdings within 10 days of becoming an Investment Employee, and again annually on request. 2. Duplicate Statements & Confirmations - Instruct your broker, trust account manager or other entity through which you have a securities trading account to send directly to Compliance: o Trade confirmations summarizing each transaction o Periodic statements Exhibit A can be used to notify your broker. Contact your designated Preclearance Compliance Officer for the correct address. This applies to all accounts in which you have a beneficial interest. 3. Preclearance - Before initiating a securities transaction, written preclearance must be obtained from the designated Preclearance Compliance Officer. This can be accomplished by completing a Preclearance Request Form and: o delivering or faxing the request to the designated Preclearance Compliance Officer, or o contacting the designated Preclearance Compliance Officer for other available notification options. Preclearance Request Forms can be obtained from the designated Preclearance Compliance Officer. If preclearance approval is received the trade must be communicated to the broker on the same day, and executed before the end of the next business day, at which time the preclearance approval will expire. 4. Special Approvals o Acquisition of securities in a Private Placement must be precleared by the employee's Department/Entity head, the Manager of Corporate Compliance and the designated Preclearance Compliance Officer. o Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. - ----------------------------------------------------------------------------- SOME THINGS Mellon Securities - The following transactions in Mellon YOU MUST NOT securities are prohibited for all Mellon Employees: DO o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities o Purchasing and selling or selling and purchasing within 60 days is discouraged, and any profits must be disgorged. o New investments in financial services organizations are prohibited for certain employees only - see page 27. Other restrictions are detailed throughout Section Two. Read the Policy! - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- EXEMPTIONS Preclearance is NOT required for: o Purchases or sales of high quality short-term debt instruments, non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures, index securities, open-end mutual funds, non-affiliated closed-end investment companies, commercial paper; CDs; bankers' acceptances; repurchase agreements; and direct obligations of the government of the United States.) o Transactions in any account over which the employee has no direct or indirect control over the investment decision making process. o Transactions that are non-volitional on the part of an employee (such as stock dividends). o Changes in elections under Mellon's 401(k) Retirement Savings Plan. o An exercise of an employee stock option administered by Human Resources. o Automatic reinvestment of dividends under a DRIP or Automatic Investment Plan. (Optional cash purchases under a DRIP or Direct Purchase Plan do require preclearance. o Sales of securities pursuant to tender offers and sales or exercises of "Rights".(see page 22). - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- QUESTIONS? Contact your designated Preclearance Compliance Officer. If you don't know who that is, call 412-234-1661 - ----------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. - ----------------------------------------------------------------------------- STANDARDS OF Because of their particular responsibilities, Investment CONDUCT FOR Employees are subject to preclearance and personal INVESTMENT securities reporting requirements, as discussed below. EMPLOYEES Every Investment Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may divulge the current portfolio positions, or NONPUBLIC current or anticipated portfolio transactions, programs or INFORMATION studies, of Mellon or any Mellon customer to anyone unless it is properly within his or her job responsibilities to do so. No employee may engage in or recommend a securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All Investment Employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. PERSONAL Statements & Confirmations - All Investment Employees are SECURITIES required to instruct their broker, trust account manager or TRANSACTIONS other entity through which they have a securities trading REPORTS account to submit directly to the Manager of Corporate Compliance or designated Preclearance Compliance Officer copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other exempt securities as that term is defined by the Policy and the account has the capability to have reportable securities traded in it, the Investment Employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance or designated Preclearance Compliance Officer. Exhibit A is an example of an instruction letter to a broker. Other securities transactions which were not completed through a brokerage account, such as gifts, inheritances, spin-offs from securities held outside brokerage accounts, or other transfers must be reported to the designated Preclearance Compliance Officer within 10 days. PRECLEARANCE All Investment Employees must notify the designated FOR PERSONAL Preclearance Compliance Officer in writing and receive SECURITIES preclearance before they engage in any purchase or sale of TRANSACTIONS a security for their own accounts. Investment Employees should refer to the provisions under "Beneficial Ownership" below, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the designated Preclearance Compliance Officer. The designated Preclearance Compliance Officer will notify the Investment Employee whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the designated Preclearance Compliance Officer to the Investment Employee. A record of such notification will be maintained by the designated Preclearance Compliance Officer. However, it shall be the responsibility of the Investment Employee to obtain a written record of the designated Preclearance Compliance Officer's notification within 48 hours of such notification. The Investment Employee should retain a copy of this written record. As there could be many reasons for preclearance being granted or denied, Investment Employees should not infer from the preclearance response anything regarding the security for which preclearance was requested. Although making a preclearance request does not obligate an Investment Employee to do the transaction, it should be noted that: o Preclearance requests should not be made for a transaction that the Investment Employee does not intend to make. o The order for a transaction must be placed with the broker on the same day that preclearance authorization is received. The broker must execute the trade close of business on the next business day, at which time the preclearance authorization will expire. o Investment Employees should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the Investment Employee is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. o Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. BLACKOUT POLICY Except as described below, Investment Employees will not generally be given clearance to execute a transaction in any security that is on the restricted list maintained by their Preclearance Compliance Officer, or for which there is a pending buy or sell order for an affiliated account. This provision does not apply to transactions effected or contemplated by index funds. Exceptions - Regardless of any restrictions above, Investment Employees will generally be given clearance to execute the following transactions: o Purchase or sale of up to $50,000 of securities of the top 200 issuers on the Russell list of largest publicly traded companies. o Purchase or sale of up to the greater of 100 shares or $10,000 of securities ranked 201 to 500 on the Russell list of largest publicly traded companies. The Investment Employee is limited to two such trades in the securities of any one issuer in any calendar month. EXEMPTIONS Preclearance is not required for the following transactions: FROM REQUIREMENT TO o Purchases or sales of Exempt Securities (direct PRECLEAR obligations of the government of the United States; high quality short-term debt instruments; bankers' acceptances; CDs; commercial paper; repurchase agreements; and securities issued by open-end investment companies); o Purchases or sales of non-affiliated closed-end investment companies; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; o Purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may only be maintained, without being subject to preclearance procedures, when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; o Transactions that are non-volitional on the part of an employee (such as stock dividends); o The sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); o Changes to elections in the Mellon 401(k) plan; o Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; o Sales of rights acquired from an issuer, as described above; and/or o Sales effected pursuant to a bona fide tender offer. GIFTING OF Investment Employees desiring to make a bona fide gift of SECURITIES securities or who receive a bona fide gift of securities do not need to preclear the transaction. However, Investment Employees must report such bona fide gifts to the Manager of Corporate Compliance. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An Investment Employee who purchases a security with the intention of making a gift must preclear the purchase transaction. DRIPS, DPPS Certain companies with publicly traded securities establish: AND AIPS o Dividend Reinvestment Plans (DRIPs) - These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). o Direct Purchase Plans (DPPs) - These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. o Automatic Investment Plans (AIPs) - These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. Investment Employees who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. Investment Employees must preclear all optional cash purchases through a DRIP and all purchases through a DPP. Investment Employees must also preclear all sales through a DRIP, DPP or AIP. STATEMENT OF Within ten days of receiving this Policy and on an annual SECURITIES basis thereafter, all Investment Employees must submit to ACCOUNTS AND the Manager of Corporate Compliance: HOLDINGS o a listing of all securities trading accounts in which the employee has a beneficial interest. o a statement of all securities in which they presently have any direct or indirect beneficial ownership other than Exempt Securities, as defined in the Glossary. The annual report must be completed upon the request of Corporate Compliance, and the information submitted must be current within 30 days of the date the report is submitted. The annual statement of securities holdings contains an acknowledgment that the Investment Employee has read and complied with this Policy. RESTRICTED LIST Each Preclearance Compliance Officer will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for Investment Employees in their area. From time to time, such trading restrictions may be appropriate to protect Mellon and its Investment Employees from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information in order to avoid unwarranted inferences. The Preclearance Compliance Officer will retain copies of the restricted lists for five years. CONFIDENTIAL The Manager of Corporate Compliance and/or Preclearance TREATMENT Compliance Officer will use his or her best efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies, and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. Documents received from Investment Employees are also available for inspection by the boards of directors of 40-Act entities and by the boards of directors (or trustees or managing general partners, as applicable) of the investment companies managed or administered by 40-Act entities. - ----------------------------------------------------------------------------- RESTRICTIONS Investment Employees who engage in transactions involving ON Mellon securities should be aware of their unique TRANSACTIONS responsibilities with respect to such transactions arising IN MELLON from the employment relationship and should be sensitive to SECURITIES even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - Investment Employees are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. In addition to any other sanction, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term PLAN trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However: - with respect to Investment Employees, any profits realized on short term changes in the 401(k) will not have to be disgorged. - changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o Employees are not required to preclear any elections or changes made in their 401(k) account. o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON Receipt - Your receipt of an employee stock option from EMPLOYEE STOCK Mellon is not deemed to be a purchase of a security. OPTIONS Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. - ----------------------------------------------------------------------------- RESTRICTIONS Purchases or sales by an employee of the securities of ON issuers with which Mellon does business, or other third TRANSACTIONS party issuers, could result in liability on the part of IN OTHER such employee. Employees should be sensitive to even the SECURITIES appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - Investment Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Investment Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Private Placements - Investment Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance, the designated Preclearance Compliance Officer and the Investment Employee's department head. Approval must be given by all three persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, Investment Employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - All Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. With respect to Investment Employees, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. Exception: securities may be sold pursuant to a bona fide tender offer without disgorgement under the 60-day rule. PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: - Corporate Strategy & Development - Legal (Pittsburgh only) - Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: -Commercial Banks other - Thrifts than Mellon - Savings and Loan -Bank Holding Companies Associations other than Mellon - Broker/Dealers -Insurance Companies - Transfer Agents -Investment Advisory - Other Depository Companies Institutions -Shareholder Servicing Companies The term "securities issued by a financial services organization" DOES NOT INCLUDE securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE done under a bona fide employee benefit plan administered BENEFIT PLANS by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - ----------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, CONFIDENTIAL its customers and other parties that, for various reasons, INFORMATION should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER Federal securities laws generally prohibit the trading of TRADING AND securities while in possession of "material nonpublic" TIPPING information regarding the issuer of those securities (insider trading). Any person who passes along material LEGAL nonpublic information upon which a trade is based (tipping) PROHIBITIONS may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S Employees who possess material nonpublic information POLICY about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS As a diversified financial services organization, Mellon ON THE FLOW OF faces unique challenges in complying with the prohibitions INFORMATION on insider trading and tipping of material non-public WITHIN MELLON information, and misuse of confidential information. This (THE "CHINESE is because one Mellon unit might have material nonpublic WALL") information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. - ----------------------------------------------------------------------------- SPECIAL Certain Portfolio Managers and Research Analysts in the PROCEDURES FOR fiduciary businesses have been designated as Access ACCESS Decision Makers and are subject to additional procedures DECISION MAKERS which are discussed in a separate edition of the Securities Trading Policy. If you have reason to believe that you may be an Access Decision Maker, contact your supervisor, designated Preclearance Compliance Officer or the Manager of