N-30D 1 lp1172.txt ANNUAL REPORT Dreyfus Investment Portfolios, Core Bond Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 18 Statement of Assets and Liabilities 19 Statement of Operations 20 Statement of Changes in Net Assets 22 Financial Highlights 24 Notes to Financial Statements 31 Report of Independent Auditors 32 Important Tax Information 33 Board Members Information 34 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Core Bond Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Core Bond Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with Michael Hoeh, portfolio manager and a member of the Dreyfus Taxable Fixed Income Team that manages the portfolio. In 2001, bonds generally posted higher returns than stocks for the second consecutive year. Although one of America' s longest periods of economic expansion came to an end, bonds generally benefited from the Federal Reserve Board' s efforts to reinvigorate an ailing economy. Eleven interest-rate reductions drove short-term rates to their lowest levels in 40 years, helping to boost bond prices, including those of U.S. Treasury securities and investment-grade corporate bonds. 2001 also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks and lower rated bonds rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. With bond yields ending 2001 at historically low levels, a repeat of last year's bond market performance seems unlikely. Nonetheless, investment opportunities may abound. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Michael Hoeh, Portfolio Manager Dreyfus Taxable Fixed Income Team How did Dreyfus Investment Portfolios, Core Bond Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio's Initial shares achieved a total return of 4.55% and its Service shares achieved a total return of 4.46% .(1) In comparison, the Merrill Lynch Domestic Master Index, the portfolio's benchmark, achieved a total return of 8.32% for the same period.(2) We attribute the portfolio's positive overall performance to falling interest rates in a weakening economy. The portfolio's total return lagged behind its benchmark, primarily because we positioned the portfolio for stronger economic activity toward the middle of the year by overweighting investment-grade, high yield corporate bond positions. However, the September 11 terrorist attacks delayed economic recovery, and prices of the portfolio' s corporate bonds declined as credit concerns intensified. What is the portfolio's investment approach? The portfolio seeks to maximize total return through both capital appreciation and current income. The portfolio invests at least 65% of its assets in investment-grade fixed-income securities, which include U.S. Treasury securities, U.S. government agency securities, corporate bonds, foreign bonds, mortgage- and asset-backed securities, convertible securities and preferred stocks. The portfolio may invest up to 35% of its assets in bonds rated below investment-grade credit quality, also known as high yield securities. Our investment approach emphasizes: * FUNDAMENTAL ECONOMIC ANALYSIS. Our review of U.S. economic conditions helps us establish the portfolio's average duration, which is a measure of sensitivity to interest-rate changes. If interest rates appear to be rising, we will generally reduce the portfolio's average duration to keep cash The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) available for the purchase of higher yielding securities as they become available. If interest rates appear to be declining, we will generally increase the portfolio' s average duration to lock in prevailing yields. *SECTOR ALLOCATION. We allocate assets among the various sectors of the fixed-income marketplace according to their relative attractiveness based on prevailing and expected market and economic conditions. * SECURITY SELECTION. We choose individual securities according to factors that include their yields, prices, liquidity and the financial health of their issuers. What other factors influenced the portfolio's performance? During the reporting period, the portfolio was primarily affected by a weakening U.S. economy. When the reporting period began on January 1, reduced capital spending, falling corporate profits and a declining stock market were already contributing to slower economic growth. In an effort to reinvigorate the economy, the Federal Reserve Board (the "Fed" ) began to reduce short-term interest rates on the first business day of 2001. These reductions were followed by 10 additional rate cuts during 2001. All told, the Fed reduced short-term interest rates 4.75 percentage points during the reporting period. By the middle of the reporting period, we began to detect signs that the Fed's aggressive monetary policy was starting to have a positive effect on the economy. Consumer spending remained robust, the housing market was strong, business inventories were finally moving closer to normal levels and a federal tax cut gave consumers more money to spend. As a result, we were comfortable positioning the portfolio for the start of a recovery. This relatively aggressive stance included an emphasis on both investment-grade and high yield corporate bonds, which we believed would benefit from renewed investor interest. Then something happened that no one could reasonably predict: terrorists attacked the United States. In addition to the incalculable devastation wrought on human lives and property, the catastrophes had negative repercussions throughout the U.S. economy. Consumer spending plunged, removing one of the few remaining pillars of economic strength. As a result, the U.S. economy entered its first full-blown recession in a decade. Investors responded by retreating to relative safe havens, such as U.S. Treasury securities, and corporate bond prices fell. The extent to which corporate bond prices fell was in direct relation to their credit quality: triple-A rated bonds fell least while high yield bonds declined the most. What is the portfolio's current strategy? The portfolio's average duration, a measure of sensitivity to changing interest rates, ended the reporting period at a point that was slightly shorter than the average for its peer group. We intend to maintain this relatively conservative stance until the corporate earnings outlook becomes clearer. However, because we believe that economic recovery is likely in 2002, we have maintained our corporate bond positions in anticipation of a widening of the yield differences between short-term and long-term bonds. As the recovery approaches, we expect long-term bond yields to rise from current levels. In addition, we have continued to allocate the portfolio's assets with an emphasis on corporate bonds, asset-backed securities and mortgage-backed securities. We have de-emphasized U.S. Treasury and agency securities. Of course, we may change the portfolio's composition as market conditions evolve, and there is no guarantee as to how the portfolio or the economy will perform in the future. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MERRILL LYNCH DOMESTIC MASTER INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK COMPOSED OF U.S. TREASURY AND AGENCY, AND MORTGAGE AND INVESTMENT-GRADE CORPORATE SECURITIES WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR. The Portfolio
PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Core Bond Portfolio Initial shares and Service shares and the Merrill Lynch Domestic Master Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 5/1/00 4.55% 7.91% SERVICE SHARES 5/1/00 4.46% 7.86% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW.
((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, CORE BOND PORTFOLIO ON 5/1/00 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE MERRILL LYNCH DOMESTIC MASTER INDEX (THE "INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK COMPOSED OF U.S. GOVERNMENT, MORTGAGE AND BBB OR HIGHER RATED CORPORATE SECURITIES WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR. U.S. TREASURY SECURITIES IN THE INDEX MUST HAVE PAR AMOUNTS OUTSTANDING GREATER THAN OR EQUAL TO $1 BILLION AND CORPORATE AND GENERIC MORTGAGE-BACKED SECURITIES $100 MILLION PER COUPON. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS Principal BONDS AND NOTES--90.9% Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AIRCRAFT AND AEROSPACE--1.3% BE Aerospace, Sr. Sub. Notes, Ser. B, 8.875%, 2011 142,000 121,410 Boeing Capital, Sr. Notes, 5.75%, 2007 270,000 269,498 Goodrich (B.F.), Notes, 7%, 2038 301,000 254,843 Hexcel, Sr. Sub. Notes, 9.75%, 2009 69,000 38,985 U.S. Airways, Enhanced Equipment Notes, Ser. C, 8.93%, 2009 43,012 33,655 718,391 ASSET-BACKED CTFS.--7.5% Conseco Finance Securitizations: Ser. 2000-6, Cl. A1, 6.43%, 2032 150,565 152,918 Ser. 2000-B, Cl. AF4, 7.87%, 2031 270,000 284,091 Ser. 2000-D, Cl. A3, 7.89%, 2018 350,000 365,077 Ser. 2001-1, Cl. A1B, 5.01%, 2032 118,980 120,870 Ser. 2001-A, Cl. IIA2, 6.52%, 2032 470,000 486,723 Ser. 2001-C, Cl. A4, 6.19%, 2030 260,000 260,000 GE Capital Mortgage Services, Ser. 1999-HE1, Cl. A7, 6.265%, 2029 500,000 514,820 Green Tree Home Improvement Loan Trust, Ser. 1997-A, Cl. HEA6, 7.16%, 2028 197,677 202,874 The Money Store Home Equity Trust, Ser. 1998-B, Cl. AF8, 6.11%, 2010 182,361 188,001 Nortel Networks Lease Pass-Through Trust, Ser. 2001-1, 11.629%, 2016 144,430 114,810 Residential Asset Securities: Ser. 2001-KS1, Cl. AI1, 5.593%, 2016 123,634 124,368 Ser. 2001-KS3, Cl. AI6, 5.96%, 2031 602,000 588,831 Saxon Asset Securities Trust, . Ser. 2001-2, Cl. AF6, 6.312%, 2016 750,000 747,660 Union Acceptance Corp. Securitization Owner Trust, Ser. 2000-D, Cl. A4, 6.89%, 2007 121,000 127,749 4,278,792 ASSET-BACKED CTFS./HOME EQUITY LOANS--.6% Conseco Finance Home Loan Trust, Ser. 2000-E, Cl. A5, 8.02%, 2031 350,000 375,876 AUTOMOTIVE--7.6% DaimlerChrysler N. A. Holding, Notes, 6.4%, 2006 660,000 660,686 Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AUTOMOTIVE (CONTINUED) Ford Motor Credit: Global Landmark Securities, 7.25%, 2011 410,000 399,669 Notes, 6.5%, 2007 1,309,000 1,281,989 GMAC: Notes, 6.125%, 2006 1,373,000 1,360,291 Notes, 6.875%, 2011 382,000 374,843 TRW, Notes, 6.625%, 2004 287,000 293,053 4,370,531 BANKING--2.5% Bank of America, Sub. Notes, 7.4%, 2011 545,000 585,328 Bank One, Notes, 6.5%, 2006 265,000 277,191 Capital One Financial: Notes, 7.25%, 2003 33,000 33,443 Notes, 7.25%, 2006 175,000 167,113 Morgan (J.P.) Chase & Co., Sub. Notes, 6.75%, 2011 335,000 343,510 1,406,585 CABLE/MEDIA--1.5% Charter Communications Holdings/Capital: Sr. Discount Notes, 0/11.75%, 2011 174,000 (b) 107,880 Sr. Notes, 8.625%, 2009 138,000 133,515 Fox Family Worldwide, Sr. Notes, 9.25%, 2007 270,000 290,250 Time Warner Telecom, Deb., 7.25%, 2017 334,000 341,499 873,144 CHEMICALS--.2% Huntsman ICI Chemicals, Sr. Sub. Notes, 9.5%, 2007 175,000 (c,d) 33,250 Lyondell, Gtd. Sr. Notes, Ser. A, 9.625%, 2007 60,000 60,750 94,000 COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--11.3% Bear Stearns Commercial Mortgage Securities, Ser. 2001-TOP2, Cl. A1, 6.08%, 2035 756,710 769,688 COMM, Ser. 2000-FL2A, Cl. E, 2.886%, 2011 100,000 (d,e) 99,845 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL MORTGAGE PASS-THROUGH CTFS. (CONTINUED) CS First Boston Mortgage Securities: Ser. 1998-C1, Cl. A1A, 6.26%, 2040 500,753 519,651 Ser. 1998-C1, Cl. C, 6.78%, 2009 441,000 450,882 Ser. 2001-CF2, Cl. A4, 6.505%, 2034 558,000 571,437 Ser. 2001-SPGA, Cl. A2, 6.515%, 2018 1,000,000 (d) 982,829 Chase Commercial Mortgage Securities, Ser. 2001-245, Cl. A1, 6.173%, 2016 240,000 (d,e) 241,966 Chase Manhattan Bank-First Union National Bank, Ser. 1999-1, Cl. A1, 7.134%, 2031 607,318 639,752 GGP Mall Properties Trust, Ser. 2001-C1-A, Cl. C2, 5.558%, 2011 708,754 (d) 685,720 GS Mortgage Securities II, Ser. 2001-LIBA, Cl. C, 6.733%, 2011 269,000 (d) 257,652 Morgan Stanley Dean Witter Capital I, Ser. 2001-XLF, Cl. F, 4.02%, 2013 273,000 (d,e) 273,000 Prudential Securities Secured Financing, Ser. 1999-C2, Cl. A1, 6.955%, 2031 258,329 272,660 TIAA CMBS I Trust, Ser. 1999-1, Cl. A, 7.17%, 2032 309,486 (d) 326,591 TrizecHahn Office Properties Trust, Ser. 2001-TZH, Cl. A2, 6.093%, 2016 369,000 371,133 6,462,806 CONSUMER--.4% Dial, Sr. Notes, 7%, 2006 239,000 240,715 ENVIRONMENTAL--1.1% Allied Waste N. A.: Sr. Notes, 8.5%, 2008 119,000 (d) 120,785 Sr. Sub. Notes, Ser. B, 10%, 2009 511,000 528,885 649,670 FINANCIAL SERVICES--6.3% Citigroup: Notes, 6.5%, 2011 551,000 567,819 Sub. Notes, 7.25%, 2010 385,000 413,270 Credit-Backed Steers Trust 2001, Trust Ctfs., Ser. VZ-1, 5.565%, 2005 400,000 (d) 393,000 Household Finance: Notes, 6.375%, 2011 290,000 281,080 Sr. Notes, 6.4%, 2008 215,000 213,603 Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES (CONTINUED) International Lease Finance, Notes, 5.75%, 2006 310,000 309,502 Lehman Brothers Holdings, Notes, 7%, 2008 310,000 322,388 Morgan Stanley Dean Witter, Notes, 6.1%, 2006 280,000 288,815 Qwest Capital Funding, Notes, 7.9%, 2010 681,000 693,881 TIERS, Fixed Rate Trust Ctfs., Ser. MIR, 2001-14, 7.2%, 2004 182,000 (d) 149,670 3,633,028 FOOD AND BEVERAGES--.4% Land O' Lakes, Sr. Notes, 8.75%, 2011 230,000 (d) 223,100 FOREIGN--1.3% Abitibi-Consolidated, Deb., 8.85%, 2030 414,000 432,076 Marconi: Bonds, 8.375%, 2030 260,000 122,200 Gtd. Sr. Notes, 5.625%, 2005 EUR 250,000 120,366 Sr. Notes, 7.75%, 2010 75,000 39,000 Metronet Communications, Sr. Discount Notes, 0/9.95%, 2008 61,000 (b) 30,773 744,415 HOTELS--.2% Hilton Hotels, Notes, 7.625%, 2008 128,000 122,208 INDUSTRIAL--1.0% Briggs & Stratton, Sr. Notes, 8.875%, 2011 33,000 34,650 National Equipment Services, Sr. Sub. Notes, Ser. D, 10%, 2004 23,000 19,665 Terex: Gtd. Sr. Notes, 8.875%, 2008 72,000 71,280 Sr. Sub. Notes, Ser. B, 10.375%, 2011 68,000 71,060 Tyco International, Sr. Notes, 6.75%, 2011 355,000 357,027 553,682 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE--1.5% Conseco: Notes, 8.5%, 2002 58,000 42,630 Notes, 6.4%, 2003 31,000 17,980 Notes, 6.8%, 2005 127,000 53,975 PXRE Capital Trust I, Gtd. Capital Securities, 8.85%, 2027 88,000 46,045 Zurich Capital Trust I, Gtd. Capital Securities, 8.376%, 2037 674,000 (d) 670,431 831,061 MEDICAL EQUIPMENT--.4% Beckman Coulter, Sr. Notes, 6.875%, 2011 205,000 203,810 OIL AND GAS--2.0% Conoco Funding, Notes, 6.35%, 2011 412,000 416,361 El Paso, Sr. Notes, 7%, 2011 560,000 555,438 Ocean Energy, Sr. Sub. Notes, Ser. B, 8.875%, 2007 75,000 78,750 Petroleum-Geo Services, Sr. Notes, 7.125%, 2028 103,000 74,622 1,125,171 OTHER-3.6% HYDI-100, Linked Ctf. of Deposit, 9.4%, 2006 2,000,000 (f) 2,045,000 PAPER PRODUCTS--.5% Weyerhaeuser, Notes, 5.95%, 2008 275,000 (d) 268,237 REAL ESTATE INVESTMENT TRUSTS--1.5% Crescent Real Estate Equities, Notes, 7%, 2002 345,000 345,168 istar Financial, Sr. Notes, 8.75%, 2008 312,000 312,603 New Plan Excel Realty Trust, Sr. Notes, 6.875%, 2004 175,000 180,861 838,632 Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ RESIDENTAL MORTGAGE PASS-THROUGH CTFS.--2.1% Bank of America Large Loan, Ser. 2001-1166, Cl. C, 4.833%, 2005 250,000 245,547 Chase Mortgage Finance, Ser. 1999-S13, Cl. B4, 6.5%, 2014 203,179 175,176 GE Capital Mortgage Services, Ser. 2000-8, Cl. B5, 7.5%, 2015 176,928 69,444 Residential Funding Mortgage Securities I, Ser. 1999-S11, Cl. M3, 6.5%, 2029 728,222 704,177 1,194,344 RETAIL--.2% Levi Strauss & Co.: Notes, 6.8%, 2003 76,000 68,020 Sr. Notes, 11.625%, 2008 65,000 57,850 125,870 TECHNOLOGY--1.9% Amkor Technology: Sr. Notes, 9.25%, 2006 35,000 33,600 Sr. Notes, 9.25%, 2008 60,000 57,000 Computer Sciences, Notes, 6.75%, 2006 134,000 139,708 Metromedia Fiber Network, Sr. Notes, 10%, 2009 1,042,000 307,390 Thomson, Notes, 6.2%, 2012 495,000 477,096 Unisys, Sr. Notes, 7.25%, 2005 100,000 98,250 1,113,044 TELECOMMUNICATIONS--5.1% American Tower, Sr. Notes, 9.375%, 2009 223,000 180,630 British Telecommunications, Bonds, 8.625%, 2030 220,000 243,987 Citizens Communications, Notes, 9.25%, 2011 278,000 309,869 Crown Castle International, Sr. Notes, 9.375%, 2011 44,000 40,590 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS (CONTINUED) France Telecom, Notes, 7.75%, 2011 280,000 (d) 300,494 Lucent Technologies, Deb., 6.45%, 2029 212,000 145,220 Motorola, Deb., 5.22%, 2097 30,000 18,617 Nextel Communications: Conv. Sub. Deb., 5.25%, 2010 30,000 18,263 Sr. Serial Redeemable Notes, 9.375%, 2009 302,000 239,335 TeleCorp PCS, Sr. Discount Notes, 0/11.625%, 2009 84,000 (b) 73,500 Tritel PCS: Sr. Discount Notes, 0/12.75%, 2009 191,000 (b) 163,305 Sr. Sub. Notes, 10.375%, 2011 199,000 228,850 WorldCom, Notes, 7.5%, 2011 915,000 942,815 2,905,475 U.S. GOVERNMENTS--9.8% U.S. Treasury Notes: 3.25%, 12/31/2003 2,690,000 2,700,921 3.5%, 11/15/2006 1,840,000 1,774,294 U.S. Treasury Principal Strips, 0%, 8/15/2022 3,224,000 1,154,224 5,629,439 U.S. GOVERNMENT AGENCIES--.8% Tennessee Valley Authority, Valley Indexed Principal Securities, 3.375%, 1/15/2007 431,000 (g) 473,712 U.S. GOVERNMENT AGENCIES/MORTGAGE-BACKED--14.1% Federal Home Loan Mortgage Corp., REMIC Trust, Gtd. Pass-Through Ctfs. (Interest Only Obligations): Ser. 1999, Cl. PW, 7%, 8/15/2026 108,871 (h) 15,322 Ser. 2067, Cl. PI, 6.5%, 1/15/2024 170,000 (h) 33,320 Ser. 2113, Cl. MI, 6.5%, 4/15/2024 552,969 (h) 59,312 Ser. 2322, Cl. KI, 6.5%, 10/15/2020 1,100,000 (h) 129,388 Federal National Mortgage Association: 6% 1,080,000 (i) 1,082,354 6.5% 2,000,000 (i) 2,000,620 Principal BONDS AND NOTES (CONTINUED) Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT AGENCIES/MORTGAGE-BACKED (CONTINUED) Government National Mortgage Association I: 6.5% 525,000 (i) 526,638 7% 149,000 (i) 152,212 Government National Mortgage Association II: 5%, 7/20/2030 137,428 (j) 138,545 6.5%, 5/20/2031-9/20/2031 2,423,029 2,424,532 7%, 7/20/2031 216,499 221,030 7.5%, 5/20/2031-8/20/2031 1,168,538 1,204,680 8%, 2/20/2034 88,049 91,901 8,079,854 UTILITIES/GAS AND ELECTRIC--2.3% Cinergy, Deb., 6.25%, 2004 111,000 111,764 FirstEnergy, Notes, 5.5%, 2006 200,000 196,989 Marketspan Deb., 8.2%, 2023 131,000 130,193 Mirant Americas Generation: Sr. Notes, 7.625%, 2006 150,000 136,881 Sr. Notes, 8.3%, 2011 102,000 94,489 Mission Energy Holding, Sr. Secured Notes, 13.5%, 2008 176,000 192,720 NRG Energy, Sr. Notes, 8.625%, 2031 203,000 188,362 Southern Energy, Sr. Notes, 7.9%, 2009 187,000 154,721 TXU Electric, Sr. Notes, Ser. J, 6.375%, 2006 126,000 127,033 1,333,152 UTILITIES/TELEPHONE--1.8% AT&T: Sr. Notes, 7.3%, 2011 784,000 (d) 804,836 Sr. Notes, 8%, 2031 199,000 (d) 208,997 1,013,833 UTILITIES/WATER--.1% Marlin Water Trust II, Sr. Secured Notes, 6.31%, 2003 164,000 (c,d) 27,880 TOTAL BONDS AND NOTES (cost $52,426,702) 51,955,457 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) Principal OTHER SECURITIES--2.3% Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ BANKING--1.8% Abbey National Capital Trust I, Gtd. Non-Cumulative Trust Preferred Securities, 8.963%, 6/30/2030 319,000 (k,l) 361,501 Royal Bank of Scotland Group, Conv. Non-Cumulative Dollar Preference Shares, 7.648%, 9/30/2031 431,000 (k,l) 436,336 Svenska Handelsbanken, Sub. Notes, 7.125%, 3/7/2007 240,000 (d,k,l) 248,094 1,045,931 INSURANCE--.5% Sun Life of Canada Capital Trust I, Gtd. Capital Securities, 8.526%, 5/6/2007 253,000 (d,l) 259,165 TOTAL OTHER SECURITIES (cost $1,314,551) 1,305,096 ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS--.8% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES--.2% Equity Securities Trust I, Cum. Conv., $2.34325 3,201 142,445 OIL AND GAS--.2% Exco Resources, Cum. Conv., $1.05 6,043 105,813 TELECOMMUNICATION--.3% Motorola, Cum. Conv., $3.50 (units) 3,253 (m) 152,045 UTILITIES--.1% AES Trust VII, Cum. Conv., $3.00 1,631 48,756 TOTAL PREFERRED STOCKS (cost $483,069) 449,059 Principal SHORT-TERM INVESTMENTS--15.2% Amount (a) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER--14.9% Equilon Enterprises, 1.7%, 1/2/2002 2,600,000 2,599,877 Goldman Sachs, 1.75%, 1/2/2002 1,200,000 1,199,942 Salomon Smith Barney, 2.07%, 1/2/2002 2,230,000 2,229,872 UBS Finance, 1.7%, 1/2/2002 2,500,000 2,499,882 8,529,573 U.S. GOVERNMENT--.3% U.S. Treasury Bills, 1.62%, 1/10/2002 200,000 199,928 TOTAL SHORT-TERM INVESTMENTS (cost $8,729,478) 8,729,501 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $62,953,800) 109.2% 62,439,113 LIABILITIES, LESS CASH AND RECEIVABLES (9.2%) (5,279,462) NET ASSETS 100.0% 57,159,651 (A) PRINCIPAL AMOUNT STATED IN U.S. DOLLARS UNLESS OTHERWISE NOTED. EUR--EUROS (B) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON BECOMES EFFECTIVE. (C) NON-INCOME PRODUCING--SECURITY IN DEFAULT. (D) SECURITIES EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT DECEMBER 31, 2001, THESE SECURITIES AMOUNTED TO $6,575,542 OR 11.5% OF NET ASSETS. (E) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE. (F) SECURITY LINKED TO THE J.P. MORGAN DOMESTIC HIGH YIELD INDEX. (G) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSES IS PERIODICALLY ADJUSTED BASED ON CHANGES IN THE CONSUMER PRICE INDEX. (H) NOTIONAL FACE AMOUNT SHOWN. (I) PURCHASED ON A FORWARD COMMITMENT BASIS. (J) ADJUSTABLE RATE MORTGAGE--INTEREST RATE SUBJECT TO PERIODIC CHANGE. (K) THE STATED INTEREST RATE IS IN EFFECT UNTIL A SPECIFIED DATE AT WHICH TIME THE INTEREST RATE BECOMES SUBJECT TO PERIODIC CHANGE. (L) DATE SHOWN REPRESENTS EARLIEST DATE THE ISSUER MAY REDEEM THE SECURITY. (M) UNITS REPRESENTS A CONTRACT TO PURCHASE SHARES OF COMMON STOCK FOR $50 AND A SENIOR NOTE WITH A PRINCIPAL AMOUNT OF $50.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 62,953,800 62,439,113 Cash 5,195,790 Interest receivable 582,123 Receivable for futures variation margin--Note 4 2,312 Prepaid expenses 2,594 68,221,932 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 41,640 Payable for investment securities purchased 10,986,495 Accrued expenses 34,146 11,062,281 -------------------------------------------------------------------------------- NET ASSETS ($) 57,159,651 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 58,459,460 Accumulated undistributed investment income--net 12,112 Accumulated net realized gain (loss) on investments and foreign currency transactions (797,110) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions (514,811) -------------------------------------------------------------------------------- NET ASSETS ($) 57,159,651 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 26,743,796 30,415,855 Shares Outstanding 2,111,281 2,402,231 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 12.67 12.66 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Interest 2,108,695 Cash dividends 26,511 TOTAL INCOME 2,135,206 EXPENSES: Investment advisory fee--Note 3(a) 196,344 Custodian fees--Note 3(b) 39,055 Prospectus and shareholders' reports 32,437 Distribution fees--Note 3(b) 25,519 Auditing fees 24,048 Registration fees 4,131 Legal fees 1,304 Shareholder servicing costs--Note 3(b) 559 Trustees' fees and expenses--Note 3(c) 390 Miscellaneous 12,371 TOTAL EXPENSES 336,158 Less--waiver of fees due to undertaking--Note 3(a) (74,366) NET EXPENSES 261,792 INVESTMENT INCOME--NET 1,873,414 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions (372,083) Net realized gain (loss) on financial futures (30,577) Net realized gain (loss) on forward currency exchange contracts (2,065) NET REALIZED GAIN (LOSS) (404,725) Net unrealized appreciation (depreciation) on investments and foreign currency transactions (603,909) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (1,008,634) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 864,780 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a,b) -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 1,873,414 291,671 Net realized gain (loss) on investments (404,725) 238,983 Net unrealized appreciation (depreciation) on investments (603,909) 87,976 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 864,780 618,630 -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares (1,279,630) (293,574) Service shares (645,875) -- Net realized gain on investments: Initial shares (280,228) (94,585) Service shares (245,864) -- TOTAL DIVIDENDS (2,451,597) (388,159) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 30,429,561 16,414,812 Service shares 31,321,932 500 Dividends reinvested: Initial shares 1,559,858 388,159 Service shares 891,739 -- Cost of shares redeemed: Initial shares (16,497,691) (4,985,468) Service shares (1,007,405) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 46,697,994 11,818,003 TOTAL INCREASE (DECREASE) IN NET ASSETS 45,111,177 12,048,474 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 12,048,474 -- END OF PERIOD 57,159,651 12,048,474 Undistributed (Distributions in excess of) investment income--net 12,112 (1,903) Year Ended December 31, --------------------------------- 2001 2000(a,b) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 2,328,741 1,291,834 Shares issued for dividends reinvested 120,525 30,526 Shares redeemed (1,269,346) (390,999) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,179,920 931,361 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 2,410,677 39 Shares issued for dividends reinvested 69,290 -- Shares redeemed (77,775) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 2,402,192 39 (A) FROM MAY 1, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000. (B) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ---------------------- INITIAL SHARES 2001(a) 2000(b) -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 12.94 12.50 Investment Operations: Investment income--net .75(c) .50 Net realized and unrealized gain (loss) on investments (.18) .56 Total from Investment Operations .57 1.06 Distributions: Dividends from investment income--net (.72) (.50) Dividends from net realized gain on investments (.12) (.12) Total Distributions (.84) (.62) Net asset value, end of period 12.67 12.94 -------------------------------------------------------------------------------- TOTAL RETURN (%) 4.55 8.61(d) -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .80 .80(e) Ratio of net investment income to average net assets 5.71 6.24(e) Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .17 1.10(e) Portfolio Turnover Rate 654.39 953.66(d) -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 26,744 12,048 (A) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE PORTFOLIO HAS ADOPTED THE PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES AND BEGAN AMORTIZING DISCOUNT OR PREMIUM ON FIXED INCOME SECURITIES ON A SCIENTIFIC BASIS. THE EFFECT OF THIS CHANGE FOR THE PERIOD ENDED DECEMBER 31, 2001 WAS TO DECREASE NET INVESTMENT INCOME PER SHARE BY $.04, INCREASE NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS PER SHARE BY $.04 AND DECREASE THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS FROM 6.04% TO 5.71%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA FOR PERIODS PRIOR TO JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION. (B) FROM MAY 1, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000. (C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (D) NOT ANNUALIZED. (E) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. Year Ended December 31, ---------------------- SERVICE SHARES 2001(a) 2000(b) -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 12.93 12.93 Investment Operations: Investment income--net .70(c) -- Net realized and unrealized gain (loss) on investments (.13) -- Total from Investment Operations .57 -- Distributions: Dividends from investment income--net (.72) -- Dividends from net realized gain on investments (.12) -- Total Distributions (.84) -- Net asset value, end of period 12.66 12.93 -------------------------------------------------------------------------------- TOTAL RETURN (%) 4.46 -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .80 -- Ratio of net investment income to average net assets 5.77 -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation .35 Portfolio Turnover Rate 654.39 953.66(d) -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 30,416 1 (A) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE PORTFOLIO HAS ADOPTED THE PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES AND BEGAN AMORTIZING DISCOUNT OR PREMIUM ON FIXED INCOME SECURITIES ON A SCIENTIFIC BASIS. THE EFFECT OF THIS CHANGE FOR THE PERIOD ENDED DECEMBER 31, 2001 WAS TO DECREASE NET INVESTMENT INCOME PER SHARE BY $.04, INCREASE NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS PER SHARE BY $.04 AND DECREASE THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS FROM 6.10% TO 5.77%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA FOR PERIODS PRIOR TO JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION. (B) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (D) NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company currently offering twelve series, including the Core Bond Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to maximize total return through capital appreciation and current income. The Dreyfus Corporation ("Dreyfus") serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Investments in securities (excluding short-term investments, other than U.S. Treasury Bills, and financial futures) are valued each business day by an independent pricing service ("Service") approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgement of the Service 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 investments (which constitute a majority of the portfolio securities) 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. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Short-term investments, excluding U.S. Treasury Bills, are carried at amortized cost, which approximates value. Financial futures are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (b) Foreign currency transactions: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amount of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio receives net earnings credits based on available cash balances left on deposit. (d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and paid monthly. Dividends from net realized capital gain are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the " Code" ). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (e) Federal income taxes: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $19,555 and unrealized depreciation $602,887. In addition, the portfolio had $773,014 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following year. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $2,451,597 and $388,159. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $67,228, decreased accumulated net realized gain (loss) on investments by $10,691 and decreased paid-in capital by $56,537. Net assets were not affected by this reclassification. NOTE 2--Bank Lines of Credit: The portfolio may borrow up to $5 million for leveraging purposes under a short-term unsecured line of credit and participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under either line of credit. NOTE 3--Investment Advisory Fee and Other Transactions With Affiliates: (a) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .60 of 1% of the value of the portfolio's average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed an annual rate of .80 of 1% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $74,366, pursuant to the undertaking. (b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $25,519 pursuant to the Plan. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $274 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $39,055 pursuant to the custody agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales (including paydowns) of investment securities, excluding short-term securities and financial futures during the period ended December 31, 2001, amounted to $238,741,544 and $195,882,359, respectively. The portfolio may invest in financial futures contracts in order to gain exposure to or protect against changes in the market. The portfolio is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the portfolio to "mark to market" on a daily basis, which reflects the change in market value of the contracts at the close of each day's trading. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses. When the contracts are closed, the portfolio recognizes a realized gain or loss. These investments require initial margin deposits with a broker, which consist of cash or cash equivalents, up to approximately 10% of the contract amount. The amount of these deposits is determined by the exchange or Board of Trade on which the contract is traded and is subject to change. At December 31, 2001, there were no financial futures contracts outstanding. The portfolio enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the portfolio is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract increases between those dates. The portfolio is also exposed to credit risk associated with counter party nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. At December 31, 2001, there were no open forward currency exchange contracts outstanding. At December 31, 2001, accumulated net unrealized depreciation on investments was $514,687, consisting of $506,114 gross unrealized appreciation and $1,020,801 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--Change in Accounting Principle: As required, effective January 1, 2001, the portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing discount or premium on fixed income securities on a scientific basis. Prior to January 1, 2001, the portfolio did not amortize premiums on fixed income securities and amortized discount on a straight line basis. The cumulative effect of this accounting change had no impact on total net assets of the portfolio, but resulted in a $1,121 decrease in accumulated undistributed investment income-net and a corresponding $1,121 increase in net unrealized appreciation (depreciation) , based on securities held by the portfolio on December 31, 2000. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $111,520, increase net unrealized appreciation (depreciation) by $55,416 and increase net realized gains (losses) by $56,104. The statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change in presentation. REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Core Bond Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Core Bond Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, and the statement of changes in net assets and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Core Bond Portfolio at December 31, 2001, and the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 The Portfolio IMPORTANT TAX INFORMATION (Unaudited) For Federal tax purposes, the portfolio hereby designates .96% of the ordinary dividends paid during the fiscal year ended December 31, 2001 as qualifying for the corporate dividends received deduction. BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. NOTES For More Information Dreyfus Investment Portfolios, Core Bond Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 165AR1201 Dreyfus Investment Portfolios, Core Value Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 12 Statement of Assets and Liabilities 13 Statement of Operations 14 Statement of Changes in Net Assets 16 Financial Highlights 18 Notes to Financial Statements 23 Report of Independent Auditors 24 Important Tax Information 25 Board Members Information 26 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Core Value Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Core Value Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, Valerie J. Sill. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the large-cap sector of the U.S. stock market posted its second consecutive year of negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Valerie J. Sill, Portfolio Manager How did Dreyfus Investment Portfolios, Core Value Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of -2.08 % for both its Initial shares and its Service shares.(1) In comparison, the portfolio's benchmark, the S&P 500/BARRA Value Index, produced a total return of -11.71% for the same period.(2) We attribute the market and portfolio's negative returns to a weakening economy, lower corporate profits and negative investor sentiment. However, the portfolio outperformed its benchmark, primarily because we decided -- at a critical time during the year -- to shift away from companies, such as manufacturers of food and personal care products, whose earnings are relatively insensitive to changes in the economy. Particularly helpful was our shift in strategy after the September 11 terrorist attacks, when we purchased economically sensitive stocks that have the potential to do well in an improving business climate. What is the portfolio's investment approach? The portfolio invests primarily in large-cap companies that are considered undervalued based on traditional measures, such as price-to-earnings ratios. In choosing stocks, we use a "bottom-up" stock selection approach, focusing on individual companies, rather than a "top-down" approach that forecasts market trends. We also focus on a company's relative value, financial strength, sales and earnings momentum and likely catalysts that could ignite the stock's price. What other factors influenced the portfolio's performance? Although the portfolio outperformed its benchmark, absolute returns were negative, reflecting the stock market' s continued struggle against the dual headwinds of recession and weak corporate profits. After many years in which stock market gains were in the double-digit The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) range, investors were faced with the second year in a row of losses for most major stock market indices. In such an environment, value investing generally outperformed the growth style, although growth reasserted itself in the fourth quarter of 2001 as investors began to see beyond the recession. Because value-oriented companies offer modest earnings and relatively low stock prices, they don't typically decline as much as growth companies during downturns, when investors have much higher expectations. Value stocks can be found in any industry; indeed, the portfolio' s top-performing groups during 2001 were consumer services, health care and technology. In consumer services, retailers such as Office Depot and Circuit City Group were strong contributors to the portfolio's performance, not because of any help from the economy, but because of management's focus on improving returns on invested capital. In health care, Guidant, a manufacturer of cardiovascular supplies, and Johnson & Johnson, a maker of medical products and pharmaceuticals, led the way as health care remained one of the few profitable industries for the reporting period. In technology, International Business Machines continued to post strong earnings, while Apple Computer had success with its iMac brand, showing that value can also be found in traditional growth-oriented industries. The two weakest industry groups for the portfolio during the reporting period were financial services and utilities. Financial services companies doing business on Wall Street suffered losses as business activity slowed, while utilities declined when energy prices fell sharply. In early 2001, many analysts expected that an economic recovery would be underway by year-end. However, that view of the economy changed with the September 11 terrorist attacks and we believed that the recession would be deeper than previously anticipated and extend into 2002. However, we also believed that the delayed recovery would be stronger in response to the Federal Reserve Board' s aggressive attempts to reinvigorate the economy through lower interest rates. Accordingly, we added to the portfolio stocks that we believed would benefit from an eventual economic recovery. These included technology shares such as BMC Software, Honeywell International and Intel; specialty retailer Abercrombie & Fitch; broker Goldman Sachs Group; and insurers American International Group and Chubb. In capital goods, we added Tyco International and Xerox. To finance these purchases, we sold some of the portfolio's holdings of consumer staple companies such as Kimberly Clark and Kraft Foods. These portfolio changes were generally successful as growth stocks began to rally as the end of 2001 approached. What is the portfolio's current strategy? As of December 31, 2001, the portfolio includes a number of companies that, in our view, have the potential to benefit from an improving economy. We believe that the Federal Reserve Board's moves to reduce short-term interest rates from 6.5% to 1.75% in the course of a year should stimulate growth. In addition, the portfolio includes certain out-of-favor stock groups, such as pharmaceuticals, that we regard as very attractive at current prices. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INITIAL PUBLIC OFFERING (IPO) INVESTMENTS. THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. (2) SOURCE: LIPPER INC. -- REFLECTS THE REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE STANDARD & POOR'S 500/BARRA VALUE INDEX IS A CAPITALIZATION-WEIGHTED INDEX OF ALL THE STOCKS IN THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500 INDEX") THAT HAVE LOW PRICE-TO-BOOK RATIOS. THE S&P 500 INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE. The Portfolio PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Core Value Portfolio Initial shares and Service shares and the Standard & Poor's 500/BARRA Value Index --------------------------------------------------------------------------------
Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 5/1/98 (2.08)% 6.05% SERVICE SHARES 5/1/98 (2.08)% 6.05%
THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW. ((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INVESTMENTS IN INITIAL PUBLIC OFFERINGS (IPOS). THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, CORE VALUE PORTFOLIO ON 5/1/98 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE STANDARD & POOR'S 500/BARRA VALUE INDEX (THE "INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER AND THE PERFORMANCE OF THE SERVICE SHARES WOULD HAVE BEEN LOWER THAN THAT OF THE INITIAL SHARES BECAUSE OF THE HIGHER CLASS-SPECIFIC OPERATING EXPENSES OF THE SERVICE SHARES. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS A CAPITALIZATION-WEIGHTED INDEX OF ALL THE STOCKS IN THE S&P 500 THAT HAVE LOW PRICE-TO-BOOK RATIOS. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--94.6% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ APPLIANCES & HOUSEHOLD DURABLES--3.8% Koninklijke (Royal) Philips Electronics (New York Shares) 60,800 1,770,266 SONY, ADR 10,300 464,530 2,234,796 BANKING--12.8% American Express 35,900 1,281,271 Citigroup 47,400 2,392,752 Fannie Mae 26,000 2,067,000 FleetBoston Financial 25,106 916,369 Wachovia 700 21,952 Washington Mutual 17,650 577,155 Wells Fargo 7,500 325,875 7,582,374 BASIC INDUSTRIES--2.0% Air Products & Chemicals 7,900 370,589 International Paper 19,400 782,790 1,153,379 BROKERAGE--5.2% Goldman Sachs Group 11,400 1,057,350 J.P. Morgan Chase & Co. 14,550 528,892 Morgan Stanley Dean Witter & Co. 15,400 861,476 Stilwell Financial 22,100 601,562 3,049,280 CAPITAL GOODS--13.0% Boeing 10,500 407,190 Corning 78,100 696,652 Eaton 3,700 275,317 Emerson Electric 11,000 628,100 Honeywell International 18,200 615,524 Pitney Bowes 22,500 846,225 Rockwell Collins 13,900 271,050 Tyco International 27,800 1,637,420 United Technologies 17,100 1,105,173 Xerox 116,800 1,217,056 7,699,707 CONSUMER NON-DURABLES--2.7% Clorox 15,000 593,250 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER NON-DURABLES (CONTINUED) Procter & Gamble 8,900 704,257 Winn-Dixie Stores 18,900 269,325 1,566,832 CONSUMER SERVICES--11.7% Abercrombie & Fitch, Cl. A 21,700 (a) 575,701 Cendant 22,000 (a) 431,420 Federated Department Stores 23,600 (a) 965,240 Knight-Ridder 9,600 623,328 Liberty Media, Cl. A 145,900 (a) 2,042,600 McDonald's 26,400 698,808 Office Depot 35,000 (a) 648,900 RadioShack 8,800 264,880 Walt Disney 31,500 652,680 6,903,557 ENERGY--9.0% BP Amoco, ADR 20,500 953,455 Conoco, Cl. B 38,684 1,094,757 Exxon Mobil 55,504 2,181,308 Fording 4,415 78,896 PanCanadian Energy 22,294 579,644 Sunoco 12,300 459,282 5,347,342 HEALTH CARE--7.5% American Home Products 8,300 509,288 Guidant 14,200 (a) 707,160 Merck & Co. 15,800 929,040 Pharmacia 14,600 622,690 Schering-Plough 24,400 873,764 Wellpoint Health Networks 6,800 (a) 794,580 4,436,522 INSURANCE--9.4% Allstate 19,700 663,890 American International Group 21,096 1,675,022 CIGNA 2,600 240,890 Chubb 9,400 648,600 John Hancock Financial Services 13,700 565,810 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE (CONTINUED) Lincoln National 14,500 704,265 MetLife 33,900 1,073,952 5,572,429 TECHNOLOGY--8.0% BMC Software 37,800 (a) 618,786 Computer Associates International 23,200 800,168 International Business Machines 7,400 895,104 KPMG Consulting 11,800 (a) 195,526 Lucent Technologies 37,000 232,730 Motorola 82,700 1,242,154 Scientific-Atlanta 11,800 282,492 Solectron 39,500 (a) 445,560 4,712,520 TELECOMMUNICATIONS--1.0% Sprint (FON Group) 28,300 568,264 TRANSPORTATION--.7% CP Railway 16,300 317,850 CP Ships 6,650 72,219 390,069 UTILITIES--7.8% AT&T 34,200 620,388 CMS Energy 1,000 24,030 Edison International 33,700 508,870 Entergy 15,900 621,849 Nextel Communications, Cl. A 56,500 (a) 619,240 PG&E 74,000 1,423,760 Verizon Communications 13,550 643,083 WorldCom-WorldCom Group 12,400 (a) 174,592 4,635,812 TOTAL COMMON STOCKS (cost $52,841,388) 55,852,883 PREFERRED STOCKS--1.6% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER SERVICES; News Corp, ADR (cost $951,049) 35,750 945,945 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--4.7% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AGENCY DISCOUNT NOTE; Federal Home Loan Banks, 1.47%, 1/2/2002 (cost $2,794,886) 2,795,000 2,794,886 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $56,587,323) 100.9% 59,593,714 LIABILITIES, LESS CASH AND RECEIVABLES (.9%) (529,775) NET ASSETS 100.0% 59,063,939 (A) NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 56,587,323 59,593,714 Cash 5,189 Receivable for investment securities sold 677,428 Dividends receivable 30,448 Prepaid expenses 7,579 60,314,358 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 35,963 Payable for investment securities purchased 1,101,913 Payable for shares of Beneficial Interest redeemed 72,542 Accrued expenses and other liabilities 40,001 1,250,419 -------------------------------------------------------------------------------- NET ASSETS ($) 59,063,939 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 56,888,475 Accumulated undistributed investment income--net 311,870 Accumulated net realized gain (loss) on investments (1,142,797) Accumulated net unrealized appreciation (depreciation) on investments 3,006,391 -------------------------------------------------------------------------------- NET ASSETS ($) 59,063,939 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 37,595,224 21,468,715 Shares Outstanding 2,586,022 1,476,351 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 14.54 14.54 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $6,283 foreign taxes witheld at source) 618,415 Interest 67,323 TOTAL INCOME 685,738 EXPENSES: Investment advisory fee--Note 3(a) 292,739 Prospectus and shareholders' reports 27,272 Auditing fees 25,484 Distribution fees--Note 3(b) 18,760 Custodian fees--Note 3(b) 15,113 Registration fees 8,549 Legal fees 7,816 Shareholder servicing costs--Note 3(b) 1,101 Trustees' fees and expenses--Note 3(c) 782 Miscellaneous 6,164 TOTAL EXPENSES 403,780 Less--waiver of fees due to undertaking--Note 3(a) (26,556) NET EXPENSES 377,224 INVESTMENT INCOME--NET 308,514 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments (946,878) Net unrealized appreciation (depreciation) on investments 513,040 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (433,838) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (125,324) SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 308,514 224,850 Net realized gain (loss) on investments (946,878) 801,415 Net unrealized appreciation (depreciation) on investments 513,040 1,343,901 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (125,324) 2,370,166 -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares (11,915) (220,384) Service shares (873) -- Net realized gain on investments: Initial shares (432,914) (510,084) Service shares (31,706) -- TOTAL DIVIDENDS (477,408) (730,468) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 18,191,167 14,417,156 Service shares 21,350,074 500 Dividends reinvested: Initial shares 444,829 730,468 Service shares 32,579 -- Cost of shares redeemed: Initial shares (3,875,822) (8,233,492) Service shares (373,262) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 35,769,565 6,914,632 TOTAL INCREASE (DECREASE) IN NET ASSETS 35,166,833 8,554,330 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 23,897,106 15,342,776 END OF PERIOD 59,063,939 23,897,106 Undistributed investment income-net 311,870 4,654 Year Ended December 31, --------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 1,248,972 1,000,641 Shares issued for dividends reinvested 32,257 50,772 Shares redeemed (278,274) (566,926) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,002,955 484,487 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 1,499,786 33 Shares issued for dividends reinvested 2,363 -- Shares redeemed (25,831) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,476,318 33 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ---------------------------------------------------------- INITIAL SHARES 2001 2000 1999 1998 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 15.10 13.97 11.72 12.50 Investment Operations: Investment income--net .12(b) .17(b) .07(b) .07 Net realized and unrealized gain (loss) on investments (.45) 1.50 2.24 (.77) Total from Investment Operations (.33) 1.67 2.31 (.70) Distributions: Dividends from investment income--net (.01) (.16) (.06) (.08) Dividends from net realized gain on investments (.22) (.38) -- -- Total Distributions (.23) (.54) (.06) (.08) Net asset value, end of period 14.54 15.10 13.97 11.72 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (2.08) 12.06 19.73 (5.59) c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .96 .97 1.00 .67 c Ratio of net investment income to average net assets .83 1.19 .56 .62 c Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .02 .07 .50 .74 c Portfolio Turnover Rate 65.13 110.74 97.14 47.37 c ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 37,595 23,897 15,343 5,959 (A) FROM MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. Year Ended December 31, ---------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 15.09 15.09 Investment Operations: Investment income--net .08(b) -- Net realized and unrealized gain (loss) on investments (.40) -- Total from Investment Operations (.32) -- Distributions: Dividends from investment income--net (.01) -- Dividends from net realized gain on investments (.22) -- Total Distributions (.23) -- Net asset value, end of period 14.54 15.09 -------------------------------------------------------------------------------- TOTAL RETURN (%) (2.08) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.00 -- Ratio of net investment income to average net assets .61 -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation .27 Portfolio Turnover Rate 65.13 110.74 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 21,469 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company operating as a series company currently offering twelve series, including the Core Value Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation ("Dreyfus") serves as the portfolio' s investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. (" Mellon" ), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. (b) Foreign currency transactions: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $3,446 during the period ended December 31, 2001 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) (d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (e) Federal income taxes: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $311,870, accumulated capital losses $512,304 and unrealized appreciation of $2,753,669. In addition, the portfolio had $377,771 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $512,304 of the carryover expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $387,894 and $654,235 and long-term capital gains $89,514 and $76,233. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $11,490, increased accumulated net realized gain (loss) on investments by $1,543 and decreased paid-in capital by $13,033. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the line of credit. NOTE 3--Investment Advisory Fee and Other Transactions With Affiliates: (a) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .75 of 1% of the value of the portfolio's average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed 1% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $26,556, pursuant to the undertaking. (b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $18,760 pursuant to the Plan. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $129 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $15,113 pursuant to the custody agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended December 31, 2001, amounted to $58,746,032 and $24,404,812, respectively. At December 31, 2001, accumulated net unrealized appreciation on investments was $3,006,391, consisting of $4,323,787 gross unrealized appreciation and $1,317,396 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Core Value Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Core Value Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Core Value Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 The Portfolio IMPORTANT TAX INFORMATION (Unaudited) For Federal tax purposes, the portfolio hereby designates $.0417 per share as a long-term capital gain distribution of the $.2240 per share paid on March 28, 2001. The portfolio also designates 32.14% of the ordinary dividends paid during the fiscal year ended December 31, 2001 as qualifying for the corporate dividends received deduction. BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
ONCE ELECTED, ALL BOARD MEMBERS SERVE FOR AN INDEFINITE TERM. ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS, INCLUDING THEIR ADDRESS IS AVAILABLE IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION WHICH CAN BE OBTAINED FROM DREYFUS FREE OF CHARGE BY CALLING THIS TOLL FREE NUMBER: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977 STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. NOTES For More Information Dreyfus Investment Portfolios, Core Value Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 172AR1201 Dreyfus Investment Portfolios, Emerging Leaders Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 12 Statement of Assets and Liabilities 13 Statement of Operations 14 Statement of Changes in Net Assets 16 Financial Highlights 18 Notes to Financial Statements 24 Report of Independent Auditors 25 Important Tax Information 26 Board Members Information 27 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Emerging Leaders Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Emerging Leaders Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you' ll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio managers, Hilary Woods and Paul Kandel. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the small-cap sector of the U.S. stock market posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Hilary Woods and Paul Kandel, Portfolio Managers How did Dreyfus Investment Portfolios, Emerging Leaders Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of 8.74% for its Initial shares and 8.62% for its Service shares.(1) This compares with a total return of 2.49% for the portfolio's benchmark, the Russell 2000 Index (the "Index"), for the same period.(2) We attribute the portfolio' s good performance to a market environment that generally favored the kinds of emerging, small capitalization companies in which we invest. The portfolio outperformed its benchmark by successfully employing a disciplined, blended growth-and-value investment approach, which identified attractive investment opportunities, particularly within the health care, producer durables and utilities industry groups. What is the portfolio's investment approach? The portfolio seeks capital growth by investing in a diversified group of small-cap companies with total market values of $2.0 billion or less at the time of purchase. We focus primarily on companies we believe are emerging leaders in their respective industries. The companies in which we invest offer products, processes or services that we believe enhance their prospects for future earnings or revenue growth. Using fundamental research, we look for stocks with dominant positions in major product lines, sustained records of achievement and strong balance sheets. We also base investment decisions on the expected impact of changes in a company's management or organizational structure. Our investment approach targets growth-oriented stocks (those companies with earnings that are expected to grow faster than the overall market) , value-oriented stocks (those that appear underpriced according to a number of financial measurements) and stocks that exhibit both growth and value characteristics. We typically sell a stock when The Portfoli DISCUSSION OF PERFORMANCE (CONTINUED) the reasons for buying it no longer apply or when the company begins to show deteriorating fundamentals or poor relative performance. What other factors influenced the portfolio's performance? The U.S. economy entered 2001 in the midst of a slowdown and slid into recession by the end of the reporting period. Deteriorating economic conditions took a toll on many industries and investment styles. However, while broad market indices, such as the S&P 500 Index and Dow Jones Industrial Average, suffered declines, the Russell 2000 Index rose modestly. That's because many of the small-cap stocks that make up the Russell 2000 Index offered investors greater prospects for growth at lower valuations than did the majority of larger company stocks. Small-cap stocks also benefited from declining interest rates, which made business capital more affordable. The portfolio benefited from market trends favoring small-cap stocks, particularly in the health care, producer durables and utility groups. In health care, where the portfolio scored its greatest gains, performance was driven by exceptionally good stock selections among health care information processors such as NDCHealth; medical products distributors such as PSS World Medical; and drug companies such as Axcan Pharma. In producer durables, the portfolio capitalized on a timely purchase of stock in Loral Space & Communications and held a variety of other winners as well, including DRS Technologies, a defense electronics supplier, and Circor International, a developer of energy-related flow control products. Finally, in utilities, where the Russell 2000 Index lost ground but the portfolio gained, positive returns were largely due to impressive advances in the price of Arch Coal stock and in Vectren, a natural gas distribution company, during the second half of the reporting period. Out of the nine industry groups that comprise the Russell 2000 Index, the portfolio underperformed in only three: consumer, energy and technology. Among consumer and energy stocks, returns were hurt by disappointing timing in the purchase of several individual issues. The portfolio's technology holdings suffered as a result of its relatively high level of exposure to the telecommunications area, which proved to be one of technology's weakest components. However, even among these underperforming sectors, the portfolio's disappointments were partly balanced by successes, and performance lagged only mildly behind that of the benchmark What is the portfolio's current strategy? As of the end of reporting period, in light of improving U.S. economic prospects, the portfolio holds relatively large positions in several cyclical and growth-oriented areas, including energy, technology, producer durables and materials and processing. The portfolio holds a smaller percentage of consumer and financial stocks than the Russell 2000 Index. We continue to employ our disciplined investment approach in the search for tomorrow's emerging leaders. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INITIAL PUBLIC OFFERING (IPO) INVESTMENTS. THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX OF SMALL-CAP STOCK PERFORMANCE AND IS COMPOSED OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX. THE RUSSELL 3000 INDEX IS COMPOSED OF THE 3,000 LARGEST U.S. COMPANIES BASED ON TOTAL MARKET CAPITALIZATION. The Portfolio
PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Emerging Leaders Portfolio Initial shares and Service shares and the Russell 2000 Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 12/15/99 8.74% 23.44% SERVICE SHARES 12/15/99 8.62% 23.37%
THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW. ((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INVESTMENTS IN INITIAL PUBLIC OFFERINGS (IPOS). THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, EMERGING LEADERS PORTFOLIO ON 12/15/99 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE RUSSELL 2000 INDEX (THE "INDEX") ON THAT DATE. FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS AN UNMANAGED INDEX OF SMALL-CAP STOCK MARKET PERFORMANCE AND IS COMPOSED OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX. THE RUSSELL 3000 INDEX IS COMPOSED OF THE 3,000 LARGEST U.S. COMPANIES BASED ON TOTAL MARKET CAPITALIZATION. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 COMMON STOCKS--99.0% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL SERVICES--.9% Henry Schein 4,500 (a) 166,635 CONSUMER DURABLE--1.6% D. R. Horton 9,000 292,140 CONSUMER NON-DURABLES--4.6% Alberto Culver, Cl. A 5,400 211,086 Cott 13,500 (a) 214,650 Dean Foods 2,700 (a) 184,140 Smithfield Foods 10,000 (a) 220,400 830,276 CONSUMER SERVICES--5.1% Education Management 7,500 (a) 271,875 Emmis Communications, Cl. A 9,400 (a) 222,216 Entercom Communications 4,500 (a) 225,000 THQ 4,000 (a) 193,880 912,971 ELECTRONIC TECHNOLOGY--10.2% Cognex 9,000 (a) 230,490 Elantec Semiconductor 6,500 (a) 249,600 Genesis Microchip 4,700 (a) 310,764 GlobespanVirata 19,890 (a) 257,576 Harris 7,500 228,825 Loral Space & Communications 115,000 (a) 343,850 Plexus 8,000 (a) 212,480 1,833,585 ENERGY MINERALS--2.2% Evergreen Resources 5,000 (a) 193,050 Pogo Producing 7,900 207,533 400,583 FINANCE--15.9% AmeriCredit 11,500 (a) 362,825 Annuity and Life Re Holdings 9,000 225,990 Bank United, CPR 1,400 (a) 140 Brown & Brown 8,600 234,780 Commerce Bancorp 3,600 (a) 141,624 Cullen/Frost Bankers 7,700 237,776 First Midwest Bancorp 5,875 171,491 Horace Mann Educators 13,500 286,470 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ FINANCE (CONTINUED) Max Re Capital 16,500 258,390 Southwest Bancorporation of Texas 8,000 (a) 242,160 Texas Regional Bancshares, Cl. A 6,300 238,455 Westamerica Bancorporation 5,500 217,635 Whitney Holding 5,600 245,560 2,863,296 HEALTH SERVICES--4.9% Beverly Enterprises 27,000 (a) 232,200 Humana 14,500 (a) 170,955 PSS World Medical 27,500 (a) 224,400 Renal Care Group 8,500 (a) 272,850 900,405 HEALTH TECHNOLOGY--5.4% Axcan Pharma 20,000 (a) 284,000 CIMA Labs 4,800 (a) 173,520 SICOR 7,500 (a) 117,600 United Surgical Partners International 7,000 (a) 148,050 ViroPharma 10,600 (a) 243,270 966,440 INDUSTRIAL SERVICES--1.1% Superior Energy Services 22,500 (a) 194,625 NON-ENERGY MINERALS--3.9% Agnico-Eagle Mines 22,500 (a) 222,075 Century Aluminum 18,500 247,160 Minerals Technologies 5,000 233,200 702,435 PROCESS INDUSTRIES--5.2% Casella Waste Systems, Cl.A 17,500 (a) 259,175 Ferro 8,900 229,620 Ivex Packaging 12,500 (a) 237,500 Pope & Talbot 15,000 213,750 940,045 PRODUCER MANUFACTURING--10.2% AGCO 16,500 260,370 Circor International 15,000 276,750 MagneTek 23,500 (a) 211,735 National-Oilwell 13,000 (a) 267,930 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ PRODUCER MANUFACTURING (CONTINUED) Power-One 25,000 (a) 260,250 Silgan Holdings 11,000 (a) 287,760 United Defense Industries 13,000 (a) 273,650 1,838,445 RETAIL TRADE--3.8% bebe stores 11,500 (a) 214,590 99 (CENTS) Only Stores 6,500 (a) 247,650 Talbots 6,200 224,750 686,990 TECHNOLOGY SERVICES--16.1% F5 Networks 12,000 (a) 258,480 Global Payments 8,000 275,200 Informatica 25,000 (a) 362,750 Integrated Circuit Systems 12,500 (a) 282,375 J. D. Edwards 17,500 (a) 287,875 Legato Systems 17,500 (a) 226,975 LifePoint Hospitals 3,700 (a) 125,948 NDCHealth 7,700 266,035 NetIQ 7,500 (a) 264,450 Network Associates 12,500 (a) 323,125 Pegasus Solutions 16,000 (a) 227,200 2,900,413 TRANSPORTATION--3.8% Airborne 18,500 274,355 Forward Air 7,700 (a) 261,184 Nordic American Tanker Shipping 10,800 149,580 685,119 UTILITIES--4.1% Black Hills 5,200 175,968 Cleco 6,500 142,805 Vectren 9,000 215,820 Western Gas Resources 6,500 210,080 744,673 TOTAL COMMON STOCKS (cost $14,781,439) 17,859,076 Principal SHORT-TERM INVESTMENTS--2.2% Amount ($) Value ($) ----------------------------------------------------------------------------------------------------------------------------------- U.S. TREASURY BILLS: 1.64%,1/10/2002 131,000 130,953 1.70%,1/24/2002 260,000 259,740 TOTAL SHORT-TERM INVESTMENTS (cost $390,663) 390,693 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $15,172,102) 101.2% 18,249,769 LIABILITIES, LESS CASH AND RECEIVABLES (1.2%) (211,669) NET ASSETS 100.0% 18,038,100 (A) NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 15,172,102 18,249,769 Receivable for investment securities sold 172,547 Dividends receivable 8,285 Prepaid expenses 499 18,431,100 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 13,516 Cash overdraft due to Custodian 17,845 Payable for investment securities purchased 319,617 Payable for shares of Beneficial Interest redeemed 11,063 Accrued expenses 30,959 393,000 -------------------------------------------------------------------------------- NET ASSETS ($) 18,038,100 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 16,048,085 Accumulated net realized gain (loss) on investments (1,087,652) Accumulated net unrealized appreciation (depreciation) on investments 3,077,667 -------------------------------------------------------------------------------- NET ASSETS ($) 18,038,100 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 13,308,302 4,729,798 Shares Outstanding 718,286 255,518 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 18.53 18.51 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends 75,757 Interest 26,728 TOTAL INCOME 102,485 EXPENSES: Investment advisory fee--Note 3(a) 90,552 Prospectus and shareholders' reports 29,750 Auditing fees 26,496 Custodian fees--Note 3(b) 8,741 Distribution fees--Note 3(b) 3,359 Registration fees 2,645 Legal fees 2,045 Shareholder servicing costs--Note 3(b) 322 Trustees' fees and expenses--Note 3(c) 253 Interest expense--Note 2 175 Miscellaneous 888 TOTAL EXPENSES 165,226 Less--waiver of fees due to undertaking--Note 3(a) (17,876) NET EXPENSES 147,350 INVESTMENT (LOSS) (44,865) -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments: Long transactions (825,628) Short sale transactions (19,220) NET REALIZED GAIN (LOSS) (844,848) Net unrealized appreciation (depreciation) on investments 1,960,602 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,115,754 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 1,070,889 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment (loss) (44,865) (19,854) Net realized gain (loss) on investments (844,848) (24,957) Net unrealized appreciation (depreciation) on investments 1,960,602 964,346 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,070,889 919,535 -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares -- (960) Net realized gain on investments: Initial shares (3,153) (190,979) Service shares (82) -- TOTAL DIVIDENDS (3,235) (191,939) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 11,258,210 4,189,282 Service shares 4,665,119 500 Dividends reinvested: Initial shares 3,153 191,939 Service shares 82 -- Cost of shares redeemed: Initial shares (4,608,821) (1,356,378) Service shares (250,066) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 11,067,677 3,025,343 TOTAL INCREASE (DECREASE) IN NET ASSETS 12,135,331 3,752,939 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 5,902,769 2,149,830 END OF PERIOD 18,038,100 5,902,769 Year Ended December 31, --------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 648,465 258,367 Shares issued for dividends reinvested 196 12,391 Shares redeemed (276,585) (84,548) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 372,076 186,210 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 271,017 29 Shares issued for dividends reinvested 5 -- Shares redeemed (15,533) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 255,489 29 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ------------------------------------------------ INITIAL SHARES 2001 2000 1999(a) -------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 17.05 13.44 12.50 Investment Operations: Investment income (loss)--net (.08)(b) (.09)(b) .01 Net realized and unrealized gain (loss) on investments 1.57 4.30 .93 Total from Investment Operations 1.49 4.21 .94 Distributions: Dividends from investment income--net -- (.01) -- Dividends from net realized gain on investments (.01) (.59) -- Total Distributions (.01) (.60) -- Net asset value, end of period 18.53 17.05 13.44 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) 8.74 31.70 7.52(c) ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.46 1.50 .07(c) Ratio of net investment income (loss) to average net assets (.44) (.59) .04(c) Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .16 .70 1.25(c) Portfolio Turnover Rate 175.21 234.94 1.79(c) ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 13,308 5,902 2,150 (A) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended December 31, -------------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 17.05 17.05 Investment Operations: Investment (loss) (.08)(b) -- Net realized and unrealized gain (loss) on investments 1.55 -- Total from Investment Operations 1.47 -- Distributions: Dividends from net realized gain on investments (.01) -- Net asset value, end of period 18.51 17.05 -------------------------------------------------------------------------------- TOTAL RETURN (%) 8.62 -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 -- Ratio of investment (loss) to average net assets (.49) -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation .30 -- Portfolio Turnover Rate 175.21 234.94 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 4,730 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company operating as a series company currently offering twelve series, including the Emerging Leaders Portfolio (the "portfolio" ). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide capital growth. The Dreyfus Corporation ("Dreyfus") serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. (" Mellon" ), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. (B) FOREIGN CURRENCY TRANSACTIONS: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $1,264 during the period ended December 31, 2001 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) (D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gain. (E) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: accumulated capital losses $928,554 and unrealized appreciation $2,918,569. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $928,554 of the carryover expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $3,235 and $191,939. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $44,865, increased accumulated net realized gain (loss) on investments by $70 and decreased paid-in capital by $44,935. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for tem porary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. The average daily amount of borrowings outstanding during the period ended December 31, 2001 was approximately $3,000, with a related weighted average annualized interest rate of 5.80%. NOTE 3-Investment Advisory Fee and Other Transactions With Affiliates: (A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .90 of 1% of the value of the portfolio' s average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed an annual rate of 1.50% of the value of average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $17,876, pursuant to the undertaking. (B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $3,359 pursuant to the Plan. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $127 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $8,741 pursuant to the custody agreement. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The following summarizes the aggregate amount of purchases and sales of investment securities and securities sold short, excluding short-term securities, during the period ended December 31, 2001. Purchases Sales -------------------------------------------------------------------------------- Long transactions 27,746,309 16,727,921 Short sale transactions 164,985 145,765 TOTAL 27,911,294 16,873,686 The portfolio is engaged in short-selling which obligates the portfolio to replace the security borrowed by purchasing the security at current market value. The portfolio would incur a loss if the price of the security increases between the date of the short sale and the date on which the portfolio replaces the borrowed security. The portfolio would realize a gain if the price of the security declines between those dates. Until the portfolio replaces the borrowed security, the portfolio will maintain daily a segregated account with a broker or custodian of permissable liquid assets sufficient to cover its short position. At December 31, 2001, there were no securities sold short outstanding At December 31, 2001, accumulated net unrealized appreciation on investments was $3,077,667, consisting of $3,248,006 gross unrealized appreciation and $170,339 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Emerging Leaders Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Emerging Leaders Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Emerging Leaders Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 IMPORTANT TAX INFORMATION (Unaudited) For Federal tax purposes, the portfolio hereby designates 8.38% of the ordinary dividends paid during the fiscal year ended December 31, 2001 as qualifying for the corporate dividends received deduction. The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977 STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio NOTES For More Information Dreyfus Investment Portfolios, Emerging Leaders Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 192AR1201 Dreyfus Investment Portfolios, Emerging Markets Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 13 Statement of Assets and Liabilities 14 Statement of Operations 15 Statement of Changes in Net Assets 17 Financial Highlights 19 Notes to Financial Statements 25 Report of Independent Auditors 26 Board Members Information 27 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Emerging Markets Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Emerging Markets Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you' ll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, D. Kirk Henry. 2001 was a difficult year for the U.S. and global economies. It was a year in which a long period of global economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which most major international stock markets posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors that some fundamental principles of investing remain unchanged. The merit of a long-term perspective was validated when stocks in Europe, the U.S. and some emerging market countries rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the global bond markets' strong returns, which helped cushion the equity markets' declines for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged in the United States, and equity markets worldwide have recently rallied in response to renewed investor optimism. While we can' t guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE D. Kirk Henry, Portfolio Manager How did Dreyfus Investment Portfolios, Emerging Markets Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of 3.32% for its Initial shares and 3.43% for its Service shares.(1) This compares with the -2.37% total return provided by the portfolio's benchmark, the Morgan Stanley Capital International Emerging Markets Free Index ("MSCI EMF Index"), for the same period.(2) We are very pleased that during a generally difficult period for the emerging markets, our individual stock selection strategy has enabled the portfolio to produce returns that are significantly higher than that of the MSCI EMF Index What is the portfolio's investment approach? The portfolio seeks long-term capital growth by investing primarily in the stocks of companies organized, or with a majority of their 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 single emerging market country. When selecting stocks, we seek to identify potential investments through extensive quantitative and fundamental research, using a value-oriented, research-driven approach. This approach emphasizes individual stock selection rather than economic or industry trends and focuses on three key factors: *VALUE -- how a stock is valued relative to its intrinsic worth based on traditional value measures, *BUSINESS HEALTH -- overall efficiency and profitability as measured by return on assets and return on equity, *BUSINESS MOMENTUM -- the presence of a catalyst that potentially will trigger a price increase near or midterm. The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) What other factors influenced the portfolio's performance? As shareholders may remember, at the beginning of the reporting period the portfolio shifted its strategy from a growth-oriented to a value-oriented approach. This change benefited the portfolio almost immediately and continued to influence performance favorably throughout the reporting period, primarily because of the market's general preference for value stocks over growth stocks. In addition, the emerging markets' and portfolio's performances were influenced by the economic slowdown in the United States. That's because many emerging markets rely heavily on exports to industrialized nations for their own economic growth. Later in the reporting period, the September 11 terrorist attacks intensified concerns about U.S. economic weakness. In this environment, the emerging markets fell sharply. However, in the weeks that immediately followed, many analysts were surprised by the resilience of the U.S. stock market, which recovered most of its losses fairly quickly. That bounce back ultimately resulted in a healthy rebound in the emerging markets as well. Apparently, many emerging market investors believed that the worst was over and that they would be best served by looking forward to potential economic recovery. A secondary factor influencing the portfolio was the compellingly low valuations found in the emerging markets, especially when compared to stocks in U.S. and European markets. When developed markets began to falter earlier in the year, many investors sold their emerging market positions, because they expected them to fall as well. That sell-off drove stock prices down further, resulting in very attractive valuations throughout the reporting period. In this environment, we made few changes to the portfolio' s sector and geographical allocations. As "bottom-up" stock pickers, we choose stocks based on their individual merits rather than trying to fill a quota of stocks in any particular industry group or country. That said, however, consumer discretionary stocks made the most positive contribution to the portfolio's performance, primarily because lower global interest rates helped spur retail spending in certain markets. On the other hand, utilities stocks detracted most from the portfolio' s returns, primarily because the portfolio held a greater percentage of utilities stocks than the MSCI EMF Index. These stocks suffered when oil and gas prices fell and a weakening economy reduced demand for electricity. What is the portfolio's current strategy? We are pleased with the recent rebound in the emerging markets. We are also encouraged by improving prospects for a global economic recovery, which we believe, if sustained, has the potential to benefit the emerging markets As of the end of the reporting period, we have found many companies with solid fundamentals that we believe are selling at attractive valuations. Among them are an Indian petroleum and chemical company, a Korean automobile manufacturer, a Mexican soda and beer bottling company and a Taiwanese semiconductor company. In our view, these four companies are excellent examples of the portfolio's strategy of investing in a diverse group of industries and countries. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF GROSS DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE (MSCI EMF) INDEX IS A MARKET CAPITALIZATION-WEIGHTED INDEX COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET STRUCTURE OF EMERGING MARKET COUNTRIES IN EUROPE, LATIN AMERICA AND THE PACIFIC BASIN. The Portfolio
PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Emerging Markets Portfolio Initial shares and Service shares and the Morgan Stanley Capital International Emerging Markets Free Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 12/15/99 3.32% (12.07)% SERVICE SHARES 12/15/99 3.43% (12.02)% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW.
((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, EMERGING MARKETS PORTFOLIO ON 12/15/99 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE INDEX (THE "INDEX") ON THAT DATE. FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS A MARKET CAPITALIZATION-WEIGHTED INDEX COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET STRUCTURE OF 26 EMERGING MARKET COUNTRIES IN EUROPE, LATIN AMERICA AND THE PACIFIC BASIN. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio STATEMENT OF INVESTMENTS
December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--84.8% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ ARGENTINA--.4% Banco Hipotecario 2,300 (a) 5,307 Telecom Argentina STET--France Telecom, ADR 3,200 20,864 26,171 BRAZIL--8.9% Companhia de Saneamento Basico do Estado de Sao Paulo 1,120 (a) 63,972 Companhia Vale do Rio Doce, ADR 3,400 80,274 Petroleo Brasileiro, ADR 5,590 130,247 Tele Celular Sul Participacoes, ADR 1,600 26,160 Tele Norte Leste Participacoes, ADR 3,500 54,705 Telecomunicacoes Brasileiras, ADR (Pfd Block) 1,800 72,000 Ultrapar Participacoes, ADR 3,400 26,180 Unibanco, ADR 2,450 54,635 Votorantim Celulose e Papel, ADR 850 15,003 523,176 CHILE--1.3% Compania de Telecomunicaciones de Chile, ADR 2,500 (a) 33,650 Quinenco, ADR 5,500 (a) 40,150 73,800 CHINA--3.6% Aluminum Corporation of China, Cl. H 180,000 31,391 PetroChina, Cl. H 82,000 14,510 PetroChina, ADR 1,500 26,700 Quingling Motors, Cl. H 247,000 36,740 Shangdong International Power Development, Cl. H 223,000 47,755 Sinopec Yizheng Chemical Fibre, Cl. H 440,000 53,600 210,696 CROATIA--1.4% Pliva d.d., GDR 8,100 (b) 83,835 CZECH REPUBLIC--.3% CEZ 7,700 16,712 EGYPT--2.3% Commercial International Bank, GDR 10,700 (a),(b) 60,348 Misr International Bank, GDR 7,500 (b) 16,313 Orascom Construction Industries 2,860 19,273 Paints & Chemicals Industries, GDR 6,300 (b) 5,513 Suez Cement, GDR 5,532 (b) 36,788 138,235 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ HONG KONG--2.5% Brilliance China Automotive 123,000 22,554 CNOOC 34,100 32,138 CNOOC, ADR 800 15,440 China Pharmaceutical Enterprise and Investment 112,000 (a) 10,053 Hengan International 76,000 21,928 Mandarin Oriental International 32,000 13,120 Shanghai Industrial 17,000 31,173 146,406 HUNGARY--2.1% EGIS 570 21,788 MOL Magyar Olaj-es Gazipari 500 9,047 Magyar Tavkozlesi 18,200 59,962 OTP Bank 550 33,037 123,834 INDIA--11.7% BSES, GDR 2,550 (b) 38,250 Bajaj Auto, GDR 5,400 (b) 47,250 Gas Authority of India, GDR 9,200 (b) 72,450 Grasim Industries, GDR 3,400 (b) 20,485 ICICI, ADR 6,200 37,076 Indian Hotels, GDR 5,150 (b) 26,651 Mahanagar Telephone Nigam, ADR 21,550 129,516 Mahindra & Mahindra, GDR 16,050 (b) 27,686 Reliance Industries, GDR 2,250 (b) 30,600 State Bank of India, GDR 8,200 (b) 68,142 Tata Engineering & Locomotive, GDR 29,900 (b) 58,903 Videsh Sanchar Nigam, ADR 13,800 132,480 689,489 INDONESIA--1.9% PT Indofood Sukses Makmur 700,000 42,067 PT Indosat, ADR 2,300 20,355 PT Telekomunikasi Indonesia 87,000 26,769 PT Telekomunikasi Indonesia, ADR 3,600 20,880 110,071 ISRAEL--2.4% AudioCodes 2,400 (a) 13,560 Bank Hapoalim 49,450 106,477 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ ISRAEL (CONTINUED) ECI Telecom 4,200 (a) 22,554 142,591 MALAYSIA--2.8% Berjaya Sports Toto 14,700 24,564 Genting 15,300 42,275 Malaysia International Shipping 7,000 12,710 Petronas Gas 10,000 19,736 Sime Darby 50,500 65,117 164,402 MEXICO--10.8% Alfa, Ser. A 31,300 34,831 Apasco 17,300 85,268 Consorcio ARA 15,300 (a) 27,232 Controladora Comercial Mexicana 40,200 31,262 Controladora Comercial Mexicana, GDR 600 9,168 Desc, Ser. B 90,500 48,471 Fomento Economico Mexicano, ADR 950 32,823 Grupo Continental 20,200 29,868 Grupo Financiero Banorte 2,500 (a) 5,255 Kimberly Clark de Mexico, Cl. A 44,100 132,831 Pepsi-Gemex, GDR 7,950 (a) 53,106 Telefonos de Mexico, ADR 4,150 145,333 635,448 PANAMA--.9% Banco Latinoamericano de Exportaciones, Cl. E 1,900 53,295 PHILIPPINES--2.6% Bank of the Philippine Islands 20,800 23,201 La Tondena Distillers 24,500 11,169 Manila Electric, Cl. B 129,000 (a) 73,821 Philippine Long Distance Telephone, ADR 5,100 42,024 Universal Robina 44,000 3,756 153,971 POLAND--1.6% KGHM Polska Miedz 13,800 45,275 Polski Koncern Naftowy Orlen 5,100 24,454 Powszechny Bank Kredytowy 850 24,347 94,076 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ RUSSIA--.8% LUKOIL, ADR 1,000 49,500 SOUTH AFRICA--6.2% ABSA 11,000 32,215 Aveng 19,500 12,935 Edgars Consolidated Stores 6,600 13,905 Foschini 28,900 17,362 Metro Cash and Carry 62,222 (a) 11,422 Nampak 88,800 87,429 Nedcor 9,100 94,303 Sage 16,474 10,928 Shoprite 14,400 7,570 Tiger Brands 13,600 68,085 Woolworths 33,100 10,563 366,717 SOUTH KOREA--9.1% Kookmin Bank, ADR 3,585 139,470 Korea Electric Power, ADR 18,000 164,700 Korea Telecom, ADR 1,500 30,495 Pohang Iron & Steel, ADR 6,750 155,250 Samsung Electronics, GDR 400 (b) 46,400 536,315 TAIWAN--5.4% Advanced Semiconductor Engineering 18,190 (a) 16,898 Advanced Semiconductor Engineering, ADR 2,818 (a) 12,371 Bank Sinopac 120,000 (a) 50,078 China Steel 112,240 43,792 China Steel, GDR 2,101 16,598 Compal Electronics 8,000 10,107 Compal Electronics, GDR 3,204 19,544 Elan Microelectronics 18,600 22,968 Nan Ya Plastic 63,740 48,828 Nien Hsing Textile 35,000 (a) 22,910 Standard Foods Taiwan, GDR 5,600 (b) 6,020 Taiwan Semiconductor Manufacturing 3,800 (a) 9,504 United Microelectronics 27,000 (a) 39,360 318,978 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ THAILAND--1.7% Hana Microelectronics 7,000 11,710 PTT Exploration and Production 18,200 46,081 Saha-Union 22,000 6,714 Thai Farmers Bank 68,000 (a) 33,512 98,017 TURKEY--1.2% Akcansa Cimento 2,619,800 17,344 Hurriyet Gazetecilik ve Matbaacilik 8,643,216 (a) 24,440 Turk Ekonomi Bankasi, GDR 3,800 (a) 6,555 Yapi ve Kredit Bankasi 7,229,100 (a) 22,186 70,525 UNITED KINGDOM--2.9% Dimension Data 14,000 (a) 16,922 Old Mutual 72,400 92,257 South African Breweries 9,200 62,702 171,881 TOTAL COMMON STOCKS (cost $5,047,655) 4,998,141 ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS--1.6% ------------------------------------------------------------------------------------------------------------------------------------ BRAZIL; Companhia Energetica de Minas Gerais (cost $81,178) 6,800 97,101 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--21.2% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ U.S. TREASURY BILLS: 1.60%, 1/3/2002 100,000 99,995 1.63%, 1/10/2002 1,001,000 1,000,640 1.68%, 2/14/2002 150,000 149,703 TOTAL SHORT-TERM INVESTMENTS (cost $1,250,276) 1,250,338 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $6,379,109) 107.6% 6,345,580 LIABILITIES, LESS CASH AND RECEIVABLES (7.6%) (448,501) NET ASSETS 100.0% 5,897,079 (A) NON-INCOME PRODUCING. (B) SECURITIES EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT DECEMBER 31, 2001, THESE SECURITIES AMOUNTED TO $645,634 OR 10.9% OF NET ASSETS. SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 6,379,109 6,345,580 Cash 247,306 Cash denominated in foreign currencies 224,538 225,411 Dividends receivable 14,070 Receivable for investment securities sold 13,411 Net unrealized appreciation on forward currency exchange contracts--Note 4 328 Prepaid expenses 1,377 Due from The Dreyfus Corporation and affiliates 4,413 6,851,896 -------------------------------------------------------------------------------- LIABILITIES ($): Payable for investment securities purchased 904,183 Payable for shares of Beneficial Interest redeemed 3,164 Accrued expenses 47,470 954,817 -------------------------------------------------------------------------------- NET ASSETS ($) 5,897,079 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 6,345,277 Accumulated net realized gain (loss) on investments and foreign currency transactions (416,425) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions (31,773) -------------------------------------------------------------------------------- NET ASSETS ($) 5,897,079 NET ASSET VALUE PER SHARE Initial Shares Service Share -------------------------------------------------------------------------------- Net Assets ($) 5,674,500 222,579 Shares Outstanding 598,273 23,461 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 9.48 9.49 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $7,169 foreign taxes withheld at source) 106,041 Interest 8,001 TOTAL INCOME 114,042 EXPENSES: Investment advisory fee--Note 3(a) 38,500 Custodian fees 56,041 Auditing fees 29,992 Prospectus and shareholders' reports 25,354 Trustees' fees and expenses--Note 3(c) 1,784 Legal fees 950 Registration fees 847 Shareholder servicing costs--Note 3(b) 414 Distribution fees--Note 3(b) 162 Miscellaneous 12,472 TOTAL EXPENSES 166,516 Less--waiver of fees and assumption of expenses by The Dreyfus Corporation due to undertaking--Note 3(a) (104,917) NET EXPENSES 61,599 INVESTMENT INCOME--NET 52,443 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions (254,762) Net realized gain (loss) on forward currency exchange contracts (10,438) NET REALIZED GAIN (LOSS) (265,200) Net unrealized appreciation (depreciation) on investments and foreign currency transactions 435,281 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 170,081 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 222,524 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 52,443 7,789 Net realized gain (loss) on investments (265,200) (174,972) Net unrealized appreciation (depreciation) on investments 435,281 (642,641) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 222,524 (809,824) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares (30,371) (13,002) Service shares (1,201) -- Net realized gain on investments: Initial shares -- (1,920) TOTAL DIVIDENDS (31,572) (14,922) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 13,118,634 2,060,851 Service shares 231,982 500 Dividends reinvested: Initial shares 30,371 14,922 Service shares 1,201 -- Cost of shares redeemed: Initial shares (9,824,770) (1,260,453) Service shares (23,624) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 3,533,794 815,820 TOTAL INCREASE (DECREASE) IN NET ASSETS 3,724,746 (8,926) -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 2,172,333 2,181,259 END OF PERIOD 5,897,079 2,172,333 The Portfolio STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) Year Ended December 31, --------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 1,448,094 194,080 Shares issued for dividends reinvested 3,283 1,429 Shares redeemed (1,088,512) (120,101) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 362,865 75,408 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 25,920 54 Shares issued for dividends reinvested 130 -- Shares redeemed (2,643) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 23,407 54 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ------------------------------------------ INITIAL SHARES 2001 2000 1999 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 9.23 13.63 12.50 Investment Operations: Investment income--net .15(b) .04(b) .02 Net realized and unrealized gain (loss) on investments .16 (4.37) 1.11 Total from Investment Operations .31 (4.33) 1.13 Distributions: Dividends from investment income--net (.06) (.06) -- Dividends from net realized gain on investments -- (.01) -- Total Distributions (.06) (.07) -- Net asset value, end of period 9.48 9.23 13.63 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) 3.32 (31.81) 9.04 c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 2.00 2.00 .09 c Ratio of net investment income to average net assets 1.70 .36 .18 c Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation 3.40 1.86 1.51 c Portfolio Turnover Rate 119.06 123.49 .43 c ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 5,675 2,172 2,181 (A) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio FINANCIAL HIGHLIGHTS (CONTINUED) Year Ended December 31, ---------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 9.23 9.23 Investment Operations: Investment income--net .16(b) -- Net realized and unrealized gain (loss) on investments .16 -- Total from Investment Operations .32 -- Distributions: Dividends from investment income--net (.06) -- Net asset value, end of period 9.49 9.23 -------------------------------------------------------------------------------- TOTAL RETURN (%) 3.43 -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 2.00 -- Ratio of net investment income to average net assets 1.74 -- Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation 3.64 -- Portfolio Turnover Rate 119.06 123.49 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 223 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company currently offering twelve series, including the Emerging Markets Portfolio (the "portfolio" ). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a non-diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation (" Dreyfus" ) serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. As of December 31, 2001, MBC Investments Corp., an indirect subsidiary of Mellon Financial Corporation, held 162,081 Initial shares of the portfolio. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securitiES (including options and financial futures) are valued at the last sales price on the securities The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (B) FOREIGN CURRENCY TRANSACTIONS: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $1,759 for the period ended December 31, 2001, based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (E) FEDERAL INCOME TAXES: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: accumulated capital losses $340,500 and unrealized depreciation $99,284. In addition, the portfolio had $8,414 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $60,888 of the carryover expires in fiscal 2008 and $279,612 expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $31,572 and $14,922. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio decreased accumulated undistributed investment income-net by $20,871, increased accumulated net realized gain (loss) on investments by $23,772 and decreased paid-in capital by $2,901. Net assets were not affected by this reclassification. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the line of credit. NOTE 3--Investment Advisory Fee and Other Transactions With Affiliates: (A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of 1.25% of the value of the portfolio's average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fee and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed an annual rate of 2% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees and assumed expenses of the portfolio of $104,917, pursuant to the undertaking. (B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $162 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $246 pursuant to the transfer agency agreement. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the fund's annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward currency exchange contracts, during the period ended December 31, 2001, amounted to $6,302,334 and $3,336,179, respectively. The portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the portfolio is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the portfolio would The Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED) incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract increases between those dates. The portfolio is also exposed to credit risk associated with counter party nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. The following summarizes open forward currency exchange contracts at December 31, 2001: Foreign Unrealized Forward Currency Currency Appreciation Exchange Contracts Amounts Cost ($) Value ($) (Depreciation) ($) --------------------------------------------------------------------------------------------------------------- PURCHASES: British Pound, expiring 1/2/2002 13,391 19,379 19,501 122 Hong Kong Dollar, expiring 1/2/2002 475,042 60,922 60,914 (8) Mexican Peso, expiring 1/3/2002 569,350 62,190 62,360 170 South African Rand, expiring 1/2/2002 591,656 49,304 49,366 62 Thai Bat, expiring 1/2/2002 633,497 14,339 14,321 (18) TOTAL 328 At December 31, 2001, accumulated net unrealized depreciation on investments was $33,529, consisting of $387,837 gross unrealized appreciation and $421,366 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Emerging Markets Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Emerging Markets Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the years indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001 by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Emerging Markets Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 183 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio NOTES For More Information Dreyfus Investment Portfolios, Emerging Markets Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian The Bank of New York 15 Broad Street New York, NY 10286 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 191AR1201 Dreyfus Investment Portfolios, European Equity Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 11 Statement of Assets and Liabilities 12 Statement of Operations 13 Statement of Changes in Net Assets 15 Financial Highlights 17 Notes to Financial Statements 24 Report of Independent Auditors 25 Board Members Information 26 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, European Equity Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, European Equity Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, Aaron Barnfather. 2001 was a difficult year for the U.S. and global economies. It was a year in which a long period of global economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which most major international stock markets posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors that some fundamental principles of investing remain unchanged. The merit of a long-term perspective was validated when stocks in Europe, the U.S. and some emerging market countries rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the global bond markets' strong returns, which helped cushion the equity markets' declines for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged in the United States, and equity markets worldwide have recently rallied in response to renewed investor optimism. While we can' t guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Aaron Barnfather, Portfolio Manager How did Dreyfus Investment Portfolios, European Equity Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of -28.13% for its Initial shares and -27.59% for its Service shares.(1) For the same period, the Financial Times Eurotop 300 Index (the "Index"), the portfolio' s benchmark, produced a total return of -20.16% in U.S. dollar terms.(2) We attribute the portfolio and market' s performance to a slowing European economy and disappointing corporate earnings. Weakness that began in the U.S. economy spread to European markets, especially those that rely heavily on exports to the United States. As a result, companies on both sides of the Atlantic reported earnings shortfalls, causing their stocks to decline. The portfolio' s relative underperformance was a result of our security selection strategy. What is the portfolio's investment approach? The portfolio seeks long-term capital growth. The portfolio's investments generally are selected from the universe of the 300 largest European companies. In choosing stocks, the portfolio establishes a global framework within which to select investments. This involves identifying and forecasting: key trends in global 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; and long-term trends in currency movements. Within the markets and sectors determined to be relatively attractive, the portfolio seeks what it believes to be attractively priced companies that possess sustainable competitive advantage in their market or sector. The portfolio generally will sell securities when themes or strategies change or when the portfolio manager determines that the company' s prospects have changed or its stock is fully valued by the market. The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) What other factors influenced the portfolio's performance? For much of the year, investors sought refuge in traditionally defensive areas such as food companies. From January through September, holdings such as Altana, Parmalat Finanziaria and Altadis benefited the portfolio. In the fourth quarter, investor sentiment began to shift away from defensive stocks toward some of the growth-oriented names that had previously been hard-hit. Accordingly, we began to shift the portfolio to a more balanced mix of stocks. We tended to avoid pharmaceutical companies which are traditionally considered defensive stocks, and that we believed were overvalued. Our lack of exposure to this area, however, generally hurt performance. Negative investor sentiment in the technology, media and telecommunications groups also detracted from the portfolio's returns. Throughout the year, the portfolio benefited from adherence to our long-standing, theme-based security selection strategy. Italian pension reform worked particularly well for much of the reporting period, as did France's move to a 35-hour workweek. The portfolio also received positive contributions from companies that we expect to benefit from pricing power erosion. In this environment, we achieved success from an above-average exposure in the support services industry group with strong long-term growth prospects, whose earnings tend to be relatively resistant to economic downturns. Portfolio holdings in this area include Elior and Vivendi Environnement. The basic materials group performed strongly, including construction companies such as Grupo Dragados and Lafarge, which profited from a healthy housing industry and lower interest rates. Aurea Concesiones de Infraestructuras del Estado, which benefits from Spain' s need for a motorway network, continued to perform well, supported by stable revenues from motorway tolls and service operations. Aluminum producer Pechiney prospered amid rising demand. In addition, the portfolio benefited when we reduced exposure to financial companies that derive significant revenues from the U.S., including investment banks. Instead, we focused on domestic providers such as AMB Aachener & Muenchener Beteiligungs, Northern Rock and Erste Bank der oesterreichischen Sparkassen. What is the portfolio's current strategy? We have continued to seek investments that we believe will benefit from our long-term themes, such as our outsourcing theme, in which companies increasingly rely on independent vendors to undertake tasks outside of their core businesses Over the shorter term, we have positioned the portfolio to focus on companies that, in our view, are financially strong, selling at reasonably low valuations and have the flexibility to price their products and services competitively. Our holdings of financially strong companies include those with healthy balance sheets, such as insurance giant Munich Re, and avoid those whose debt levels are high. With some stock valuations down to 1997 levels, we have identified a number of companies, including Deutsche Bank, that appear to us to be inexpensive relative to their future prospects. And some industry groups, such as telecommunications, are finally seeing greater customer demand after almost two years of underperformance. We have found what we believe to be attractive opportunities among telecommunications companies that have the financial flexibility required to maintain competitive pricing. Of course, we are prepared to alter our strategies and the portfolio's composition as market conditions evolve. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INITIAL PUBLIC OFFERING (IPO) INVESTMENTS. THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. (2) SOURCE: BLOOMBERG L.P. -- DOES NOT REFLECT REINVESTMENT OF NET DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE FINANCIAL TIMES EUROTOP 300 INDEX IS A MARKET CAPITALIZATION INDEX OF EUROPE'S 300 LARGEST COMPANIES. The Portfolio
PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, European Equity Portfolio Initial shares and Service shares and the Financial Times Eurotop 300 Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 4/30/99 (28.13)% (3.47)% SERVICE SHARES 4/30/99 (27.59)% (3.20)% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW.
