GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MARCH 1, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of General New York Municipal Bond Fund, Inc. (the "Fund"), dated March 1,
1996, as it may be revised from time to time. To obtain a copy of the
Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. and Canada -- Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . . . . . . . B-2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . B-11
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . B-15
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Service Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . B-18
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . B-23
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . B-23
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . B-24
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . B-26
Information About the Fund . . . . . . . . . . . . . . . . . . . . . . B-27
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors . . . . . . . . . . . . . . . . . . B-27
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-41
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . B-49
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . B-60
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled
"Description of the Fund" and "Appendix."
Portfolio Securities. The average distribution of investments (at value)
in Municipal Obligations (including notes) by ratings for the fiscal year
ended October 31, 1995, computed on a monthly basis, was as follows:
Fitch Moody's Standard
Investors Investors & Poor's
Service, L.P. Service, Inc. Ratings Group Percentage
("Fitch") or ("Moody's") or ("S&P") of Value
AAA Aaa AAA 21.5%
AA Aa AA 13.7%
A A A 30.4%
BBB Baa BBB 29.9%
BB BB BB 1.1%
F-1+/F-1 VMIG1/MIG1, P-1 SP-1+/SP-1, A-1 3.4%
------
100.0%
======
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, industrial, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply,
gas, electricity or sewage or solid waste disposal; the interest paid on
such obligations may be exempt from Federal income tax, although current
tax laws place substantial limitations on the size of such issues. Such
obligations are considered to be Municipal Obligations if the interest paid
thereon qualifies as exempt from Federal income tax in the opinion of bond
counsel to the issuer. There are, of course, variations in the security of
Municipal Obligations, both within a particular classification and between
classifications.
Floating and variable rate demand obligations are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending rate,
such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation
is adjusted automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation, and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, including fees paid under its Service Plan, will have the effect
of reducing the yield to investors.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the
event of foreclosure might prove difficult. The staff of the Securities
and Exchange Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Fund's Board. Pursuant to
such guidelines, the Board has directed the Manager to monitor carefully
the Fund's investment in such securities with particular regard to (1) the
frequency of trades and quotes for the lease obligation; (2) the number of
dealers willing to purchase or sell the lease obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make
a market in the lease obligation; (4) the nature of the marketplace trades
including the time needed to dispose of the lease obligation, the method of
soliciting offers and the mechanics of transfer; and (5) such other factors
concerning the trading market for the lease obligation as the Manager may
deem relevant. In addition, in evaluating the liquidity and credit quality
of a lease obligation that is unrated, the Fund's Board has directed the
Manager to consider (a) whether the lease can be cancelled; (b) what
assurance there is that the assets represented by the lease can be sold;
(c) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
the operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as the
Manager may deem relevant. The Fund will not invest more than 15% of the
value of its net assets in lease obligations that are illiquid and in other
illiquid securities.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of
the underlying Municipal Obligations and that payment of any tender fees
will not have the effect of creating taxable income for the Fund. Based on
the tender option bond agreement, the Fund expects to be able to value the
tender option bond at par; however, the value of the instrument will be
monitored to assure that it is valued at fair value.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the extent that
the ratings given by Moody's, S&P or Fitch for Municipal Obligations may
change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
Fund's Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and
are not absolute standards of quality. Although these ratings may be an
initial criterion for selection of portfolio investments, the Manager also
will evaluate these securities.
Illiquid Securities. Where a substantial market of qualified
institutional buyers develops for certain restricted securities purchased
by the Fund pursuant to Rule 144A under the Securities Act of 1933, as
amended, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board. Because it is not
possible to predict with assurance how the market for restricted securities
pursuant to Rule 144A will develop, the Fund's Board has directed the
Manager to monitor carefully the Fund's investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, the Fund's investing in such securities
may have the effect of increasing the level of illiquidity in its portfolio
during such period.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, are supported by the full faith and credit
of the U.S. Treasury; others by the right of the issuer to borrow from the
U.S. Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others
only by the credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so,
since it is not so obligated by law.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate. Investments in time deposits generally
are limited to London branches of domestic banks that have total assets in
excess of one billion dollars. Time deposits which may be held by the Fund
will not benefit from insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit Insurance
Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Management Policies
Derivatives. The Fund may invest in Derivatives (as defined in the
Prospectus) for a variety of reasons, including to hedge certain market
risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the risk, or change the character of the risk, of its portfolio by
making investments in specific securities.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter Derivatives. Therefore, each party to an over-
the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the Derivative to be interested
in bidding for it.