Corporate Compliance. PERSONAL SECURITIES TRADING PRACTICES SECTION THREE - APPLICABLE TO OTHER EMPLOYEES CONTENTS Page PERSONAL SECURITIES TRADING PRACTICES SECTION THREE - APPLICABLE TO OTHER EMPLOYEES Quick Reference - Other Employees ..........................33 Standards of Conduct .......................................34 --Conflict of Interest ................................34 --Material Nonpublic Information ......................34 --Brokers .............................................34 --Personal Securities Transaction Reports .............34 --Brokerage Account Statements ........................34 --Confidential Treatment ..............................34 Restrictions on Transactions in Mellon Securities ..........35 --Mellon 401(k) Plan ..................................36 --Mellon Employee Stock Options .......................36 Restrictions on Transactions in Other Securities ...........37 --Prohibition on Investments in Securities of .........38 Financial Services Organizations Beneficial Ownership .......................................39 Non-Mellon Employee Benefit Plans ..........................39 Protecting Confidential Information ........................39 --Insider Trading and Tipping .........................39 --The "Chinese Wall" ..................................41 GLOSSARY Definitions ................................................43 Exhibit A - Sample Letter to Broker ........................49 QUICK REFERENCE - OTHER EMPLOYEES - ----------------------------------------------------------------------- SOME THINGS YOU o If you buy or sell Mellon Financial MUST DO Corporation securities you must provide a report of the trade and a copy of the broker confirmation within 10 days of transaction to the Manager of Corporate Compliance, AIM 151-4340. This does not apply to the exercise of employee stock options, or changes in elections under Mellon's 401(k) Retirement Savings Plan. o If you want to purchase any security in a Private Placement you must first obtain the approval of your Department/Entity head and the Manager of Corporate Compliance. Contact the Manager of Corporate Compliance at 412-234-0810. o Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. o For Employees who are subject to the prohibition on new investments in financial services organizations (certain employees only - see page 38), broker must send directly to MANAGER OF CORPORATE COMPLIANCE, MELLON BANK, PO BOX 3130, PITTSBURGH, PA 15230-3130: o Broker trade confirmations summarizing each transaction o Periodic statements Exhibit A can be used to notify your broker of all accounts for which your broker will be responsible for sending duplicate confirmations and statements. - ----------------------------------------------------------------------- SOME THINGS YOU Mellon Securities - The following transactions in MUST NOT DO Mellon securities are prohibited for all Mellon employees: o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities o New investments in financial services organizations (certain employees only - see page 38.) Other restrictions are detailed throughout Section Three. Read the Policy! =============== - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- QUESTIONS? (412) 234-1661 - ----------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. - ----------------------------------------------------------------------------- STANDARDS OF Every Other Employee must follow these procedures or risk CONDUCT FOR serious sanctions, including dismissal. If you have any OTHER EMPLOYEES questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may engage in or recommend a securities NONPUBLIC transaction, for his or her own benefit or for the benefit INFORMATION of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. PERSONAL Other Employees must report in writing to the Manager of SECURITIES Corporate Compliance within ten calendar days whenever they TRANSACTIONS purchase or sell Mellon securities. Purchases and sales REPORTS include optional cash purchases under Mellon's Dividend Reinvestment and Common Stock Purchase Plan (the "Mellon DRIP"). It should be noted that the reinvestment of dividends under the DRIP, changes in elections under Mellon's 401(k) Retirement Savings Plan, the receipt of stock under Mellon's Restricted Stock Award Plan, and the receipt or exercise of options under Mellon's employee stock option plans are not considered purchases or sales for the purpose of this reporting requirement. BROKERAGE Certain Other Employees are subject to the restriction on ACCOUNT investments in financial services organizations and are STATEMENTS required to instruct their brokers to send statements directly to Corporate Compliance. See page 38. An example of an instruction letter to a broker is contained in Exhibit A. CONFIDENTIAL The Manager of Corporate Compliance will use his or her TREATMENT best efforts to assure that all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. - ----------------------------------------------------------------------------- RESTRICTIONS Employees who engage in transactions involving Mellon ON securities should be aware of their unique responsibilities TRANSACTIONS with respect to such transactions arising from the IN MELLON employment relationship and should be sensitive to even the SECURITIES appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be expected to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - Employees are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term PLAN trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However, changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON Receipt - Your receipt of an employee stock option from EMPLOYEE STOCK Mellon is not deemed to be a purchase of a security. OPTIONS Therefore, it is exempt from reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. - ----------------------------------------------------------------------------- RESTRICTIONS Purchases or sales by an employee of the securities of ON issuers with which Mellon does business, or other third TRANSACTIONS party issuers, could result in liability on the part of IN OTHER such employee. Employees should be sensitive to even the SECURITIES appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: o Credit, Consulting or Advisory Relationship - Employees may not buy or sell securities of a company if they are considering granting, renewing, modifying or denying any credit facility to that company, acting as a benefits consultant to that company, or acting as an adviser to that company with respect to the company's own securities. In addition, lending employees who have assigned responsibilities in a specific industry group are not permitted to trade securities in that industry. This prohibition does not apply to transactions in open end mutual funds. o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - Other Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Other Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Private Placements - Other Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance and the employee's department head. Approval must be given by both persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: - Corporate Strategy & Development - Legal (Pittsburgh only) - Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Brokerage Accounts - All employees subject to this restriction on investments in financial services organizations are required to instruct their brokers to submit directly to the Manager of Corporate Compliance copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account has no reportable securities traded in it, the employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance. An example of an instruction letter to a broker is contained in Exhibit A. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: - Commercial Banks other - Thrifts than Mellon - Savings and Loan - Bank Holding Companies Associations other than Mellon - Broker/Dealers - Insurance Companies - Transfer Agents - Investment Advisory - Other Depository Companies Institutions - Shareholder Servicing Companies The term "securities issued by a financial services organization" DOES NOT INCLUDE securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE done under a bona fide employee benefit plan administered BENEFIT PLANS by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - ----------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, CONFIDENTIAL its customers and other parties that, for various reasons, INFORMATION should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER Federal securities laws generally prohibit the trading of TRADING AND securities while in possession of "material nonpublic" TIPPING information regarding the issuer of those securities (insider trading). Any person who passes along material LEGAL nonpublic information upon which a trade is based (tipping) PROHIBITIONS may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S POLICY Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS As a diversified financial services organization, Mellon ON THE FLOW OF faces unique challenges in complying with the prohibitions INFORMATION on insider trading and tipping of material non-public WITHIN MELLON information, and misuse of confidential information. This (THE "CHINESE is because one Mellon unit might have material nonpublic WALL") information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. - ----------------------------------------------------------------------------- GLOSSARY DEFINITIONS o 40-ACT ENTITY - A Mellon entity registered under the Investment Company Act and/or the Investment Advisers Act of 1940 o ACCESS DECISION MAKER - A person designated as such by the Investment Ethics Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for investment companies and other managed accounts. See further details in the Access Decision Maker edition of the Policy. o ACCESS PERSON - As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" means: (A) With respect to a registered investment company or an investment adviser thereof, any director, officer, general partner, or advisory person (see definition below), of such investment company or investment adviser; (B) With respect to a principal underwriter, any director, officer, or general partner of such principal underwriter who in the ordinary course of his business makes, participates in or obtains information regarding the purchase or sale of securities for the registered investment company for which the principal underwriter so acts, or whose functions or duties as part of the ordinary course of his business relate to the making of any recommendations to such investment company regarding the purchase or sale of securities. (C) Notwithstanding the provisions of paragraph (A) hereinabove, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, the term "access person" shall mean: any director, officer, general partner, or advisory person of the investment adviser who, with respect to any registered investment company, makes any recommendations, participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation will be made, to any such investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser to any registered investment company. (D) An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" when, for each of its most recent three fiscal years or for the period of time since its organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (i) its total sales and revenues, and (ii) its income (or loss) before income taxes and extraordinary items, from such other business or businesses. o ADVISORY PERSON of a registered investment company or an investment adviser thereof means: (A) Any employee of such company or investment adviser (or any company in a control relationship to such investment company or investment adviser) who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a registered investment company, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (B) Any natural person in a control relationship to such company or investment adviser who obtains information concerning recommendations made to such company with regard to the purchase or sale of a security. o APPROVAL - written consent or written notice of non-objection. o BENEFICIAL OWNERSHIP - The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial circumstances that are subject to change, Corporate Compliance ordinarily will not advise employees on this definition. It is the responsibility of each employee to read the definition and based on that definition, determine whether he/she is the beneficial owner of an account. If the employee determines that he/she is not a beneficial owner of an account and Corporate Compliance becomes aware of the existence of the account, the employee will be responsible for justifying his/her determination. Securities owned of record or held in the employee's name are generally considered to be beneficially owned by the employee. Securities held in the name of any other person are deemed to be beneficially owned by the employee if by reason of any contract, understanding, relationship, agreement or other arrangement, the employee obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the employee's benefit (regardless of record ownership), e.g., securities held for the employee or members of the employee's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other administrators; securities owned by the employee, but which have not been transferred into the employee's name on the books of the company; securities which the employee has pledged; or securities owned by a corporation that should be regarded as the employee's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the employee's immediate family, which includes the employee's spouse, the employee's minor children and stepchildren and the employee's relatives or the relatives of the employee's spouse who are sharing the employee's home, unless because of countervailing circumstances, the employee does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An employee is also deemed the beneficial owner of securities held in the name of some other person, even though the employee does not obtain benefits of ownership, if the employee can vest or revest title in himself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, discretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the employee as trustee or a member of the employee's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the employee of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the employee as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the employee being settlor or beneficiary of the securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the employee's prior approval as settlor or beneficiary. "Immediate family" of an employee as trustee means the employee's son or daughter (including any legally adopted children) or any descendant of either, the employee's stepson or stepdaughter, the employee's father or mother or any ancestor of either, the employee's stepfather or stepmother and the employee's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan and a business trust with over 25 beneficiaries. Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the employee may include security holdings of other members of his family, the employee may nonetheless disclaim beneficial ownership of such securities. o "CHINESE WALL" POLICY - procedures designed to restrict the flow of information within Mellon from units or individuals who are likely to receive material nonpublic information to units or individuals who trade in securities or provide investment advice. o DIRECT FAMILY RELATION - employee's husband, wife, father, mother, brother, sister, daughter or son. Includes the preceding plus, where appropriate, the following prefixes/suffix: grand-, step-, foster-, half- and -in-law. o DISCRETIONARY TRADING ACCOUNT - an account over which the employee has no direct or indirect control over the investment decision making process. o EMPLOYEE - any employee of Mellon Financial Corporation or its more-than-50%-owned direct or indirect subsidiaries; includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees; does not include consultants and contract or temporary employees o EXEMPT SECURITIES - Exempt Securities are defined as: - direct obligations of the government of the United States; - high quality short-term debt instruments; - bankers' acceptances; - bank certificates of deposit and time deposits; - commercial paper; - repurchase agreements; - securities issued by open-end investment companies; o FAMILY RELATION - see direct family relation. o GENERAL COUNSEL - General Counsel of Mellon Financial Corporation or any person to whom relevant authority is delegated by the General Counsel. o INDEX FUND - an investment company or managed portfolio which contains securities of an index in proportions designed to replicate the return of the index. o INITIAL PUBLIC OFFERING (IPO) - the first offering of a company's securities to the public through an allocation by the underwriter. o INVESTMENT CLUB - is a membership organization where investors make joint decisions on which securities to buy or sell. The securities are generally held in the name of the investment club. Since each member of an investment club participates in the investment decision making process, Insider Risk Employees, Investment Employees and Access Decision Makers belonging to such investment clubs must preclear and report the securities transactions contemplated by such investment clubs. In contrast, a private investment company is an organization where the investor invests his/her money, but has no direct control over the way his/her money is invested. Insider Risk Employees, Investment Employees and Access Decision Makers investing in such a private investment company are not required to preclear any of the securities transactions made by the private investment company. Insider Risk Employees, Investment Employees and Access Decision Makers are required to report their investment in a private investment company to the Manager of Corporate Compliance and certify to the Manager of Corporate Compliance that they have no direct control over the way their money is invested. o INVESTMENT COMPANY - a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. o INVESTMENT ETHICS COMMITTEE is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) General Counsel, Mellon Financial Corporation Chief Risk Management Officer, Mellon Trust Manager of Corporate Compliance, Mellon Financial Corporation Corporate Chief Auditor, Mellon Financial Corporation Chief Investment Officer, Mellon Private Asset Management Executive Officer of a Mellon investment adviser (rotating membership) The Committee has oversight of issues related to personal securities trading and investment activity by Access Decision Makers. o MANAGER OF CORPORATE COMPLIANCE - the employee within the Audit and Risk Review Department of Mellon Financial Corporation who is responsible for administering the Securities Trading Policy, or any person to whom relevant authority is delegated by the Manager of Corporate Compliance. o MELLON - Mellon Financial Corporation and all of its direct and indirect subsidiaries. o OPTION - a security which gives the investor the right, but not the obligation, to buy or sell a specific security at a specified price within a specified time. For purposes of compliance with the Policy, any Mellon employee who buys/sells an option, is deemed to have purchased/sold the underlying security when the option was purchased/sold. Four combinations are possible as described below. Call Options Ifa Mellon employee buys a call option, the employee is considered to have purchased the underlying security on the date the option was purchased. Ifa Mellon employee sells a call option, the employee is considered to have sold the underlying security on the date the option was sold. Put Options Ifa Mellon employee buys a put option, the employee is considered to have sold the underlying security on the date the option was purchased. Ifa Mellon employee sells a put option, the employee is considered to have bought the underlying security on the date the option was sold. Below is a table describing the above: ------------------------------------------------ Transaction Type ------------------------------------------------ --------------------------------------------------------- Option Buy Sale Type --------------------------------------------------------- --------------------------------------------------------- Put Sale of Underlying Purchase of Security Underlying Security --------------------------------------------------------- --------------------------------------------------------- Call Purchase of Underlying Sale of Underlying Security Security --------------------------------------------------------- o PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. o PRIVATE PLACEMENT - an offering of securities that is exempt from registration under the Securities Act of 1933 because it does not constitute a public offering. Includes limited partnerships. o SENIOR MANAGEMENT COMMITTEE - the Senior Management Committee of Mellon Financial Corporation. o SHORT SALE - the sale of a security that is not owned by the seller at the time of the trade. EXHIBIT A - SAMPLE INSTRUCTION LETTER TO BROKER Date Broker ABC Street Address City, State ZIP Re: John Smith & Mary Smith Account No. xxxxxxxxxxxx In connection with my existing brokerage accounts at your firm noted above, please be advised that the Compliance Department of my employer should be noted as an "Interested Party" with respect to my accounts. They should, therefore, be sent copies of all trade confirmations and account statements relating to my account. Please send the requested documentation ensuring the account holder's name appears on all correspondence to: Manager, Corporate Compliance Preclearance Compliance Officer Mellon Bank or (obtain address from your PO Box 3130 Pittsburgh, PA designated Preclearance 15230-3130 Compliance Officer) Thank you for your cooperation in this request. Sincerely yours, Employee cc: Manager, Corporate Compliance (151-4340) or Preclearance Compliance Officer MELLON SECURITIES TRADING POLICY ACCESS DECISION MAKER EDITION QUICK REFERENCE - ACCESS DECISION MAKERS - ----------------------------------------------------------------------------- SOME THINGS 1. Statement of Holdings - Provide to your Preclearance YOU MUST DO Compliance Officer a statement of all securities holdings within 10 days of becoming an ADM, and within 30 days after every quarter-end thereafter. 2. Duplicate Statements & Confirmations - Instruct your broker, trust account manager or other entity through which you have a securities trading account to send directly to Compliance: o Trade confirmations summarizing each transaction o Periodic statements Exhibit A can be used to notify your broker. Contact your designated Preclearance Compliance Officer for the correct address. This applies to all accounts in which you have a beneficial interest. 3. Preclearance - Before initiating a securities transaction, written preclearance must be obtained from the designated Preclearance Compliance Officer. This can be accomplished by completing a Preclearance Request Form and: o delivering or faxing the request to the designated Preclearance Compliance Officer, or o contacting the designated Preclearance Compliance Officer for other available notification options. Preclearance Request Forms can be obtained from the designated Preclearance Compliance Officer. If preclearance approval is received the trade must be communicated to the broker on the same day, and executed before the end of the next business day, at which time the preclearance approval will expire. 4. Contemporaneous Disclosure - ADMs must obtain written authorization from the ADM's CIO or other Investment Ethics Committee designee prior to making or acting upon a portfolio recommendation in a security which they own personally. 5. Private Placements - Purchases must be precleared by the Investment Ethics Committee. Prior holdings must be approved by the Investment Ethics Committee within 90 days of becoming an ADM. To initiate preclearance or approval, contact the Manager of Corporate Compliance. 6. IPOs - Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. 7. Micro-Cap Securities - MCADMs are prohibited from purchasing any security of an issuer with a common equity market capitalization of $100 million or less at the time of acquisition unless approved by the Investment Ethics Committee. MCADMs must obtain on their Preclearance Request Forms the written authorization of their immediate supervisor and their Chief Investment Officer prior to trading any security of an issuer with a common equity market capitalization of more than $100 million but less than or equal to $250 million at the time of trade. Any prior holding of such securities must be approved by the CIO. - ----------------------------------------------------------------------------- SOME THINGS Mellon Securities - The following transactions in Mellon YOU MUST NOT securities are prohibited for all Mellon employees: DO o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities o Portfolio Managers are prohibited from purchasing/selling 7 days before or after a fund or other advised account transaction. o For all ADMs, purchasing and selling or selling and purchasing the same or equivalent security within 60 days is discouraged, and any profits must be disgorged. Other restrictions are detailed throughout the Policy. Read ------------------ ==== the Policy! ========== - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- EXEMPTIONS Preclearance is NOT required for certain other types of transactions, and transactions in certain other types of securities. See pages 6 & 7. - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- QUESTIONS? Contact your designated Preclearance Compliance Officer. If you don't know who that is, call 412-234-1661 - ----------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. Dear Colleague: At Mellon, we take great pride in our transformation over the years from a regional bank to a global financial services company. Our growth makes us better able to meet customers' changing needs, gives us greater stability during any unexpected economic downturn and affords us the opportunity to be the best performing financial services company. This diversity of our businesses also makes us a complex organization, which is why it's more important than ever that you clearly understand Mellon's SECURITIES TRADING POLICY. Mellon has long maintained strict policies regarding securities transactions, all with the same clear-cut objective: to establish and demonstrate our compliance with the high standards with which we conduct our business. If you are new to Mellon, please take the time to fully understand the POLICY and consult it whenever you are unsure about appropriate actions. If you have seen the POLICY previously, I urge you to renew your understanding of the entire document and its implications for you. Only by strict adherence to the POLICY can we ensure that our well-deserved reputation for integrity is preserved. Sincerely yours, Martin G. McGuinn Questions Concerning the Securities Trading Policy? Contact Corporate Compliance, (412) 234-1661 AIM 151-4340, Mellon Bank, Pittsburgh, PA 15258-0001 CONTENTS PAGE INTRODUCTION .................................................................1 Purpose .......................................................1 CLASSIFICATION OF EMPLOYEES ..................................................2 The Investment Ethics Committee ...............................2 PERSONAL SECURITIES TRADING PRACTICES ........................................3 Standards of Conduct for Access Decision Makers ...............3 Conflict of Interest ......................................3 Material Nonpublic Information ............................3 Brokers ...................................................3 Personal Securities Transaction Reports ...................3 Statement of Securities Accounts and Holdings .............4 Quarterly Reporting .......................................4 Preclearance for Personal Securities Transactions .........4 Contemporaneous Disclosure ................................5 Blackout Policy ...........................................6 Exemptions from Requirement to Preclear ...................6 Gifting of Securities .....................................7 DRIPs, DPPs, and AIPs .....................................7 Restricted List ...........................................7 Confidential Treatment ....................................8 Restrictions on Transactions in Mellon Securities .............9 Mellon 401(k) Plan ........................................9 Mellon Employee Stock Options ............................10 Restrictions on Transactions in Other Securities .............11 Initial Public Offerings .................................11 Micro-Cap Securities .....................................11 Private Placements .......................................12 Prohibition on Investments in Securities of Financial Services Organizations .........................13 Beneficial Ownership .....................................14 Non-Mellon Employee Benefit Plans ........................14 Protecting Confidential Information ..........................15 Insider Trading and Tipping - Legal Prohibitions .........15 Insider Trading and Tipping - Mellon's Policy ............16 The "Chinese Wall" .......................................16 GLOSSARY Definitions ..................................................17 Exhibit A - Sample Letter to Broker ..........................23 1 - ----------------------------------------------------------------------------- INTRODUCTION The SECURITIES TRADING POLICY (the "Policy") is designed to reinforce Mellon Financial Corporation's ("Mellon's") reputation for integrity by avoiding even the appearance of impropriety in the conduct of Mellon's business. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Mellon Employee. Mellon and its employees are subject to certain laws and regulations governing personal securities trading. Mellon has developed this Policy to promote the highest standards of behavior and ensure compliance with applicable laws. Employees should be aware that they may be held personally liable for any improper or illegal acts committed during the course of their employment, and that "ignorance of the law" is not a defense. Employees may be subject to civil penalties such as fines, regulatory sanctions including suspensions, as well as criminal penalties. Employees outside the United States are also subject to applicable laws of foreign jurisdictions, which may differ substantially from US law and which may subject such employees to additional requirements. Such employees must comply with applicable requirements of pertinent foreign laws as well as with the provisions of the Policy. To the extent any particular portion of the Policy is inconsistent with foreign law, employees should consult the General Counsel or the Manager of Corporate Compliance. Any provision of this Policy may be waived or exempted at the discretion of the Manager of Corporate Compliance. Any such waiver or exemption will be evidenced in writing and maintained in the Audit and Risk Review Department. Employees must read the Policy and must comply with it. Failure to comply with the provisions of the Policy may result in the imposition of serious sanctions, including but not limited to disgorgement of profits, dismissal, substantial personal liability and referral to law enforcement agencies or other regulatory agencies. Employees should retain the Policy in their records for future reference. Any questions regarding the Policy should be referred to the Manager of Corporate Compliance or his/her designee. SPECIAL EDITION This edition of the SECURITIES TRADING POLICY has been prepared especially for Access Decision Makers. If you believe you are not an Access Decision Maker, please contact your supervisor, designated Preclearance Compliance Officer or the Manager of Corporate Compliance to obtain the standard edition of the Policy. PURPOSE It is imperative that Mellon and its affiliates avoid even the appearance of a conflict between the personal securities trading of its employees and its fiduciary duties to investment companies and managed account clients. Potential conflicts of interest are most acute with respect to personal securities trading by those employees most responsible for directing managed fund and account trades: portfolio managers and research analysts. In order to avoid even the appearance of impropriety, an Investment Ethics Committee has been formed. The Committee, in turn, has established the following practices which apply to Access Decision Makers. These practices do not limit the authority of any Mellon affiliate to impose additional restrictions or limitations. 