fundamental analysis and risk management. The underlying fund invests principally in
common stocks, but its equity investments also may include preferred stocks, convertible securities,
warrants and securities issued by real estate investment trusts (REITs). REITs are pooled investment
vehicles that invest primarily in income-producing real estate or loans related to real estate. Although
the underlying fund typically invests in seasoned issuers, it may purchase securities of companies in
IPOs or shortly thereafter.
In selecting securities, the underlying fund's portfolio managers
use a proprietary computer model to identify and rank stocks within an industry or sector, based on several
characteristics, including:
·
value,
or how a stock is priced relative
to its perceived intrinsic worth;
·
growth
, in this case the sustainability
or growth of earnings; and
·
financial profile
, which measures the
financial health of the company.
Next, based on fundamental analysis, the portfolio managers generally
select to buy "long" the most attractive of the higher ranked securities, drawing on a variety of sources,
including internal research as well as Wall Street research, and company management.
The portfolio
managers generally select to sell "short" those stocks identified by the computer model and fundamental
analysis as being likely to underperform. The underlying fund reinvests the proceeds from its short
sales by taking additional long positions in stocks. This investment technique is known as "leverage,"
which increases risk and may magnify the underlying fund's gains or losses.
When the
underlying fund takes a long position, it purchases the stock outright in anticipation of an increase
in the market price of the stock. When the underlying fund takes a short position, it sells at the current
market price a stock it has borrowed in anticipation of a decline in the market price of the stock.
Normally, up to 130% of the underlying fund's assets will be in long positions in stocks and, to a limited
extent, securities with equity-like characteristics, and approximately 30% of the underlying fund's assets
will be in short positions.
The portfolio managers diversify the underlying fund's portfolio
positions across companies and industries, seeking to limit the potential adverse impact from any one
stock or industry. The underlying fund is structured so that its sector weightings and risk characteristics,
such as growth, size, quality and yield, are generally similar to those of the Standard & Poor's
®
500 Composite Stock Price Index, the underlying fund's benchmark.
The underlying fund also may
invest in ETFs and similarly structured pooled investments in order to provide exposure to certain equity
markets while maintaining liquidity. The underlying fund also may engage in short sales of ETFs and
similarly structured pooled investments.
Although not a principal investment strategy,
the underlying fund may, but is not required to, use exchange-traded derivatives, such as options, futures
and options on futures (including those relating to stocks, indexes, foreign currencies and interest
rates), as a substitute for investing directly in an underlying asset, to increase returns, to manage
foreign currency risk, or as part of a hedging strategy. The fund also may enter into over-the-counter
derivative transactions, such as forward contracts and swap agreements. The portfolio managers also
may employ financial instruments, such as futures, options, forward contracts, swaps, ETFs and other
derivative instruments, as an alternative to selling a security short. The underlying fund will be required
to segregate liquid assets (or otherwise cover) in an amount equal to its obligations to purchase the
securities it sells short, and with respect to its positions in certain derivatives. The requirement
to segregate assets limits the underlying fund's leveraging of its investments. The use of leverage,
however, may cause the underlying fund to liquidate portfolio positions when it would not be advantageous
to do so in order to satisfy its obligations.
The underlying fund typically sells a security
it is holding as a long position when the security no longer ranks favorably within its sector using
the fund's quantitative computer modeling techniques, the portfolio managers believe that there has been
a negative change in the fundamental factors surrounding the company, the company has lost favor in the
current market or economic environment or a more attractive opportunity has been identified. The underlying
fund may close out a short position when the investment thesis has been realized, when the company's
fundamentals or investment thesis has changed or when the portfolio manager identifies a more attractive
opportunity.