Futures Transactions--In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Fund may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate cash or high
quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting
the Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at
a specific price.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date. Conversely, a put option
gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers
the transaction by segregating cash or other securities. A put option
written by the Fund is covered when, among other things, cash or liquid
securities having a value equal to or greater than the exercise price of
the option are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. The Fund receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If,
as a covered call option writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Future Developments. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Forward Commitments. Municipal Obligations and other securities
purchased on a forward commitment or when-issued basis are subject to
changes in value (generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise)
based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may
expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.
Lending Portfolio Securities. In connection with its securities
lending transactions, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received from securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in
connection with the loan. These conditions may be subject to future
modification.
Investment Considerations and Risks
Investing in New York Municipal Obligations. Each investor should
consider carefully the special risks inherent in the investment in New York
Municipal Obligations by the Fund. These risks result from the financial
condition of New York State and certain of its public bodies and
municipalities, including New York City. Beginning in early 1975, New York
State, New York City and other State entities faced serious financial
difficulties which jeopardized the credit standing and impaired the
borrowing abilities of such entities and contributed to high interest rates
on, and lower market prices for, debt obligations issued by them. A
recurrence of such financial difficulties or a failure of certain financial
recovery programs could result in defaults or declines in the market values
of various New York Municipal Obligations in which the Fund may invest. If
there should be a default or other financial crisis relating to New York
State, New York City, a State or City agency, or a State municipality, the
market value and marketability of outstanding New York Municipal
Obligations in the Fund's portfolio and the interest income to the Fund
could be adversely affected. Moreover, the national recession and the
significant slowdown in the New York and regional economies in the early
1990s added substantial uncertainty to estimates of the State's tax
revenues, which, in part, caused the State to incur cash-basis operating
deficits in the General Fund and issue deficit notes during the fiscal
periods 1989 through 1992. The State's financial operations improved,
however, during the 1993 and 1994 fiscal years. After reflecting a 1993
year-end deposit to the refund reserve account of $671 million, reported
1993 General Fund receipts were $45 million higher than originally
projected in April 1992. The State completed the 1994 fiscal year with
operating surpluses of $914 million. The State reported a General Fund
operating deficit of $1.426 billion for the 1995 fiscal year. There can be
no assurance that New York will not face substantial potential budget gaps
in future years. In January 1992, Moody's lowered from A to Baa1 the
ratings on certain appropriation-backed debt of New York State and its
agencies. The State's general obligation, state guaranteed and New York
State Local Government Assistance Corporation bonds continue to be rated A
by Moody's. In January 1992, S&P lowered from A to A- the ratings of New
York State general obligation bonds and stated that it continued to assess
the ratings outlook as negative. The ratings of various agency debt, state
moral obligations, contractual obligations, lease purchase obligations and
state guarantees also were lowered. In February 1991, Moody's lowered its
rating on New York City's general obligation bonds from A to Baa1 and in
July 1995, S&P lowered its rating on such bonds from A- to BBB+. The
rating changes reflect the rating agencies' concerns about the financial
condition of New York State and City, the heavy debt load of the State and
City, and economic uncertainties in the region. Investors should review
"Appendix A" which more fully sets forth these and other risk factors.
Lower Rated Bonds. The Fund is permitted to invest in securities
rated Ba or lower by Moody's or BB or lower by S&P and Fitch and as low as
the lowest rating assigned by Moody's, S&P or Fitch. Such bonds, though
higher yielding, are characterized by risk. See "Description of the Fund--
Investment Considerations and Risks--Lower Rated Bonds" in the Prospectus
for a discussion of certain risks and "Appendix B" for a general
description of Moody's, S&P and Fitch ratings of Municipal Obligations.
Although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these
bonds. The Fund will rely on the Manager's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these
bonds tend to be more sensitive to economic conditions than are higher
rated securities. These bonds generally are considered by Moody's, S&P and
Fitch to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation
and generally will involve more credit risk than securities in the higher
rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market
price and yield and the Fund's ability to dispose of particular issues when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating its
net asset value. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
these securities. In such cases, judgment may play a greater role in
valuation because less reliable objective data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon and increase the incidence of
default for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any persons concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon bonds and pay-in-kind bonds in which the
Fund may invest up to 5% of its net assets. Such zero coupon, pay-in-kind
or delayed interest bonds carry an additional risk in that, unlike bonds
which pay interest throughout the period to maturity, the Fund will realize
no cash until the cash payment date unless a portion of such securities are
sold and, if the issuer defaults, the Fund may obtain no return at all on
its investment. See "Dividends, Distributions and Taxes."