2 - ----------------------------------------------------------------------------- CLASSIFICATION Employees are engaged in a wide variety of activities for OF EMPLOYEES Mellon. In light of the nature of their activities and the impact of federal and state laws and the regulations thereunder, the Policy imposes different requirements and limitations on employees based on the nature of their activities for Mellon. To assist the employees in complying with the requirements and limitations imposed on them in light of their activities, employees are classified into one or both of the following categories: Access Decision Maker and Micro-Cap Access Decision Maker. Appropriate requirements and limitations are specified in the Policy based upon the employee's classification. The Investment Ethics Committee will determine the classification of each employee based on the following guidelines. ACCESS DECISION A person designated as such by the Investment Ethics Committee. MAKER (ADM) Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for mutual funds and other managed accounts. Portfolio managers in Mellon Private Capital Management are generally ADMs; other personal trust officers are generally not ADMs unless the investment discretion they exercise warrants ADM designation. Traders are not ADMs. Portfolio managers of funds which are limited to replicating an index are not ADMs. MICRO-CAP An ADM designated as such by the Investment Ethics Committee. ACCESS Generally, this will be ADMs who make recommendations or DECISION decisions regarding the purchase or sale of any security of an MAKERS MCADM) issuer with a common equity market capitalization equal to or less than two-hundred fifty million dollars. MCADMs are also ADMs. CONSULTANTS, Managers should inform consultants, independent contractors INDEPENDENT and temporary employees of the general provisions of the CONTRACTORS Policy (such as the prohibition on trading while in possession AND of material nonpublic information), but generally they will TEMPORARY not be required to preclear trades or report their personal EMPLOYEES securities holdings. If one of these persons would be considered an ADM if the person were a Mellon employee, the person's manager should advise the Manager of Corporate Compliance who will determine whether such individual should be subject to the preclearance and reporting requirements of the Policy. THE INVESTMENT The Investment Ethics Committee is composed of investment, ETHICS legal, compliance, and audit management representatives of COMMITTEE Mellon and its affiliates. The chief executive officer, senior investment officer and the Preclearance Compliance Officer at each Mellon investment affiliate, working together, will be designees of the Investment Ethics Committee. The Investment Ethics Committee will meet periodically to review the actions taken by its designees and to consider issues related to personal securities trading and investment activity by ADMs. 3 Personal Securities Trading Practices - ----------------------------------------------------------------------------- STANDARDS OF Because of their particular responsibilities, ADMs CONDUCT FOR are subject to preclearance and personal securities ACCESS reporting requirements, as discussed below. DECISION MAKERS Every ADM must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance or your Preclearance Compliance Officer. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may divulge the current portfolio positions, or NONPUBLIC current or anticipated portfolio transactions, programs or INFORMATION studies, of Mellon or any Mellon customer to anyone unless it is properly within his or her job responsibilities to do so. No employee may engage in or recommend a securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All ADMs are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. PERSONAL Statements & Confirmations - All ADMs are required to instruct SECURITIES their broker, trust account manager or other entity through TRANSACTIONS which they have a securities trading account to submit REPORTS directly to the Manager of Corporate Compliance or designated Preclearance Compliance Officer copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other Exempt Securities as that term is defined in the glossary and the account has the capability to have reportable securities traded in it, the ADM maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance or designated Preclearance Compliance Officer. Exhibit A is an example of an instruction letter to a broker. Other securities transactions which were not completed through a brokerage account, such as gifts, inheritances, spin-offs from securities held outside brokerage accounts, or other transfers must be reported to the designated Preclearance Compliance Officer within 10 days. STATEMENT OF Within ten days of becoming an ADM and on an annual basis SECURITIES thereafter, all ADMs must submit to their designated ACCOUNTS Preclearance Compliance Officer: AND HOLDINGS o a listing of all securities trading accounts in which the employee has a beneficial interest. o a statement of all securities in which they presently have any direct or indirect beneficial ownership other than Exempt Securities. The annual report must be completed upon the request of Corporate Compliance, and the information submitted must be current within 30 days of the date the report is submitted. The annual statement of securities holdings contains an acknowledgment that the ADM has read and complied with this Policy. QUARTERLY ADMs are required to submit quarterly to their Preclearance REPORTING Compliance Officer the Quarterly Securities Report. This report must be submitted within 30 days of each quarter end and includes information on: o securities beneficially owned at any time during the quarter which were also either recommended for a transaction or in the portfolio managed by the ADM during the quarter. o positions obtained in private placements. o securities of issuers with a common equity market capitalization of $250 million or less at security acquisition or at the date designated by the Preclearance Compliance Officer, whichever is later, which were beneficially owned at any time during the quarter. o Securities transactions which were not completed through a brokerage account, such as gifts inheritances, spin-offs from securities held outside brokerage accounts, or other transfers. A form for making this report can be obtained from your designated Preclearance Compliance Officer or from the Securities Trading Site on the Mellon intranet. PRECLEARANCE All ADMs must notify the designated Preclearance Compliance FOR PERSONAL Officer in writing and receive preclearance before they engage SECURITIES in any purchase or sale of a security for their own accounts. TRANSACTIONS ADMs should refer to the provisions under "Beneficial Ownership" below, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the designated Preclearance Compliance Officer. The designated Preclearance Compliance Officer will notify the ADM whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the designated Preclearance Compliance Officer to the ADM. A record of such notification will be maintained by the designated Preclearance Compliance Officer. However, it shall be the responsibility of the ADM to obtain a written record of the designated Preclearance Compliance Officer's notification within 48 hours of such notification. The ADM should retain a copy of this written record for at least two years. As there could be many reasons for preclearance being granted or denied, ADMs should not infer from the preclearance response anything regarding the security for which preclearance was requested. Although making a preclearance request does not obligate an ADM to do the transaction, it should be noted that: o Preclearance requests should not be made for a transaction that the ADM does not intend to make. o The order for a transaction must be placed with the broker on the same day that preclearance authorization is received. The broker must execute the trade by 4:00 p.m. Eastern Time on the next business day, at which time the preclearance authorization will expire. o ADMs should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the ADM is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. o Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. There are additional pre-approval requirements for initial public offerings, micro-cap securities and private placements. See page 11. CONTEMPORANEOUS ADMs must obtain written authorization prior to making or DISCLOSURE acting upon a portfolio recommendation in a security which they own personally. This authorization must be obtained from the ADM's CIO/CEO or other Investment Ethics Committee designee immediately prior to the first such portfolio recommendation in a particular security in a calendar month. The following personal securities holdings are exempt from the requirement to obtain written authorization immediately preceding a portfolio recommendation or transaction: o Exempt Securities (see glossary). o Securities held in accounts over which the ADM has no investment discretion, which are professionally managed by a non-family member, and where the ADM has no actual knowledge that such account is currently holding the same or equivalent security at the time of the portfolio recommendation. o Personal holdings of equity securities of the top 200 issuers on the Russell list of largest publicly traded companies. o Personal equity holdings of securities of non-US issuers with a common equity market capitalization of $20 billion or more. o Personal holdings of debt securities which do not have a conversion feature and are rated BBB or better. o Personal holdings of ADMs who are index fund managers and who have no investment discretion in replicating an index. o Personal holdings of Portfolio Managers in Mellon Private Capital Management and Mellon Private Asset Management if the Portfolio Manager exactly replicates the model or clone portfolio. A disclosure form is required if the Portfolio Manager recommends securities which are not in the clone or model portfolio or recommends a model or clone security in a different percentage than model or clone amounts. Disclosure forms are also required when the Portfolio Manager recommends individual securities to clients, even if Mellon shares control of the investment process with other parties. If a personal securities holding does not fall under one of these exemptions, the ADM must complete and forward a disclosure form for authorization by the CIO/CEO or designee, immediately prior to the first recommendation or transaction in the security in the current calendar month. Disclosure forms for subsequent transactions in the same security are not required for the remainder of the calendar month as long as purchases (or sales) in all portfolios do not exceed the maximum number of shares, options, or bonds disclosed on the disclosure form. If the ADM seeks to effect a transaction or makes a recommendation in a direction opposite to the most recent disclosure form, a new disclosure form must be completed prior to the transaction or recommendation. Once the CIO/CEO's authorization is obtained, the ADM may make the recommendation or trade the security in the managed portfolio without the Preclearance Compliance Officer's signature. However, the ADM must deliver the authorization form to the Preclearance Compliance Officer on the day of the CIO/CEO's authorization. The Preclearance Compliance Officer will forward a copy of the completed form for the ADM's files. The ADM is responsible for following-up with the Preclearance Compliance Officer in the event a completed form is not returned to the ADM within 5 business days. It is recommended that the ADM retain completed forms for two years. A listing of Investment Ethics Committee designees, a listing of the Russell 200, and the personal securities disclosure forms are available on the Mellon intranet , or can be obtained from your designated Preclearance Compliance Officer. BLACKOUT POLICY Except as described below, ADMs will generally not be given clearance to execute a transaction in any security that is on the restricted list maintained by their Preclearance Compliance Officer, or for which there is a pending buy or sell order for an affiliated account. This provision does not apply to transactions effected or contemplated by index funds. In addition, portfolio managers (except index fund managers) are prohibited from buying or selling a security within seven calendar days before and after their investment company or managed account has effected a transaction in that security. In addition to other appropriate sanctions, if such ADMs effect such a personal transactions during that period, these individuals must disgorge any and all profit realized from such transactions. The amount of the disgorgement will be determined by the Investment Ethics Committee. Exceptions - Regardless of any restrictions above, ADMs will generally be given clearance to buy or sell up to the greater of 100 shares or $10,000 of securities of the top 500 issuers on the Russell list of largest publicly traded companies. In addition, ADMs will be exempt from the 7-day disgorgement for the described transactions (but not the disgorgement for short-term/60-day trading). An ADM is limited to two such purchases or two such sales in the securities of any one issuer in any calendar month. EXEMPTIONS FROM Preclearance is not required for the following transactions: REQUIREMENT TO PRECLEAR o purchases or sales of Exempt Securities (see Glossary); o purchases or sales of securities issued by non-affiliated closed-end investment companies; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; o purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may be maintained, without being subject to preclearance procedures, only when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; o transactions that are non-volitional on the part of an employee (such as stock dividends); o the sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); o changes to elections in the Mellon 401(k) plan; o purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; o sales of rights acquired from an issuer, as described above; and/or o sales effected pursuant to a bona fide tender offer. GIFTING OF ADMs desiring to make a bona fide gift of securities or who SECURITIES receive a bona fide gift of securities do not need to preclear the transaction. However, ADMs must report such bona fide gifts to the designated Preclearance Compliance Officer. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An ADM who purchases a security with the intention of making a gift must preclear the purchase transaction. DRIPs, DPPs Certain companies with publicly traded securities establish: AND AIPs o Dividend reinvestment plans (DRIPs) - These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered by many DRIPs to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). o Direct Purchase Plans (DPPs) - These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. o Automatic Investment Plans (AIPs) - These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. ADMs who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. ADMs must preclear all optional cash purchases through a DRIP and all purchases through a DPP. ADMs must also preclear all sales through a DRIP, DPP or AIP. RESTRICTED LIST Each Preclearance Compliance Officer will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for ADMs in their area. From time to time, such trading restrictions may be appropriate to protect Mellon and its ADMs from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information in order to avoid unwarranted inferences. The Preclearance Compliance Officer will retain copies of the restricted lists for five years. CONFIDENTIAL The Manager of Corporate Compliance and/or Preclearance TREATMENT Compliance Officer will use his or her best efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies, and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. Documents received from ADMs are also available for inspection by the boards of directors of 40-Act entities and by the boards of directors (or trustees or managing general partners, as applicable) of the investment companies managed or administered by 40-Act entities. - ----------------------------------------------------------------------------- RESTRICTIONS ON Employees who engage in transactions involving Mellon TRANSACTIONS IN securities should be aware of their unique responsibilities MELLON with respect to such transactions arising from the employment SECURITIES relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - ADMs are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. In addition to any other sanctions, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term trading PLAN rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However: - with respect to ADMs, any profits realized on short term changes in the 401(k) will not have to be disgorged. - changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o Employees are not required to preclear any elections or changes made in their 401(k) account. o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON EMPLOYEE Receipt - Your receipt of an employee stock option from Mellon STOCK OPTIONS is not deemed to be a purchase of a security. Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. - ----------------------------------------------------------------------------- RESTRICTIONS ON Purchases or sales by an employee of the securities of issuers TRANSACTIONS IN with which Mellon does business, or other third party issuers, OTHER could result in liability on the part of such employee. SECURITIES Employees should be sensitive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by ADMs: o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - ADMs are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Investment Ethics Committee. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the ADM. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Micro-Cap Securities - Unless specifically authorized in writing by the Investment Ethics Committee, MCADMs are prohibited from voluntarily obtaining beneficial ownership of any security of an issuer with a common equity market capitalization of $100 million or less at the time of acquisition. If any MCADM involuntarily acquires such a micro-cap security through inheritance, gift, or spin-off, this fact must be disclosed in a memo to the MCADM's Preclearance Compliance Officer within 10 business days of the MCADM's knowledge of this fact. A copy of this memo should be attached to the MCADM's next Quarterly Securities Report. A form for making this report can be obtained from your designated Preclearance Compliance Officer. MCADMs must obtain on their Preclearance Request Forms the written authorization of their immediate supervisor and their Chief Investment Officer prior to voluntarily obtaining, or disposing of, a beneficial ownership of any security of an issuer with a common equity market capitalization of more than $100 million but less than or equal to $250 million at the time of acquisition. MCADMs who have prior holdings of securities of an issuer with a common equity market capitalization of $250 million or less must disclose on their next Quarterly Securities Report that they have not yet received CIO/CEO authorization for these holdings. The Preclearance Compliance Officer will utilize these forms to request the appropriate authorizations. o Private Placements - Participation in private placements is prohibited without the prior written approval of the Investment Ethics Committee. The Committee will generally not approve an ADM's acquiring, in a private placement, beneficial ownership of any security of an issuer in which any managed fund or account is authorized to invest within the ADM's fund complex. Private placements include certain co-operative investments in real estate, co-mingled investment vehicles such as hedge funds, and investments in family owned businesses. For the purpose of this policy, time-shares and cooperative investments in real estate used as a primary or secondary residence are not considered to be private placements. When considering requests for participation in private placements, the Investment Ethics Committee will take into account the specific facts and circumstances of the request prior to reaching a decision on whether to authorize a private placement investment by an ADM. These factors include, among other things, whether the opportunity is being offered to an individual by virtue of his or her position with Mellon or its affiliates, or his or her relationship to a managed fund or account. The Investment Ethics Committee will also consider whether a fund or account managed by the ADM is authorized to invest in securities of the issuer in which the ADM is seeking to invest. At its discretion, the Investment Ethics Committee may request any and all information and/or documentation necessary to satisfy itself that no actual or potential conflict, or appearance of a conflict, exists between the proposed private placement purchase and the interests of any managed fund or account. ADMs who have prior holdings of securities obtained in a private placement must request the written authorization of the Investment Ethics Committee to continue holding the security. This request for authorization must be initiated within 90 days of becoming an ADM. To request authorization for prior holdings or new proposed acquisitions of securities issued in an eligible private placement, contact the Manager of Corporate Compliance. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - ADMs are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. Any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. Exception: securities may be sold pursuant to a bona fide tender offer without disgorgement under the 60-day rule. PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: - Corporate Strategy & Development - Legal (Pittsburgh only) - Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: - Commercial Banks other than Mellon - Thrifts - Bank Holding Companies other than Mellon - Savings and Loan Associations - Insurance Companies - Broker/Dealers - Investment Advisory Companies - Transfer Agents - Shareholder Servicing Companies - Other Depository Institutions The term "securities issued by a financial services organization" does not include securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE done under a bona fide employee benefit plan administered by BENEFIT PLANS an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - ----------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, its CONFIDENTIAL customers and other parties that, for various reasons, should INFORMATION be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER TRADING Federal securities laws generally prohibit the trading of AND TIPPING securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider LEGAL trading). Any person who passes along material nonpublic PROHIBITIONS information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S POLICY Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS As a diversified financial services organization, Mellon faces ON THE FLOW OF unique challenges in complying with the prohibitions on INFORMATION insider trading and tipping of material non-public WITHIN MELLON information, and misuse of confidential information. This is (THE "CHINESE because one Mellon unit might have material nonpublic WALL") information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. 1 - ----------------------------------------------------------------------------- GLOSSARY DEFINITIONS o 40-ACT ENTITY - A Mellon entity registered under the Investment Company Act and/or the Investment Advisers Act of 1940 o ACCESS DECISION MAKER - A person designated as such by the Investment Ethics Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for investment companies and other managed accounts. o ACCESS PERSON - As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" means: (A) With respect to a registered investment company or an investment adviser thereof, any director, officer, general partner, or advisory person (see definition below), of such investment company or investment adviser; (B) With respect to a principal underwriter, any director, officer, or general partner of such principal underwriter who in the ordinary course of his business makes, participates in or obtains information regarding the purchase or sale of securities for the registered investment company for which the principal underwriter so acts, or whose functions or duties as part of the ordinary course of his business relate to the making of any recommendations to such investment company regarding the purchase or sale of securities. (C) Notwithstanding the provisions of paragraph (A) hereinabove, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, the term "access person" shall mean: any director, officer, general partner, or advisory person of the investment adviser who, with respect to any registered investment company, makes any recommendations, participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation will be made, to any such investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser to any registered investment company. (D) An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" when, for each of its most recent three fiscal years or for the period of time since its organization, whichever is lesser, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (i) its total sales and revenues, and (ii) its income (or loss) before income taxes and extraordinary items, from such other business or businesses. o ADVISORY PERSON of a registered investment company or an investment adviser thereof means: (A) Any employee of such company or investment adviser (or any company in a control relationship to such investment company or investment adviser) who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a registered investment company, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (B) Any natural person in a control relationship to such company or investment adviser who obtains information concerning recommendations made to such company with regard to the purchase or sale of a security. o APPROVAL - written consent or written notice of non-objection. o BENEFICIAL OWNERSHIP - The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial circumstances that are subject to change, Corporate Compliance ordinarily will not advise employees on this definition. It is the responsibility of each employee to read the definition and based on that definition, determine whether he/she is the beneficial owner of an account. If the employee determines that he/she is not a beneficial owner of an account and Corporate Compliance becomes aware of the existence of the account, the employee will be responsible for justifying his/her determination. Securities owned of record or held in the employee's name are generally considered to be beneficially owned by the employee. Securities held in the name of any other person are deemed to be beneficially owned by the employee if by reason of any contract, understanding, relationship, agreement or other arrangement, the employee obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the employee's benefit (regardless of record ownership), e.g., securities held for the employee or members of the employee's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other administrators; securities owned by the employee, but which have not been transferred into the employee's name on the books of the company; securities which the employee has pledged; or securities owned by a corporation that should be regarded as the employee's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the employee's immediate family, which includes the employee's spouse, the employee's minor children and stepchildren and the employee's relatives or the relatives of the employee's spouse who are sharing the employee's home, unless because of countervailing circumstances, the employee does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An employee is also deemed the beneficial owner of securities held in the name of some other person, even though the employee does not obtain benefits of ownership, if the employee can vest or revest title in himself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, nondiscretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the employee as trustee or a member of the employee's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the employee of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the employee as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the employee being settlor or beneficiary of the securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the employee's prior approval as settlor or beneficiary. "Immediate family" of an employee as trustee means the employee's son or daughter (including any legally adopted children) or any descendant of either, the employee's stepson or stepdaughter, the employee's father or mother or any ancestor of either, the employee's stepfather or stepmother and the employee's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan and a business trust with over 25 beneficiaries. Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the employee may include security holdings of other members of his family, the employee may nonetheless disclaim beneficial ownership of such securities. o "CHINESE WALL" POLICY - procedures designed to restrict the flow of information within Mellon from units or individuals who are likely to receive material nonpublic information to units or individuals who trade in securities or provide investment advice. o DIRECT FAMILY RELATION - employee's husband, wife, father, mother, brother, sister, daughter or son. Includes the preceding plus, where appropriate, the following prefixes/suffix: grand-, step-, foster-, half- and -in-law. o DISCRETIONARY TRADING ACCOUNT - an account over which the employee has no direct or indirect control over the investment decision making process. o EMPLOYEE - any employee of Mellon Financial Corporation or its more-than-50%-owned direct or indirect subsidiaries; includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees; does not include consultants and contract or temporary employees. o EXEMPT SECURITIES - Exempt Securities are defined as: - direct obligations of the government of the United States; - high quality short-term debt instruments; - bankers' acceptances; - bank certificates of deposit and time deposits; - commercial paper; - repurchase agreements; - securities issued by open-end investment companies; o FAMILY RELATION - see direct family relation. o GENERAL COUNSEL - General Counsel of Mellon Financial Corporation or any person to whom relevant authority is delegated by the General Counsel. o INDEX FUND - an investment company or managed portfolio which contains securities of an index in proportions designed to replicate the return of the index. o INITIAL PUBLIC OFFERING (IPO) - the first offering of a company's securities to the public through an allocation by the underwriter. o INVESTMENT CLUB - is a membership organization where investors make joint decisions on which securities to buy or sell. The securities are generally held in the name of the investment club. Since each member of an investment club participates in the investment decision making process, Insider Risk Employees, Investment Employees and Access Decision Makers belonging to such investment clubs must preclear and report the securities transactions contemplated by such investment clubs. In contrast, a private investment company is an organization where the investor invests his/her money, but has no direct control over the way his/her money is invested. Insider Risk Employees, Investment Employees and Access Decision Makers investing in such a private investment company are not required to preclear any of the securities transactions made by the private investment company. Insider Risk Employees, Investment Employees and Access Decision Makers are required to report their investment in a private investment company to the Manager of Corporate Compliance and certify to the Manager of Corporate Compliance that they have no direct control over the way their money is invested. o INVESTMENT COMPANY - a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. o INVESTMENT ETHICS COMMITTEE is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) General Counsel, Mellon Financial Corporation Chief Risk Management Officer, Mellon Trust Manager of Corporate Compliance, Mellon Financial Corporation Corporate Chief Auditor, Mellon Financial Corporation Chief Investment Officer, Mellon Private Asset Management Executive Officer of a Mellon investment adviser (rotating membership) The Committee has oversight of issues related to personal securities trading and investment activity by Access Decision Makers. o MANAGER OF CORPORATE COMPLIANCE - the employee within the Audit and Risk Review Department of Mellon Financial Corporation who is responsible for administering the Securities Trading Policy, or any person to whom relevant authority is delegated by the Manager of Corporate Compliance. o MELLON - Mellon Financial Corporation and all of its direct and indirect