Dynamic Large Cap Value Strategy
The portion of the fund's assets allocated to
the Dynamic Large Cap Value Strategy normally is invested primarily in equity securities of companies
of any market capitalization, although the strategy focuses on large cap companies. At times, this portion
of the fund's assets may overweight industry and security positions, and invest in small cap companies,
high-yield debt securities and private placements. The portfolio manager responsible for this portion
of the fund's assets identifies potential investments through extensive quantitative and fundamental
research. The portfolio
106
manager responsible for the Dynamic Large Cap Value Strategy focuses on individual stock
selection (a "bottom-up" approach), emphasizing three key factors:
·
value:
quantitative screens track traditional
measures, such as price-to-earnings, price-to-book, and price-to-sales ratios, which 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; and
·
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 or the presence of a catalyst that will trigger a price
increase near- to mid-term.
The portfolio manager responsible for the Dynamic Large Cap Value
Strategy typically sells a stock when the portfolio manager believes there is a more attractive alternative,
the stock's valuation is excessive or there are deteriorating fundamentals, such as a loss of competitive
advantage, a failure in management execution or deteriorating capital structure. The portfolio manager
also may sell stocks when the portfolio manager's evaluation of a sector has changed.
Large Cap
Growth Strategy
The portion of the fund's assets allocated to the Large Cap Growth Strategy normally
is invested primarily in equity securities of large cap companies that are considered by the portfolio
manager to be growth companies. The investment process for the Large Cap Growth Strategy is based on
the premise that earnings growth is the primary determinant of long term stock appreciation. The portfolio
manager responsible for the Large Cap Growth Strategy uses an approach that combines top-down and bottom-up
analysis and focuses on "growth" stocks. Stock selection and sector allocation are both factors in determining
the holdings for this portion of the fund's assets. Fundamental financial analysis is used to identify
companies that the portfolio manager responsible for the Large Cap Growth Strategy believes offer one
or more of the following characteristics, among others:
·
expected
earnings growth rate exceeds market and industry trends;
·
potential
for positive earnings surprise relative to market expectations;
·
positive
operational or financial catalysts;
·
attractive
valuation based on growth prospects; and
·
strong
financial condition.
The portfolio manager typically sells a security when the portfolio
manager believes that there has been a negative change in the fundamental factors surrounding the company,
sector weights change to reflect a revised macro-economic view, the company has become fully valued or
a more attractive opportunity has been identified.
U.S. Large Cap Growth Strategy
The portion
of the fund's assets allocated to the U.S. Large Cap Growth Strategy normally is invested primarily in
equity securities of companies of any market capitalization, although the strategy focuses on large cap
U.S. companies. Investments for the U.S. Large Cap Growth Strategy are selected by a team of core research
analysts, with each analyst responsible for investments in his or her area of expertise. As the portfolio
managers responsible for this portion of the fund's assets, these analysts utilize a fundamental, bottom-up
research process to identify investments for the fund. The fund invests its assets allocated to the
U.S. Large Cap Growth Strategy in those companies in which the analysts have the highest degree of conviction
or have identified a strong near-term catalyst for earnings growth or share price appreciation. The
analysts, under the direction of the director of the core research team, determine the allocations among
market sectors. This portion of the fund's portfolio is structured so that its sector weightings generally
are similar to those of the Russell 1000
®
Growth Index.
The portfolio managers responsible
for the U.S. Large Cap Growth Strategy typically sell a security when the research analyst responsible
for the investment believes there has been a negative change in the fundamental factors surrounding the
company, the company has become fully valued, or a more attractive opportunity has been identified.
The
portion of the fund's assets allocated to the U.S. Large Cap Growth Strategy also may be invested in
Dreyfus Research Growth Fund, Inc., a mutual fund advised by The Dreyfus Corporation and managed by the
same portfolio managers responsible for the fund's U.S. Large Cap Growth Strategy using substantially
similar investment strategies as those used in managing this portion of the fund's assets. The underlying
fund seeks long-term capital growth consistent with the preservation of capital. Current income is a
secondary goal. To pursue its goals, the underlying fund normally invests at least 80% of its net assets,
plus any borrowings for investment purposes, in common stocks. The underlying fund may invest up to
25% of its assets in foreign securities. The underlying fund invests principally in common stocks,
107
but its stock investments may include preferred stocks and convertible securities, including
to a limited degree, those purchased in IPOs.