Investment Restrictions
The Fund has adopted investment restrictions numbered 1 through 7 as
fundamental policies, which cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding voting shares.
Investment restrictions numbered 8 through 12 are not fundamental policies
and may be changed by vote of a majority of the Fund's Board members at any
time. The Fund may not:
1. Invest more than 25% of its assets in the securities of issuers
in any single industry; provided that there shall be no limitation on the
purchase of Municipal Obligations and, for temporary defensive purposes,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1.3% of the value of the
Fund's total assets). For purposes of this investment restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
3. Purchase or sell real estate, commodities or commodity contracts,
or oil and gas interests, but this shall not prevent the Fund from
investing in Municipal Obligations secured by real estate or interests
therein, or prevent the Fund from purchasing and selling options, forward
contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices.
4. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available, and except to the extent the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
by virtue of disposing of portfolio securities.
5. Make loans to others except through the purchase of debt
obligations and the entry into repurchase agreements; however, the Fund may
lend its portfolio securities in an amount not to exceed 33-1/3% of the value
of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board.
6. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent that the activities permitted
in Investment Restriction Nos. 2, 3 and 10 may be deemed to give rise to a
senior security.
7. Sell securities short or purchase securities on margin, but the
Fund may make margin deposits in connection with transactions in options,
forward contracts, futures contracts, including those relating to indices
and options on futures contracts or indices.
8. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and options or
as otherwise provided in the Fund's Prospectus.
9. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings, and except
to the extent related to the deposit of assets in escrow in connection with
the purchase of securities on a when-issued or delayed-delivery basis and
collateral and initial or variation margin arrangements with respect to
options, futures contracts, including those relating to indices, and
options on futures contracts or indices.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid
(which securities could include participation interests (including
municipal lease/purchase agreements) that are not subject to the demand
feature described in the Fund's Prospectus, and floating and variable rate
demand obligations as to which the Fund cannot exercise the demand feature
described in the Fund's Prospectus on less than seven days' notice and as
to which there is no secondary market) if, in the aggregate, more than 15%
of its net assets would be so invested.
12. Invest in companies for the purpose of exercising control.
For purposes of Investment Restriction No. 1, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry."
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values
or assets will not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interest of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Board members and officers of the Fund, together with information as
to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Fund, as defined in the 1940 Act, is indicated
by an asterisk.
Board Members of the Fund
CLIFFORD L. ALEXANDER, JR., Board Member. President of Alexander &
Associates, Inc., a management consulting firm. From 1977 to 1981,
Mr. Alexander served as Secretary of the Army and Chairman of the
Board of the Panama Canal Company, and from 1975 to 1977, he was a
member of the Washington, D.C. law firm of Verner, Liipfert, Bernhard,
McPherson and Alexander. He is a director of American Home Products
Corporation, The Dun & Bradstreet Corporation, MCI Communications
Corporation and Mutual of America Life Insurance Company. He is 62
years old and his address is 400 C Street, N.E., Washington, D.C.
20002.
PEGGY C. DAVIS, Board Member. Shad Professor of Law, New York University
School of Law. Professor Davis has been a member of the New York
University law faculty since 1983. Prior to that time, she served for
three years as a judge in the courts of New York State; was engaged
for eight years in the practice of law, working in both corporate and
non-profit sectors; and served for two years as a criminal justice
administrator in the government of the City of New York. She writes
and teaches in the fields of evidence, constitutional theory, family
law, social sciences and the law, legal process and professional
methodology and training. She is 53 years old and her address is
c/o New York University School of Law, 249 Sullivan Street, New York,
New York 10011.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the Fund's distributor. From August 1994 to December
31, 1994, he was a director of Mellon Bank Corporation. He is
Chairman of the Board of Directors of Noel Group, Inc., a venture
capital company; a trustee of Bucknell University; and a director of
the Muscular Dystrophy Association, HealthPlan Services Corporation,
Belding Heminway, Inc., a manufacturer of industrial threads,
specialty yarns and home furnishings and fabrics, Curtis Industries,
Inc., a national distributor of securities products, chemicals, and
automotive and other hardware, and Staffing Resources, Inc. He is 52
years old and his address is 200 Park Avenue, New York, New York
10166.