subsidiaries. o OPTION - a security which gives the investor the right, but not the obligation, to buy or sell a specific security at a specified price within a specified time. For purposes of compliance with the Policy, any Mellon employee who buys/sells an option, is deemed to have purchased/sold the underlying security when the option was purchased/sold. Four combinations are possible as described below. - Call Options If a Mellon employee buys a call option, the employee is considered to have purchased the underlying security on the date the option was purchased. If a Mellon employee sells a call option, the employee is considered to have sold the underlying security on the date the option was sold. - Put Options If a Mellon employee buys a put option, the employee is considered to have sold the underlying security on the date the option was purchased. If a Mellon employee sells a put option, the employee is considered to have bought the underlying security on the date the option was sold. Below is a table describing the above: ------------------------------------------------ Transaction Type ------------------------------------------------ --------------------------------------------------------- Option Type Buy Sale --------------------------------------------------------- --------------------------------------------------------- Put Sale of Underlying Purchase of Security Underlying Security --------------------------------------------------------- --------------------------------------------------------- Call Purchase of Underlying Sale of Underlying Security Security --------------------------------------------------------- o PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. o PRIVATE PLACEMENT - an offering of securities that is exempt from registration under the Securities Act of 1933 because it does not constitute a public offering. Includes limited partnerships. o SENIOR MANAGEMENT COMMITTEE - the Senior Management Committee of Mellon Financial Corporation. o SHORT SALE - the sale of a security that is not owned by the seller at the time of the trade. EXHIBIT A - SAMPLE INSTRUCTION LETTER TO BROKER Date Broker ABC Street Address City, State ZIP Re: John Smith & Mary Smith Account No. xxxxxxxxxxxx In connection with my existing brokerage accounts at your firm noted above, please be advised that the Compliance Department of my employer should be noted as an "Interested Party" with respect to my accounts. They should, therefore, be sent copies of all trade confirmations and account statements relating to my account. Please send the requested documentation ensuring the account holder's name appears on all correspondence to: Manager, Corporate Compliance Preclearance Compliance Officer Mellon Bank or (obtain address from your PO Box 3130 Pittsburgh, PA designated Preclearance 15230-3130 Compliance Officer) Thank you for your cooperation in this request. Sincerely yours, Associate cc: Manager, Corporate Compliance (151-4340) or Preclearance Compliance Officer Securities Trading Policy Dreyfus Nonmanagement Board Member Edition INTRODUCTION The Securities Trading Policy (the "Policy") is designed to reinforce the reputation for integrity of The Dreyfus Corporation and its subsidiaries (collectively, "Dreyfus") by avoiding even the appearance of impropriety in the conduct of their businesses. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Dreyfus employee. SPECIAL This edition of the Policy has been prepared specifically EDITION for Nonmanagement Board Members of Dreyfus and the investment companies advised by Dreyfus (each a "Fund"). NONMANAGEMENT You are considered to be a Nonmanagement Board Member if you are: BOARD MEMBER o a director of Dreyfus who is not also an officer or employee of Dreyfus ("Dreyfus Board Member"); or o a director or trustee of any Fund who is not also an officer or employee of Dreyfus ("Mutual Fund Board Member"). INDEPENDENT The term "Independent Mutual Fund Board Member" means those MUTUAL FUND Mutual Fund Board Members who are not deemed "interested BOARD MEMBER persons" of their Fund(s), as defined by the Investment Company Act of 1940, as amended. STANDARDS OF Outside Activities CONDUCT FOR NONMANAGEMENT - Mutual Fund Board Members are prohibited from accepting BOARD MEMBERS nomination or serving as a director, trustee or managing general partner of an investment company not advised by Dreyfus, or accepting employment with or acting as a consultant to any person acting as a registered investment adviser to an investment company, without the express prior approval of the board of directors/trustees of the pertinent Fund(s) for which the Mutual Fund Board Member serves as a director/trustee. In any such circumstance, management of Dreyfus must be given advance notice by the Mutual Fund Board Member of his/her request in order to allow management to provide its input, if any, for the relevant Fund board of directors/trustees' consideration. - Dreyfus Board Members are prohibited from accepting nomination or serving as a director, trustee or managing general partner of an investment company not advised by Dreyfus, or accepting employment with or acting as a consultant to any person acting as a registered investment adviser to an investment company, without Dreyfus's express prior approval. - Independent Mutual Fund Board Members are prohibited from owning Mellon securities (since that would destroy his or her independent status). - Nonmanagement Board Members are prohibited from buying or selling Mellon's publicly traded securities during a blackout period, which begins the 16th day of the last month of each calendar quarter and ends three business days after Mellon publicly announces the financial results for that quarter. Insider Trading and Tipping Federal securities laws generally prohibit the trading of securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider trading). Any person who passes along material nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic"- Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information, While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. Conflict of Interest--No Nonmanagement Board Member may recommend a securities transaction for Mellon, Dreyfus or any Fund without disclosing any interest he or she has in such securities or issuer thereof (other than an interest in publicly traded securities where the total investment is less than or equal to $25,000), including: o any direct or indirect beneficial ownership of any securities of such issuer; o any contemplated transaction by the Nonmanagement Board Member in such securities; o any position with such issuer or its affiliates; and o any present or proposed business relationship between such issuer or its affiliates and the Nonmanagement Board Member or any party in which the Nonmanagement Board Member has a beneficial ownership interest (see "Beneficial Ownership" in the Glossary). Portfolio Information--No Nonmanagement Board Member may divulge the current portfolio positions, or current or anticipated portfolio transactions, programs or studies, of Mellon, Dreyfus or any Fund, to anyone unless it is properly within his or her responsibilities as a Nonmanagement Board Member to do so. Material Nonpublic Information--No Nonmanagement Board Member may engage in or recommend any securities transaction, for his or her own benefit or for the benefit of others, including Mellon, Dreyfus or any Fund, while in possession of material nonpublic information. No Nonmanagement Board Member may communicate material nonpublic information to others unless it is properly within his or her responsibilities as a Nonmanagement Board Member to do so. PRECLEARANCE Nonmanagement Board Members are permitted to engage in personal FOR securities transactions without obtaining prior approval PERSONAL from the Preclearance Compliance Officer. SECURITIES TRANSACTIONS PERSONAL - Independent Mutual Fund Board Members--Any Independent Mutual SECURITIES Fund Board Member, as defined above, who effects a securities TRANSACTIONS transaction where he or she knew, or in the ordinary course of REPORTS fulfilling his or her official duties should have known, that during the 15-day period immediately preceding or after the date of such transaction, the same security was purchased or sold, or was being considered for purchase or sale by Dreyfus (including any Fund or other account managed by Dreyfus), is required to report such personal securities transaction. In the event a personal securities transaction report is required, it must be submitted to the Preclearance Compliance Officer not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected. The report must include the date of the transaction, the title and number of shares or principal amount of the security, the nature of the transaction (e.g., purchase, sale or any other type of acquisition or disposition), the price at which the transaction was effected and the name of the broker or other entity with or through whom the transaction was effected. This reporting requirement can be satisfied by sending a copy of the confirmation statement regarding such transaction to the Preclearance Compliance Officer within the time period specified. o Dreyfus Board Members and "Interested" Mutual Fund Board Members--Dreyfus Board Members and Mutual Fund Board Members who are "interested persons" of a Fund, as defined by the Investment Company Act of 1940, are required to report their personal securities transactions. Personal securities transaction reports are required to be submitted to the Preclearance Compliance Officer not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected. The report must include the date of the transaction, the title and number of shares or principal amount of the security, the nature of the transaction (e.g., purchase, sale or any other type of acquisition or disposition), the price at which the transaction was effected and the name of the broker or other entity with or through whom the transaction was effected. This reporting requirement can be satisfied by sending a copy of the confirmation statement regarding such transaction to the Preclearance Compliance Officer within the time period specified. EXEMPTIONS FROM Notwithstanding the foregoing, securities transaction reports REPORTING are not required for the following transactions purchases or REQUIREMENTS sales of "Exempt Securities" (see Glossary); purchases or sales effected in any account over which the Nonmanagement Board Member has no direct or indirect control over the investment decision-making process (i.e., discretionary trading accounts); transactions which are non-volitional on the part of the Nonmanagement Board Member (such as stock dividends); purchases which are part of an automatic reinvestment of dividends under a DRIP; purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; and\or sales of rights acquired from an issuer, as described above. CONFIDENTIAL TREATMENT THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER BEST EFFORTS TO ASSURE THAT ALL PERSONAL SECURITIES TRANSACTION REPORTS ARE TREATED AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY. GLOSSARY DEFINITIONS - ACCESS PERSON - As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" includes, with respect to a registered investment company or an investment adviser thereof, any director of such investment company or investment adviser. Each Nonmanagement Board Member is therefore considered an access person of Dreyfus or their respective Funds. - APPROVAL - written consent or written notice of nonobjection. - BENEFICIAL OWNERSHIP - The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial circumstances that are subject to change, Corporate Compliance ordinarily will not advise Nonmanagement Board Members ("NBM") on this definition. It is the responsibility of each NBM to read the definition, and based on that definition determine whether he/she is the beneficial owner of a security. Securities owned of record or held in the NBM's name are generally considered to be beneficially owned by the NBM. Securities held in the name of any other person are deemed to be beneficially owned by the NBM if by reason of any contract, understanding, relationship, agreement or other arrangement, the NBM obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the NBM's benefit (regardless of record ownership), e.g., securities held for the NBM or members of the NBM's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other administrators; securities owned by the NBM, but which have not been transferred into the NBM's name on the books of the company; securities which the NBM has pledged; or securities owned by a corporation that should be regarded as the NBM's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the NBM's immediate family, which includes the NBM's spouse, the NBM's minor children and stepchildren and the NBM's relatives or the relatives of the NBM's spouse who are sharing the NBM's home, unless because of countervailing circumstances, the NBM does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An NBM is also deemed the beneficial owner of securities held in the name of some other person even through the NBM does not obtain benefits of ownership, if the NBM can vest or revest title in himself or herself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he/she has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, discretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the NBM as trustee or a member of the NBM's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the NBM of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the NBM as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the NBM being settlor or beneficiary of the securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the NBM's prior approval as settlor or beneficiary. "Immediate family" of an NBM as trustee means the NBM's son or daughter (including any legally adopted children or any descendant of either), the NBM's stepson or stepdaughter, the NBM's father or mother or any ancestor of either, the NBM's stepfather or stepmother and the NBM's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan, and a business trust with over 25 beneficiaries. Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the NBM may report the security holdings of other members of his family, the NBM may nonetheless disclaim beneficial ownership of such securities. o DISCRETIONARY TRADING ACCOUNT - an account over which the NBM has no direct or indirect control over the investment decision making process. o EXEMPT SECURITIES - Exempt Securities are defined as: - direct obligations of the government of the United States; - bankers' acceptances; - bank certificates of deposit and time deposits; - commercial paper; - high quality short-term debt instruments; - repurchase agreements; - securities issued by open-end investment companies. o INVESTMENT COMPANY - a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. o INVESTMENT ETHICS COMMITTEE is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) General Counsel, Mellon Financial Corporation Chief Risk Management Officer, Mellon Trust Manager of Corporate Compliance, Mellon Financial Corporation Corporate Chief Auditor, Mellon Financial Corporation Chief Investment/Executive Officers of two investment departments or affiliates (rotating memberships) The Committee has oversight of issues related to personal securities trading and investment activity by certain employees, including those who make recommendations or decisions regarding the purchase or sale of portfolio securities by Funds or other managed accounts. o MELLON - Mellon Financial Corporation and all of its direct and indirect subsidiaries. o PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. EX-99.P 6 newtonpersonal.txt SUB-INVESTMENT ADVISER CODE OF ETHICS NEWTON PERSONAL ACCOUNT DEALING RULES AND CODE OF ETHICS CONTENTS: A BACKGROUND 1. Why do these rules exist? B GENERAL APPLICATION 2. Who do these rules apply to? 3. Access Persons 4. What transactions do these rules cover? 5. Derivatives 6. Investment Clubs 7. Spread Betting C DEALING IN MELLON SECURITIES 8. Dealing Restrictions 9. Knowledge of Major Mellon Events 10. Mellon Closed Period D NEWTON POLICY & YOUR OBLIGATIONS 11. Newton Policy 12. Your Obligations E ESTABLISHING & OPERATING YOUR PERSONAL ACCOUNT 13. Dealing Methods 14. In House - Quasar Account 15. In House - Execution Only 16. In House - Discretionary Accounts 17. External Broker F OBTAINING APPROVAL TO DEAL 18. Completing a PA Deal Slip 19. Obtaining Approval to Deal G GENERAL DEALING RESTRICTIONS 20. 