Interested in matching the market's performance?

What is an index fund?
Index funds seek to match the returns of a specific market index, such as the S&P 500¹, by investing in all of the stocks in an index or a representative sampling of those stocks. Index fund managers hope to pursue the stock market's long-term growth potential.

How are index funds different from actively managed funds?
Index funds are "passively" managed, as opposed to a typical fund that may be "actively" managed.

• Active management hinges on security selection to maximize growth — meaning that the portfolio manager is looking at stocks, and their relative valuations, every day and making buy, sell and hold decisions based on fundamental and/or technical analysis.
  
  
• Index fund managers, on the other hand, are passive managers whose goal is simply to match the performance of their index. To do this, they buy either all the stocks in the index or a representative sampling of the stocks in the index, with weightings substantially similar to those of the index.

Why should I consider index funds in my portfolio?
When investing for long-term goals, such as retirement or college, index funds may help you form the foundation of an equity portfolio designed to pursue capital appreciation over time.

Index funds may also complement actively managed equity funds that you choose to include in your portfolio. Since many investors are attracted to the distinctive investment philosophies and strategies offered by a wide range of actively managed funds, it may be a good idea to combine equity and bond portfolios with a core investment in an index fund.

Potentially higher after-tax returns^2,3,4
With index funds, you may be able to keep more of what you earn from your investments than you would from some funds that trade more actively. The relatively limited buying and selling of securities can mean lower portfolio turnover,² which can potentially limit year-end capital gain distributions and tax liability.

Lower costs⁵
Index funds generally have lower costs than actively managed funds. Fund managers are not faced with the expense of research to determine the fund's holdings. In addition, trading costs may be lower because index managers often do not buy and sell holdings as frequently as active managers do. Instead, they seek to replicate the holdings of a particular index. As a result of keeping portfolio turnover low, trading expenses are usually lower.

Relative predictability⁶
While the value of index funds will rise and fall with the underlying index, investors can feel confident that performance is unlikely to vary much from the index (before fund expenses). Keep in mind that you cannot invest directly in any index.

Diversification
Broad-based index funds do not favor or emphasize a particular company or sector. Holdings are widely diversified, which may help to reduce investment risk relative to funds that invest in fewer companies or sectors.

How can I add index investing to my portfolio?
Do you have the time, resources or the inclination to compile and manage a portfolio of stocks based on an index? Even experienced investors may find identifying the right investments at the right time a challenge. By investing in a Dreyfus index fund, you're able to tap into the resources of a professional management team.

What are the special benefits and risks?
Equity funds are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund's prospectus.

Because index funds attempt to match the performance of a particular market index, they'll generally be affected by economic conditions in the same way as the overall market. When the economy is strong, for example, large-company stocks may benefit from rising earnings. A large-company index fund, such as a fund that seeks to match its performance to the S&P 500, may in turn benefit from the growth of these large companies.

Because index fund managers only invest in the stocks that make up the relevant index, they may have less flexibility than other fund managers to be defensive in down markets. That's why the performance of an index fund tends to rise and fall in sync with the overall market.

Like any equity investing, indexing is not a "get in and get out" strategy. It's designed to work best over the long term, when the cost advantages it offers, potentially, can be maximized through compounding.

Questions? Contact us.

1. The S&P 500 Composite Stock Index is a widely accepted, unmanaged index of U.S. stock market performance. Investors cannot invest directly in any index.

2. Portfolio turnover by itself does not automatically generate higher annual distributions. Portfolio turnover rates are subject to change.

3. Achieving tax efficiency is not part of an index fund's investment objective, and there can be no guarantee that a fund will achieve any particular level of taxable distributions in future years. In periods when the manager has to sell significant amounts of securities (e.g., during periods of significant net redemptions or changes in index components), index funds can be expected to be less tax efficient than during periods of more stable market conditions and asset flows.

4. Additional gains may be realized if the portfolio manager must liquidate securities to raise cash for shareholder redemptions.

5. Source: Lipper

6. An index fund's performance can be expected to be slightly lower than the actual index's performance because of expenses and other factors.

Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.

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