Although not a principal investment strategy,
the underlying fund may, but is not required to, use derivatives, such as options, futures and options
on futures (including those relating to stocks, indexes and foreign currencies) and forward contracts,
as a substitute for investing directly in an underlying asset, to increase returns, or as part of a hedging
strategy. The underlying fund also may engage in short-selling, typically for hedging purposes, such
as to limit exposure to a possible market decline in the value of its portfolio securities. The underlying
fund also may invest in ETFs and similarly pooled investments in order to provide exposure to certain
equity markets.
Income Stock Strategy
The portion of the fund's assets allocated to
the Income Stock Strategy is invested in BNY Mellon Income Stock Fund, a mutual fund advised by the fund's
investment adviser. The underlying fund seeks total return (consisting of capital appreciation and income).
This objective may be changed without shareholder approval. To pursue its goal, the underlying fund
normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in stocks.
The underlying fund seeks to focus on dividend-paying stocks and other investments and investment techniques
that provide income. The underlying fund's portfolio manager chooses stocks through a disciplined investment
process that combines computer modeling techniques, fundamental analysis and risk management. The underlying
fund emphasizes those stocks with value characteristics, although it may also purchase growth stocks.
The underlying fund's investment process is designed to provide investors with investment exposure
to sector weightings and risk characteristics generally similar to those of the Dow Jones U.S. Select
Dividend Index
SM
(Dow Jones Index), which is comprised of 100 of the highest dividend-yielding securities (excluding REITs)
in the Dow Jones U.S. Index, a broad-based index that is representative of the total U.S. equity market.
The underlying fund's allocations, however, may differ from those of the Dow Jones Index. The
underlying fund invests primarily in common stocks, but its stock investments also may include convertible
securities (up to 10% of the underlying fund's assets), preferred stocks (up to 10% of the underlying
fund's assets), and American Depositary Receipts (ADRs), including those purchased in IPOs. The underlying fund
also may invest in fixed-income securities and money market instruments.
In selecting
securities, the underlying fund's portfolio manager uses a computer model to identify and rank stocks
within an industry or sector, based on several characteristics, including:
·
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, based on fundamental analysis, the underlying fund's portfolio
manager generally selects the most attractive of the higher ranked securities, drawing on a variety of
sources, including internal research as well as Wall Street research, and company management.
Finally,
the underlying fund's portfolio manager manages risk by diversifying across companies and industries,
seeking to limit the potential adverse impact from any one stock or industry. The fund may at times
overweight certain sectors in attempting to achieve higher yields.
The underlying fund typically
sells a security when the company's potential dividend yield declines, the portfolio manager believes
that there has been a negative change in the fundamental factors surrounding the company, the company
has lost favor in the current market or economic environment or a more attractive opportunity has been
identified.
Although not a principal investment strategy, the underlying fund may, but currently
does not intend to, use exchange-traded derivatives, such as futures (including those relating to stocks,
indexes, foreign currencies and interest rates), as a substitute for investing directly in an underlying
asset, to increase returns or income, to manage interest rate risk, or as part of a hedging strategy.
The underlying fund also may enter into over-the-counter derivative transactions, such as forward contracts
and swap agreements.
Appreciation Strategy
The portion of the fund's assets
allocated to the Appreciation Strategy is invested in Dreyfus Appreciation Fund, Inc., a mutual fund
advised by The Dreyfus Corporation and sub-advised by Fayez Sarofim & Co. The underlying fund seeks
long-term capital growth consistent with the preservation of capital. Its secondary goal is current
income. To pursue its goals, the underlying fund normally invests at least 80% of its net assets, plus
any borrowings for investment purposes, in common stocks. The underlying fund focuses on "blue chip"
companies with total market capitalizations of more than $5 billion at the time of purchase, including
multinational companies. These are established companies that have demonstrated sustained patterns of
profitability, strong balance sheets, an expanding global presence and the potential to achieve predictable,
above-average earnings growth.