((+)) SOURCE: BLOOMBERG L.P. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INVESTMENTS IN INITIAL PUBLIC OFFERINGS (IPOS). THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, EUROPEAN EQUITY PORTFOLIO ON 4/30/99 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE FINANCIAL TIMES EUROTOP 300 INDEX (THE "INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX MEASURES THE PERFORMANCE OF EUROPE'S LARGEST 300 COMPANIES BY MARKET CAPITALIZATION AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
December 31, 2001 STATEMENT OF INVESTMENTS STATEMENT OF INVESTMENTS COMMON STOCKS--108.6% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AUSTRIA--.7% Erste Bank der oesterreichischen Sparkassen 3,180 169,267 BELGIUM--.3% Interbrew-VVPR Strips 7,000 (a) 62 Omega Pharma 1,500 68,007 68,069 DENMARK--1.6% ISS 7,470 (a) 367,795 FINLAND--2.2% Nokia 20,000 516,415 FRANCE--19.0% Aventis 4,700 334,194 Business Objects 4,760 (a) 159,363 Credit Agricole 10,600 168,133 Generale de Sante 15,500 198,452 L'Air Liquide 1,900 266,642 Lafarge 2,920 273,104 Pechiney, Cl. A 5,540 285,995 Schneider Electric 11,400 548,869 Societe Generale 8,750 490,324 TotalFinaElf 6,250 893,829 Vivendi Environnement 13,780 460,243 Vivendi Environnement Warrants 13,780 5,652 Vivendi Universal 7,500 411,251 4,496,051 GERMANY--15.4% Allianza 2,560 606,003 DePfa Deutsche Pfandbriefbank 3,900 221,326 Deutsche Bank 7,300 516,138 Deutsche Boerse 7,100 281,701 Deutsche Post 11,100 153,400 Muenchener Rueckversicherungs-Gesellschaft 2,380 647,212 Systeme, Anwendungen, Produkte in der Datenverarbeitung 3,880 509,259 Techem 10,800 (a) 233,510 Thiel Logistik 8,200 (a) 160,114 Volkswagen 7,100 331,078 3,659,741 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ IRELAND--.7% Riverdeep Group 56,900 (a) 164,879 ITALY--8.9% Alleanza Assicurazioni 24,000 264,056 Amplifon 8,770 150,523 Assicurazioni Generali 16,600 461,482 ENI 36,050 451,630 Snam Rete Gas 39,000 103,204 Telecom Italia 80,900 692,452 2,123,347 NETHERLANDS--8.6% Koninklijke Ahold 15,400 448,717 Koninklijke (Royal) KPN 51,000 259,643 STMicroelectronics 9,200 295,708 VNU 17,400 535,383 Vedior 40,800 490,001 2,029,452 PORTUGAL--2.1% Vodafone Telecel - Comunicacoes Pessoais 63,400 (a) 508,747 SPAIN--7.5% Aldeasa 14,962 228,383 Aurea Concesiones de Infraestructuras del Estado 10,400 212,436 Banco Santander Central Hispano 38,700 324,691 Endesa 16,300 255,347 Grupo Dragados 20,300 272,035 Telefonica 36,368 (a) 487,359 1,780,251 SWITZERLAND--5.5% Converium Holding 3,400 165,578 Kuoni Reisen 510 135,725 Nestle, Cl. B 1,480 316,167 Novartis 9,100 329,491 UBS 7,050 (a) 356,520 1,303,481 UNITED KINGDOM--36.1% Abbey National 8,500 121,309 BP 160,200 1,245,818 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ UNITED KINGDOM (CONTINUED) Barclays 12,700 420,761 British American Tobacco 34,000 288,420 CGNU 19,000 233,809 Compass Group 34,800 260,998 GlaxoSmithKline 33,900 850,620 HSBC Holdings 88,800 1,042,315 Hays 66,400 201,133 Innovation Group 13,937 74,082 International Power 68,000 (a) 200,533 Kingfisher 52,581 307,061 Millennium & Copthorne Hotels 48,400 191,719 Minerva 60,300 208,999 mmO2 130,210 (a) 164,025 Pearson 14,200 163,575 Prudential 50,000 579,607 Reuters Group 27,700 274,309 Standard Chartered 42,200 503,938 Vodafone Group 472,500 1,236,863 8,569,894 TOTAL COMMON STOCKS (cost $26,423,966) 25,757,389 ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS--2.7% -------------------------------------------------------------------------------- GERMANY; Fresenius 4,090 338,846 Henkel 5,460 306,693 TOTAL PREFERRED STOCKS (cost $701,062) 645,539 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $27,125,028) 111.3% 26,402,928 LIABILITIES, LESS CASH AND RECEIVABLES (11.3%) (2,688,863) NET ASSETS 100.0% 23,714,065 (A) NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value ---------------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 27,125,028 26,402,928 Cash 2,735,263 Dividends receivable 40,557 Receivable for shares of Beneficial Interest subscribed 103 Prepaid expenses 426 29,179,277 ---------------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 20,307 Payable for shares of Beneficial Interest redeemed 5,335,948 Payable for investment securities purchased 64,712 Accrued expenses 44,245 5,465,212 ---------------------------------------------------------------------------------------- NET ASSETS ($) 23,714,065 ---------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 32,122,552 Accumulated net realized gain (loss) on investments and foreign currency transactions (7,687,361) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions (721,126) ---------------------------------------------------------------------------------------- NET ASSETS ($) 23,714,065 NET ASSET VALUE PER SHARE Initial Shares Service Shares --------------------------------------------------------------------------------------- Net Assets ($) 23,418,479 295,586 Shares Outstanding 2,190,439 27,444 --------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 10.69 10.77 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF OPERATIONS Year Ended December 31, 2001 --------------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $76,114 foreign taxes withheld at source) 577,655 Interest 36,181 TOTAL INCOME 613,836 EXPENSES: Investment advisory fee--Note 3(a) 298,409 Custodian fees 55,696 Prospectus and shareholders' reports 26,817 Auditing fees 24,242 Legal fees 12,510 Shareholder servicing costs--Note 3(b) 1,041 Trustees' fees and expenses--Note 3(c) 778 Distribution fees--Note 3(b) 585 Loan commitment fees--Note 2 377 Registration fees 299 Miscellaneous 9,477 TOTAL EXPENSES 430,231 Less--waiver of fees due to undetaking--Note 3(a) (56,843) NET EXPENSES 373,388 INVESTMENT INCOME--NET 240,448 --------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions (5,659,528) Net realized gain (loss) on forward currency exchange contracts (153,823) Net realized gain (loss) on financial futures (257,445) NET REALIZED GAIN (LOSS) (6,070,796) Net unrealized appreciation (depreciation) on investments and foreign currency transactions (2,199,710) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (8,270,506) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (8,030,058) SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ----------------------------------- 2001 2000(a) -------------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 240,448 124,688 Net realized gain (loss) on investments (6,070,796) (1,360,361) Net unrealized appreciation (depreciation) on investments (2,199,710) 833,543 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (8,030,058) (402,130) -------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares (195,597) (66,235) Service shares (1,737) -- Net realized gain on investments: Initial shares -- (813,709) TOTAL DIVIDENDS (197,334) (879,944) -------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 269,610,379 109,246,347 Service shares 3,816,564 500 Dividends reinvested: Initial shares 195,597 879,944 Service shares 1,737 -- Cost of shares redeemed: Initial shares (268,856,682) (84,747,748) Service shares (3,515,201) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 1,252,394 25,379,043 TOTAL INCREASE (DECREASE) IN NET ASSETS (6,974,998) 24,096,969 ------------------------------------------------------------------------------------------ NET ASSETS ($): Beginning of Period 30,689,063 6,592,094 END OF PERIOD 23,714,065 30,689,063 Undistributed investment income--net -- 59,074 The Portfolio STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) Year Ended December 31, ---------------------------------- 2001 2000(a) -------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 23,289,192 6,963,909 Shares issued for dividends reinvested 17,926 56,000 Shares redeemed (23,165,652) (5,383,878) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 141,466 1,636,031 -------------------------------------------------------------------------------------- SERVICE SHARES Shares sold 334,787 33 Shares issued for dividends reinvested 162 -- Shares redeemed (307,538) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 27,411 33 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, --------------------------------------------- INITIAL SHARES 2001 2000 1999 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 14.98 15.96 12.50 Investment Operations: Investment income--net .10(b) .10(b) .04(b) Net realized and unrealized gain (loss) on investments (4.31) (.37) 3.61 Total from Investment Operations (4.21) (.27) 3.65 Distributions: Dividends from investment income--net (.08) (.03) (.03) Dividends from net realized gain on investments -- (.68) (.16) Total Distributions (.08) (.71) (.19) Net asset value, end of period 10.69 14.98 15.96 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (28.13) (2.00) 29.20 c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.25 1.27 1.01 c Ratio of net investment income to average net assets .81 .62 .32 c Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .19 .33 2.38 c Portfolio Turnover Rate 146.49 144.74 99.89 c ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 23,418 30,689 6,592 (A) FROM APRIL 30, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio FINANCIAL HIGHLIGHTS (CONTINUED) Year Ended December 31, ---------------------- SERVICE SHARES 2001 2000(a) -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 14.98 14.98 Investment Operations: Investment income--net .05 b -- Net realized and unrealized gain (loss) on investments (4.18) -- Total from Investment Operations (4.13) -- Distributions: Dividends from investment income--net (.08) -- Net asset value, end of period 10.77 14.98 -------------------------------------------------------------------------------- TOTAL RETURN (%) (27.59) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.25 -- Ratio of net investment income to average net assets .43 -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation .52 -- Portfolio Turnover Rate 146.49 144.74 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 296 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company operating as a series company currently offering twelve series, including the European Equity Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation ("Dreyfus") serves as the portfolio' s investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. which is a wholly-owned subsidiary of Mellon Financial Corporation. Newton Capital Management Limited ("Newton"), an affiliate of Dreyfus, serves as the portfolio' s sub-investment adviser. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an The Portfoli NOTES TO FINANCIAL STATEMENTS (CONTINUED) exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (B) FOREIGN CURRENCY TRANSACTIONS: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio receives net earnings credits based on available cash balances left on deposit. (D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, if any, it is the policy of the portfolio not to distribute such gain. (E) FEDERAL INCOME TAXES: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: accumulated capital losses $5,720,638 and unrealized depreciation $1,772,264. In addition, the portfolio had $915,585 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $5,720,638 of the carryover expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $197,334 and $879,944. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio decreased accumulated undistributed investment income-net by $102,188, increased accumulated net realized gain (loss) on investments by $109,154 and decreased paid-in capital by $6,966. Net assets were not affected by this reclassification. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2-Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the portfolio has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the Facility. NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates: (A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of 1% of the value of the portfolio' s average daily net assets and is payable monthly. Dreyfus has agreed, from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings, commitment fees and extraordinary expenses exceed an annual rate of 1.25% of the value of the average daily net assets of their classes. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $56,843, pursuant to the undertaking. Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Newton, the sub-investment fee is payable monthly by Dreyfus, and is based upon the value of the portfolio' s average daily net assets, computed at the following annual rates: AVERAGE NET ASSETS 0 to $100 million. . . . . . . . . . . . . . . . .35 of 1% In excess of $100 million to $1 billion. . . . . . .30 of 1% In excess of $1 billion to $1.5 billion. . . . . . .26 of 1% In excess of $1.5 billion. . . . . . . . . . . . . .20 of 1% (B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $585 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $198 pursuant to the transfer agency agreement. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, forward currency exchange contracts and financial futures, during the period ended December 31, 2001, amounted to $44,989,196 and $41,145,086, respectively. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) The portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the portfolio is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract increases between those dates. The portfolio is also exposed to credit risk associated with counter party nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. At December 31, 2001, there were no forward currency exchange contracts outstanding. The portfolio may invest in financial futures contracts in order to gain exposure to or protect against changes in the market. The portfolio is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the portfolio to "mark to market" on a daily basis, which reflects the change in the market value of the contract at the close of each day' s trading. Typically, variation margin payments are received or made to reflect daily unrealized gains or losses. When the contracts are closed, the portfolio recognizes a realized gain or loss. These investments require initial margin deposits with a custodian or broker, which consist of cash or cash equivalents, up to approximately 10% of the contract amount. The amount of these deposits is determined by th exchange or Board of Trade on which the contract is traded and is subject to change. At December 31, 2001, there were no financial futures contracts outstanding. At December 31, 2001, accumulated net unrealized depreciation on investments was $722,100, consisting of $1,147,385 gross unrealized appreciation and $1,869,485 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, European Equity Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, European Equity Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001 by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, European Equity Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. NOTES For More Information Dreyfus Investment Portfolios, European Equity Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Sub-Investment Adviser Newton Capital Management Limited 71 Queen Victoria Street London, EC4V 4DR England Custodian The Bank of New York 15 Broad Street New York, NY 10286 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 181AR1201 Dreyfus Investment Portfolios, Founders Discovery Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 13 Statement of Assets and Liabilities 14 Statement of Operations 15 Statement of Changes in Net Assets 16 Financial Highlights 18 Notes to Financial Statements 24 Report of Independent Auditors 25 Board Members Information 26 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Founders Discovery Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Founders Discovery Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you' ll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, Robert Ammann, CFA, of Founders Asset Management LLC, the portfolio's sub-investment adviser. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the small-cap sector of the U.S. stock market posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Robert Ammann, CFA, Portfolio Manager Founders Asset Management LLC, Sub-Investment Adviser How did Dreyfus Investment Portfolios, Founders Discovery Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of -18.52% for its Initial shares and -18.77% for its Service shares.(1) In comparison, the Russell 2000 Index, the portfolio's benchmark, and the Russell 2000 Growth Index produced total returns of 2.49% and -9.23% , respectively, for the same period.(2,3 )Because the portfolio currently focuses primarily on small-cap growth stocks, we believe that the Russell 2000 Growth Index is also an accurate measure of the portfolio's performance for comparison purposes. We attribute the portfolio's performance to difficult stock market conditions, especially among growth-oriented stocks, as the value style of investing generally produced higher returns than the growth style of investing during most of the reporting period. The portfolio's returns lagged those of the Russell 2000 Growth Index, primarily because of weakness among its holdings in the capital goods and technology areas. What is the portfolio's investment approach? The portfolio invests primarily in equity securities of small and relatively unknown U.S.-based companies that we believe possess high growth potential. Typically, these companies are not listed on national securities exchanges but instead trade on the over-the-counter market. The portfolio may also invest in larger companies if, in our opinion, they represent better prospects for capital appreciation. Although the portfolio will normally invest in common stocks of U.S.-based companies, it may invest up to 30% of its total assets in foreign securities. Rather than utilizing a "top-down" approach to stock selection, which relies on forecasting stock market trends, we focus on a "bottom-up" approach in which stocks are chosen according to their own individ The Portfoli DISCUSSION OF PERFORMANCE (CONTINUED) ual merits. Stock selection is made on a company-by-company basis, with particular emphasis on companies that we believe are well managed and well positioned within their industries. What other factors influenced the portfolio's performance? 2001 was a challenging year, characterized by slowing economic growth, reduced capital spending and a declining stock market. Except for an encouraging rally late in the year, growth-oriented companies suffered the brunt of the market's general decline. Unfortunately, we were unable to avoid the full impact of the bear market for growth stocks. Our research led us to a number of specialty contractors in the capital goods area, which we believed would benefit from increased outsourcing from large corporations. However, because many of those customers were hard hit by the economic slowdown, those benefits failed to materialize during the reporting period. The portfolio also received disappointing returns from its technology holdings, including software companies, semiconductor firms and communications equipment manufacturers. Industry-wide weakness drove these companies' stock prices to low levels. While some individual stocks rebounded very strongly during the growth stock rally in the fourth quarter, it was not enough to fully offset these sectors' general declines during the first nine months of 2001. The portfolio' s performance was also hurt by investments it did not make in certain sectors. Although the financial services group represented one of the strongest investment areas during the year, the portfolio's lack of exposure to this traditionally value-oriented sector prevented it from participating fully in its gains. On the other hand, the portfolio's performance was helped by strong individual stock selections in the consumer staples area. For example, several restaurant chains, such as Chuck E. Cheese's, Ruby Tuesday and Cracker Barrel, profited from increased business from cost-conscious consumers. The portfolio also scored successes among distribution companies such as Performance Food Group and Patterson Dental. Finally, the portfolio's relatively large cash position, which averaged 12.5% of assets during 2001, benefited its performance. The portfolio' allocation to cash was a result of our bottom-up investment process, in which we found only a limited number of small-cap stocks with the characteristics we seek. What is the portfolio's current strategy? We have positioned the portfolio for the possibility of economic recovery, but we have done so cautiously. The growth stock rally during the fourth quarter of 2001 drove some stocks to valuations that we believe may be too optimistic. Accordingly, we have currently maintained a slightly lower level of exposure to technology stocks, and a slightly higher level of exposure to consumer cyclical stocks, than the Russell 2000 Growth Index. At the same time, we continue to highlight some encouraging trends, such as the rapid adoption of new electronic products by consumers, that may lead to investment opportunities independent of an economic recovery. In addition, we are mindful of the rapid pace of change in the financial markets. Market leadership shifted quickly from one industry group to another during 2001, and we believe that the same may occur in 2002. Consequently, we remain focused on identifying companies with what we believe are strong fundamentals and continue to employ a rigorous discipline with respect to valuation. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX OF SMALL-CAP STOCK MARKET PERFORMANCE AND IS COMPOSED OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX. THE RUSSELL 3000 INDEX IS COMPOSED OF THE 3,000 LARGEST U.S. COMPANIES BASED ON TOTAL MARKET CAPITALIZATION. (3) SOURCE: LIPPER INC. -- THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX WHICH MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. The Portfolio PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Founders Discovery Portfolio Initial shares and Service shares and the Russell 2000 Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------- INITIAL SHARES 12/15/99 (18.52)% (11.00)% SERVICE SHARES 12/15/99 (18.77)% (11.13)% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW. ((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, FOUNDERS DISCOVERY PORTFOLIO ON 12/15/99 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE RUSSELL 2000 INDEX (THE "INDEX") ON THAT DATE. FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS AN UNMANAGED INDEX OF SMALL-CAP STOCK MARKET PERFORMANCE AND IS COMPOSED OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX. THE RUSSELL 3000 INDEX IS COMPOSED OF THE 3,000 LARGEST U.S. COMPANIES BASED ON TOTAL MARKET CAPITALIZATION. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--88.4% Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- AEROSPACE & DEFENSE--.4% Alliant Techsystems 820 (a) 63,304 BANKS--.7% Southwest Bancorporation of Texas 4,140 (a) 125,318 BIOTECHNOLOGY--.5% Celgene 1,359 (a) 43,379 Cephalon 640 (a) 48,374 91,753 BROADCASTING--1.9% Mediacom Communications 8,830 (a) 161,236 Radio One, Cl. D 9,070 (a) 163,351 324,587 COMMUNICATION EQUIPMENT--5.5% DMC Stratex Networks 33,082 (a) 257,378 Harris 4,656 142,055 REMEC 20,828 (a) 208,072 SonicWALL 14,570 (a) 283,241 Terayon Communication Systems 8,700 (a) 71,958 962,704 COMPUTERS--10.3% Advent Software 3,970 (a) 198,301 BARRA 2,120 (a) 99,831 Documentum 14,830 (a) 322,108 Enterasys Networks 5,630 (a) 49,825 Informatica 6,990 (a) 101,425 Lawson Software 5,000 78,750 MSC.Software 4,240 (a) 66,144 Macrovision 6,266 (a) 220,689 NetScreen Technologies 270 5,975 Riverstone Networks 5,850 97,110 Secure Computing 11,441 (a) 235,113 Stellent 6,350 (a) 187,706 WebEx Communications 5,340 (a) 132,699 1,795,676 CONSUMER FINANCE--.6% AmeriCredit 3,400 (a) 107,270 DISTRIBUTORS--1.8% Patterson Dental 1,942 (a) 79,486 COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTORS (CONTINUED) Performance Food Group 6,845 (a) 240,739 320,225 ELECTRICAL EQUIPMENT--.4% Plexus 2,380 (a) 63,213 ELECTRONICS--5.7% AXT 7,701 (a) 111,125 Aeroflex 9,060 (a) 171,506 Arrow Electronics 3,160 (a) 94,484 Centillium Communications 9,490 (a) 74,591 Cree 3,954 (a) 116,485 FEI 1,750 (a) 55,142 Ixia 9,020 (a) 115,907 MKS Instruments 1,620 (a) 43,789 Microtune 6,440 (a) 151,082 Vitesse Semiconductor 4,470 (a) 55,696 989,807 ENGINEERING & CONSTRUCTION--1.7% Dycom Industries 2,530 (a) 42,276 Jacobs Engineering Group 1,140 (a) 75,240 Quanta Services 10,983 (a) 169,468 286,984 HEALTH CARE--19.2% Accredo Health 7,167 (a) 284,530 Albany Molecular Research 2,368 (a) 62,728 American Pharmaceutical Partners 4,460 92,768 AmeriPath 5,230 (a) 167,412 CIMA Labs 2,750 (a) 99,412 Charles River Laboratories International 3,230 (a) 108,140 Community Health Systems 10,570 (a) 269,535 Covance 5,870 (a) 133,249 Cytyc 16,490 (a) 430,389 Endo Pharmaceuticals Holdings 7,370 (a) 86,008 First Health Group 5,690 (a) 140,771 Integra LifeSciences Holdings 4,210 (a) 110,891 LifePoint Hospitals 4,020 (a) 136,841 Lumenis 6,700 (a) 131,990 Medicis Pharmaceutical, Cl. A 2,910 (a) 187,957 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- HEALTH CARE (CONTINUED) Pharmaceutical Resources 7,220 (a) 244,036 Priority Healthcare, Cl. B 1,230 (a) 43,284 Province Healthcare 2,220 (a) 68,509 QIAGEN 3,900 (a) 72,384 SICOR 12,696 (a) 199,073 Taro Pharmaceutical Industries 5,200 (a) 207,740 Varian Medical Systems 760 (a) 54,158 3,331,805 INSURANCE BROKERS--.4% Gallagher (Arthur J.) & Co. 2,170 74,843 LEISURE TIME--1.2% Direct Focus 3,890 (a) 121,368 United Defense Industries 4,170 87,779 209,147 LODGING--1.2% Hotel Reservations Network, Cl. A 4,620 (a) 212,520 MACHINERY--.4% Global Power Equipment Group 4,510 67,875 MANUFACTURING--2.6% Armor Holdings 3,130 (a) 84,479 AstroPower 2,614 (a) 105,684 Optimal Robotics, Cl. A 4,592 (a) 162,786 Roper Industries 1,850 91,575 444,524 METAL FABRICATORS--.7% Shaw Group 4,740 (a) 111,390 OIL AND GAS--.7% Hanover Compressor 2,150 (a) 54,309 National-Oilwell 3,184 (a) 65,622 119,931 RESTAURANTS--2.7% CEC Entertainment 4,360 (a) 189,180 Ruby Tuesday 13,430 277,061 466,241 RETAIL--10.0% American Eagle Outfitters 6,790 (a) 177,694 CDW Computer Centers 1,922 (a) 103,231 COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- RETAIL (CONTINUED) Cost Plus 5,730 (a) 151,845 Duane Reade 3,440 (a) 104,404 Fastenal 1,420 94,331 Insight Enterprises 17,848 (a) 439,061 Talbots 3,910 141,738 Tech Data 3,030 (a) 131,138 Tweeter Home Entertainment Group 4,288 (a) 124,352 Ultimate Electronics 5,128 (a) 153,840 Whole Foods Market 2,380 (a) 103,673 1,725,307 SEMICONDUCTORS & EQUIPMENT--2.0% Brooks Automation 2,189 (a) 89,027 EMCORE 4,734 (a) 63,672 Entegris 6,410 (a) 70,254 PRI Automation 3,380 (a) 69,121 Therma-Wave 3,938 (a) 58,755 350,829 SERVICES--11.0% AMN Healthcare Services 3,850 105,490 Braun Consulting 8,441 (a) 29,966 Career Education 3,260 (a) 111,753 Corinthian Colleges 6,730 (a) 275,190 Corporate Executive Board 1,146 (a) 42,058 Cross Country 5,480 145,220 Education Management 4,590 (a) 166,387 ITT Educational Services 6,850 (a) 252,559 Investment Technology Group 2,985 (a) 116,624 Keane 3,940 (a) 71,038 MAXIMUS 3,280 (a) 137,957 Management Network Group 7,299 (a) 50,363 Rent-A-Center 7,500 (a) 251,775 Strayer Education 2,620 127,646 Titan 1,240 (a) 30,938 1,914,964 TELECOMMUNICATIONS--1.0% Powerwave Technologies 10,060 (a) 173,837 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- TEXTILES--.9% Columbia Sportswear 4,640 (a) 154,512 TRUCKERS--2.4% C.H. Robinson Worldwide 9,258 267,695 Werner Enterprises 6,270 152,361 420,056 WASTE MANAGEMENT--2.5% Stericycle 4,090 (a) 248,999 Waste Connections 5,960 (a) 184,700 433,699 TOTAL COMMON STOCKS (cost $14,733,096) 15,342,321 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--11.2% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AGENCY DISCOUNT NOTES; Federal Home Loan Mortgage Corporation 1.45%, 1/2/2002 (cost $1,939,922) 1,940,000 1,939,922 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $16,673,018) 99.6% 17,282,243 CASH AND RECEIVABLES (NET) .4% 71,761 NET ASSETS 100.0% 17,354,004 (A) NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value ------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 16,673,018 17,282,243 Cash 74,329 Receivable for investment securities sold 52,457 Receivable for shares of Beneficial Interest subscribed 11,861 Dividends receivable 1,097 Prepaid expenses 1,028 17,423,015 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 18,504 Payable for shares of Beneficial Interest redeemed 16,797 Accrued expenses 33,710 69,011 ------------------------------------------------------------------------------- NET ASSETS ($) 17,354,004 ------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 23,335,952 Accumulated net realized gain (loss) on investments (6,591,173 Accumulated net unrealized appreciation (depreciation) on investments 609,225 ------------------------------------------------------------------------------- NET ASSETS ($) 17,354,004 NET ASSET VALUE PER SHARE Initial Shares Service Shares ------------------------------------------------------------------------------- Net Assets ($) 14,754,869 2,599,135 Shares Outstanding 1,504,790 265,655 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 9.81 9.78 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Interest 84,798 Cash dividends 9,334 TOTAL INCOME 94,132 EXPENSES: Investment advisory fee--Note 3(a) 137,221 Prospectus and shareholders' reports 41,965 Auditing fees 24,693 Custodian fees--Note 3(b) 19,431 Distribution fees--Note 3(b) 2,872 Legal fees 2,676 Registration fees 1,522 Trustees' fees and expenses--Note 3(c) 273 Loan commitment fees--Note 2 182 Shareholder servicing costs--Note 3(b) 147 Miscellaneous 1,036 TOTAL EXPENSES 232,018 Less--waiver of fees due to undertaking--Note 3(a) (18,246) NET EXPENSES 213,772 INVESTMENT (LOSS) (119,640) -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments (4,535,106) Net unrealized appreciation (depreciation) on investments 1,679,769 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (2,855,337) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (2,974,977) SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment (loss) (119,640) (44,229) Net realized gain (loss) on investments (4,535,106) (2,053,587) Net unrealized appreciation (depreciation) on investments 1,679,769 (1,286,267) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (2,974,977) (3,384,083) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares -- (1,280) Net realized gain on investments: Initial shares -- (8,320) TOTAL DIVIDENDS -- (9,600) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 6,101,009 17,975,727 Service shares 2,745,217 500 Dividends reinvested: Initial shares -- 9,600 Cost of shares redeemed: Initial shares (2,337,131) (2,854,260) Service shares (140,798) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 6,368,297 15,131,567 TOTAL INCREASE (DECREASE) IN NET ASSETS 3,393,320 11,737,884 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 13,960,684 2,222,800 END OF PERIOD 17,354,004 13,960,684 -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (SHARES): INITIAL SHARES Shares sold 592,255 1,230,488 Shares issued for dividends reinvested -- 554 Shares redeemed (247,406) (231,101) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 344,849 999,941 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 279,296 42 Shares redeemed (13,683) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 265,613 42 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, -------------------------------------------- INITIAL SHARES 2001 2000 1999 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 12.04 13.89 12.50 Investment Operations: Investment income (loss)--net (.08)(b) (.08)(b) .01 Net realized and unrealized gain (loss) on investments (2.15) (1.71) 1.38 Total from Investment Operations (2.23) (1.79) 1.39 Distributions: Dividends from investment income--net -- (.01) -- Dividends from net realized gain on investments -- (.05) -- Total Distributions -- (.06) -- Net asset value, end of period 9.81 12.04 13.89 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (18.52) (13.02) 11.12 c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.39 1.41 .07(c) Ratio of net investment income (loss) to average net assets (.77) (.60) .06(c) Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .11 .52 1.45(c) Portfolio Turnover Rate 106.00 123.96 7.49(c) ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 14,755 13,960 2,223 (A) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended December 31, ----------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 12.04 12.04 Investment Operations: Investment (loss) (.09)(b) -- Net realized and unrealized gain (loss) on investments (2.17) -- Total from Investment Operations (2.26) -- Net asset value, end of period 9.78 12.04 -------------------------------------------------------------------------------- TOTAL RETURN (%) (18.77) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.49 -- Ratio of investment (loss) to average net assets (1.02) -- Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .28 -- Portfolio Turnover Rate 106.00 123.96 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 2,599 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company currently offering twelve series, including the Founders Discovery Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is capital appreciation. The Dreyfus Corporation ("Dreyfus") serves as the portfolio' s investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. (" Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Founders Asset Management LLC (" Founders" ) serves as the portfolio' s sub-investment adviser. Founders is a 90%-owned subsidiary of Mellon. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations, expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (b) Foreign currency transactions: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $3,220 during the period ended December 31, 2001 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) (d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (e) Federal income taxes: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: accumulated capital losses $5,942,508 and unrealized appreciation $277,679. In addition, the portfolio had $317,119 of capital losses realized after October 31, 2001 which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $1,024,575 of the carryover expires in fiscal 2008 and $4,917,933 expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $0 and $9,600. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $119,640, decreased accumulated net realized gain (loss) on investments by $23 and decreased paid-in capital by $119,617. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the portfolio has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the Facility. NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates: (a) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .90 of 1% of the value of the portfolio' s average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings, commitment fees and extraordinary expenses, exceed 1.50% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $18,246, pursuant to the undertaking. Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Founders, the sub-investment advisory fee is payable monthly by Dreyfus, and is based upon the value of the portfolio's average daily net assets, computed at the following annual rates: Average Net Assets 0 to $100 million. . . . . . . . . . . . . . . . . .25 of 1% In excess of $100 million to $1 billion. . . . . . .20 of 1% In excess of $1 billion to $1.5 billion. . . . . . .16 of 1% In excess of $1.5 billion. . . . . . . . . . . . . .10 of 1% The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) (b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $2,872 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $118 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $19,431 pursuant to the custody agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended December 31, 2001, amounted to $19,847,902 and $14,044,608, respectively. At December 31, 2001, accumulated net unrealized appreciation on investments was $609,225, consisting of $2,158,552 gross unrealized appreciation and $1,549,327 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Founders Discovery Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Founders Discovery Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Founders Discovery Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000 Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. NOTES For More Information Dreyfus Investment Portfolios, Founders Discovery Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Sub-Investment Adviser Founders Asset Management LLC Founders Financial Center 2930 East Third Avenue Denver, CO 80206 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 193AR1201 Dreyfus Investment Portfolios, Founders Growth Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 12 Statement of Assets and Liabilities 13 Statement of Operations 14 Statement of Changes in Net Assets 16 Financial Highlights 18 Notes to Financial Statements 24 Report of Independent Auditors 25 Important Tax Information 26 Board Members Information 27 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Founders Growth Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Founders Growth Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, John Jares, CFA, of Founders Asset Management LLC, the portfolio's sub-investment adviser. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the large-cap sector of the U.S. stock market posted its second consecutive year of negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE John Jares, CFA, Portfolio Manager Founders Asset Management LLC, Sub-Investment Adviser How did Dreyfus Investment Portfolios, Founders Growth Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio's Initial shares produced a total return of -20.03% and its Service shares produced a total return of -20.16%.(1) In contrast, the Standard & Poor's 500 BARRA/Growth Index (the "Index"), the portfolio's benchmark, produced a total return of -12.73% for the same period.(2) Despite several interest-rate reductions by the U.S. Federal Reserve Board (the " Fed" ), corporate profits remained sluggish throughout the year, taking a particularly harsh toll on growth-oriented stocks. The portfolio's performance lagged behind that of its benchmark primarily because of the portfolio's heavy emphasis on technology and telecommunications shares, which performed poorly for most of the year. What is the portfolio's investment approach? The portfolio invests primarily in large, well-managed growth companies whose performance is not entirely dependent upon the fortunes of the economy. Utilizing a "bottom-up" approach, we focus on individual stock selection rather than on forecasting stock market trends. We look for high quality, proven companies with an established track record of sustained earnings growth in excess of industry averages. The companies we select must have a sustainable competitive advantage, such as a dominant brand name, a high barrier to entry from competition and/or large untapped market opportunities. Rather than a short-term focus on next quarter' s profits, we look at a company for its long-term potential and its earning power over the next three to five years. What other factors influenced the portfolio's performance? The portfolio' s performance during the reporting period was affected by the economic downturn, in which growth-oriented stocks gener The Portfoli DISCUSSION OF PERFORMANCE (CONTINUED) ally suffered more than value-oriented stocks. A company that has been growing at a fast rate typically has a high stock price reflecting that growth. However, if that company's growth slows or stops even temporarily because of a recession, the stock price has a long way to fall. On the other hand, a relatively slow-growing, value-oriented company' s stock price is already low, so it has less room to fall when a recession occurs. That' s why growth portfolios generally have not performed as well as value portfolios during 2001. Technology and telecommunications stocks ranked among the fastest growing groups during the late 1990s. However, technology and telecommunications stocks -- in which the portfolio had a higher percentage of assets than the Index -- fell sharply after reaching their peak in March 2000 and remained out of favor for most of 2001 with investors. Another factor hurting the portfolio was its move into pharmaceutical companies during the middle of 2001. Although pharmaceutical stocks are generally considered defensive investments, some large drug companies saw their stock prices weaken when it became clear that they had relatively few products under development to replace those which had expiring patents. Even in a recession, though, some businesses find a way to be successful, often by taking market share away from weaker competitors. Such was the case with Lowe' s Companies, a retailer of home improvement products and one of the portfolio' s top performers during the year. The company benefited from the home refinancing boom, and its revenues and earnings grew as the company expanded to larger cities. Another retailer that has done well is Best Buy, which has benefited from the shift towards digital technology products and has gained market share in a tough retailing environment. In addition, the Federal National Mortgage Association (" Fannie Mae" ) and the Federal Home Loan Mortgage Corporation (" Freddie Mac" ) have benefited from lower interest rates and the home refinancing boom. What is the portfolio's current strategy? Despite the current economic slump, we have continued to look for companies that we believe can grow their earnings at a double-digit rate and have dominant positions in their markets and little debt. While we have found companies meeting these criteria, it is difficult for stocks to do well unless investors see better days ahead. As 2001 ends, we have seen hopeful signs that the economy may improve. There are many companies that look very attractive to us from a pricing perspective. While we cannot guarantee that the economy or stock market will recover in 2002, the portfolio is currently positioned for a rebound by emphasizing stocks in groups, such as financial services, retailing and technology, that tend to do well in a growing business environment. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE STANDARD AND POOR'S 500/BARRA GROWTH INDEX IS A CAPITALIZATION-WEIGHTED INDEX OF ALL THE STOCKS IN THE STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX THAT HAVE HIGH PRICE-TO-BOOK RATIOS. THE S&P 500 INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE. The Portfolio PORTFOLIO PERFORMANCE Comparison of change in value of a $10,000 investment in Dreyfus Investment Portfolios, Founders Growth Portfolio Initial shares and Service shares and the Standard & Poor's 500/BARRA Growth Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ----------------------------------------------------------------------------- INITIAL SHARES 9/30/98 (20.03)% 1.65% SERVICE SHARES 9/30/98 (20.16)% 1.60% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW. ((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, FOUNDERS GROWTH PORTFOLIO ON 9/30/98 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE STANDARD AND POOR'S 500/BARRA GROWTH INDEX (THE "INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS A CAPITALIZATION-WEIGHTED INDEX OF ALL THE STOCKS IN THE STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX THAT HAVE HIGH PRICE-TO-BOOK RATIOS. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS STATEMENT OF INVESTMENTS December 31, 2001 COMMON STOCKS--82.8% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- ALUMINUM--.3% Alcoa 2,539 90,261 BANKING--1.5% Bank of America 2,272 143,022 Northern Trust 3,929 236,604 State Street 1,531 79,995 459,621 BEVERAGES--2.5% Coca-Cola 4,058 191,335 PepsiCo 11,235 547,032 738,367 BIOTECHNOLOGY--2.8% Amgen 8,965 (a) 505,985 Serono, ADR 15,323 340,017 846,002 BROADCASTING--1.6% Clear Channel Communications 3,486 (a) 177,472 Comcast, Cl. A 8,616 (a) 310,176 487,648 BUILDING MATERIALS--.2% Masco 2,786 68,257 COMMUNICATIONS EQUIPMENT--1.9% Nokia, ADR 11,795 289,331 QUALCOMM 5,400 (a) 272,700 562,031 COMPUTERS--19.7% Adobe Systems 4,774 148,233 Brocade Communications Systems 10,892 (a) 360,743 Check Point Software Technologies 7,089 (a) 282,780 Cisco Systems 42,252 (a) 765,184 Dell Computer 13,511 (a) 367,229 International Business Machines 4,731 572,262 Mercury Interactive 5,420 (a) 184,172 Microsoft 18,329 (a) 1,214,663 Oracle 28,563 (a) 394,455 PeopleSoft 10,325 (a) 415,065 Retek 5,012 (a) 149,708 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- COMPUTERS (CONTINUED) Siebel Systems 16,336 (a) 457,081 VERITAS Software 11,988 (a) 537,302 5,848,877 CONSUMER FINANCE--1.0% MBNA 8,476 298,355 ELECTRICAL EQUIPMENT--4.4% Celestica 6,242 (a) 252,114 Flextronics International 9,700 (a) 232,703 General Electric 20,711 830,097 1,314,914 ELECTRONICS--10.6% Altera 19,052 (a) 404,283 Analog Devices 3,638 (a) 161,491 Intel 22,444 705,864 Linear Technology 7,702 300,686 Maxim Integrated Products 3,428 (a) 180,004 Micron Technology 5,473 (a) 169,663 STMicroelectronics 9,061 286,962 Taiwan Semiconductor Manufacturing, ADR 4,849 (a) 83,257 Texas Instruments 17,044 477,232 Xilinx 9,435 (a) 368,437 3,137,879 ENTERTAINMENT--3.1% AOL Time Warner 16,958 (a) 544,352 Viacom, Cl. B 4,082 (a) 180,220 Walt Disney 9,189 190,396 914,968 EQUIPMENT--.6% Novellus Systems 4,581 (a) 180,721 FINANCIAL--4.2% Citigroup 11,788 595,058 Goldman Sachs Group 1,766 163,797 J.P. Morgan Chase & Co. 7,312 265,791 Merrill Lynch & Co. 4,044 210,773 1,235,419 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) --------------------------------------------------------------------------------------------------------------------------------- HEALTH CARE--8.3% Abbott Laboratories 3,887 216,700 American Home Products 5,442 333,921 Baxter International 3,438 184,380 Becton, Dickinson & Co. 3,014 99,914 Boston Scientific 4,818 (a) 116,210 Johnson & Johnson 6,194 366,065 Medtronic 2,369 121,317 Pfizer 14,912 594,243 Pharmacia 4,885 208,345 UnitedHealth Group 3,214 227,455 2,468,550 HOUSEHOLD PRODUCTS--.6% Colgate-Palmolive 3,076 177,639 INSURANCE--2.1% American International Group 5,447 432,492 Marsh & McLennan Cos. 1,797 193,088 625,580 MANUFACTURING--2.7% Tyco International 9,875 581,638 United Technologies 3,318 214,442 796,080 PUBLISHING--.3% Gannett 1,533 103,064 RAILROADS--1.1% Union Pacific 5,487 312,759 RETAIL--8.7% Best Buy 4,000 (a) 297,920 Costco Wholesale 5,932 (a) 263,262 Home Depot 10,371 529,025 Kohl's 3,762 (a) 264,995 Lowe's Cos. 4,719 219,009 Safeway 2,417 (a) 100,910 Walgreen 4,170 140,362 Wal-Mart Stores 13,672 786,824 2,602,307 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- SERVICES--2.3% Cendant 16,677 (a) 327,036 Cintas 1,840 89,038 Computer Sciences 160 (a) 7,837 H&R Block 3,713 165,971 Omnicom Group 1,134 101,323 691,205 SHIPPING--1.3% Royal Caribbean Cruises 23,554 381,575 TELECOMMUNICATIONS--.4% Sprint (PCS Group) 5,296 (a) 129,275 TOBACCO--.6% Philip Morris Cos. 3,569 163,639 TOTAL COMMON STOCKS (cost $22,825,461) 24,634,993 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--17.7% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AGENCY DISCOUNT NOTES; Federal Home Loan Mortgage Corporation, 1.45%, 1/2/2002 (cost $5,259,788) 5,260,000 5,259,788 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $28,085,249) 100.5% 29,894,781 LIABILITIES, LESS CASH AND RECEIVABLES (.5%) (140,946) NET ASSETS 100.0% 29,753,835 (A) NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 28,085,249 29,894,781 Cash 120,889 Receivable for investment securities sold 357,144 Dividends receivable 15,816 Prepaid expenses 207 30,388,837 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 18,003 Payable for investment securities purchased 585,547 Payable for shares of Beneficial Interest redeemed 58 Accrued expenses 31,394 635,002 -------------------------------------------------------------------------------- NET ASSETS ($) 29,753,835 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 42,621,146 Accumulated undistributed investment income--net 19,603 Accumulated net realized gain (loss) on investments (14,696,446) Accumulated net unrealized appreciation (depreciation) on investments 1,809,532 -------------------------------------------------------------------------------- NET ASSETS ($) 29,753,835 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 25,606,605 4,147,230 Shares Outstanding 2,176,008 352,802 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 11.77 11.76 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends 155,516 Interest 148,102 TOTAL INCOME 303,618 EXPENSES: Investment advisory fee--Note 3(a) 214,580 Prospectus and shareholders' reports 36,075 Auditing fees 29,331 Custodian fees--Note 3(b) 16,223 Legal fees 10,227 Distribution fees--Note 3(b) 4,539 Trustees' fees and expenses--Note 3(c) 1,922 Registration fees 1,843 Shareholder servicing costs--Note 3(b) 729 Loan commitment fees--Note 2 389 Miscellaneous 951 TOTAL EXPENSES 316,809 Less--waiver of fees due to undertaking--Note 3(a) (34,127) NET EXPENSES 282,682 INVESTMENT INCOME--NET 20,936 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments (9,372,347) Net unrealized appreciation (depreciation) on investments 2,834,362 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (6,537,985) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (6,517,049) SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 20,936 21,916 Net realized gain (loss) on investments (9,372,347) (5,268,122) Net unrealized appreciation (depreciation) on investments 2,834,362 (2,998,632) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (6,517,049) (8,244,838) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares (21,791) -- Service shares (438) -- Net realized gain on investments: Initial shares -- (86,561) TOTAL DIVIDENDS (22,229) (86,561) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 6,773,264 34,634,389 Service shares 4,274,009 250 Dividends reinvested: Initial shares 21,791 86,561 Service shares 438 -- Cost of shares redeemed: Initial shares (3,263,377) (5,291,644) Service shares (95,938) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 7,710,187 29,429,556 TOTAL INCREASE (DECREASE) IN NET ASSETS 1,170,909 21,098,157 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 28,582,926 7,484,769 END OF PERIOD 29,753,835 28,582,926 Undistributed investment income-net 19,603 21,916 Year Ended December 31, -------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 519,383 1,841,798 Shares issued for dividends reinvested 1,834 4,166 Shares redeemed (285,622) (282,279) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 235,595 1,563,685 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 360,893 17 Shares issued for dividends reinvested 37 -- Shares redeemed (8,145) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 352,785 17 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ------------------------------------------------------------------- INITIAL SHARES 2001 2000 1999 1998 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 14.73 19.87 15.90 12.50 Investment Operations: Investment income (loss)--net .01(b) .02(b) (.02)(b) .01 Net realized and unrealized gain (loss) on investments (2.96) (5.03) 5.79 3.39 Total from Investment Operations (2.95) (5.01) 5.77 3.40 Distributions: Dividends from investment income--net (.01) -- (.01) -- Dividends from net realized gain on investments -- (.13) (1.79) -- Total Distributions (.01) (.13) (1.80) -- Net asset value, end of period 11.77 14.73 19.87 15.90 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (20.03) (25.40) 39.01 27.20 c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .99 .97 1.00 .25 c Ratio of net investment income (loss) to average net assets .08 .11 (.11) .05 c Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .10 .11 1.33 .31 c Portfolio Turnover Rate 180.84 171.96 115.08 75.65 c ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 25,607 28,583 7,485 2,544 (A) FROM SEPTEMBER 30, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended December 31, ----------------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 14.73 14.73 Investment Operations: Investment (loss) (.00)(b,c) -- Net realized and unrealized gain (loss) on investments (2.96) -- Total from Investment Operations (2.96) -- Distributions: Dividends from investment income--net (.01) -- Net asset value, end of period 11.76 14.73 -------------------------------------------------------------------------------- TOTAL RETURN (%) (20.16) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.00 -- Ratio of investment (loss) to average net assets (.01) -- Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .40 -- Portfolio Turnover Rate 180.84 171.96 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 4,147 --(d) (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) AMOUNT REPRESENTS LESS THAN ($.01) PER SHARE. (C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (D) AMOUNT REPRESENTS LESS THAN $1,000. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company operating as a series company currently offering twelve series, including the Founders Growth Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation ("Dreyfus") serves as the portfolio' s investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. (" Mellon" ), which is a wholly-owned subsidiary of Mellon Financial Corporation. Founders Asset Management LLC (" Founders" ) serves as the portfolio' s sub-investment adviser. Founders is a 90%-owned subsidiary of Mellon. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. (b) Foreign currency transactions: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. The Portfoli NOTES TO FINANCIAL STATEMENTS (CONTINUED) Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $6,628 during the period ended December 31, 2001 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (e) Federal income taxes: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $19,603, accumulated capital losses $13,171,106 and unrealized appreciation $431,443. In addition, the portfolio had $147,251 of capital losses realized after October 31, 2001 which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $1,609,264 of the carryover expires in fiscal 2008 and $11,561,842 expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $22,229 and $78,036 and long-term capital gains $0 and $8,525. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio decreased accumulated undistributed investment income-net by $1,020 and increased accumulated net realized gain (loss) on investments by the same amount. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the portfolio has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the Facility. NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates: (a) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .75 of 1% of the value of the portfolio's average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class exclusive of taxes, brokerage fees, interest on borrowings, commitment fees and extraordinary expenses, exceed 1% of the value of the average daily net assets of their class. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the period ended December 31, 2001, Dreyfus waived receipt of fees of $34,127, pursuant to the undertaking. Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Founders, the sub-investment advisory fee is payable monthly by Dreyfus, and is based upon the value of the portfolio's average daily net assets, computed at the following annual rates: Average Net Assets 0 to $100 million . . . . . . . . . . . . . . . . .25 of 1% In excess of $100 million to $1 billion. . . . . . .20 of 1% In excess of $1 billion to $1.5 billion. . . . . . .16 of 1% In excess of $1.5 billion. . . . . . . . . . . . . .10 of 1% (b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $4,539 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $132 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $16,223 pursuant to the custody agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the fund's annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended December 31, 2001, amounted to $49,751,850 and $44,509,885, respectively. At December 31, 2001, accumulated net unrealized appreciation on investments was $1,809,532, consisting of $2,550,808 gross unrealized appreciation and $741,276 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Founders Growth Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Founders Growth Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Founders Growth Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 IMPORTANT TAX INFORMATION (Unaudited) For Federal tax purposes, the portfolio hereby designates 100% of the ordinary dividends paid during the fiscal year ended December 31, 2001 as qualifying for the corporate dividends received deduction. The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977 STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio NOTES For More Information Dreyfus Investment Portfolios, Founders Growth Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Sub-Investment Adviser Founders Asset Management LLC Founders Financial Center 2930 East Third Avenue Denver, CO 80206 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 176AR1201 Dreyfus Investment Portfolios, Founders International Equity Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 12 Statement of Assets and Liabilities 13 Statement of Operations 14 Statement of Changes in Net Assets 16 Financial Highlights 18 Notes to Financial Statements 23 Report of Independent Auditors 24 Board Members Information 25 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Founders International Equity Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Founders International Equity Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, Douglas A. Loeffler, CFA, of Founders Asset Management LLC, the portfolio's sub-investment adviser. 2001 was a difficult year for the U.S. and global economies. It was a year in which a long period of global economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which most major international stock markets posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors that some fundamental principles of investing remain unchanged. The merit of a long-term perspective was validated when stocks in Europe, the U.S. and some emerging market countries rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the global bond markets' strong returns, which helped cushion the equity markets' declines for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged in the United States, and equity markets worldwide have recently rallied in response to renewed investor optimism. While we can' t guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Douglas A. Loeffler, CFA, Portfolio Manager Founders Asset Management LLC, Sub-Investment Adviser How did Dreyfus Investment Portfolios, Founders International Equity Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of -29.56% for its Initial shares and -29.50% for its Service shares.(1) This compares with a -21.40% total return produced by the fund's benchmark, the Morgan Stanley Capital International World ex U.S. Index, for the same period.(2) We attribute the market and the portfolio's weak performance to slower economic growth and lower corporate earnings worldwide. In addition, a strong U.S. dollar eroded international returns for U.S. investors. The portfolio's returns lagged that of the Index, primarily because the growth-oriented stocks in which the portfolio invested generally remained out of favor among investors. What is the portfolio's investment approach? The portfolio focuses on individual stock selection. We do not attempt to predict interest rates or market movements, nor do we have country allocation models or targets. Rather, we choose investments on a company-by-company basis, searching to find what we believe are well-managed, well-positioned companies, wherever they may be. Starting with roughly 1,000 of the largest companies outside the United States, we perform rigorous stock-by-stock analyses. Our goal is to identify companies that we believe have achieved and can sustain growth through a dominant brand name, growing market share, high barriers to entry or untapped market opportunities. In our view, these factors are the marks of companies whose growth, in both revenues and earnings, will exceed that of global industry peers, as well as that of their local markets. The portfolio will typically hold 60-90 stocks, broadly invested across countries and industries, representing what we believe to be the best The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) growth investment ideas in the world. We generally sell a stock when it reaches its target price or when we determine that circumstances have changed and it will likely not reach the previously set target price. What other factors influenced the portfolio's performance? Continuing weakness in the world's economies had a sharply negative effect on the portfolio' s performance during the reporting period, and market sentiment continued to be pessimistic. Concerns grew that the U.S. economy could be entering a longer and deeper recession than many had anticipated. Investors feared that a prolonged recession might severely cut earnings growth, which drives the growth-oriented stocks in which the portfolio primarily invests In addition to overall market weakness, some of our investment decisions hurt the portfolio's performance. Through much of the reporting period, we focused on traditional growth areas such as telecommunications and technology. Within these areas, we invested the portfolio's assets in companies that we believed would do well even in a weak environment. Unfortunately, some of those investments did not perform as expected. In addition, we sold some of the portfolio's technology and telecommunications holdings in late September, moving to more defensive industry groups such as industrials and energy companies. However, technology and telecommunications stock prices moved higher in October and November, and the portfolio was not positioned to benefit fully from this rally. The strength of the U.S. dollar over the reporting period affected all international investments, at least to some extent. Because we typically do not hedge the portfolio' s currency exposure, declines in the value of foreign currencies led to lower returns in U.S. dollar terms. What is the portfolio's current strategy? Many central bankers and economic policymakers -- including the Federal Reserve Board in the United States and, to a lesser extent, the European Central Bank -- have responded to economic weakness with aggressive interest-rate cuts. In addition, the possibility of increased government spending and reduced tax rates in the U.S. may lead to a quicker, stronger rebound than many have anticipated. Nonetheless, we are taking a cautious approach. We believe that this is not an appropriate time to make heroic assumptions about earnings growth. Rather, we have adhered to our long-standing approach of evaluating investments one company at a time. Using this approach, we have continued to find what we believe are high quality growth companies, largely in the technology and telecommunications industry groups, with solid, long-term earnings potential. In our view, companies that did well during the current downturn are likely to continue to do well in the long run. Accordingly, we have positioned the portfolio to take advantage of opportunities in Japan both in companies with solid domestic operations as well as exporters who we believe should benefit from the cheaper yen. Certain emerging market companies have also presented attractive opportunities, in our view, including Korea' s domestic telecommunications firms and Mexico's domestic retail operations. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURN WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF NET DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD EX U.S. INDEX IS AN UNMANAGED INDEX OF GLOBAL STOCK MARKET PERFORMANCE, EXCLUDING THE U.S., CONSISTING SOLELY OF EQUITY SECURITIES. The Portfolio PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Founders International Equity Portfolio Initial shares and Service shares and the Morgan Stanley Capital International World ex U.S. Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception -------------------------------------------------------------------------------- INITIAL SHARES 9/30/98 (29.56)% 2.21% SERVICE SHARES 9/30/98 (29.50)% 2.24% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW. ((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, FOUNDERS INTERNATIONAL EQUITY PORTFOLIO ON 9/30/98 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD EX U.S. INDEX (THE "INDEX") ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS AN UNMANAGED INDEX OF GLOBAL STOCK MARKET PERFORMANCE, EXCLUDING THE U.S., CONSISTING SOLELY OF EQUITY SECURITIES AND INCLUDES NET DIVIDENDS REINVESTED. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
December 31, 2001 STATEMENT OF INVESTMENTS STATEMENT OF INVESTMENTS COMMON STOCKS--90.6% Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- BELGIUM--1.2% Dexia 9,125 131,394 CANADA--.6% Bombardier, Cl. B 6,500 67,364 CHINA--.8% Huaneng Power International, Cl. H 146,000 87,991 DENMARK--4.7% Danske Bank 8,600 138,053 Group 4 Falck 1,000 112,009 Novo Nordisk, Cl. B 2,625 107,390 TDC 4,000 142,558 500,010 FINLAND--2.1% Nokia, ADR 8,900 218,317 FRANCE--15.5% Altran Technologies 1,800 81,448 Aventis 3,375 239,980 BNP Paribas 1,925 172,491 Beghin-Say 2,950 107,313 JC Decaux 2,550 28,533 Pernod-Ricard 2,275 176,470 Sanofi-Synthelabo 2,500 186,791 Technip-Coflexip 433 57,909 Thomson Multimedia 2,900 (a) 89,205 TotalFinaElf 1,225 175,190 Vinci 2,075 121,827 Vivendi Environnement 2,950 98,528 Vivendi Environnement (Warrants) 2,950 1,210 Vivendi Universal 1,950 106,925 1,643,820 GERMANY--3.0% Altana 2,050 102,173 Infineon Technologies 3,275 68,620 Muenchener Rueckversicherungs-Gesellschaft 550 149,566 320,359 GREECE--1.1% Public Power 10,625 113,679 COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- HONG KONG--1.3% China Unicom, ADR 12,700 (a) 141,859 INDIA--.6% Infosys Technologies, ADR 1,000 62,000 IRELAND--.9% Ryanair, ADR 2,900 (a) 92,945 ISRAEL--1.2% Check Point Software Technologies 3,125 (a) 124,656 ITALY--3.4% Alleanza Assicurazioni 13,475 148,257 Saipem 11,350 55,526 Telecom Italia Mobile 14,400 80,475 Telecom Italia Mobile (RNC) 19,000 72,844 357,102 JAPAN--7.2% FUJISAWA PHARMACEUTICAL 4,000 91,786 HONDA MOTOR 2,000 79,477 HOYA 1,400 83,292 Matsushita Electric Industrial 10,000 127,878 Nintendo 600 104,627 NTT DoCoMo 12 140,415 Takeda Chemical Industries 1,000 45,057 YAMATO TRANSPORT 5,000 93,838 766,370 MEXICO--3.4% Cemex, ADR 4,000 98,800 Grupo Televisa, ADR 2,700 (a) 116,586 Wal-Mart de Mexico 54,500 149,233 364,619 NETHERLANDS--3.9% Aegon 3,825 103,675 Koninklijke Ahold 4,275 124,563 Koninklijke (Royal) Philips Electronics 3,700 107,707 STMicroelectronics 2,425 77,945 413,890 PORTUGAL--1.5% Brisa-Auto Estradas de Portugal 38,700 164,243 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- SINGAPORE--1.1% Flextronics International 4,625 (a) 110,954 SOUTH KOREA--5.3% Hyundai Motor 5,060 103,627 Korea Telecom, ADR 11,450 232,778 LG Telecom 12,000 (a) 75,280 Samsung Electronics 730 155,059 566,744 SPAIN--4.2% Banco Santander Central Hispano 19,650 164,863 Gas Natural SDG 8,425 140,469 Industria de Diseno Textil 7,150 136,487 441,819 SWEDEN--3.0% ForeningsSparbanken 11,000 136,756 Securitas, Cl. B 9,250 176,037 312,793 SWITZERLAND--6.4% Converium 1,025 49,917 Nestle 900 192,264 Serono 253 221,228 Synthes-Stratec 310 (b) 216,257 679,666 UNITED KINGDOM--18.2% ARM 14,425 (a) 75,416 BAE SYSTEMS 22,375 100,850 Barclays 5,950 197,128 British Sky Broadcasting 5,525 (a) 60,828 Compass 20,250 151,874 Logica 12,325 114,873 Prudential 12,450 144,322 Reckitt Benckiser 12,000 174,756 Rio Tinto 9,100 174,401 Royal & Sun Alliance Insurance 13,500 77,608 Shire Pharmaceuticals, ADR 2,750 (a) 100,650 Sage 23,400 77,867 Telewest Communications 118,900 (a) 107,356 Tesco 32,500 117,851 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ UNITED KINGDOM (CONTINUED) Vodafone 95,100 248,943 1,924,723 TOTAL COMMON STOCKS (cost $9,140,595) 9,607,317 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--14.2% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AGENCY DISCOUNT NOTE; Federal Home Loan Mortgage Corporation, 1.45%, 1/2/2002 (cost $1,499,940) 1,500,000 1,499,940 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $10,640,535) 104.8% 11,107,257 LIABILITIES, LESS CASH AND RECEIVABLES (4.8%) (503,858) NET ASSETS 100.0% 10,603,399 (A) NON-INCOME PRODUCING. (B) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF SECURITIES ACT OF 1933. THIS SECURITY MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT DECEMBER 31, 2001, THIS SECURITY AMOUNTED TO $216,257 OR 2.0% OF NET ASSETS. SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 10,640,535 11,107,257 Cash 511,122 Dividends receivable 8,921 Prepaid expenses 1,439 11,628,739 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 2,303 Payable for investment securities purchased 965,889 Payable for shares of Beneficial Interest redeemed 13 Accrued expenses 57,135 1,025,340 -------------------------------------------------------------------------------- NET ASSETS ($) 10,603,399 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 15,249,382 Accumulated net realized gain (loss) on investments and foreign currency transactions (5,112,772) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions 466,789 ------------------------------------------------------------------------------- NET ASSETS ($) 10,603,399 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 9,099,269 1,504,130 Shares Outstanding 759,894 125,582 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 11.97 11.98 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $13,267 foreign taxes withheld at source) 101,615 Interest 49,109 TOTAL INCOME 150,724 EXPENSES: Investment advisory fee--Note 3(a) 111,393 Custodian fees 65,386 Auditing fees 31,299 Prospectus and shareholders' reports 27,992 Legal fees 2,533 Distribution fees--Note 3(b) 1,816 Registration fees 662 Shareholder servicing costs--Note 3(b) 530 Trustees' fees and expenses--Note 3(c) 406 Loan commitment fees--Note 2 155 Miscellaneous 7,988 TOTAL EXPENSES 250,160 Less--waiver of fees due to undertaking--Note 3(a) (83,071) NET EXPENSES 167,089 INVESTMENT (LOSS) (16,365) -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions (4,203,196) Net unrealized appreciation (depreciation) on investments and foreign currency transactions 166,599 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (4,036,597) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,052,962) SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, -------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment income (loss)--net (16,365) 1,811 Net realized gain (loss) on investments (4,203,196) (899,661) Net unrealized appreciation (depreciation) on investments 166,599 (1,007,466) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,052,962) (1,905,316) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares (3,830) -- Service shares (111) -- Net realized gain on investments: Initial shares -- (343,289) TOTAL DIVIDENDS (3,941) (343,289) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 3,190,890 13,293,937 Service shares 3,448,933 500 Dividends reinvested: Initial shares 3,830 343,289 Service shares 111 -- Cost of shares redeemed: Initial shares (2,091,434) (4,108,009) Service shares (1,780,905) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 2,771,425 9,529,717 TOTAL INCREASE (DECREASE) IN NET ASSETS (1,285,478) 7,281,112 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 11,888,877 4,607,765 END OF PERIOD 10,603,399 11,888,877 Undistributed investment income--net -- 1,811 Year Ended December 31, ------------------------------- 2001 2000(a) ------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 223,519 686,538 Shares issued for dividends reinvested 266 16,201 Shares redeemed (163,207) (216,289) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 60,578 486,450 ------------------------------------------------------------------------------- SERVICE SHARES Shares sold 265,143 29 Shares issued for dividends reinvested 8 -- Shares redeemed (139,598) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 125,553 29 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, -------------------------------------------------------------- INITIAL SHARES 2001 2000 1999 1998(a) ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 17.00 21.65 14.36 12.50 Investment Operations: Investment income (loss)--net (.02)(b) .00(b,c) (.02)(b) (.01) Net realized and unrealized gain (loss) on investments (5.00) (3.55) 8.73 1.87 Total from Investment Operations (5.02) (3.55) 8.71 1.86 Distributions: Dividends from investment income--net (.01) -- -- -- Dividends from net realized gain on investments -- (1.10) (1.42) -- Total Distributions (.01) (1.10) (1.42) -- Net asset value, end of period 11.97 17.00 21.65 14.36 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (29.56) (17.41) 60.69 14.88(d) ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 1.50 1.50 .38(d) Ratio of net investment income (loss) to average net assets (.13) .02 (.11) (.08)(d) Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation .72 .57 2.27 .81(d) Portfolio Turnover Rate 201.61 171.34 190.80 29.25(d) ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 9,099 11,888 4,608 2,297 (A) FROM SEPTEMBER 30, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (D) NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended December 31, ------------------------- SERVICE SHARES 2001 2000(a) -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 17.00 17.00 Investment Operations: Investment (loss) (.06)(b) -- Net realized and unrealized gain (loss) on investments (4.95) -- Total from Investment Operations (5.01) -- Distributions: Dividends from investment income--net (.01) -- Net asset value, end of period 11.98 17.00 -------------------------------------------------------------------------------- TOTAL RETURN (%) (29.50) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 -- Ratio of investment (loss) to average net assets (.46) -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation 1.05 -- Portfolio Turnover Rate 201.61 171.34 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 1,504 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company currently offering twelve portfolios, including the Founders International Equity Portfolio (the " portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation ("Dreyfus") serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Founders Asset Management LLC ("Founders") serves as the portfolio's sub-investment adviser. Founders is a 90% -owned subsidiary of Mellon. Dreyfus Service Corporation (the "Distributor "), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the las sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (b) Foreign currency transactions: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $2,443 during the period ended December 31, 2001, based The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (e) Federal income taxes: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: accumulated capital losses $4,516,184 and unrealized appreciation $207,101. In addition, the porfolio had $336,900 of capital losses realized after October 31, 2001 which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $390,202 of the carryover expires in fiscal 2008 and $4,125,982 expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $3,941 and $127,248 and long-term capital gains $0 and $216,041. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $18,495, decreased accumulated net realized gain (loss) on investments by $909 and decreased paid-in capital $17,586. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the portfolio has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the Facility. NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates: (a) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of 1% of the value of the portfolio's average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings, commitment fees and extraordinary expenses, exceed 1.50% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $83,071, pursuant to the undertaking. Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Founders, the sub-investment advisory fee is payable monthly by Dreyfus, and is based upon the value of the portfolio's average daily net assets, computed at the following annual rates: Average Net Assets 0 to $100 million. . . . . . . . . . . . . . . . . .35 of 1% In excess of $100 million to $1 billion. . . . . . .30 of 1% In excess of $1 billion to $1.5 billion. . . . . . .26 of 1% In excess of $1.5 billion. . . . . . . . . . . . . .20 of 1% (b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $1,816 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $126 pursuant to the transfer agency agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended December 31, 2001, amounted to $22,938,963 and $20,184,003, respectively. At December 31, 2001, accumulated net unrealized appreciation on investments was $466,722, consisting of $776,395 gross unrealized appreciation and $309,673 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Founders International Equity Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Founders International Equity Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001 by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Founders International Equity Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio For More Information Dreyfus Investment Portfolios, Founders International Equity Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Sub-Investment Adviser Founders Asset Management LLC Founders Financial Center 2930 East Third Avenue Denver, CO 80206 Custodian The Bank of New York 15 Broad Street New York, NY 10286 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 177AR1201 Dreyfus Investment Portfolios, Founders Passport Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 17 Statement of Assets and Liabilities 18 Statement of Operations 19 Statement of Changes in Net Assets 21 Financial Highlights 23 Notes to Financial Statements 29 Report of Independent Auditors 30 Board Members Information 31 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Founders Passport Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Founders Passport Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you' ll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, Tracy Stouffer of Founders Asset Management LLC, the portfolio's sub-investment adviser. 2001 was a difficult year for the U.S. and global economies. It was a year in which a long period of global economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which most major international stock markets posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors that some fundamental principles of investing remain unchanged. The merit of a long-term perspective was validated when stocks in Europe, the U.S. and some emerging market countries rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the global bond markets' strong returns, which helped cushion the equity markets' declines for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged in the United States, and equity markets worldwide have recently rallied in response to renewed investor optimism. While we can' t guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Tracy Stouffer, Portfolio Manager Founders Asset Management LLC, Sub-Investment Adviser How did Dreyfus Investment Portfolios, Founders Passport Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio produced total returns of -30.66% for both its Initial shares and its Service shares.(1) In comparison, the portfolio's benchmark, the Morgan Stanley Capital International World ex U.S. Index, produced a total return of -21.40% for the same period.(2) The portfolio' s lagging performance was generally due to weakness in growth-oriented, international stocks during the first nine months of 2001. However, economic optimism during the fourth quarter of 2001 led to a rally in growth stocks overseas, allowing the portfolio to make up some ground against its benchmark, which has a broader focus that includes both growth and value securities. What is the portfolio's investment approach? The portfolio invests primarily in foreign companies with annual revenues or market capitalizations of $1 billion or less that have demonstrated earnings growth as well as dominance in their market niches. The portfolio is a broadly diversified portfolio and currently holds more than 100 stocks across many industries. Because of this broad mandate, we believe it is very important for us to meet with corporate management teams to assess their business strategies. We also believe it is important to travel to the countries in which they are located to assess the local business environment. When it comes to global small-cap stocks, it is especially important to learn as much as we can, because there is a limited amount of Wall Street research available on many of these companies. The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) What other factors influenced the portfolio's performance? To describe the portfolio's performance adequately, it is necessary to divide 2001 into the months before the tragic events of September 11, when the portfolio' s performance lagged that of its benchmark, and after late September, when the portfolio' s performance made up significant ground. Prior to the terrorist attacks, the investment environment worldwide was characterized by declining economic fortunes, with the U.S., Japan and Europe mired in anemic growth and, in some cases, recession. In most countries, the growth style of investing -- that is, buying shares of companies with above-average growth prospects -- was out of favor, hindering the portfolio's performance. Central banks throughout the world, led by the Federal Reserve Board, reduced interest rates in an effort to reinvigorate economic growth. However, those efforts met with little apparent success. Then came September 11, which shut down the U.S. stock market for four days, causing international small-cap markets -- which look to the U.S. for leadership -- to plunge. In Asia, stocks were trading within 10% of their low points during the Asian financial crisis of 1998, even though the region's economy was much stronger in 2001. Similarly, European small-cap stocks became very inexpensive relative to large-cap stocks and small-cap stocks in other markets. However, by late September international markets began to recover. A consensus among analysts formed that the global recession would be deeper but shorter than previously expected. Growth stocks, which had been battered, led the recovery as investors began to look toward eventual economic recovery. Companies located in the United Kingdom, where the economy remained relatively strong during the reporting period, performed particularly well. The U.K. did not participate in the conversion to the euro, thus avoiding the tight monetary restrictions that have been imposed by the European Central Bank on continental Europe. In addition, we continued to add to the portfolio's holdings in Korea and Taiwan, where domestic economies were faring relatively well. More specifically, we purchased shares of several Taiwanese companies that manufacture components for flat panel display monitors, a new type of computer screen that has gained popularity. What is the portfolio's current strategy? Using our "bottom-up" approach to stock picking, our strategy is to reduce the portfolio's holdings in Japan because of the declining value of the yen and what we believe is a lack of progress in economic reform and further deterioration of the economy. In addition, we recently increased some of the portfolio's airline holdings because the industry has been undergoing some positive changes since September 11. Airlines have removed about 15% of their capacity around the world, have greatly reduced labor expenses and have seen a substantial decline in the price of jet fuel. Regardless of whether the growth style or value style of investing is in favor, our strategy remains the same: to focus on finding small and what we believe are international, fast-growing companies, regardless of industry or location January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF NET DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD EX U.S. INDEX IS AN UNMANAGED INDEX OF GLOBAL STOCK MARKET PERFORMANCE, EXCLUDING THE U.S., CONSISTING SOLELY OF EQUITY SECURITIES. The Portfolio PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Founders Passport Portfolio Initial shares and Service shares and the Morgan Stanley Capital International World ex U.S. Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception -------------------------------------------------------------------------------- INITIAL SHARES 9/30/98 (30.66)% 1.49% SERVICE SHARES 9/30/98 (30.66)% 1.49% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW. ((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, FOUNDERS PASSPORT PORTFOLIO ON 9/30/98 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD EX U.S. INDEX (THE "INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS AN UNMANAGED INDEX OF GLOBAL STOCK MARKET PERFORMANCE, EXCLUDING THE U.S., CONSISTING SOLELY OF EQUITY SECURITIES AND INCLUDES NET DIVIDENDS REINVESTED AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--101.1% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ AUSTRALIA--5.0% Austereo 38,350 43,854 Billabong International 15,350 65,667 Globe International 45,675 54,795 John Fairfax 67,825 133,063 OneSteel 163,050 91,894 Orbital Engine 119,950 (a) 33,679 Origin Energy 91,625 131,951 Pacific Dunlop 179,950 94,620 Pacifica 19,325 32,457 PowerLan 223,125 (a) 52,966 Singleton 24,700 51,156 Village Roadshow 30,025 28,969 Vision Systems 48,500 47,043 Wattyl 4,825 5,345 867,459 AUSTRIA--.2% Gericom 1,275 34,899 CANADA--8.1% A.L.I. Technologies 5,875 (a) 70,112 ATI Technologies 14,075 (a) 177,695 Baytex Energy 575 (a) 1,578 CFM Majestic 1,025 (a) 8,498 Cinram International 15,050 43,483 Cognicase 20,125 (a) 128,934 Cott 6,300 (a) 100,905 Descartes Systems 9,500 (a) 70,649 Dofasco 3,700 59,982 Domtar 7,200 72,402 Geac Computer 14,025 (a) 65,011 Generex Biotechnology 650 (a) 4,258 Intrawest 5,575 96,296 Kingsway Financial Services 4,650 (a) 58,413 Leon's Furniture 125 1,806 MOSAID Technologies 2,300 (a) 19,141 Mosaic 30,175 (a) 76,759 Onex 3,275 46,180 COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- CANADA (CONTINUED) Royal Group Technologies 7,325 (a) 135,173 Vincor International 2,025 (a) 30,462 Zarlink Semiconductor 11,075 (a) 124,594 1,392,331 CHILE--.5% Distribucion y Servicio D&S, ADR 6,600 86,460 CHINA--.2% AsiaInfo 2,400 (a) 41,808 FINLAND--3.1% Amer 1,775 45,294 Elisa Communications, Cl. A 11,100 137,070 Hartwall 8,575 175,846 JOT Automation 8,800 3,687 Kone, Cl. B 275 20,351 Nokian Renkaat 3,025 93,454 Stockmann, Cl. B 200 2,336 Stonesoft 30,300 (a) 55,382 533,420 FRANCE--4.5% A Novo 3,850 60,415 Cereol 1,750 44,390 Devoteam 2,100 (a) 29,808 Eurofins Scientific 2,100 (a) 30,613 Eurotunnel 113,300 (a) 114,151 InfoVista 1,600 (a) 5,421 Net2S 9,625 (a) 41,535 Penauille Polyservices 2,325 81,882 Rodriguez 875 49,930 Scor 4,100 129,443 Silicon-On-Insulator Technologies 5,000 (a) 99,191 Wavecom 2,400 (a) 90,301 777,080 GERMANY--3.1% ADVA AG Optical Networking 6,675 (a) 27,972 Articon Integralis 4,250 (a) 33,725 Ceyoniq 6,075 (a) 30,603 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- GERMANY (CONTINUED) Continental 9,100 119,675 Evotec OAI 1 (a) 9 GfK 1,050 18,115 IPC Archtec 500 (a) 15,759 Parsytec 5,700 (a) 31,967 Phenomedia 3,400 (a) 34,558 Puma 2,600 78,817 Singulus Technologies 1,850 (a) 51,958 Sixt 2,375 25,199 Techem 2,925 (a) 63,242 531,599 GREECE--1.3% Athens Stock Exchange 2,350 16,511 Delta Singular 12,540 44,946 Folli-Follie 2,475 43,560 Intralot 1,600 23,139 Jumbo 11,375 37,322 Kleeman Hellas 3,330 19,655 Michaniki 10,440 22,154 Motor Oil (Hellas) Corinth Refineries 1,475 10,837 Papastratos Cigarettes 690 8,982 227,106 HONG KONG--5.2% Clear Media 71,000 51,895 Digital China 95,000 41,418 Global Tech 546,000 44,108 Guangzhou Investment 958,000 (a) 76,163 Hang Lung 33,000 29,198 Hysan Development 4,000 4,027 Kingboard Chemical 52,000 33,340 New World China Land 119,600 (a) 38,341 QPL International 238,000 (a) 85,452 Roadshow 162,000 42,585 Shangri-La Asia 70,000 54,754 Sino Land 294,000 116,869 Star Cruises 238,000 (a) 89,634 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ HONG KONG (CONTINUED) TCL International 584,000 97,352 Wah Sang Gas 476,000 (a) 42,726 Xinao Gas 24,000 7,155 Yue Yuen Industrial 23,000 43,207 898,224 ICELAND--.5% deCODE GENETICS 7,900 (a) 77,420 INDONESIA--.5% PT Astra International 198,000 (a) 37,125 PT Bank Central Asia 335,000 47,512 84,637 IRELAND--1.4% Anglo Irish Bank 26,725 102,125 DCC 12,875 138,326 240,451 ISRAEL--1.2% BATM Advanced Communications 178,225 (a) 116,797 Given Imaging 5,400 96,444 213,241 ITALY--4.5% Autogrill 21,825 202,181 Brembo 7,500 59,668 Cairo Communication 825 (a) 20,486 Class Editori 25,925 82,658 Data Service 2,450 (a) 109,898 Ericsson 2,475 60,177 Impregilo 87,500 (a) 45,249 Marzotto 17,500 140,645 Merloni Elettrodomestici 11,750 61,821 782,783 JAPAN--3.1% Alpha Systems 800 35,073 CYBIRD 1 (a) 4,863 Crosswave Communications, ADR 29,525 (a) 32,773 Internet Initiative Japan, ADR 2,500 (a) 14,950 KAPPA CREATE 2,000 87,379 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ JAPAN (CONTINUED) KURODA ELECTRIC 60 757 MegaChips 300 9,163 PLANEX COMMUNICATIONS 2 10,639 Pasona 7 94,674 SUGI PHARMACY 900 41,030 ServiceWare 300 7,066 TRANS COSMOS 4,800 124,367 UMC Japan 7 (a) 63,825 526,559 LUXEMBOURG--.4% Arbed 600 74,894 MALAYSIA--1.3% Malaysian Pacific Industries 39,000 161,128 Perusahaan Otomobil Nasional 25,000 52,959 214,087 MEXICO--.7% Grupo Aeroportuario del Sureste, ADR 2,200 (a) 33,880 Organizacion Soriana, Cl. B 24,600 (a) 66,821 TV Azteca, ADR 3,725 25,293 125,994 NETHERLANDS--2.7% Getronics 32,450 105,314 Koninklijke Luchtvaart Maatschappij 9,050 104,413 Teleplan International 7,400 (a) 111,503 Vedior 11,525 138,414 459,644 NORWAY--2.8% Frontline 12,625 131,134 Merkantildata 103,050 (a) 121,999 Opticom 1,600 (a) 65,761 PhotoCure 5,000 (a) 67,012 Schibsted 4,900 47,339 TGS Nopec Geophysical 3,175 (a) 44,149 477,394 COMMON STOCKS (CONTINUED) Shares Value ($) ----------------------------------------------------------------------------------------------------------------------------------- PORTUGAL--1.1% Impresa-Sociedade Gestora de Participacoes 41,050 (a) 80,155 Jeronimo Martins 4,675 (a) 38,556 PT Multimedia-Servicos de Telecomunicacoes e Multimedia 11,000 (a) 76,499 195,210 SINGAPORE--2.1% Hyflux 155,000 79,745 Neptune Orient Lines 392,000 (a) 205,925 Singapore Exchange 100,000 67,154 352,824 SOUTH KOREA--7.7% Asiana Airlines 20,240 (a) 45,457 C&C Enterprise 10,260 (a) 90,610 CJ39 Shopping 1,690 46,255 Cheil Jedang 2,480 93,460 Handan BroadinfoCom. 670 45,779 Hansol CSN 49,430 (a) 79,780 Hotel Shilla 15,530 100,499 Hyundai Merchant Marine 30,070 (a) 57,004 Kangwon Land 420 42,368 Korea Electronic Banking Technology 1,778 49,137 Korea Technology & Banking Network 28,520 91,195 Korean Reinsurance 4,790 97,003 LG Ad 5,710 65,207 LG Chem 2,650 43,881 LG Investment & Securities 9,900 (a) 112,303 Pulmuone 6,720 108,461 SK 4,190 47,690 Tae Young 2,360 70,971 Wooyoung 9,160 (a) 48,607 1,335,667 SPAIN--2.4% Abengoa 3,325 20,485 Iberia Lineas Aereas de 83,975 82,359 Promotora de Informaciones 16,675 156,108 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ SPAIN (CONTINUED) Recoletos Grupo de Comunicacion 7,950 34,661 Red Electrica de Espana 6,600 61,494 Sol Melia 7,775 59,201 414,308 SWEDEN--5.5% Axis Communications 2,000 (a) 4,782 Clas Ohlson, Cl. B 11,000 154,113 Elekta, Cl. B 11,000 (a) 89,417 Eniro 22,500 161,381 Frontec, Cl. B 39,600 (a) 43,552 LGP Telecom 26,550 196,778 Lindex 1,475 23,980 Observer 14,000 92,382 Peab 5,500 19,514 SAS 5,200 (a) 33,816 Semcon 3,050 11,521 SwitchCore 79,250 (a) 95,495 Utfors 15,600 (a) 22,378 Utfors (Rights) 11,900 (a) 398 949,507 SWITZERLAND--2.0% Berna Biotech 225 (a) 116,499 ESEC 560 69,278 Logitech International 3,100 (a) 113,647 SEZ 1,000 47,553 346,977 THAILAND--2.8% Capital Nomura Securities 103,175 (a) 72,305 Kiatnakin Finance 18,325 9,528 Land and Houses 37,075 (a) 32,688 National Finance 635,950 (a) 135,859 TelecomAsia 230,200 (a) 53,081 Thai Farmers Bank 418,675 (a) 176,045 479,506 UNITED KINGDOM--27.1% AIT 1,725 20,694 Acambis 20,475 (a) 104,362 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ UNITED KINGDOM (CONTINUED) Aegis 61,550 83,361 Airtours 38,500 140,169 Amey 15,775 85,426 Anite 34,250 (a) 85,541 Arena Leisure 130,325 (a) 75,348 Argonaut Games 50,500 (a) 46,332 Avis Europe 20,925 49,671 BBA 23,725 97,779 Berkeley 7,775 80,391 Biotrace International 5,625 (a) 11,283 Business Post 10,725 52,820 Chloride 46,100 46,995 Chubb 13,050 32,688 Cranswick 10,950 134,269 D.F.S. Furniture 13,950 90,982 easyJet 25,170 (a) 173,122 Easynet 4,725 (a) 17,615 Egg 37,200 (a) 84,647 Electronics Boutique 77,575 154,772 Enodis 111,525 154,374 Enterprise Inns 5,075 46,118 Filtronic 3,400 18,097 First Choice Holidays 22,875 42,047 Future Network 107,250 (a) 73,799 Go-Ahead 10,900 94,448 HIT Entertainment 68,175 360,895 ICAP 4,050 51,313 IQE 32,275 (a) 83,781 Incepta 120,950 84,547 Intec Telecom 62,450 (a) 69,574 Intermediate Capital 5,425 57,871 Jarvis 27,050 214,691 Laird 25,800 59,928 lastminute.com 156,025 (a) 65,894 Marconi 44,825 27,254 Millennium & Copthorne Hotels 12,300 48,722 NDS, ADR 3,200 (a) 64,160 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ UNITED KINGDOM (CONTINUED) New Look 41,425 99,057 Orchestream 240,475 (a) 68,290 Paragon 15,675 60,949 Patientline 12,675 41,993 Pharmagene 12,425 (a) 17,099 Power Leisure 29,100 105,080 SFI 59,675 188,583 Scipher 4,625 (a) 10,053 Signet 119,975 166,539 Spectris 7,075 49,456 Speedy Hire 14,300 61,017 Spirent 57,650 132,650 Sportingbet 29,525 (a) 70,945 SurfControl 4,775 (a) 34,630 TBI 41,225 34,521 TTP Communications 28,825 (a) 55,411 Telewest Communications 93,900 (a) 84,783 Warthog 26,775 17,352 Weston Medical 26,950 81,831 Xenova 3,275 (a) 3,601 4,669,620 UNITED STATES--.1% OpenTV 2,450 (a) 20,041 TOTAL COMMON STOCKS (cost $17,638,918) 17,431,150 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--3.5% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER; Novartis Finance Corp., 1.7%, 1/2/2002 (cost $599,972) 600,000 599,972 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $18,238,890) 104.6% 18,031,122 LIABILITIES, LESS CASH AND RECEIVABLES (4.6%) (787,245) NET ASSETS 100.0% 17,243,877 (A) NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value ------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 18,238,890 18,031,122 Cash 257,744 Receivable for investment securities sold 240,846 Dividends receivable 18,635 Due from The Dreyfus Corporation and affiliates 35,847 18,584,194 -------------------------------------------------------------------------------- LIABILITIES ($): Payable for investment securities purchased 897,456 Payable for shares of Beneficial Interest redeemed 233,807 Accrued expenses 209,054 1,340,317 ------------------------------------------------------------------------------- NET ASSETS ($) 17,243,877 ------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 33,994,163 Accumulated undistributed investment income--net 42,095 Accumulated net realized gain (loss) on investments and foreign currency transactions (16,584,701) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions (207,680) ------------------------------------------------------------------------------- NET ASSETS ($) 17,243,877 NET ASSET VALUE PER SHARE Initial Shares Service Shares ------------------------------------------------------------------------------- Net Assets ($) 16,487,296 756,581 Shares Outstanding 1,399,862 64,212 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 11.78 11.78 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $27,119 foreign taxes withheld at source) 307,591 Interest 54,769 TOTAL INCOME 362,360 EXPENSES: Investment advisory fee--Note 3(a) 209,261 Custodian fees 435,939 Prospectus and shareholders' reports 38,039 Auditing fees 23,392 Legal fees 4,779 Trustees' fees and expenses--Note 3(c) 1,453 Distribution fees--Note 3(b) 1,279 Loan commitment fees--Note 2 313 Shareholder servicing costs--Note 3(b) 284 Registration fees 195 Miscellaneous 22,749 TOTAL EXPENSES 737,683 Less--waiver of fees and assumption of expenses by The Dreyfus Corporation due to undertaking--Note 3(a) (423,791) NET EXPENSES 313,892 INVESTMENT INCOME--NET 48,468 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions (6,673,599) Net unrealized appreciation (depreciation) on investments and foreign currency transactions (1,523,458) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (8,197,057) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (8,148,589) SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ---------------------------------- 2001 2000(a) ------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 48,468 (130,763) Net realized gain (loss) on investments (6,673,599) (9,871,866) Net unrealized appreciation (depreciation) on investments (1,523,458) (2,628,496) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (8,148,589) (12,631,125) ------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Net realized gain on investments: INITIAL SHARES -- (1,358,339) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 16,132,702 46,822,858 Service shares 1,838,982 500 Dividends reinvested: Initial shares -- 1,358,339 Cost of shares redeemed: Initial shares (17,840,283) (22,746,435) Service shares (1,020,540) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS (889,139) 25,435,262 TOTAL INCREASE (DECREASE) IN NET ASSETS (9,037,728) 11,445,798 ------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 26,281,605 14,835,807 END OF PERIOD 17,243,877 26,281,605 Undistributed investment income-net 42,095 -- The Portfolio STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) Year Ended December 31, --------------------------------- 2001 2000(a) ------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 1,219,921 1,865,969 Shares issued for dividends reinvested -- 49,939 Shares redeemed (1,367,363) (991,434) NET INCREASE (DECREASE) IN SHARES OUTSTANDING (147,442) 924,474 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 146,100 29 Shares redeemed (81,917) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 64,183 29 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ---------------------------------------------------------- INITIAL SHARES 2001 2000 1999 1998 a ----------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 16.99 23.82 14.46 12.50 Investment Operations: Investment income (loss)--net .03(b) (.11)(b) (.10)(b) .00 c Net realized and unrealized gain (loss) on investments (5.24) (5.61) 11.04 1.97 Total from Investment Operations (5.21) (5.72) 10.94 1.97 Distributions: Dividends from investment income--net -- -- -- (.00) c Dividends from net realized gain on investments -- (1.11) (1.58) (.01) Total Distributions -- (1.11) (1.58) (.01) Net asset value, end of period 11.78 16.99 23.82 14.46 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (30.66) (25.76) 76.05 15.79 d ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 1.50 1.50 .38 d Ratio of net investment income (loss) to average net assets .24 (.47) (.60) .02 d Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation 2.01 2.09 2.14 .30 d Portfolio Turnover Rate 729.40 493.10 319.31 3.98 d ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 16,487 26,281 14,836 5,788 (A) FROM SEPTEMBER 30, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (D) NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio FINANCIAL HIGHLIGHTS (CONTINUED) Year Ended December 31, ---------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 16.99 16.99 Investment Operations: Investment (loss) (.01) b -- Net realized and unrealized gain (loss) on investments (5.20) -- Total from Investment Operations (5.21) -- Net asset value, end of period 11.78 16.99 -------------------------------------------------------------------------------- TOTAL RETURN (%) (30.66) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 -- Ratio of investment (loss) to average net assets (.12) -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation 2.56 Portfolio Turnover Rate 729.40 493.10 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 757 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company currently offering twelve series, including the Founders Passport Portfolio (the "portfolio" ). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is capital appreciation. The Dreyfus Corporation ("Dreyfus") serves as the portfolio' s investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. (" Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Founders Asset Management LLC (" Founders" ) serves as the portfolio' s sub-investment adviser. Founders is a 90%-owned subsidiary of Mellon. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (including options and financial futures) are valued at the last sales price on the securities The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (B) FOREIGN CURRENCY TRANSACTIONS: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $3,627 during the period ended December 31, 2001 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (E) FEDERAL INCOME TAXES: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $42,095, accumulated capital losses $16,488,752 and unrealized depreciation $276,758. In addition, the portfolio had $26,871 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $6,528,027 of the carryover expires in fiscal 2008 and $9,960,725 expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $0 and $122,263 and long - term capital gains $0 and $1,236,076. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio decreased accumulated undistributed investment income-net by $6,373, decreased accumulated net realized gain (loss) on investments by $9,837 and increased paid-in capital by $16,210. Net assets were not affected by this reclassification. NOTE 2-Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the portfolio has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the Facility. NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates: (A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of 1% of the value of the portfolio' s average daily net assets and is payable monthly. Dreyfus had agreed from January 1, 2001 to December 31, 2001, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings, commitment fees and extraordinary expenses, exceed an annual rate of 1.50% of the value of the average daily net assets of their class. Dreyfus has agreed, from February 1, 2002 until December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class (exclusive of certain expenses as described above) exceed an annual rate of 1.50% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees and assumed expenses of the portfolio of $423,791 pursuant to the undertaking. Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Founders, the sub-investment advisory fee is payable monthly by Dreyfus, and is based upon the value of the portfolio's average daily net assets, computed at the following annual rates: AVERAGE NET ASSETS 0 to $100 million. . . . . . . . . . . . . . . . . .35 of 1% In excess of $100 million to $1 billion. . . . . . .30 of 1% In excess of $1 billion to $1.5 billion. . . . . . .26 of 1% In excess of $1.5 billion. . . . . . . . . . . . . .20 of 1% (B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares's average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $1,279 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $126 pursuant to the transfer agency agreement. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended December 31, 2001, amounted to $144,202,189 and $144,294,451, respectively. At December 31, 2001, accumulated net unrealized depreciation on investments was $207,768, consisting of $587,123 gross unrealized appreciation and $794,891 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Founders Passport Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Founders Passport Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001 by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Founders Passport Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer and a director of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio NOTES For More Information Dreyfus Investment Portfolios, Founders Passport Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Sub-Investment Adviser Founders Asset Management LLC Founders Financial Center 2930 East Third Avenue Denver, CO 80206 Custodian The Bank of New York 15 Broad Street New York, NY 10286 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 178AR1201 Dreyfus Investment Portfolios, Japan Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 10 Statement of Assets and Liabilities 11 Statement of Operations 12 Statement of Changes in Net Assets 14 Financial Highlights 16 Notes to Financial Statements 23 Report of Independent Auditors 24 Board Members Information 25 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Japan Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Japan Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the fund's portfolio manager, Miki Sugimoto. 2001 was a difficult year for the U.S. and global economies. It was a year in which a long period of global economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which most major international stock markets posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors that some fundamental principles of investing remain unchanged. The merit of a long-term perspective was validated when stocks in Europe, the U.S. and some emerging market countries rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the global bond markets' strong returns, which helped cushion the equity markets' declines for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged in the United States, and equity markets worldwide have recently rallied in response to renewed investor optimism. While we can' t guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Miki Sugimoto, Portfolio Manager How did Dreyfus Investment Portfolios, Japan Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio's total returns were -27.90% for its Initial shares and -27.90% for its Service shares.(1) For the same period, the total return of the Morgan Stanley Capital International Japan Index ("MSCI Japan Index"), the portfolio's benchmark, was -29.40%.(2) The portfolio's negative performance was primarily due to persistent weakness in the Japanese economy, which was exacerbated by slowing global economic growth. On the other hand, our theme-based investment approach led us to focus the portfolio' s assets in several industry sectors that performed better than most. As a result, the fund performed better than its benchmark. What is the portfolio's investment approach? The portfolio seeks long-term capital growth. To pursue this goal, generally the portfolio invests at least 80% of its assets in the stocks of Japanese companies. The portfolio's stock investments may include common, preferred and convertible stocks, including those purchased through IPOs. We utilize a "top-down," theme-driven investment approach to stock selection. We first attempt to identify overall economic trends and then begin to narrow the search to industry groups that are believed to have the potential to benefit from these trends. We also consider economic variables, such as the relative valuations of equities and bonds, and trends in the currency exchange markets. The investment themes and economic variables provide a framework for the portfolio's stock selection process. We consider three primary criteria when selecting stocks for the portfolio. First, we look either for industries with positive long-term outlooks or industries that are undergoing dramatic change. Second, we look for companies with quality management teams and strong The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) franchises. Third, we strive to identify high quality companies with high intrinsic values as measured by fundamental valuation criteria, such as earnings outlook, business prospects and asset values. What other factors influenced the portfolio's performance? Japanese economic fundamentals continued to deteriorate throughout the reporting period, as they have for the last several years. The country's extended recession placed the Japanese banking system under increasing strain, driving stocks of Japanese banks lower. In addition, Japanese technology companies, which depend heavily on exports to the United States, were hit particularly hard by a slowing U.S. economy. While these developments affected the portfolio's returns, the portfolio held significantly fewer Japanese bank and technology stocks than the benchmark. As a result, the portfolio was somewhat insulated from the impact of market declines in these areas. Instead, the portfolio emphasized three key themes in light of prevailing economic conditions: value, consolidation and yield. Each of these themes led us to a number of individual investments that, in the aggregate, outperformed the benchmark. In the value area, the portfolio focused on companies with strong management teams and stocks that appeared attractively priced relative to earnings. The portfolio' s value-oriented holdings included several consumer finance stocks such as ACOM and Promise, and pharmaceuticals such as DAIICHI and KISSEI Pharmaceutical. Pursuing the consolidation theme, the portfolio invested in a variety of general merchandising companies such as ITO-YOKADO and UNY, and trading companies such as Mitsubishi. With strong balance sheets and healthy business franchises, these companies appeared well positioned to further consolidate their positions of strength at the expense of weaker competitors. Finally, the portfolio sought to take advantage of opportunities in high yielding Japanese stocks. With global interest rates falling throughout the reporting period, many income-oriented Japanese investors turned away from international markets in favor of domestic Japanese stocks with high dividend yields. The portfolio invested in a diverse group of dividend-yielding utility and real estate stocks, many of which benefited from this trend. What is the portfolio's current strategy? As of December 31, 2001, Japanese economic indicators remained weak, while U.S. indicators have begun to show early signs of renewed growth. In light of these conditions, we are currently looking for investment opportunities among Japanese exporters that appear likely to benefit from a U.S. recovery. At the same time, we have continued to emphasize other themes, such as consolidation, that we believe are likely to remain effective despite continuing weakness in the Japanese economy. We continue to closely monitor economic developments and market trends in a constant search for theme-based strategies that we believe are well suited to the evolving Japanese investment environment. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF NET DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX IS A MARKET CAPITALIZATION INDEX OF JAPANESE COMPANIES BASED ON MSCI-SELECTED CRITERIA. The Portfolio
PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Japan Portfolio Initial shares and Service shares and the Morgan Stanley Capital International Japan Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 12/15/99 (27.90)% (17.50)% SERVICE SHARES 12/15/99 (27.90)% (17.50)% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW.