ERNEST KAFKA, Board Member. A physician engaged in private practice
specializing in the psychoanalysis of adults and adolescents. Since
1981, he has served as an Instructor at the New York Psychoanalytic
Institute and, prior thereto, held other teaching positions. He is
Associate Clinical Professor of Psychiatry at Cornell Medical School.
For more than the past five years, Dr. Kafka has held numerous
administrative positions, including President of The New York
Psychoanalytic Society, and has published many articles on subjects in
the field of psychoanalysis. He is 63 years old and his address is 23
East 92nd Street, New York, New York 10128.
SAUL B. KLAMAN, Board Member. Chairman and Chief Executive Officer of SBK
Associates, which provides research and consulting services to
financial institutions. Dr. Klaman was President of the National
Association of Mutual Savings Banks until November 1983, President of
the National Council of Savings Institutions until June 1985, Vice
Chairman of Golembe Associates and BEI Golembe, Inc. until 1989 and
Chairman Emeritus of BEI Golembe, Inc. until November 1992. He also
served as an Economist to the Board of Governors of the Federal
Reserve System and on several Presidential Commissions, and has held
numerous consulting and advisory positions in the fields of economics
and housing finance. He is 76 years old and his address is 431-B
Dedham Street, The Gables, Newton Center, Massachusetts 02159.
NATHAN LEVENTHAL, Board Member. President of Lincoln Center for the
Performing Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations
of New York City from September 1979 until March 1984 and Commissioner
of the Department of Housing Preservation and Development of New York
City from February 1978 to September 1979. Mr. Leventhal was an
associate and then a member of the New York law firm of Poletti
Freidin Prashker Feldman and Gartner from 1974 to 1978. He was
Commissioner of Rent and Housing Maintenance for New York City from
1972 to 1973. Mr. Leventhal serves as Chairman of Citizens Union, an
organization which strives to reform and modernize city and state
government. He is 53 years old and his address is 70 Lincoln Center
Plaza, New York, New York 10023-6583.
For so long as the Fund's plan described in the section captioned
"Service Plan" remains in effect, the Board members of the Fund who are not
"interested persons" of the Fund, as defined in the 1940 Act, will be
selected and nominated by the Board members who are not "interested
persons" of the Fund.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund and the fiscal year
ended October 31, 1995, and by all other funds in the Dreyfus Family of
Funds for which such person is a Board member (the number of which is set
forth in parenthesis next to each Board member's total compensation) for
the year ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
(3) (5)
(2) Pension or (4) Total Compensation
(1) Aggregate Retirement Benefits Estimated Annual From Fund and Fund
Name of Board Compensation from Accrued as Part of Benefits Upon Complex Paid to
Member Fund* Fund's Expenses Retirement Board Member
<S> <C> <C> <C> <C>
Clifford L. Alexander, Jr. $5,000 none none $ 94,386 (17)
Peggy C. Davis $5,000 none none $ 81,636 (15)
Joseph S. DiMartino $5,643 none none $448,618 (94)
Ernest Kafka $5,000 none none $ 81,136 (15)
Saul B. Klaman $5,000 none none $ 81,886 (15)
Nathan Leventhal $5,000 none none $ 81,636 (15)
_____________________
* Amount does not include reimbursed expenses for attending Board meetings, which amounted to $486 for all Board members
as a group.
</TABLE>
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Executive of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc. Prior to December 1991, she served as Vice
President and Controller, and later as Senior Vice President, of The
Boston Company Advisors. She is 38 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992
to July 1994, he served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, he was employed as an
Associate at Ropes & Gray. He is 31 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to August
1994, he was manager of the High Performance Fabric Division of
Springs Industries Inc. He is 34 years old.
ELIZABETH BACHMAN, Vice President and Assistant Secretary. Assistant Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years
old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From September 1992
to August 1994, he was an attorney with the Board of Governors of the
Federal Reserve System. He is 31 years old.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The Boston
Company, Inc. where he held various management positions in the
Corporate Finance and Treasury areas. He is 33 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1984 to July 1994, he was Assistant
Vice President in the Mutual Fund Accounting Department of the
Manager. He is 60 years old.