108
In choosing stocks, the underlying fund's portfolio managers first identify economic
sectors they believe will expand over the next three to five years or longer. Using fundamental analysis,
the underlying fund's portfolio managers then seek companies within these sectors that have proven track
records and dominant positions in their industries. The underlying fund also may invest in companies
which the underlying fund's portfolio managers consider undervalued in terms of earnings, assets or growth
prospects.
The underlying fund employs a "buy-and-hold" investment strategy, which generally has
resulted in an annual portfolio turnover of below 15%. A low portfolio turnover rate helps reduce the
underlying fund's trading costs and minimizes tax liability by limiting the distribution of capital gains.
The
underlying fund typically sells a stock when the portfolio managers believe there is a significant adverse
change in a company's business fundamentals that may lead to a sustained impairment in earnings power.
Large
Cap Dividend Strategy
The portion of the fund's assets allocated to the Large Cap Dividend
Strategy normally is invested primarily in equity securities, focusing on dividend-paying stocks and
other investments and investment techniques that provide income. The portfolio manager responsible for
the Large Cap Dividend Strategy chooses securities through a disciplined investment process that combines
fundamental analysis and risk management. The Large Cap Dividend Strategy emphasizes those securities
with above market average yield, although the portfolio manager may purchase those securities with low
or no dividend. This portion of the fund's assets may be invested in the stocks of companies of any
size, although the strategy focuses on large cap companies. The investment process for the Large Cap
Dividend Strategy is designed to provide investors with investment exposure to sector weightings and
risk characteristics generally similar to those of the Dow Jones U.S. Select Dividend Index
SM
(Dow Jones Index), which
is comprised of 100 of the highest dividend-yielding securities (excluding REITs) in the Dow Jones U.S.
Index, a broad-based index that is representative of the total U.S. equity market. The Large Cap Dividend
Strategy's allocations, however, may differ from those of the Dow Jones Index. The fund invests its
assets allocated to the Large Cap Dividend Strategy in common stocks, but such investments also may include
convertible securities (up to 25% of the fund's assets allocated to this strategy), preferred stocks
(up to 25% of the fund's assets allocated to this strategy), REITs (up to 25% of the fund's assets allocated
to this strategy) and ADRs (up to 25% of the fund's assets allocated to this strategy), including those
purchased in IPOs. The fund's assets allocated to the Large Cap Dividend Strategy also may be invested
in fixed-income securities and money market instruments.
In selecting securities, the
portfolio manager responsible for the Large Cap Dividend Strategy screens the universe of large cap companies
focusing on those with above average dividend yield. The portfolio manager assesses the outlook for
earnings and dividend growth among these companies. Next, based on fundamental analysis, the portfolio
manager selects the most attractive securities, drawing on a variety of sources, including internal research
as well as Wall Street research, and company management.
Finally, the portfolio manager
responsible for the Large Cap Dividend Strategy manages risk by diversifying across companies and industries,
seeking to limit the potential adverse impact from any one stock or industry. The Large Cap Dividend
Strategy may at times overweight certain sectors in attempting to achieve higher yields.
The portfolio
manager responsible for the Large Cap Dividend Strategy typically sells a security when the company's
potential dividend yield declines, the portfolio manager believes that there has been a negative change
in the fundamental factors surrounding the company, the company has lost favor in the current market
or economic environment or a more attractive opportunity has been identified.
BNY Mellon
Tax-Sensitive Large Cap Multi-Strategy Fund
The fund seeks long-term capital
appreciation. The fund's investment objective may be changed by the fund's board, upon 60 days' prior
notice to shareholders. To pursue its goal, the fund normally invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities of large cap companies. The fund currently
considers large cap companies to be those companies with total market capitalizations of $5 billion or
more at the time of purchase. The fund normally allocates its assets among multiple investment strategies
employed by the fund's investment adviser or its affiliates that invest primarily in equity securities
issued by large cap companies. The fund is designed to provide exposure to various large cap equity
portfolio managers and investment strategies and styles and uses tax-sensitive strategies to reduce the
impact of federal and state income taxes on the fund's after tax returns. The fund invests directly
in securities or in other mutual funds advised by the fund's investment adviser or its affiliates, referred
to as underlying funds, which in turn may invest directly in securities as described below. The fund
invests primarily in common stocks, but the fund's equity investments also may include preferred stocks,
convertible securities, depositary receipts and warrants. The fund also may invest in exchange-traded
funds (ETFs) and similarly structured pooled investments. Although the fund typically invests in seasoned
issuers, it may purchase securities of companies in
109
initial public offerings (IPOs) or shortly thereafter. The fund may invest up to 25%
of its assets in the equity securities of foreign issuers, including those in emerging market countries.