60-Day Trading Profit Prohibition 21. Black Out Period 22. De Minimis Exemption H DISGORGEMENT POLICY 23. What is disgorgement and why do we have it? 24. How does it work? I PRIVATE PLACEMENTS AND IPOS 25. Definitions 26. The Approval Process J INVESTMENT ETHICS COMMITTEE ("IEC") 27. Purpose of IEC 28. Operation of IEC K CONTEMPORANEOUS DISCLOSURE 29. Purpose of the Requirement 30. How does it work? 31. De Minimis Exemption L HOLDINGS & TRANSACTION REPORTS 32. The Requirement 33. What is Covered by this Requirement 34. Initial Holdings Report 35. Quarterly Transaction Report 36. Annual Holdings Report M MONITORING COMPLIANCE WITH THESE RULES 37. Internal Monitoring 38. UK Regulators 39. US Regulators 40. Clients =============================================================================== IMPORTANT NOTICE: FAILURE TO COMPLY WITH THESE RULES IS A BREACH OF YOUR CONTRACT OF EMPLOYMENT WITH NEWTON. A SERIOUS BREACH WOULD BE TREATED AS GROSS MISCONDUCT IN ACCORDANCE WITH THE NEWTON DISCIPLINARY POLICY AND COULD LEAD TO DISMISSAL. FURTHERMORE, A BREACH OF THESE RULES MAY ALSO BE A BREACH OF THE IMRO RULES OR US REGULATIONS. REGISTERED INDIVIDUALS ARE REMINDED THAT IMRO HAS UNLIMITED POWERS TO DISCIPLINE INDIVIDUALS FOR BREACHES OF THEIR RULES. ALSO, US REGULATORS (E.G. THE SEC AND THE FEDERAL RESERVE BANK) HAVE POWERS TO SANCTION FIRMS AND INDIVIDUALS WHO VIOLATE THEIR REGULATIONS. =============================================================================== A. BACKGROUND 1. WHY DO THESE RULES EXIST? 1.1. Newton, together with all investment management companies in the UK, has an obligation to ensure that its staff comply with the financial services industry code of conduct in respect of dealing in investments on their personal account. In the UK this code is embodied in the IMRO rules and is strictly enforced by Newton. 1.2. As a part of Mellon Financial Corporation ("Mellon") and as managers of US client portfolios, Newton is also required to comply with a number of US regulations which impact on personal account dealing ("PA dealing") activities. 1.3. The main aim of the rules is to ensure that when employees of investment management companies deal on their own accounts they do not conflict with their employer's fiduciary responsibility to its clients. In other words, clients' interests must always come first, ahead of those of Newton staff. 1.4. It is impossible to lay down detailed rules to suit all situations and members of staff will be expected to use their own common sense in applying these rules. It is important that we comply with the spirit as well as the letter of the regulations. If in doubt please contact the Compliance department or the Dealing director. B. GENERAL APPLICATION 2. WHO DO THESE RULES APPLY TO? 2.1. NEWTON DIRECTORS AND EMPLOYEES - The rules apply to all directors and employees of Newton. This includes non-executive directors and contractors/consultants working on-site for prolonged periods and any other individuals who, through their involvement with Newton, are likely to come into contact with the company's investment information. ------------------------------------------------------------------------ PLEASE NOTE THAT THROUGHOUT THESE RULES ANY REFERENCES TO PA DEALS ALSO INCLUDE DEALS EXECUTED ON BEHALF OF CONNECTED PERSONS. ------------------------------------------------------------------------ 2.2. CONNECTED PERSONS - The securities holdings and transactions of "Connected Persons" also come within these rules. Connected Persons are essentially close relatives and associates of the staff member. The IMRO Rules give the following definition: "anyone connected by reason of a domestic or business relationship ..... such that the officer or employee has influence over that person's judgement as to how to invest his property or exercise any rights attaching to his investments." This definition would obviously include partners and minor children but goes beyond this to include anyone that an employee could in some way influence or control. This could include, for example, a trust of which a member of staff is a trustee. If you are in any doubt as to who falls within this definition you should contact the Compliance department for clarification. Please note that although it is necessary to report all dealings for Connected Persons it may not be appropriate/permissible for their deals to be executed through the in-house dealing facility. In this case you should comply with the requirements of paragraph 17 in respect of using external brokers. 2.3. TEMPORARY STAFF - Temporary staff are not entitled to use the in-house dealing facility but must comply with paragraph 17 in respect of dealings with external brokers. 3. ACCESS PERSONS 3.1. Under US regulations we are required to maintain a register of those members of staff who are classified as Access Persons for the purposes of the US Investment Company Act of 1940. Access Persons are essentially any individuals who are involved in making investment decisions, or are aware of them being made, for US Investment Companies (Mutual Funds), for example: - Research analysts & fund managers - Dealers (Including the Allocations team) - Trade Operations staff - Directors and officers of Newton Capital Management Limited 3.2. If you are an Access Person you will be notified accordingly. At present, the only additional obligation under these rules, for individuals classified as Access Persons, is the requirement to produce holdings reports in accordance with Section L of these rules. 4. WHAT TRANSACTIONS DO THESE RULES COVER? 4.1. The rules cover the purchase and sale of all investments on your own account or the account of a Connected Person unless specifically excluded. 4.2. Examples of investments covered by the rules: ------------------- - Shares (of any class, listed & unlisted) including shares in Investment Trusts and the Newton Corporate Money Fund Limited. - Bonds, debentures and UK government securities (i.e. gilts) - Warrants - Futures, options & contracts for differences - Units in unauthorised unit trusts - Securities listed above held through a PEP or ISA. This list is not exhaustive. If you have any queries, please contact Compliance for clarification. 4.3. Investments to which the rules do not apply: ------------ - Units in authorised unit trusts and shares in OEICs incorporated in the UK - Life assurance policies 5. DERIVATIVES 5.1. For the purposes of these rules derivatives include futures, options and contracts for difference. 5.2. Mellon discourages employees from engaging in short-term or speculative trading. 5.3. Newton does not have a facility for operating futures and options accounts for staff members. Accordingly, if you wish to deal in these securities you will need to establish your own dealing arrangements with an external broker. Please ensure that you follow the requirements of paragraph 17 below. 6. INVESTMENT CLUBS 6.1. These rules cover situations where a staff member (or Connected Person) is the beneficiary of a joint investment arrangement and is involved in the investment decision making process in respect of that arrangement e.g. Investment Clubs where a number of individuals pool their cash and make collective investment decisions to deal in investments (as defined in paragraph 4.2 of these rules). 6.2. Staff members involved in such arrangements should follow the requirements of paragraph 17 of these rules. 7. SPREAD BETTING 7.1. These rules cover situations where staff members (or Connected Persons) are involved in spread betting arrangements (e.g. IG Index) where the bet is based on investments (as defined in paragraph 4.2 of these rules). 7.2. Staff members involved in such arrangements should follow the requirements of paragraph 17 of these rules. C. DEALING IN MELLON SECURITIES 8. DEALING RESTRICTIONS 8.1. Staff who deal in securities issued by Mellon Financial Corporation ("Mellon securities") should be aware of the sensitivities relating to such transactions and need to avoid any suggestion of impropriety. 8.2. The following restrictions apply to all PA dealing activity (including Connected Persons) in Mellon's publicly traded securities: 8.2.1. Short sales (i.e. the sale of a security which you do not own at the time of the sale) of Mellon securities are prohibited. 8.2.2. Purchases of Mellon securities on margin are prohibited. 8.2.3. Option transactions involving Mellon securities are prohibited (NB: separate arrangements exist for the sale of share options granted under employee incentive schemes). 9. KNOWLEDGE OF MAJOR MELLON EVENTS 9.1. Staff who have knowledge of major Mellon events are prohibited from dealing in Mellon securities before the event is publicly announced. This restriction applies even if you believe that the event does not constitute price sensitive information. 10. MELLON CLOSED PERIOD 10.1. Staff are prohibited from dealing in Mellon securities during a closed period. Closed periods begin on the 16th day of the last month of each calendar quarter and end three business days after Mellon publicly announces the financial results for that quarter. D. NEWTON POLICY & YOUR OBLIGATIONS 11. NEWTON POLICY Newton staff may deal on their own account provided that the following principles are observed: 11.1. Client conflicts are always avoided regardless of any disadvantage that may arise to the staff member. 11.2. Investment decisions are made prudently without excessive financial outlay or exposure to unreasonable personal risk. 11.3. Personal account dealing must not interfere with your normal duties. You should be aware that such transactions involve other staff, such as the dealers and the trade operations section, in extra work and you should be careful not to deal in such a way as to disrupt these people in the performance of their duties. Client interests are paramount. In circumstances where the processing of staff transactions may affect the timely handling of client orders, staff deals will be deferred until adequate resources are available. 12. YOUR OBLIGATIONS 12.1. Read and understand these rules. If you are unclear about any aspect of the rules you should contact Compliance for clarification. 12.2. Follow the procedures set out in these rules for arranging your PA deals. Please remember that "PA deals" include deals for Connected Persons. 12.3. Do not deal on insider information (see Compliance Manual module 3). Dealing on inside information is a criminal offence which carries severe penalties with a maximum of an unlimited fine and 7 years imprisonment. 12.4. Ensure that to the best of your knowledge your decision to deal will not conflict with the interests of any Newton clients. Dealing ahead of known or expected client deals would be treated as a conflict of interest. 12.5. Comply with the dealing restrictions set out in Section G below. 12.6. Do not transact directly with clients who have portfolios under discretionary management with Newton. E. ESTABLISHING & OPERATING YOUR PERSONAL ACCOUNT 13. DEALING METHODS 13.1. All staff are expected to deal in-house. There are 3 types of in-house arrangements and these are described below. 13.2. In exceptional circumstances (e.g. investment in a product that Newton does not offer) Compliance may grant permission to deal with an external broker. Permission will not be granted on the grounds of a cheaper service being available through an external broker. The rules relating to external brokers are in paragraph 17 below. 13.3. A dealing charge (currently (pound)15) is levied on all in-house deals. Staff should be aware that dealings in certain instruments and in certain markets can entail more work and expense to the company. Newton retains the right to levy a higher than the standard charge in these circumstances to recoup these extra costs. 14. IN HOUSE - QUASAR ACCOUNT 14.1. The in-house dealing facility is only available to members of staff and their immediate families (i.e. spouses, including common law partners, and dependent children). You may operate accounts in the name of these family members but you are not permitted to operate more than one account in your own name. 14.2. Before you can commence PA dealing you must first open a Quasar account (Quasar is the computerised investment accounting system used by Newton). The procedure for opening an account simply involves contacting the Standing Data Supervisor (PIM Operations team, Edinburgh) who will arrange for an account to be set up and will notify you of your Quasar account number. You must quote your Quasar account number on all PA Deal Slips. 14.3. Quasar account names should clearly identify the beneficial owner of the account. You are not permitted to share Quasar accounts with other individuals (staff or non staff). 14.4. Cash Management - As your Quasar account forms part of the Newton general clients pooled account, IT IS IMPERATIVE THAT YOUR ACCOUNT DOES NOT BECOME OVERDRAWN. To minimise the risk of an overdraft, the following requirements apply: 14.4.1. You must ensure that sufficient cash is always available to meet any transaction obligations. 14.4.2. Unless you are funding a purchase through the sale of another security (see 14.4.3 below), sufficient cash must be in your account on the day a purchase transaction is actually effected. YOU CANNOT WAIT UNTIL THE SETTLEMENT DATE TO PROVIDE FUNDS. 14.4.3. If you are selling a holding to raise funds to pay for a purchase (or to make a cash withdrawal) you must allow two clear business days after the sale transaction is due to settle before the purchase transaction settlement date (or withdrawing the cash). You are responsible for checking that the sale proceeds have arrived into your account before the purchase transaction/cash withdrawal is paid for/made. If funds have not been received then you will be required to fund the shortfall forthwith (or be prohibited from withdrawing the cash). 14.4.4. Special care should also be taken to ensure that adequate funds are available, at least two clear business days, before payment is due, to meet any cash obligations e.g. calls on part paid shares or warrants. 14.4.5. You are not able to offset shortfalls in one account with --- credit balances in a related account (e.g. your spouses account). Each account must be treated independently for the purposes of avoiding overdrafts. 14.5. Please note that with a Quasar account your assets will be held in safe custody by the Bank of New York (Europe) along with those of Newton clients. 15. IN HOUSE - EXECUTION ONLY 15.1. This arrangement exists for staff wishing to sell securities where they already hold the share certificates (i.e. not held through Quasar). 15.2. Because of the extra work required to process these deals, and the subsequent cost to the firm, the purchase of securities through this arrangement is discouraged and will only be permitted in exceptional circumstances. 15.3. When completing a PA Deal slip (see paragraph 18 below) you will need to record the fact that you do not hold the security on Quasar. Certificates and stock transfer forms must be passed to the Transitions Manager on the day that the deal is effected. You will receive contract notes and payment by cheque directly from the brokers. 15.4. Where permission has been given to register stock in your own name outside of the Quasar system, you should provide details of your full name and address in the appropriate section of the PA Deal slip. 16. IN HOUSE - DISCRETIONARY ACCOUNTS 16.1. A staff member may become a discretionary portfolio management client of Newton. In this case staff must sign a full client agreement and the fee basis will be subject to negotiation. The portfolio will be managed on a discretionary basis by a fund manager (other than the staff member) and will rank equally with other discretionary clients. 16.2. The staff member should in no way seek to influence the fund manager as regards specific investment decisions. Staff portfolios managed in this way will not be subject to these PA dealing rules (other than Section L). 17. EXTERNAL BROKER 17.1. In order to utilise the services of an external broker staff must comply with the conditions set out below. 17.1.1. You must obtain prior consent from Compliance to use the services of an external broker. 17.1.2. You must inform the broker that you are an employee of Newton. 17.1.3. You must instruct the broker to forward a copy contract note in respect of every deal directly to the Newton Compliance department forthwith upon completion of the trade. 17.1.4. You are not permitted to accept from the broker any credit or special dealing services without first receiving specific consent from the Newton Compliance department. 