MARGARET PARDO, Assistant Secretary. Legal Assistant with the Distributor
and an officer of other investment companies advised or administered
by the Manager. From June 1992 to April 1995. She was a Medical
Coordination Officer at ORBIS International. Prior to June 1992, she
worked as Program Coordinator at Physicians World Communications
Group. She is 27 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Board members and officers of the Fund, as a group, owned less than 1%
of the Fund's Shares outstanding on February 6, 1996.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders on August 3, 1994, and was last
approved by the Fund's Board, including a majority of the Board members who
are not "interested persons" of any party to the Agreement, at a meeting
held on September 27, 1995. The Agreement is terminable without penalty,
on 60 days' notice, by the Fund's Board or by vote of the holders of a
majority of the Fund's shares, or, on not less than 90 days' notice, by the
Manager. The Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration and a director; William T. Sandalls, Jr., Senior Vice
President and Chief Financial Officer; Barbara E. Casey, Vice President-
Dreyfus Retirement Services; Diane M. Coffey, Vice President-Corporate
Communications; Elie M. Genadry, Vice President-Institutional Sales;
William F. Glavin, Jr., Vice President-Corporate Development; Mark N.
Jacobs, Vice President, General Counsel and Secretary; Mary Beth Leibig,
Vice President-Human Resources; Jeffrey N. Nachman, Vice President-Mutual
Fund Accounting; Andrew S. Wasser, Vice President-Information Services;
Maurice Bendrihem, Controller; Elvira Oslapas, Assistant Secretary; and
Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene
and Julian M. Smerling, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions and provides
the Fund with portfolio managers who are authorized by the Board to execute
purchases and sales of securities. The Fund's portfolio managers are
Richard J. Moynihan, Joseph P. Darcy, A. Paul Disdier, Douglas J. Gaylor,
Karen M. Hand, Stephen C. Kris, Jill C. Shaffro, L. Lawrence Troutman,
Samuel J. Weinstock and Monica S. Wieboldt. The Manager also maintains a
research department with a professional staff of portfolio managers and
securities analysts who provide research services for the Fund as well as
for other funds advised by the Manager. All purchases and sales are
reported for the Board's review at the meeting subsequent to such
transactions.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include, without limitation: taxes, interest,
loan commitment fees, interest and distributions paid on securities sold
short, brokerage fees and commissions, if any, fees of Board members who
are not officers, directors, employees or holders of 5% or more of the
outstanding voting securities of the Manager, Securities and Exchange Com-
mission fees, state Blue Sky qualification fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining corporate existence, costs of independent
pricing services, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of preparing
and printing prospectuses and statements of additional information for
regulatory purposes and for distribution in existing shareholders, costs of
shareholders' reports and any extraordinary expenses. In addition, Fund
shares are subject to an annual service and distribution fee. See "Service
Plan."
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. For the fiscal years ended
October 31, 1993, 1994 and 1995, the management fees payable amounted to
$2,214,742, $2,150,206 and $1,876,783, respectively, which amounts were
reduced by $810,067, $440,853 and $130,377, respectively, pursuant to
undertakings in effect, resulting in net fees paid to the Manager of
$1,404,675 in fiscal 1993, $1,709,353 in fiscal 1994 and $1,746,406 in
fiscal 1995.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings
and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee,
exceed 1-1/2% of the value of the Fund's average net assets for that fiscal
year, the Fund may deduct from the payment to be made to the Manager under
the Agreement, or the Manager will bear, such excess expense. Such
deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Shares."
The Distributor. The Distributor serves as the Fund's distributor on
a best efforts basis pursuant to an agreement dated August 24, 1994. The
Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies. In some
states, certain financial institutions effecting transactions in Fund
shares may be required to register as dealers pursuant to state law.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 P.M., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York
Stock Exchange are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 P.M., New York time, on any business day
the Transfer Agent and the New York Stock Exchange are open for business,
or orders made on Saturday, Sunday or any Fund holiday (e.g., when the New
York Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of Fund shares must be drawn on, and
redemption proceeds paid to, the same bank and account as are designated on
the Account Application or Shareholder Services Form on file. If the
proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"Redemption of Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
SERVICE PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Service
Plan."