Emerging markets generally include all countries represented by the Morgan Stanley Capital International
Emerging Markets Index, or any other country that the fund's portfolio manager believes has an emerging
economy or market.
The investment adviser determines the investment strategies, including
whether to implement such strategy by investing directly in securities or through an underlying fund,
and sets the target allocations. The investment strategies and the fund's targets and ranges (expressed
as a percentage of the fund's investable assets) for allocating its assets among the investment strategies
as of the date of this prospectus were as follows:
|
|
|
|
|
Investment Strategy
|
Target
|
Range
|
|
Large Cap Core Strategy
|
20%
|
20% to 50%
|
|
Large Cap Tax-Sensitive Strategy
|
25%
|
20%
to 60%
|
|
Focused Equity Strategy
|
20%
|
0% to
30%
|
|
U.S. Large
Cap Equity Strategy
|
23%
|
0% to 30%
|
|
U.S. Core Equity 130/30 Strategy
|
7%
|
0% to 30%
|
|
Dynamic Large Cap Value Strategy
|
0%
|
0%
to 30%
|
|
Large Cap Growth Strategy
|
0%
|
0% to
30%
|
|
U.S. Large
Cap Growth Strategy
|
5%
|
0% to 30%
|
|
Income Stock Strategy
|
0%
|
0% to 30%
|
|
Appreciation Strategy
|
0%
|
0%
to 30%
|
|
Large Cap Dividend Strategy
|
0%
|
0% to
30%
|
The investment strategies and the target weightings and ranges have
been selected for investment over longer time periods, but may be changed without shareholder approval
or prior notice. The target weightings will deviate over the short term because of market movements
and fund cash flows. The target weightings do not reflect the fund's working cash balance — a portion
of the fund's portfolio will be held in cash due to purchase and redemption activity and other short
term cash needs. The investment adviser normally considers reallocating the fund's investments at least
quarterly, but may do so more often in response to market conditions. Any changes to the investment
strategies (including to any underlying funds) or the allocation weightings may be implemented over a
reasonable period of time. The investment adviser has the discretion to change the investment strategies,
including whether to implement a strategy by investing directly in securities or through an underlying
fund, and the target allocations and ranges when the investment adviser deems it appropriate. To the
extent an underlying fund offers multiple classes of shares, the fund will purchase shares of the class
with the lowest expense ratio and without a sales load.
The fund's investment adviser
monitors the portfolio trading activity within the investment strategies to promote tax efficiency and
avoid wash sale transactions, and executes all purchases and sales of portfolio securities of the fund.
The fund will seek to reduce the impact of federal and state income taxes on the fund's after-tax returns
by using certain tax-sensitive strategies, which include for the fund as a whole generally selling first
the highest cost securities to reduce the amount of any capital gain and preferring the sale of securities
producing long-term capital gains to those producing short-term capital gains. Although the fund uses
certain tax-sensitive strategies, the fund does not have any limitations regarding portfolio turnover
and the fund may engage in short-term trading, which could produce higher transaction costs and taxable
distributions and lower the fund's after-tax performance.
Although not a principal investment
strategy, the fund may, but is not required to, use exchange-traded derivatives, such as options, futures
and options on futures (including those relating to stocks, indexes, foreign currencies and interest
rates), as a substitute for investing directly in an underlying asset, to increase returns, to manage
foreign currency risk or as part of a hedging strategy. The fund also may enter into over-the-counter
derivative transactions, such as forward contracts and swap agreements. The fund also may engage in
short-selling.