17.1.5. For each transaction, before instructing the broker to deal, you must complete the "External Broker Approval Form" which will enable the Dealing director to check that your proposed deal will not conflict with any known client deals. F. OBTAINING APPROVAL TO DEAL 18. COMPLETING A PA DEAL SLIP 18.1. Before the transaction can be arranged you will need to complete a PA Deal slip (blue for purchase, pink for sale) which is available from the Dealing Room in London. Please ensure that you give full details of the stock that you intend to deal in. If a deal is done in the name of a Connected Person, the name of the member of staff must also be stated on the deal slip. 18.2. Staff members with portfolio management responsibilities for US Investment Companies (Mutual Funds) will also be required to complete a separate declaration form before the transaction can be arranged. 18.3. You are required to sign the declaration on the PA Deal slip for each deal. You have a duty to report any potential conflicts with clients' interests that you are aware of to the Dealing director at the time you are seeking approval to deal. Specific examples of such conflicts include: o Research personnel making a recommendation that could reasonably be expected to result in a transaction for a client portfolio in respect of the stock that they are seeking approval to deal for their own account. o Fund managers who are contemplating dealing on behalf of clients in a stock that they are seeking approval to deal in. o Other staff who may have become aware of any intention of Newton to trade in a stock in which they seek approval to deal. 18.4. This list is not exhaustive. If you are uncertain about the risk of such a conflict of interest please obtain clarification from the Dealing director or Compliance. 19. OBTAINING APPROVAL TO DEAL 19.1. The completed PA Deal slip must be forwarded to the Dealing director who will ensure that, as far as he is aware: 19.1.1. There is no conflict of interest between the member of staff and any client or between the company and a client. 19.1.2. There are no outstanding deals to be executed for a client in that investment. 19.2. In the Dealing director's absence, approval can be obtained from his appointed deputy. If neither is available you should contact the Compliance department. G. GENERAL DEALING RESTRICTIONS 20. 60-DAY TRADING PROFIT PROHIBITION 20.1. This restriction applies to all securities covered by these rules (as defined in paragraph 4.2) with the exception of the following: - UK Government Bonds (Gilts) - Shares in Newton Corporate Money Fund Limited 20.2. You are prohibited from retaining a profit from: - A purchase and subsequent sale of the same or an equivalent security if the stock has been held for less than 60-calendar days. - A sale and subsequent purchase of the same or an equivalent security if less than 60-calendar days has passed since the sale. 20.3. For this purpose, securities will be deemed equivalent if one is convertible into the other or one entails a right to purchase or sell the other; or if the value of one is expressly dependent on the value of the other (e.g. derivative securities). 20.4. The 60-day rule does not prohibit dealing within that period but you cannot benefit from any profit made on transactions where the purchase or sale was within 60 days of the related sale or purchase. You can close out a loss during that period in which case, as no profit has been realised, no profit is forfeited. 20.5. Where a profit arises from a transaction during the 60-calendar day period the Disgorgement Policy will be invoked in order to deal with the prohibited profit (see Section H below for details). 21. BLACK OUT PERIOD 21.1. This rule only applies to staff members with portfolio management responsibilities for US Investment Companies (Mutual Funds). You will be formally notified if this rule applies to you. 21.2. You are prohibited from dealing in a security during the period of 7 days before and 7 days after a deal ("the Black Out Period") in the same security has been executed for the US Mutual Fund for which you have portfolio management responsibilities. 21.3. For example, if the fund purchases/sells the same security 5 days after you sold your holding, you will be required to "give up" any profit made (realised or unrealised) during the Black Out Period in addition to any other appropriate sanctions. This will be calculated in accordance with the Newton Disgorgement Policy (see Section H below for details). 21.4. Certain securities are exempted from this prohibition if they qualify under the de minimis exemption set out in paragraph 22 below. If you are intending to use this exemption you must indicate this in the appropriate section of the dealing slip. 22. DE MINIMIS EXEMPTION 22.1. A security would be exempt from the restrictions imposed under the Black Out Period if they qualify under the criteria set out below. o The PA transaction is less than(pound)15,000 in value, and --- o The security is issued by a company which is a component of either the FTSE 350 or the FT S&P World Index. -- 22.2. An up to date list of the companies which make up these indices is kept in the Dealing Room. H. DISGORGEMENT POLICY 23. WHAT IS DISGORGEMENT AND WHY DO WE HAVE IT? 23.1. Disgorgement is the process whereby profits made on PA deals during restricted periods are "given up" by the staff member. In some instances this may include unrealised profits e.g. a PA purchase which retroactively falls into a Black Out Period where the staff member still holds the security. 23.2. In order to efficiently operate the 60-day trading profit prohibition there needs to be a mechanism which allows staff to deal during these periods (e.g. so that staff are not locked into loss making positions) whilst maintaining the integrity of the dealing restriction. 24. HOW DOES IT WORK? 24.1. Where you have made a profit from a PA deal during a restricted period you are required to notify the Compliance Officer of this fact. The Compliance department will be closely monitoring PA dealing activity to test for adherence to this requirement. 24.2. The Compliance Officer is responsible for determining the formula for calculating any profit on a deal and he will inform you of his findings. Each case will be considered on its own merits but every effort will be made to ensure that staff are not disadvantaged (other than forgoing the profit) as a result of this policy. 24.3. If you are not satisfied with the method used to calculate the profit figure you have a right of appeal to the Personnel Director whose decision will be final. 24.4. The profit will be paid to a charity of your choice. I. PRIVATE PLACEMENTS & IPOS 25. DEFINITIONS 25.1. Private Placement - for the purposes of these rules a Private ----------------- Placement is an issue that is offered to a limited number of investors as opposed to being publicly offered. This definition is deliberately widely drawn and ranges from a placing in large quoted company to an investment in a small private concern e.g. a joint venture between yourself and a friend or relative. 25.2. Initial Public Offering ("IPO") - for the purposes of these rules an ------------------------------- IPO is the first offering to the general public of equity securities in a company. This definition is deliberately widely drawn and includes all types of public offers and new issues. 26. THE APPROVAL PROCESS 26.1. If you are planning to purchase securities through an IPO or a Private Placement, you will need to apply to the Compliance Officer (using the "IPO/Private Placement Request" form) for prior approval to participate in the issue. 26.2. In some cases it may be necessary for the Compliance Officer to refer the matter to the Investment Ethics Committee (see Section J below). 26.3. You must allow at least three clear business days between the date that you notify the Compliance Officer and the date that you need to confirm your intention to participate in the offering. This is to allow time for the matter to be referred to the IEC if necessary. 26.4. You are not permitted to confirm your participation in the issue until you have received the express approval of the Compliance Officer or the IEC. 26.5. You are required to notify the Compliance Officer of your allotment once this has been formally notified to you. J. INVESTMENT ETHICS COMMITTEE ("IEC") 27. PURPOSE OF THE IEC 27.1. The purpose of the IEC is to provide an independent review of any PA dealing related transaction which may involve a conflict of interest between a staff member and clients. Examples are listed below. o PA dealing in IPO's and Private Placements where it is felt that a potential conflict of interest exists e.g. there is a possibility that Newton will invest in the company in the future. o Situations where a Contemporaneous Disclosure (see Section K) has been made and the Compliance Officer is concerned that a conflict of interest may have arisen. o Other PA dealing related situations where there is a potential risk of criticism of the actions of a fund manager so an independent review would be advantageous. 28. OPERATION OF THE IEC 28.1. The IEC will meet as required to review situations which require an independent assessment. 28.2. The IEC will report directly to the Executive Committee who will also operate as an appeal body, should this be necessary. 28.3. The quorum for an IEC meeting will be three. The meeting will be chaired by the Compliance representative, the second representative will have investment experience and the third representative will be from an independent business area. 28.4. Meetings will be minuted and the findings of the committee will be reported to the staff member within one business day of the meeting. K. CONTEMPORANEOUS DISCLOSURE 29. PURPOSE OF THIS REQUIREMENT 29.1. This rule only applies to staff with portfolio management responsibilities. 29.2. The purpose of this requirement is to ensure that any potential conflicts of interest between staff and their clients are clearly disclosed so that they can be assessed and dealt with appropriately. 29.3. This requirement differs from other rules in this area in that the disclosure obligation applies at the time of dealing for clients rather than at the time of the PA deal. ------------------- 30. HOW DOES IT WORK? 30.1. Staff with portfolio management responsibilities must complete a "Notice of Personal Account Holding" form prior to making or acting upon a portfolio recommendation in a security which they own personally. 30.2. The form includes a self-authorisation sign off whereby you will be required to confirm that your decision to deal for a client has not been influenced by the fact that you have a personal interest in the security. 30.3. The form should be completed prior to the first such portfolio transaction in the security in each calendar month. For subsequent transactions in that security in the same month, it is not necessary to complete another form. 30.4. The completed form should be sent to the Compliance Officer forthwith. Once this process has been completed you will then be free to deal in the security for your clients. 30.5. The Compliance Officer may refer the matter to the Investment Ethics Committee for further review. 31. DE MINIMIS EXEMPTION 31.1. A PA holding would be exempt from this disclosure requirement if it qualifies under the criteria set out below. o The PA holding is less than (pound)30,000 in value ((pound)50,000 aggregate where Connected Persons also have a holding), and --- o The security is issued by a company which is a component of either the FTSE 350 or the FT S&P World Index. An up to date -- list of the companies which make up these indices is kept in the Dealing Room. L. HOLDINGS & TRANSACTION REPORTS 32. THE REQUIREMENT 32.1. The US regulations require that Access Persons (see paragraph 3 above) must submit three types of report to the firm concerning their PA holdings. 32.2. This requirement is additional to the transaction based approval process set out in these rules. 33. WHAT IS COVERED BY THIS REQUIREMENT 33.1. All holdings and transactions in securities defined in paragraph 4.2 of these rules. 33.2. For the purposes of this section, portfolios which are managed under discretion by a third party, in which you (or a Connected Person) have a beneficial interest, should be included in the reporting process. 34. INITIAL HOLDINGS REPORT 34.1. Within 10 days of joining the firm (or changing roles within the company that brings them into the Access Persons category), Access Persons are required to produce a report listing all personal holdings (Connected Persons included where relevant) in securities covered by these rules (see paragraph 4.2 above). 34.2. Individuals who are caught by this requirement will be notified of their obligations together with instructions for completing the report. 35. QUARTERLY TRANSACTION REPORT 35.1. Within 10 days of the calendar quarter end, Access Persons are required to provide details of all PA transactions (including those of Connected Persons where relevant) during the period. 35.2. Where details of PA transactions have already been provided to Compliance through another process (e.g. dealing through Quasar or an External Broker in compliance with these rules) it is not necessary for Access Persons to provide this report. However, if you have acquired or disposed of securities covered by these rules through some other method (e.g. you have been gifted shares or received them in a will settlement) this will need to be reported in a quarterly report. 35.3. Any transactions carried out in respect of portfolios which are managed under discretion by a third party, in which you (or a Connected Person) have a beneficial interest, should be included in this report. An exception to this would be if they have been already been reported to Compliance (e.g. copy contract notes at the time the transaction was effected). 36. ANNUAL HOLDINGS REPORT 36.1. Within 30 days of the calendar year end, Access Persons are required to provide details of all PA holdings, including those of Connected Persons where relevant (current as of year end). 36.2. The report will be split into four sections: securities held on Quasar, securities held through a broker, securities held through a discretionary management arrangement and securities which you hold in your own name. 36.3. In some cases it will be sufficient to just identify the arrangements and confirm that all transactions during the period had been reported in accordance with the PA Dealing rules. 36.4. You will also be required to confirm that you have complied with the PA dealing rules at all times during the year. M. MONITORING COMPLIANCE WITH THESE RULES 37. INTERNAL MONITORING 37.1. Under the IMRO Rules, US regulations and our obligations to the Board of Directors of the US Mutual Funds that we manage, we are required to actively monitor PA dealing activity. 37.2. The Compliance department will regularly monitor this area to test adherence to these rules. 38. UK REGULATORS 38.1. IMRO/FSA always take a close interest in PA dealing activity during their monitoring visits. They will review the adequacy of the monitoring that we have performed as a company and will carry out their own tests to assess compliance with the IMRO rules. They always treat breaches of the rules as serious matters. 38.2. The London Stock Exchange has a Market Surveillance department which conducts its own monitoring of the market in order to identify instances of insider dealing. Where they identify suspicious transactions they will investigate those trades and often this will involve interviews with the individuals involved. 39. US REGULATORS 39.1. The Newton group has a US registered entity (Newton Capital Management Limited) which is regulated by the US Securities Exchange Commission ("SEC"). The SEC enforces compliance with the relevant US Securities legislation and has the power to sanction UK based firms and individuals. PA dealing activity is an area that they have traditionally taken a very close interest in. 39.2. As a part of the Mellon group, Newton is subject to regulation by the US Federal Reserve Bank. The "Fed" conducts regular visits to Mellon's overseas subsidiaries and compliance with PA dealing rules is an area that they will closely examine. 40. CLIENTS 40.1. Under the US Investment Company Act of 1940 the Board of Directors for each of our US Mutual Fund clients is required to receive annual reports from the fund manager (Newton) on the firm's compliance with these PA dealing rules. -----END PRIVACY-ENHANCED MESSAGE-----