Service Plan. Rule 12b-1 (the "Rule") adopted by the Securities and
Exchange Commission under the 1940 Act provides, among other things, that
an investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with the Rule. The Fund's Board
has adopted such a plan (the "Plan") pursuant to which the Fund (a)
reimburses the Distributor for payments to certain securities dealers,
certain financial institutions (which may include banks) or other industry
professionals such as investment advisers, accountants and estate planning
firms (collectively, "Service Agents") for distributing the Fund's shares
and servicing shareholder accounts ("Servicing") and (b) pay the Manager,
Dreyfus Service Corporation and any affiliate of either of them ("Dreyfus")
for advertising and marketing relating to the Fund and or Servicing. The
Fund's Board believes that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Plan provides that it may not be
amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval and that
other material amendments of the Plan must be approved by the Board, and by
Board members who are not "interested persons" (as defined in the 1940 Act)
of the Fund or the Manager and have no direct or indirect financial
interest in the operation of the Plan or in the related service agreements,
by vote of the Board members cast in person at a meeting called for the
purpose of considering such amendments. The Plan and the related service
agreements are subject to annual approval by such vote of the Board members
cast in person at a meeting called for the purpose of voting on the Plan.
The Plan was last so approved by the Board at a meeting held on September
27, 1995. The Plan is terminable at any time by vote of a majority of the
Board members who are not "interested persons" and have no direct or
indirect financial interest in the operation of the Plan or in any of the
related service agreements or by vote of a majority of the Fund's shares.
For the fiscal year ended October 31, 1995, the Fund (a) reimbursed
the Distributor $16,111 for payments made to Service Agents for
distributing Fund shares and servicing shareholder accounts, and (b) paid
Dreyfus $609,484 for advertising and marketing Fund shares and for
servicing shareholder accounts. In addition, the Fund paid $8,538 for
printing the Fund's prospectuses and statements of additional information
as well as implementing and operating the Plan.
REDEMPTION OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the investor's Fund account. Checks will be
sent only to the registered owner(s) of the account and only to the address
of record. The Account Application or later written request must be
manually signed by the registered owner(s). Checks may be made payable to
the order of any person in an amount of $500 or more. When a Check is
presented to the Transfer Agent for payment, the Transfer Agent, as the
investor's agent, will cause the Fund to redeem a sufficient number of full
and fractional shares in the investor's account to cover the amount of the
Check. Dividends are earned until the Check clears. After clearance, a
copy of the Check will be returned to the investor. Investors generally
will be subject to the same rules and regulations that apply to checking
accounts, although election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient
funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt by the Transfer Agent of the
redemption request in proper form. Redemption proceeds ($1,000 minimum)
will be transferred by Federal Reserve wire only to the commercial bank
account specified by the investor on the Account Application or Shareholder
Services Form or to a correspondent bank if the investor's bank is not a
member of the Federal Reserve System. Fees ordinarily are imposed by such
bank and usually are borne by the investor. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmission:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Shares--Dreyfus TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP"), and the Stock Exchanges Medallion Program.
Guarantees must be signed by an authorized signatory of the guarantor and
"Signature-Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Fund's Board reserves the right to make payments in whole or in
part in securities or other assets of the Fund in case of an emergency or
any time a cash distribution would impair the liquidity of the Fund to the
detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Fund's portfolio is valued. If
the recipient sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of the Fund's investments or deter-
mination of its net asset value is not reasonably practicable, or (c) for
such other periods as the Securities and Exchange Commission by order may
permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Shareholder
Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a sales
load and additional shares acquired through reinvestment of
dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load applicable
to the Offered Shares exceeds the maximum sales load that could
have been imposed in connection with the Purchased Shares (at the
time the Purchased Shares were acquired), without giving effect to
any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their
account number.
To request an exchange, an investor, or an investor's Service Agent
acting on the investor's behalf, must give exchange instructions to the
Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the applicable "No" box on the Account
Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor or a
representative of the investor's Service Agent, and reasonably believed by
the Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares issued in certificate form are not eligible for
telephone exchange.