((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, JAPAN PORTFOLIO ON 12/15/99 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE MORGAN STANLEY CAPITAL INTERNATIONAL JAPAN INDEX (THE "INDEX") ON THAT DATE. FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 11/30/99 IS USED AS THE BEGINNING VALUE ON 12/15/99. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS A MARKET CAPITALIZATION INDEX OF JAPANESE COMPANIES BASED ON MSCI-SELECTED CRITERIA. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THE REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--95.3% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ CHEMICALS--6.5% Fuji Photo Film 1,000 35,560 KANEKA 6,000 36,426 Shin-Etsu Chemical 1,100 39,366 111,352 COMMUNICATIONS--5.5% JAPAN TELECOM 5 14,930 NIPPON TELEGRAPH AND TELEPHONE 10 32,444 NTT DoCoMo 4 46,805 94,179 CONSUMER--18.0% ADERANS 700 20,584 CALPIS 10,000 40,119 ITO-YOKADO 1,000 44,981 KATOKICHI 1,900 30,172 NISSAN MOTOR 7,000 36,965 Nintendo 200 34,876 TOKYO STYLE 2,000 17,081 UNY 4,000 40,483 YAMADA DENKI 600 41,942 307,203 FINANCIAL--12.3% ACOM 400 29,025 AIFUL 400 25,773 Credit Saison 2,000 38,751 Daiwa Securities Group 4,000 20,941 Mitsubishi Tokyo Financial Group 3 (a) 20,036 Nichiei 4,300 32,019 Promise 600 32,323 UFJ Holdings 5 (a) 10,979 209,847 MACHINERY--1.8% Mitsubishi Heavy Industries 9,000 23,934 SAMMY 300 6,884 30,818 PHARMACEUTICAL--3.3% DAIICHI PHARMACEUTICAL 2,000 38,751 TERUMO 1,400 18,062 56,813 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE--5.4% Japan Real Estate 9 (a) 35,218 Mitsubishi Estate 6,000 43,720 Tokyo Tatemono 10,000 13,449 92,387 SERVICES--19.2% Aoi Advertising Promotion 300 1,591 BELLSYSTEM24 130 48,401 CAPCOM 1,400 36,912 DAIICHIKOSHO 2,200 39,951 DATA COMMUNICATION 1,200 34,830 Hitachi Information Systems 1,200 31,183 KOEI 1,200 35,560 Mitsubishi 4,000 25,864 NAMCO 1,900 (a) 36,092 RESORTTRUST 1,600 36,836 327,220 TECHNOLOGY--18.5% AIPHONE 3,200 35,231 CANON 1,000 34,268 Hitachi 6,000 43,766 Hosiden 2,000 35,332 MURATA 500 29,861 OLYMPUS OPTICAL 4,000 57,290 ROHM 300 38,774 SONY 900 40,962 315,484 UTILITIES--4.8% Chubu Electric Power Company 2,100 37,657 Kyushu Electric Power Company 3,100 44,471 82,128 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $2,039,808) 95.3% 1,627,431 CASH AND RECEIVABLES (NET) 4.7% 79,898 NET ASSETS 100.0% 1,707,329 (A) NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 2,039,808 1,627,431 Cash 70,243 Cash denominated in foreign currencies 4,938 4,774 Net unrealized appreciation on forward currency exchange contracts--Note 4 32,726 Dividends receivable 1,127 Due from The Dreyfus Corporation and affiliates 2,142 1,738,443 -------------------------------------------------------------------------------- LIABILITIES ($): Accrued expenses 31,114 -------------------------------------------------------------------------------- NET ASSETS ($) 1,707,329 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 2,635,090 Accumulated undistributed investment income--net 24,022 Accumulated net realized gain (loss) on investments and foreign currency transactions (571,928) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions (379,855) -------------------------------------------------------------------------------- NET ASSETS ($) 1,707,329 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 1,701,257 6,072 Shares Outstanding 210,258 750.197 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 8.09 8.09 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $2,747 foreign taxes withheld at source) 14,581 Interest 988 TOTAL INCOME 15,569 EXPENSES: Investment advisory fee--Note 3(a) 20,383 Prospectus and shareholders' reports 29,289 Auditing fees 25,392 Custodian fees 7,814 Legal fees 490 Shareholder servicing costs--Note 3(b) 393 Trustees' fees and expenses--Note 3(c) 86 Registration fees 26 Distribution fees--Note 3(b) 9 Miscellaneous 5,385 TOTAL EXPENSES 89,267 Less--waiver of fees and assumption of expenses by The Dreyfus Corporation due to undertaking--Note 3(a) (58,692) NET EXPENSES 30,575 INVESTMENT (LOSS) (15,006) -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions (451,173) Net realized gain (loss) on forward currency exchange contracts 47,749 NET REALIZED GAIN (LOSS) (403,424) Net unrealized appreciation (depreciation) on investments and foreign currency transactions (236,543) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (639,967) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (654,973) SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, --------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment (loss) (15,006) (18,796) Net realized gain (loss) on investments (403,424) (24,210) Net unrealized appreciation (depreciation) on investments (236,543) (199,565) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (654,973) (242,571) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Initial shares -- (7,520) Net realized gain on investments: Initial shares -- (83,281) TOTAL DIVIDENDS -- (90,801) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 1,454,950 1,650,427 Service shares 10,628 500 Dividends reinvested: Initial shares -- 90,801 Cost of shares redeemed: Initial shares (1,353,826) (1,208,578) Service shares (3,727) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 108,025 533,150 TOTAL INCREASE (DECREASE) IN NET ASSETS (546,948) 199,778 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 2,254,277 2,054,499 END OF PERIOD 1,707,329 2,254,277 Undistributed investment income--net 24,022 -- Year Ended December 31, -------------------------------- 2001 2000 a -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 142,811 125,595 Shares issued for dividends reinvested -- 7,922 Shares redeemed (133,411) (92,659) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 9,400 40,858 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 1,073 45 Shares redeemed (368) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 705 45 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, -------------------------------------------- INITIAL SHARES 2001 2000 1999 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 11.22 12.84 12.50 Investment Operations: Investment income (loss)--net (.07)(b) (.08)(b) .00 b, c Net realized and unrealized gain (loss) on investments (3.06) (1.06) .34 Total from Investment Operations (3.13) (1.14) .34 Distributions: Dividends from investment income--net -- (.05) -- Dividends from net realized gain on investments -- (.43) -- Total Distributions -- (.48) -- Net asset value, end of period 8.09 11.22 12.84 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (27.90) (8.92) 2.64 d ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 1.50 .07 d Ratio of net investment income (loss) to average net assets (.74) (.80) .03 d Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation 2.88 1.90 1.35 d Portfolio Turnover Rate 160.78 378.54 -- ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 1,701 2,254 2,054 (A) FROM DECEMBER 15, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (D) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. Year Ended December 31, --------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 11.22 11.22 Investment Operations: Investment (loss) (.07)(b) -- Net realized and unrealized gain (loss) on investments (3.06) -- Total from Investment Operations (3.13) -- Net asset value, end of period 8.09 11.22 -------------------------------------------------------------------------------- TOTAL RETURN (%) (27.90) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.50 -- Ratio of investment (loss) to average net assets (.78) -- Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation 3.29 -- Portfolio Turnover Rate 160.78 378.54 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 6 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company operating as a series company currently offering twelve series, including the Japan Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation ("Dreyfus") serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. (" Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Newton Capital Management Limited (" Newton" ), serves as the portfolio's sub-investment adviser. Newton is an affiliate of Dreyfus. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. As of December 31, 2001, MBC Investments Corp., an indirect subsidiary of Mellon Financial Corporation, held 166,639 Initial shares and 45 Service shares of the portfolio. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (b) Foreign currency transactions: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $988 during the period ended December 31, 2001, based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (e) Federal income taxes: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $56,748, accumulated capital losses $470,154 and unrealized depreciation $429,596. In addition, the portfolio had $84,759 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $470,154 of the carryover expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $0 and $90,801. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $39,028, decreased accumulated net realized gain (loss) on investments by $39,003 and decreased paid-in capital by $25. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the line of credit. NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates: (a) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of 1% of the value of the portfolio' s average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed an annual rate of 1.50% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees and assumed expenses of the portfolio of $58,692, pursuant to the undertaking. Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Newton, the sub-investment advisory fee is payable monthly by The Portfoli NOTES TO FINANCIAL STATEMENTS (CONTINUED) Dreyfus, and is based upon the value of the portfolio's average daily net assets, computed at the following annual rates: Average Net Assets 0 to $100 million. . . . . . . . . . . . . . . . . .35 of 1% In excess of $100 million to $1 billion. . . . . . .30 of 1% In excess of $1 billion to $1.5 billion. . . . . . .26 of 1% In excess of $1.5 billion. . . . . . . . . . . . . .20 of 1% (b) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $9 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $225 pursuant to the transfer agency agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward currency exchange contracts, during the period ended December 31, 2001, amounted to $3,275,427 and $3,138,432, respectively. The portfolio enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the portfolio is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract increases between those dates. The portfolio is also exposed to credit risk associated with counter party nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. The following summarizes open forward currency exchange contracts at December 31, 2001:
Foreign Forward Currency Currency Unrealized Exchange Contracts Amounts Proceeds ($) Value ($) Appreciation ($) ------------------------------------------------------------------------------------------------------------------------------------ SALES: Japanese Yen, expiring 6/14/2002 100,513,058 802,820 770,094 32,726 The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2001, accumulated net unrealized depreciation on investments was $412,377, consisting of $9,360 gross unrealized appreciation and $421,737 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Japan Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Japan Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Japan Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977 STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfusr, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio For More Information Dreyfus Investment Portfolios, Japan Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Sub-Investment Adviser Newton Capital Management Limited 71 Queen Victoria Street London, EC4V 4DR, England Custodian Bank of New York 15 Broad Street New York, NY 10286 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 189AR1201 Dreyfus Investment Portfolios, MidCap Stock Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 15 Statement of Assets and Liabilities 16 Statement of Operations 17 Statement of Changes in Net Assets 19 Financial Highlights 21 Notes to Financial Statements 26 Report of Independent Auditors 27 Important Tax Information 28 Board Members Information 29 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, MidCap Stock Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, MidCap Stock Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the portfolio manager, John O'Toole. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the midcap sector of the U.S. stock market posted negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE John O'Toole, Portfolio Manager How did Dreyfus Investment Portfolios, MidCap Stock Portfolio perform relative to its benchmark? For the 12-month period ended December 31, 2001, the portfolio's Initial shares produced a -3.26% total return and its Service shares produced a -3.36% total return.(1) In contrast, the Standard & Poor's MidCap 400 Index (the "S&P 400 Index" ), the portfolio's benchmark, produced a -0.62% total return for the same period.(2) For the second year in a row, stocks posted losses in a weak U.S. economy. The portfolio' s performance lagged behind that of its benchmark, primarily because of disappointing performance in our stock selection in the first few months of the reporting period. What is the portfolio's investment approach? The portfolio invests primarily in a blend of growth and value stocks of mid-capitalization companies chosen through a disciplined process that combines computer modeling techniques, fundamental analysis and risk management. The quantitatively driven valuation process identifies and ranks approximately 2,500 midcap stocks as attractive, neutral or unattractive investments, based upon more than a dozen different valuation inputs. Those inputs, which we believe can have an important influence on stock returns, include, among other things, earnings estimates, profit margins and growth in cash flow. We establish weightings for each factor based upon our analysis of which factors are being rewarded by investors and make adjustments along the way for the uniqueness of various industries and economic sectors. For example, if the equity markets were rewarding companies with strong growth in cash flow, then we would add more weight to our growth-in-cash-flow factor. Next, our investment management team conducts fundamental research on each stock, which ultimately results in the buy-and-sell The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) recommendations. We seek to have the portfolio own the best-performing stocks within each economic sector of the midcap market. By maintaining an economic sector neutral stance, we allow individual stock selection to drive the portfolio's performance. What other factors influenced the portfolio's performance? The portfolio did not perform as well as the S&P 400 Index during the reporting period primarily because it did not focus enough on "deep value"-oriented stocks -- stocks with what we consider to be very low price-to-earnings ratios -- during the early part of 2001. As we progressed through the year, investors appeared to take a more balanced approach, and the portfolio's relative performance exhibited modest improvement, but not enough to offset this early deficit. During the year, our valuation process had a slight orientation towards our value-type factors. Among midcap stocks, investment managers faced the challenges of the overall economy' s slowing growth and movement into a recession. Given the benchmark' s volatility, our blend of growth and value factors helped us negotiate a steady course through a difficult environment. Among stocks that were particularly successful, we would include technology-based companies such as NVIDIA and Cabot Microelectronics. NVIDIA manufacturers semiconductor chips used to enhance the video and audio of personal computers, while Cabot Microelectronics manufactures a compound used in the manufacture of semiconductors. Both companies provide highly specialized technology products, and we believe both have been highly successful during a turbulent period for technology stocks. A number of the portfolio's holdings among interest-sensitive stocks also benefited the portfolio's performance. Midcap banks such as Dime Bancorp appeared to benefit from the benign interest-rate environment of 2001. The portfolio also benefited from owning Ultramar Diamond Shamrock. On the other hand, generally speaking the performance of the portfolio's stock selection among technology stocks did not meet our expectations. Some benchmark stocks that the portfolio did not own because they did not appear attractive in our valuation process per formed well during the reporting period, bolstering the benchmark's performance. A stock that we owned in the portfolio that had a negative impact upon its performance was NRG Energy. This independent power producer was down in price as the energy shortages of 2000 turned into an energy glut in 2001 based primarily upon a slowing national economy. There also was growing investor concern over the financial structure of these types of companies. What is the portfolio's current strategy? The most successful stocks during 2001 were those with stable and consistent earnings, which are traditional value-oriented investment criteria. Toward the end of the year, however, we began to sense a shift in investor sentiment in anticipation of economic recovery sometime in 2002. As a result, we recently adjusted our quantitative valuation model to place greater emphasis on our growth valuation inputs. In addition, in an attempt to manage risk we continue to allocate assets to the midcap market's various industry groups in close proportion to their representation in the S&P 400 Index. Of course, we are prepared to change our strategy and the portfolio's composition as market conditions evolve. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF PORTFOLIO EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH DECEMBER 31, 2001, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED, THE PORTFOLIO'S RETURNS WOULD HAVE BEEN LOWER. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE STANDARD & POOR'S MIDCAP 400 INDEX IS A WIDELY ACCEPTED, UNMANAGED TOTAL RETURN INDEX MEASURING THE PERFORMANCE OF THE MIDSIZE COMPANY SEGMENT OF THE U.S. MARKET. The Portfolio
PORTFOLIO PERFORMANCE Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, MidCap Stock Portfolio Initial shares and Service shares and the Standard & Poor's MidCap 400 Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 5/1/98 (3.26)% 3.42% SERVICE SHARES 5/1/98 (3.36)% 3.39% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW.
((+)) SOURCE: LIPPER INC. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, MIDCAP STOCK PORTFOLIO ON 5/1/98 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE STANDARD & POOR'S MIDCAP 400 INDEX (THE "INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE PERFORMANCE FIGURES FOR EACH SHARE CLASS REFLECT CERTAIN EXPENSE REIMBURSEMENTS, WITHOUT WHICH, THE PERFORMANCE OF EACH SHARE CLASS WOULD HAVE BEEN LOWER. IN ADDITION, THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES (AFTER ANY EXPENSE REIMBURSEMENTS). THE INDEX IS A WIDELY ACCEPTED, UNMANAGED TOTAL RETURN INDEX MEASURING THE PERFORMANCE OF THE MIDSIZE COMPANY SEGMENT OF THE U.S. STOCK MARKET AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--96.1% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ ALCOHOL & TOBACCO--.7% R.J. Reynolds Tobacco Holdings 25,300 1,424,390 CONSUMER CYCLICAL--8.5% American Axle & Manufacturing Holdings 34,450 (a) 736,541 American Eagle Outfitters 35,050 (a) 917,258 BJ's Wholesale Club 30,500 (a) 1,345,050 Bob Evans Farms 33,800 830,466 Borders Group 49,250 (a) 977,120 Brinker International 52,850 (a) 1,572,816 Furniture Brands International 22,800 (a) 730,056 International Speedway, Cl. A 20,800 813,280 Jones Apparel Group 25,400 (a) 842,518 Lear 31,200 (a) 1,189,968 Magna International, Cl. A 11,600 736,252 Mandalay Resort Group 40,800 (a) 873,120 Mohawk Industries 25,850 (a) 1,418,648 Neiman Marcus Group, Cl. A 19,700 (a) 612,079 Ross Stores 25,650 822,852 Williams-Sonoma 40,500 (a) 1,737,450 16,155,474 CONSUMER STAPLES--3.4% Alberto-Culver, Cl. B 15,900 711,366 Church & Dwight 20,800 553,904 Corn Products International 20,800 733,200 Dean Foods 3,711 (a) 253,080 Dole Food 31,800 853,194 McCormick & Co. 25,750 1,080,727 Smithfield Foods 44,300 (a) 976,372 Tyson Foods, Cl. A 117,600 1,358,280 6,520,123 ENERGY RELATED--8.3% AGL Resources 33,600 773,472 Alliant Energy 35,550 1,079,298 BJ Services 63,800 (a) 2,070,310 Black Hills 23,300 788,472 ENSCO International 59,400 1,476,090 Energen 23,300 574,345 Equitable Resources 29,600 1,008,472 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- ENERGY RELATED (CONTINUED) Helmerich & Payne 17,300 577,474 MDU Resources Group 17,300 486,995 Murphy Oil 14,850 1,247,994 Noble Affiliates 9,800 345,842 Pride International 40,500 (a) 611,550 Questar 44,300 1,109,715 Tidewater 38,150 1,293,285 Ultramar Diamond Shamrock 25,800 (b) 1,276,584 UtiliCorp United 44,300 1,115,031 15,834,929 HEALTH CARE--12.9% Apogent Technologies 52,850 (a) 1,363,530 Barr Laboratories 13,400 (a) 1,063,424 Beckman Coulter 20,800 921,440 Cytyc 18,350 (a) 478,935 Diagnostic Products 13,000 571,350 Edwards Lifesciences 33,200 (a) 917,316 Express Scripts 25,750 (a) 1,204,070 Genzyme-General Division 9,900 (a) 592,614 Gilead Sciences 16,500 (a) 1,084,380 Health Net 57,800 (a) 1,258,884 Hillenbrand Industries 15,900 878,793 IDEC Pharmaceuticals 44,300 (a) 3,053,599 IVAX 32,450 (a) 653,543 Millennium Pharmaceuticals 37,550 (a) 920,351 Mylan Laboratories 32,150 1,205,625 Oxford Health Plans 52,850 (a) 1,592,899 PacifiCare Health Systems 34,900 (a) 558,400 Protein Design Labs 34,450 (a) 1,134,439 Quest Diagnostics 15,750 (a) 1,129,433 STERIS 27,200 (a) 496,944 Schein(Henry) 25,000 (a) 925,750 Sepracor 8,350 (a) 476,451 Sunrise Assisted Living 23,200 (a) 675,352 Trigon Healthcare 20,800 (a) 1,444,560 24,602,082 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- INTEREST SENSITIVE--19.7% AmeriCredit 25,650 (a) 809,257 Associated Banc-Corp 41,850 1,476,886 Astoria Financial 46,600 1,233,036 Banknorth Group 56,700 1,276,884 City National 34,200 1,602,270 Compass Bancshares 68,850 1,948,455 Dime Bancorp (Warrants) 19,900 (a) 2,985 Doral Financial 15,700 489,997 Dun & Bradstreet 36,500 (a) 1,288,450 Eaton Vance 16,100 572,355 Everest Re Group 20,700 1,463,490 Federated Investors, Cl. B 32,150 1,024,942 First Tennessee National 47,950 1,738,667 FirstMerit 44,300 1,200,087 Gallagher (Arthur J.) & Co. 32,350 1,115,751 Golden State Bancorp 44,300 1,158,445 GreenPoint Financial 40,500 1,447,875 LaBranche & Co. 26,200 (a) 902,852 M&T Bank 7,700 560,945 Marshall & Ilsley 29,250 1,850,940 Mercantile Bankshares 13,600 585,344 Metris Cos. 48,100 1,236,651 Nationwide Financial Services, Cl. A 25,300 1,048,938 North Fork Bancorporation 55,350 1,770,647 Old Republic International 50,200 1,406,102 PMI Group 22,250 1,490,973 Radian Group 37,000 1,589,150 SEI Investments 28,700 1,294,657 Sovereign Bancorp 104,700 1,281,528 StanCorp Financial Group 18,900 893,025 TCF Financial 24,650 1,182,707 Waddell & Reed Financial, Cl. A 20,900 672,980 37,617,271 INTERNET RELATED--1.1% Check Point Software Technologies 17,900 (a) 714,031 E*TRADE Group 66,300 (a) 679,575 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- INTERNET RELATED (CONTINUED) Retek 27,200 (a) 812,464 2,206,070 PRODUCER GOODS--10.2% Airgas 69,500 (a) 1,050,840 Alexander & Baldwin 27,200 726,240 American Standard Cos. 17,200 (a) 1,173,556 Ashland 15,900 732,672 Beazer Homes USA 7,300 (a) 534,141 Bemis 17,300 850,814 C&D Technologies 26,000 594,100 CONSOL Energy 28,250 701,730 Cabot 27,100 967,470 D. R. Horton 27,200 882,912 GATX 17,750 577,230 Harsco 24,650 845,495 Kennametal 12,700 511,429 Lennar 28,250 1,322,665 M.D.C. Holdings 15,670 592,169 Minerals Technologies 15,050 701,932 Precision Castparts 27,200 768,400 Rockwell International 46,400 828,704 Scotts, Cl. A 18,500 (a) 880,600 Sonoco Products 52,850 1,404,753 Teekay Shipping 15,900 554,115 Teleflex 19,700 932,007 York International 35,400 1,349,802 19,483,776 SERVICES--10.3% Affiliated Computer Services, Cl. A 20,400 (a) 2,165,052 Apollo Group, Cl. A 39,350 (a) 1,771,143 Belo, Cl. A 44,300 830,625 CSG Systems International 25,300 (a) 1,023,385 DST Systems 26,400 (a) 1,316,040 Education Management 16,200 (a) 587,250 Entercom Communications 10,400 (a) 520,000 Hanover Compressor 30,600 (a) 772,956 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ SERVICES (CONTINUED) Henry (Jack) & Associates 32,150 702,156 Pharmaceutical Product Development 17,300 (a) 558,963 Republic Services 48,400 (a) 966,548 Scholastic 18,400 (a) 926,072 SunGard Data Systems 87,300 (a) 2,525,589 Telephone and Data Systems 9,400 843,650 United Rentals 29,600 (a) 671,920 Valassis Communications 24,650 (a) 878,033 Washington Post, Cl. B 2,350 1,245,500 Westwood One 43,100 (a) 1,295,155 19,600,037 TECHNOLOGY--16.5% ADTRAN 26,700 (a) 681,384 Advanced Fibre Communications 45,300 (a) 800,451 Advent Software 20,400 (a) 1,018,980 Arrow Electronics 19,600 (a) 586,040 Black Box 13,400 (a) 708,592 Cabot Microelectronics 19,700 (a) 1,561,225 Cadence Design Systems 68,850 (a) 1,509,192 Diebold 22,700 917,988 Electro Scientific Industries 17,300 (a) 519,173 Electronic Arts 39,350 (a) 2,359,032 FEI 19,700 (a) 620,747 Harris 20,750 633,082 IKON Office Solutions 37,400 437,206 InFocus 37,400 (a) 823,548 International Rectifier 16,000 (a) 558,080 Intersil, Cl. A 23,100 (a) 744,975 L-3 Communications Holdings 13,400 (a) 1,206,000 Mentor Graphics 50,400 (a) 1,187,928 Microchip Technology 44,300 (a) 1,716,182 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY (CONTINUED) Microsemi 12,350 (a) 366,795 NVIDIA 19,200 (a) 1,284,480 Plantronics 20,500 (a) 525,620 QLogic 13,400 (a) 596,434 RF Micro Devices 29,400 (a) 565,362 Reynolds & Reynolds, Cl. A 47,950 1,162,788 SPX 12,550 (a) 1,718,095 Semtech 33,200 (a) 1,184,908 Storage Technology 46,400 (a) 959,088 Sybase 49,250 (a) 776,180 Symantec 21,250 (a) 1,409,513 THQ 12,350 (a) 598,605 TriQuint Semiconductor 54,200 (a) 664,492 Vishay Intertechnology 55,350 (a) 1,079,325 31,481,490 UTILITIES--4.5% Cleco 39,350 864,519 Conectiv 38,150 934,293 IDACORP 30,600 1,242,360 Metro One Telecommunications 21,550 (a) 651,888 PNM Resources 28,250 789,588 Pinnacle West Capital 12,350 516,848 SCANA 44,300 1,232,869 TECO Energy 29,600 776,704 Western Resources 25,700 442,040 Wisconsin Energy 46,800 1,055,808 8,506,917 TOTAL COMMON STOCKS (cost $172,740,723) 183,432,559 The Portfolio STATEMENT OF INVESTMENTS (CONTINUED) Principal SHORT-TERM INVESTMENTS--3.6% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT; Greenwich Capital Markets, Tri-Party Repurchase Agreement, 1.65%, dated 12/31/2001, due 1/2/2002, in the amount of $6,800,623 (fully collateralized by $6,955,000 Federal Farm Credit Banks Discount Notes, 2/14/2002, value $6,940,395) (cost $6,800,000) 6,800,000 6,800,000 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $179,540,723) 99.7% 190,232,559 CASH AND RECEIVABLES (NET) .3% 559,780 NET ASSETS 100.0% 190,792,339 (A) NON-INCOME PRODUCING. (B) THIS SECURITY IS ON LOAN. AT DECEMBER 31, 2001, THE TOTAL MARKET VALUE OF THE PORTFOLIO'S SECURITY ON LOAN IS $1,276,584 AND THE TOTAL MARKET VALUE OF THE COLLATERAL HELD BY THE PORTFOLIO IS $1,315,800.
SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities-- See Statement of Investments--Note 1(b) 179,540,723 190,232,559 Cash 786,880 Collateral for securities loaned--Note 1(b) 1,315,800 Dividends and interest receivable 89,007 Prepaid expenses 72,038 192,496,284 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 123,933 Liability for securities loaned--Note 1(b) 1,315,800 Payable for shares of Beneficial Interest redeemed 115,837 Payable for investment securities purchased 87,403 Accrued expenses 60,972 1,703,945 -------------------------------------------------------------------------------- NET ASSETS ($) 190,792,339 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 189,697,210 Accumulated undistributed investment income--net 3,241 Accumulated net realized gain (loss) on investments (9,599,948) Accumulated net unrealized appreciation (depreciation) on investments 10,691,836 -------------------------------------------------------------------------------- NET ASSETS ($) 190,792,339 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 181,027,918 9,764,421 Shares Outstanding 13,118,330 708,365 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 13.80 13.78 SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends 1,172,696 Interest 229,239 TOTAL INCOME 1,401,935 EXPENSES: Investment advisory fee--Note 3(a) 931,142 Prospectus and shareholders' reports 53,068 Professional fees 50,492 Custodian fees--Note 3(b) 34,530 Registration fees 27,349 Distribution fees--Note 3(b) 9,223 Shareholder servicing costs--Note 3(b) 1,236 Trustees' fees and expenses--Note 3(c) 645 Miscellaneous 6,038 TOTAL EXPENSES 1,113,723 Less--waiver of fees due to undertaking--Note 3(a) (6,252) NET EXPENSES 1,107,471 INVESTMENT INCOME--NET 294,464 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments (9,119,810) Net unrealized appreciation (depreciation) on investments 8,706,299 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (413,511) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (119,047) SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ----------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 294,464 133,868 Net realized gain (loss) on investments (9,119,810) 940,784 Net unrealized appreciation (depreciation) on investments 8,706,299 90,204 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (119,047) 1,164,856 -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS ($): From investment income--net: Initial shares (291,394) (126,162) Service shares (11,519) -- From net realized gain on investments: Initial shares -- (659,279) In excess of net realized gain on investments: Initial shares -- (482,633) TOTAL DIVIDENDS (302,913) (1,268,074) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 116,445,355 70,330,857 Service shares 11,203,275 500 Dividends reinvested: Initial shares 291,394 1,268,074 Service shares 11,519 -- Cost of shares redeemed: Initial shares (11,777,128) (10,274,545) Service shares (1,744,659) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 114,429,756 61,324,886 TOTAL INCREASE (DECREASE) IN NET ASSETS 114,007,796 61,221,668 -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 76,784,543 15,562,875 END OF PERIOD 190,792,339 76,784,543 Undistributed investment income--net 3,241 8,006 The Portfolio STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) Year Ended December 31, --------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INITIAL SHARES Shares sold 8,633,138 4,850,323 Shares issued for dividends reinvested 21,652 95,332 Shares redeemed (910,014) (729,677) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 7,744,776 4,215,978 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 842,364 35 Shares issued for dividends reinvested 856 -- Shares redeemed (134,890) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 708,330 35 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ------------------------------------------------------------------ INITIAL SHARES 2001 2000 1999 1998 a ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 14.29 13.44 12.16 12.50 Investment Operations: Investment income--net .03 b .05 b .03 b .02 Net realized and unrealized gain (loss) on investments (.50) 1.05 1.28 (.34) Total from Investment Operations (.47) 1.10 1.31 (.32) Distributions: Dividends from investment income--net (.02) (.03) (.03) (.02) Dividends from net realized gain on investments -- (.13) -- -- Dividends in excess of net realized gain on investments -- (.09) -- -- Total Distributions (.02) (.25) (.03) (.02) Net asset value, end of period 13.80 14.29 13.44 12.16 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (3.26) 8.28 10.82 (2.53) c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .89 .98 .97 .67 c Ratio of net investment income to average net assets .24 .34 .26 .18 c Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation -- .06 .49 .60 c Portfolio Turnover Rate 76.37 102.89 77.73 75.74 c ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 181,028 76,784 15,563 10,506 (A) FROM MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio FINANCIAL HIGHLIGHTS (CONTINUED) Year Ended December 31, ------------------------ SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 14.29 14.29 Investment Operations: Investment income--net .01 b -- Net realized and unrealized gain (loss) on investments (.50) -- Total from Investment Operations (.49) -- Distributions: Dividends from investment income--net (.02) -- Net asset value, end of period 13.78 14.29 -------------------------------------------------------------------------------- TOTAL RETURN (%) (3.36) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.00 -- Ratio of net investment income to average net assets .07 -- Decrease reflected in above expense ratios due to undertaking by The Dreyfus Corporation .17 -- Portfolio Turnover Rate 76.37 102.89 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 9,764 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company currently offering twelve series, including the MidCap Stock Portfolio (the "portfolio"). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide 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 Index. The Dreyfus Corporation ("Dreyfus") serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. (B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $667 during the period ended December 31, 2001 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. The portfolio may enter into repurchase agreements with financial institutions, deemed to be creditworthy by Dreyfus, subject to the seller's agreement to repurchase and the portfolio's agreement to resell such securities at a mutually agreed upon price. Securities purchased subject to repurchase agreements are deposited with the portfolio' s custodian and, pursuant to the terms of the repurchase agreement, must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. If the value of the underlying securities falls below the value of the repurchase price plus accrued interest, the portfolio will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults on its repurchase obligation, the portfolio maintains the right to sell the underlying securities at market value and may claim any resulting loss against the seller. The portfolio may lend securities to qualified institutions. At origination, all loans are secured by cash collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan will be maintained at all times. Cash collateral is invested in certain other money market mutual funds managed by Dreyfus. The portfolio will be entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Such income earned is included in interest income. Although each security loaned is fully collateralized, the portfolio would bear the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. (C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (D) FEDERAL INCOME TAXES: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $3,241, accumulated capital losses $7,978,482 and unrealized appreciation $10,025,634. In addition, the portfolio had $955,264 of capital losses realized after October 31, 2001 which were deferred for tax purposes to the first day of the following year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $7,978,482 of the carryover expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $302,913 and $126,162 and long-term capital gains $0 and $1,141,912. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $3,684, increased accumulated net realized gain (loss) on investments by $2,495 and decreased paid-in capital by $6,179. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the line of credit. NOTE 3--Investment Advisory Fee and Other Transactions With Affiliates: (A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .75 of 1% of the value of the portfolio's average daily net assets and is payable monthly. Dreyfus has agreed from January 1, 2001 to December 31, 2002, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses of neither class, exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed 1% of the value of the average daily net assets of their class. During the period ended December 31, 2001, Dreyfus waived receipt of fees of $6,252, pursuant to the undertaking. (B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance prod- ucts. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $9,223 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $255 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $34,530 pursuant to the custody agreement. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended December 31, 2001, amounted to $202,740,330 and $91,944,510, respectively. At December 31, 2001, accumulated net unrealized appreciation on investments was $10,691,836, consisting of $17,820,928 gross unrealized appreciation and $7,129,092 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, MidCap Stock Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, MidCap Stock Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, MidCap Stock Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 IMPORTANT TAX INFORMATION (Unaudited) For Federal tax purposes, the portfolio hereby designates 100% of the ordinary dividends paid during the fiscal year ended December 31, 2001 as qualifying for the corporate dividends received deduction. The Portfolio BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of Dreyfus and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977. STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1981. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. The Portfolio For More Information Dreyfus Investment Portfolios, MidCap Stock Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 174AR1201 Dreyfus Investment Portfolios, Technology Growth Portfolio ANNUAL REPORT December 31, 2001 YOU, YOUR ADVISOR AND DREYFUS A MELLON FINANCIAL COMPANY The views expressed herein are current to the date of this report. These views and the composition of the portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE PORTFOLIO ------------------------------------------------------------ 2 Letter from the Chairman 3 Discussion of Performance 6 Portfolio Performance 8 Statement of Investments 10 Statement of Assets and Liabilities 11 Statement of Operations 12 Statement of Changes in Net Assets 13 Financial Highlights 15 Notes to Financial Statements 22 Report of Independent Auditors 23 Board Members Information 24 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Portfolio Dreyfus Investment Portfolios, Technology Growth Portfolio LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for Dreyfus Investment Portfolios, Technology Growth Portfolio, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you' ll find valuable information about how the portfolio was managed during the reporting period, including a discussion with the primary portfolio manager, Mark Herskovitz. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the large-cap sector of the U.S. stock market posted its second consecutive year of negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF PERFORMANCE Mark Herskovitz, Primary Portfolio Manager How did Dreyfus Investment Portfolios, Technology Growth Portfolio perform relative to its benchmarks? For the 12-month period ended December 31, 2001, the portfolio's Initial shares produced a total return of -33.12% and its Service shares produced a total return of -33.40% .(1) In comparison, the portfolio's benchmarks, the Morgan Stanley High Technology 35 Index and the Standard & Poor's 500 Composite Stock Price Index (" S&P 500 Index"), produced total returns of -23.92% and -11.88%, respectively, over the same period.(2,3) The Nasdaq Composite Index produced a total return of -20.80% for the same period.(4) Business fundamentals for many technology companies continued to deteriorate as the U.S. economy slowed. Communications-related stocks performed particularly poorly, eroding the portfolio's returns during the first half of the year. The portfolio recovered some of that lost ground during the second half, when it adopted a more conservative positioning. What is the portfolio's investment approach? The portfolio seeks capital appreciation by investing primarily in growth companies of any size that we believe are leading producers or beneficiaries of technological innovation. These investments may include companies in the computer, semiconductor, electronics, communications, health care, biotechnology, computer software and hardware, electronic components and systems, networking and cable broadcasting, telecommunications, defense and aerospace and environmental sectors. When evaluating investment opportunities, we first assess economic and market conditions in an attempt to identify trends that we believe are likely to drive demand within the various technology-related sectors. Second, we strive to identify the companies that are most likely to benefit from these overall trends. Typically, these companies are leaders in their market segments and are characterized by rapid earnings or revenue growth and dominant market shares. We conduct extensive fundamental The Portfolio DISCUSSION OF PERFORMANCE (CONTINUED) research to understand these companies' competitive advantages and to evaluate their ability to maintain their leadership positions over time. This process enables us to seek the stocks of leading technology companies for the portfolio. Many of those stocks are considered core holdings that we believe could lead their industry segments over the long term. We complement these positions with non-core holdings that we believe can provide above-average gains over a shorter time frame. Although the portfolio looks for companies with the potential for strong earnings or revenue 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"). The portfolio's strategy with respect to IPOs is to participate in IPOs of companies that meet the portfolio's investment criteria described above, and that we believe have the potential to become full positions within the portfolio. What other factors influenced the portfolio's performance? In a slowing economy, many businesses continued to reduce capital expenditures. Overall, the portfolio was affected by this sharp falloff in demand that left many technology companies with high levels of unsold inventories amid anemic sales. Communications-related companies were hit particularly hard, and weakness soon spread to the semiconductor manufacturing industry, which represented the portfolio' s largest concentration of holdings during the first half of the reporting period. During the second half of the reporting period, we moved the portfolio toward a more conservative and diversified range of investments. We emphasized the regional Bell operating companies, which we believed would provide steady, if unspectacular, growth in a weak economic environment. We established positions in biotechnology firms such as Genentech, and video gaming companies such as Electronic Arts. And we maintained positions in technology services leaders such as Electronic Data Systems and Automatic Data Processing, which have multiyear customer contracts to support their revenue streams. The portfolio's only Internet-related holding was eBay, the online auction house that has grown so extraordinarily that it recently became the nation's largest used car dealer. This conservative positioning enabled the portfolio to hold up relatively well in the wake of the September 11 terrorist attacks, which worsened an already weak business environment. Nonetheless, our success in the later part of the year was not enough to offset the losses experienced earlier. What is the portfolio's current strategy? In November and December, we began to detect signs that the business environment may be stabilizing. Wireless communications providers reported subscriber gains, semiconductor inventories declined and some large technology companies saw modest increases in demand. Accordingly, we positioned the portfolio for the early stages of recovery. We have reduced or eliminated defensive positions in the regional Bell operating companies, and we increased the portfolio's exposure to semiconductor companies and software businesses that we believe will benefit when recovery comes However, we again caution that the portfolio should be considered only as a supplement to an overall investment program, and even then only by investors who have the discipline to withstand heightened volatility and the patience to wait for an improvement in the economy and business fundamentals. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, PORTFOLIO SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL REDUCE RETURNS. (2) SOURCE: BLOOMBERG L.P. -- DOES NOT REFLECT REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MORGAN STANLEY HIGH TECHNOLOGY 35 INDEX IS AN UNMANAGED, EQUAL DOLLAR-WEIGHTED INDEX OF 35 STOCKS FROM THE ELECTRONICS-BASED SUBSECTORS. (3) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE. (4) SOURCE: BLOOMBERG L.P. -- THE NASDAQ COMPOSITE INDEX MEASURES THE MARKET VALUE OF ALL THE DOMESTIC AND FOREIGN COMMON STOCKS LISTED ON THE NASDAQ STOCK MARKET. PRICE CHANGES IN EACH SECURITY EFFECT EITHER A RISE OR FALL IN THE INDEX, IN PROPORTION TO THE SECURITY'S MARKET VALUE. THE MARKET VALUE -- THE LAST SALE PRICE MULTIPLIED BY TOTAL SHARES OUTSTANDING -- IS CALCULATED CONTINUALLY THROUGHOUT THE DAY. THE INDEX INCLUDES THE SECURITIES OF MORE THAN 5,300 COMPANIES REPRESENTING A WIDE ARRAY OF INDUSTRIES. The Portfolio PORTFOLIO PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Investment Portfolios, Technology Growth Portfolio Initial shares and Service shares and the Standard & Poor's 500 Composite Stock Price Index and the Morgan Stanley High Technology 35 Index -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 Inception From Date 1 Year Inception ------------------------------------------------------------------------------------------------------------------------------------ INITIAL SHARES 8/31/99 (33.12)% (11.07)% SERVICE SHARES 8/31/99 (33.40)% (11.23)% THE DATA FOR SERVICE SHARES PRIMARILY REPRESENTS THE RESULTS OF INITIAL SHARES. ACTUAL SERVICE SHARES' AVERAGE ANNUAL TOTAL RETURN AND HYPOTHETICAL GROWTH RESULTS WOULD HAVE BEEN LOWER. SEE NOTES BELOW.
((+)) SOURCE: LIPPER INC. ((+)(+)) SOURCE: BLOOMBERG L.P. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS WHICH WILL REDUCE RETURNS. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN INITIAL AND SERVICE SHARES OF DREYFUS INVESTMENT PORTFOLIOS, TECHNOLOGY GROWTH PORTFOLIO ON 8/31/99 (INCEPTION DATE OF INITIAL SHARES) TO A $10,000 INVESTMENT MADE IN THE MORGAN STANLEY HIGH TECHNOLOGY 35 INDEX (THE "MS HIGH TECH 35 INDEX") AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX (THE "S&P 500 INDEX") ON THAT DATE. THE PORTFOLIO'S INITIAL SHARES ARE NOT SUBJECT TO A RULE 12B-1 FEE. THE PORTFOLIO'S SERVICE SHARES ARE SUBJECT TO A 0.25% ANNUAL RULE 12B-1 FEE. THE PERFORMANCE FIGURES FOR SERVICE SHARES REFLECT THE PERFORMANCE OF THE PORTFOLIO'S INITIAL SHARES FROM THEIR INCEPTION DATE THROUGH DECEMBER 30, 2000, AND THE PERFORMANCE OF THE PORTFOLIO'S SERVICE SHARES FROM DECEMBER 31, 2000 (INCEPTION DATE OF SERVICE SHARES) TO DECEMBER 31, 2001 (BLENDED PERFORMANCE FIGURES). THE BLENDED PERFORMANCE FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE HIGHER OPERATING EXPENSES OF THE SERVICE SHARES. IF THESE EXPENSES HAD BEEN REFLECTED, THE BLENDED PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE PORTFOLIO'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE PORTFOLIO FEES AND EXPENSES. THE MS HIGH TECH 35 INDEX IS AN UNMANAGED, EQUAL DOLLAR-WEIGHTED INDEX OF 35 STOCKS FROM THE ELECTRONICS-BASED SUBSECTORS. THE S&P 500 INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE. NEITHER OF THE FOREGOING INDICES TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO PORTFOLIO PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT The Portfolio
STATEMENT OF INVESTMENTS December 31, 2001 STATEMENT OF INVESTMENTS COMMON STOCKS--89.2% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------ BIOTECHNOLOGY--2.1% Genentech 40,000 (a) 2,170,000 COMPUTER SERVICES--5.2% Automatic Data Processing 47,500 2,797,750 Electronic Data Systems 37,500 2,570,625 5,368,375 DATA STORAGE--5.4% Brocade Communications Systems 72,500 (a) 2,401,200 VERITAS Software 71,000 (a) 3,182,220 5,583,420 HARDWARE--8.0% Dell Computer 105,000 (a) 2,853,900 International Business Machines 20,000 2,419,200 Sun Microsystems 240,000 (a) 2,961,600 8,234,700 INTERNET--2.6% eBay 40,000 (a) 2,676,000 NETWORKING--2.3% Cisco Systems 130,000 (a) 2,354,300 SEMICONDUCTORS--20.0% Intel 63,500 1,997,075 Linear Technology 57,500 2,244,800 Micrel 100,000 (a) 2,623,000 NVIDIA 33,500 (a) 2,241,150 Taiwan Semiconductor 2,020,000 (a) 5,052,165 Texas Instruments 77,500 2,170,000 United Microelectronics, ADR 83,000 (a) 796,800 Xilinx 56,500 (a) 2,206,325 Zoran 39,500 (a) 1,289,280 20,620,595 SEMICONDUCTOR EQUIPMENT-8.8% Applied Materials 60,500 (a) 2,426,050 KLA-Tencor 58,000 (a) 2,874,480 Novellus Systems 45,500 (a) 1,794,975 Teradyne 65,000 (a) 1,959,100 9,054,605 SOFTWARE--20.0% Adobe Systems 45,500 1,412,775 Amdocs 63,500 (a) 2,157,095 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- SOFTWARE (CONTINUED) BEA Systems 102,000 (a) 1,571,820 Electronic Arts 38,500 (a) 2,308,075 Microsoft 50,000 (a) 3,313,500 Oracle 130,000 (a) 1,795,300 PeopleSoft 54,500 (a) 2,190,900 Rational Software 182,000 (a) 3,549,000 Siebel Systems 83,000 (a) 2,322,340 20,620,805 TELECOMMUNICATION EQUIPMENT--12.0% Comverse Technology 107,500 (a) 2,404,775 Finisar 92,000 (a) 935,640 Nokia Oyj, ADR 100,000 2,453,000 Nortel Networks 122,000 915,000 Qualcomm 26,000 (a) 1,313,000 Scientific-Atlanta 97,500 2,334,150 UTStarcom 73,000 (a) 2,080,500 12,436,065 TELECOMMUNICATION SERVICES--2.8% SBC Communications 32,500 1,273,025 Verizon Communications 33,500 1,589,910 2,862,935 TOTAL COMMON STOCKS (cost $102,656,274) 91,981,800 ------------------------------------------------------------------------------------------------------------------------------------ Principal SHORT-TERM INVESTMENTS--12.1% Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ U.S. TREASURY BILLS: 1.67%, 1/3/2002 1,264,000 1,263,937 1.64%, 1/10/2002 4,524,000 4,522,372 1.62%, 1/17/2002 3,029,000 3,026,940 1.70%, 1/24/2002 3,149,000 3,145,851 1.71%, 2/28/2002 538,000 536,585 TOTAL SHORT-TERM INVESTMENTS (cost $12,494,947) 12,495,685 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $115,151,221) 101.3% 104,477,485 LIABILITIES, LESS CASH AND RECEIVABLES (1.3%) (1,334,917) NET ASSETS 100.0% 103,142,568 (A) NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 115,151,221 104,477,485 Cash 349,129 Cash denominated in foreign currencies 20,896 20,738 Dividends receivable 6,031 Prepaid expenses 2,056 104,855,439 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 75,247 Payable for investment securities purchased 1,586,303 Accrued expenses 51,321 1,712,871 -------------------------------------------------------------------------------- NET ASSETS ($) 103,142,568 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 202,542,967 Accumulated net realized gain (loss) on investments and foreign currency transactions (88,726,505) Accumulated net unrealized appreciation (depreciation) on investments and foreign currency transactions (10,673,894) -------------------------------------------------------------------------------- NET ASSETS ($) 103,142,568 NET ASSET VALUE PER SHARE Initial Shares Service Shares -------------------------------------------------------------------------------- Net Assets ($) 94,992,014 8,150,554 Shares Outstanding 10,010,234 862,377 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 9.49 9.45 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Interest 425,581 Cash dividends (net of $25,662 foreign taxes withheld at source) 347,347 TOTAL INCOME 772,928 EXPENSES: Investment advisory fee--Note 3(a) 806,726 Professional fees 67,256 Prospectus and Shareholders' reports 35,696 Custodian fees--Note 3(b) 21,612 Distribution fees--Note 3(b) 8,469 Registration fees 2,932 Trustees' fees and expenses--Note 3(c) 1,304 Shareholder servicing costs--Note 3(b) 537 Miscellaneous 1,932 TOTAL EXPENSES 946,464 INVESTMENT (LOSS) (173,536) -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions: Long transactions (59,038,687) Short sale transactions (250,378) Net realized gain (loss) on forward currency exchange contracts (15,553) NET REALIZED GAIN (LOSS) (59,304,618) Net unrealized appreciation (depreciation) on investments and foreign currency transactions 10,806,122 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (48,498,496) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (48,672,032) SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, ----------------------------------- 2001 2000(a) -------------------------------------------------------------------------------- OPERATIONS ($): Investment (loss) (173,536) (456,415) Net realized gain (loss) on investments (59,304,618) (29,427,490) Net unrealized appreciation (depreciation) on investments 10,806,122 (36,217,189) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (48,672,032) (66,101,094) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Net realized gain on investments: INITIAL SHARES -- (128,126) -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Initial shares 22,232,936 154,480,771 Service shares 9,773,243 500 Dividends reinvested: Initial shares -- 128,126 Cost of shares redeemed: Initial shares (18,579,292) (14,540,419) Service shares (1,159,311) -- INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 12,267,576 140,068,978 TOTAL INCREASE (DECREASE) IN NET ASSETS (36,404,456) 73,839,758 ------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 139,547,024 65,707,266 END OF PERIOD 103,142,568 139,547,024 -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (SHARES): INITIAL SHARES Shares sold 2,121,700 7,217,120 Shares issued for dividends reinvested -- 5,513 Shares redeemed (1,945,315) (767,276) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 176,385 6,455,357 -------------------------------------------------------------------------------- SERVICE SHARES Shares sold 995,519 35 Shares redeemed (133,177) -- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 862,342 35 (A) EFFECTIVE DECEMBER 31, 2000, SHARES OF THE PORTFOLIO WERE REDESIGNATED AS INITIAL SHARES AND THE PORTFOLIO COMMENCED SELLING SERVICE SHARES. SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single portfolio share. Total return shows how much your investment in the portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the portfolio's financial statements. Year Ended December 31, ----------------------------------------------- INITIAL SHARES 2001 2000 1999 a ------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 14.19 19.45 12.50 Investment Operations: Investment (loss) (.02) b (.06) b (.02) b Net realized and unrealized gain (loss) on investments (4.68) (5.18) 6.97 Total from Investment Operations (4.70) (5.24) 6.95 Distributions: Dividends from net realized gain on investments -- (.02) -- Net asset value, end of period 9.49 14.19 19.45 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (33.12) (26.98) 55.60 c ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .87 .84 .36 c Ratio of investment (loss) to average net assets (.15) (.30) (.14) c Decrease reflected in above expense ratios due to undertakings by The Dreyfus Corporation -- -- .09 c Portfolio Turnover Rate 86.25 121.88 20.01 c ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 94,992 139,547 65,707 (A) FROM AUGUST 31, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1999. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. The Portfolio FINANCIAL HIGHLIGHTS (CONTINUED) Year Ended December 31, ------------------------- SERVICE SHARES 2001 2000 a -------------------------------------------------------------------------------- PER SHARE DATA ($): Net asset value, beginning of period 14.19 14.19 Investment Operations: Investment (loss) (.05) b -- Net realized and unrealized gain (loss) on investments (4.69) -- Total from Investment Operations (4.74) -- Net asset value, end of period 9.45 14.19 -------------------------------------------------------------------------------- TOTAL RETURN (%) (33.40) -- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets 1.20 -- Ratio of investment (loss) to average net assets (.60) -- Portfolio Turnover Rate 86.25 121.88 -------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 8,151 1 (A) THE PORTFOLIO COMMENCED OFFERING SERVICE SHARES ON DECEMBER 31, 2000. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: Dreyfus Investment Portfolios (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act" ), as an open-end management investment company, operating as a series company, currently offering twelve series, including the Technology Growth Portfolio (the "portfolio" ). The portfolio is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The portfolio is a diversified series. The portfolio's investment objective is to provide long-term capital growth. The Dreyfus Corporation (" Dreyfus" ) serves as the portfolio's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of Dreyfus, is the distributor of the portfolio's shares, which are sold without a sales charge. The portfolio is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Initial and Service. Each class of shares has identical rights and privileges, except with respect to the distribution plan and the expenses borne by each class and certain voting rights. The fund accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations; expenses which are applicable to all series are allocated among them on a pro rata basis. The portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (including options and financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Trustees. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (B) FOREIGN CURRENCY TRANSACTIONS: The portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the portfolio received net earnings credits of $3,681 during the period ended December 31, 2001, based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. The fund may lend securities to qualified institutions. At origination, all loans are secured by cash collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan will be maintained at all times. Cash collateral is invested in certain other money market mutual funds managed by Dreyfus. The fund will be entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Such income earned is included in interest income. Although each security loaned is fully collateralized, the fund would bear the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. (D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gain, if any, are normally declared and paid annually, but the portfolio may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the portfolio not to distribute such gain. (E) FEDERAL INCOME TAXES: It is the policy of the portfolio to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: accumulated capital losses $79,328,254 and unrealized depreciation $15,488,234. In addition, the portfolio had The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) $4,583,911 of capital losses realized after October 31, 2001, which were deferred for tax purposes to the first day of the following fiscal year. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $10,860,287 of the carryover expires in fiscal 2008 and $68,467,967 expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $0 and $128,126. During the period ended December 31, 2001, as a result of permanent book to tax differences, the portfolio increased accumulated undistributed investment income-net by $173,536, increased accumulated net realized gain (loss) on investments by $7,056 and decreased paid-in capital by $180,592. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The portfolio participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the portfolio based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the portfolio did not borrow under the line of credit. NOTE 3--Investment Advisory Fee and Other Transactions With Affiliates: (A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .75 of 1% of the value of the portfolio' s average daily net assets and is payable monthly. (B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing their shares, for servicing and/or maintaining Service shares shareholder accounts and for advertising and marketing for Service shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the Service shares' average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2001, Service shares were charged $8,469 pursuant to the Plan. The portfolio compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $197 pursuant to the transfer agency agreement. The portfolio compensates Mellon under a custody agreement for providing custodial services for the portfolio. During the period ended December 31, 2001, the portfolio was charged $21,612 pursuant to the custody agreement. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each board member who is not an "affiliated person" as defined in the Act receives an annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. (D) During the period ended December 31, 2001, the portfolio incurred total brokerage commissions of $152,973, of which $28,484 was paid to Dreyfus Brokerage Services, a wholly-owned subsidiary of Mellon Financial Corporation. The Portfolio NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4--Securities Transactions: The following summarizes the aggregate amount of purchases and sales of investment securities and securities sold short, excluding short-term securities and forward currency exchange contracts, during the period ended December 31, 2001: Purchases ($) Sales ($) -------------------------------------------------------------------------------- Long transactions 91,291,059 83,767,247 Short sale transactions 27,419,475 27,169,097 TOTAL 118,710,534 110,936,344 The portfolio is engaged in short-selling which obligates the portfolio to replace the security borrowed by purchasing the security at current market value. The portfolio would incur a loss if the price of the security increases between the date of the short sale and the date on which the portfolio replaces the borrowed security. The portfolio would realize a gain if the price of the security declines between those dates. Until the portfolio replaces the borrowed security, the portfolio will maintain daily a segregated account with a broker or custodian of permissable liquid assets sufficient to cover its short position. At December 31, 2001, there were no securities sold short outstanding The portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the portfolio is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the portfolio would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The portfolio realizes a gain if the value of the contract increases between those dates. The portfolio is also exposed to credit risk associated with counter party nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. At December 31, 2001, there were no forward currency exchange contracts outstanding. At December 31, 2001, accumulated net unrealized depreciation on investments was $10,673,736, consisting of $7,353,773 gross unrealized appreciation and $18,027,509 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Portfolio REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Dreyfus Investment Portfolios, Technology Growth Portfolio We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus Investment Portfolios, Technology Growth Portfolio (one of the funds comprising Dreyfus Investment Portfolios) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund' s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus Investment Portfolios, Technology Growth Portfolio at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. New York, New York February 8, 2002 BOARD MEMBERS INFORMATION (Unaudited)
No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves Joseph S. DiMartino (58) o Chairman of the Board of various o The Muscular Dystrophy Association 190 Chairman of the Board (1998) funds in the Dreyfus Family of o Plan Vista Corporation (formerly HealthPlan Funds Services Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., a provider of various outsourcing functions for small and medium size companies o The Newark Group, a privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o 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 Clifford L. Alexander (68) o President of Alexander & o American Home Products Corporation 49 Board Member (1998) Associates, Inc., a management o IMS Health, a service provider of consulting firm marketing information and information o Chairman of the Board of Moody's technology Corporation o WorldCOM (October 2000-Present) o Mutual of America Life Insurance Company o Chairman of the Board and Chief Executive Officer of The Dun and Bradstreet Corporation (October 1999-September 2000) Lucy Wilson Benson (74) o President of Benson and o COMSAT Corporation, a telecommunications 35 Board Member (1998) Associates, consultants to company business and government o Alfred P. Sloan Foundation o Vice Chairman of the Citizens o Lafayette College Network for Foreign Affairs o A member of the council of foreign relations o Vice Chairman of the Atlantic Council of the U.S.
Once elected, all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Operating Officer and Chief Investment Officer of the Manager, and an officer of 92 investment companies (comprised of 183 portfolios) managed by Dreyfus. 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 Dreyfus. He is 56 years old, and has been an employee of Dreyfus since May 1995. MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary, and General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 55 years old and has been an employee of Dreyfus since June 1977 STEVEN F. NEWMAN, SECRETARY SINCE MARCH 2000. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 52 years old, and has been an employee of Dreyfus since July 1980. JEFF PRUSNOFSKY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 10 investment companies (comprised of 60 portfolios) managed by Dreyfus. He is 36 years old, and has been an employee of Dreyfus since January 1986. MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 42 years old, and has been an employee of Dreyfus since October 1991. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since April 1985. WILLIAM MCDOWELL, ASSISTANT TREASURER SINCE MARCH 2000. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of 18 investment companies (comprised of 73 portfolios) managed by Dreyfus. He is 43 years old, and has been an employee of Dreyfus since March 1984. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of Dreyfus, and an officer of 93 investment companies (comprised of 196 portfolios) managed by Dreyfus. He is 47 years old, and has been an employee of Dreyfus since June 1993. For More Information Dreyfus Investment Portfolios, Technology Growth Portfolio 200 Park Avenue New York, NY 10166 Investment Adviser The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9671 Providence, RI 02940 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 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 (c) 2002 Dreyfus Service Corporation 175AR1201