To establish a personal retirement plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in corporate plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in
personal retirement plans, the shares exchanged must have a current value
of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares
of another fund in the Dreyfus Family of Funds. This Privilege is
available only for existing accounts. Shares will be exchanged on the
basis of relative net asset value as described above under "Fund
Exchanges." Enrollment in or modification or cancellation of this
Privilege is effective three business days following notification by the
investor. An investor will be notified if his account falls below the
amount designated to be exchanged under this Privilege. In this case, an
investor's account will fall to zero unless additional investments are made
in excess of the designated amount prior to the next Auto-Exchange
transaction. Shares held under IRA and other retirement plans are eligible
for this Privilege. Exchanges of IRA shares may be made between IRA
accounts and from regular accounts to IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available
to shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or
Dreyfus Auto-Exchange Privilege may be modified or terminated at any time
upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends
and distributions, the investor's shares will be reduced and eventually may
be depleted. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the
Fund or the Transfer Agent. Shares for which stock certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the
basis of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested without
imposition of a sales load in shares of other funds that are
offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a
sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Shares."
Valuation of Portfolio Securities. The Fund's investments are valued
by an independent pricing service (the "Service") approved by the Fund's
Board. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of
the market, these investments 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 municipal bonds of comparable quality, coupon, maturity
and type; indications as to values from dealers; and general market
conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. The Service's procedures
are reviewed by the Fund's officers under the general supervision of the
Fund's Board. Expenses and fees, including the management fee (reduced by
the expense limitation, if any) and fees pursuant to the Service Plan, are
accrued daily and are taken into account for the purpose of determining the
net asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily
are purchased directly from the issuer or from an underwriter; other
purchases and sales usually are placed with those dealers from which it
appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases and
sales, although the price paid usually includes an undisclosed compensation
to the dealer acting as agent. The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to
the underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses
of its research department.
The Fund's portfolio turnover rate for the fiscal years ended
October 31, 1994 and 1995 was 24.56% and 65.91%, respectively. The Fund
anticipates that its annual portfolio turnover rate generally will not
exceed 100%, but the turnover rate will not be a limiting factor when the
Fund deems it desirable to sell or purchase securities. Therefore,
depending upon market conditions, the Fund's annual portfolio turnover rate
may exceed 100% in particular years.
The amount of transactions during the fiscal year ended October 31,
1995 in newly issued debt instruments in fixed price public offerings
directed to an underwriter or underwriters in consideration of, among other
things, research services provided was $2,426,063.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
Management believes that the Fund has qualified as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended
(the "Code"), for the fiscal year ended October 31, 1995, and the Fund
intends to continue to so qualify if such qualification is in the best
interests of its shareholders. As a regulated investment company, the Fund
will pay no Federal income tax on net investment income and net realized
capital gains to the extent that such income and gains are distributed to
shareholders in accordance with applicable provisions of the Code. The
term "regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of his shares below the
cost of his investment. Such a distribution would be a return on the
investment in an economic sense although taxable as stated in "Dividends,
Distributions and Taxes" in the Prospectus. In addition, the Code provides
that if a shareholder has not held his Fund shares for more than six months
(or such shorter period as the Internal Revenue Service may prescribe by
regulation) and has received an exempt-interest dividend with respect to
such shares, any loss incurred on the sale of such shares will be
disallowed to the extent of the exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains or losses. However, all or a portion of any
gains realized from the sale or other disposition of certain market
discount bonds will be treated as ordinary income under Section 1276 of the
Code. In addition, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258 of the Code. "Conversion transactions" are defined to include certain
forward, futures, option and "straddle" transaction, transactions marketed
or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss the Fund realizes from
certain futures and options transactions will be treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. Gain or loss
will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures or options
remaining unexercised at the end of the Fund's taxable year will be treated
as sold for their then fair market value, resulting in additional gain or
loss to the Fund characterized in the manner described above.
Offsetting positions held by the Fund involving certain futures and
options transactions may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is
governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Section 1256 of the
Code. As such, all or a portion of any short- or long-term capital gain
from certain "straddle" transactions may be recharacterized to ordinary
income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in certain futures or options transactions, such "straddles" could
be characterized as "mixed straddles" if the futures or options
transactions comprising a part of such "straddles" were governed by Section
1256 of the Code. The Fund may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the
results to the Fund may differ. To the extent the "straddle" rules apply
to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in the offsetting position.
Moreover, as a result of the "straddle" and conversion transaction rules,
short-term capital losses on "straddle" positions may be recharacterized as
long-term capital losses, and long-term capital gains may be treated as
short-term capital gains or ordinary income.
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such
portion in order to maintain its qualification as a regulated investment
company. In such case, the Fund may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Performance
Information."
The Fund's current yield for the 30-day period ended October 31, 1995
was 4.89%. Current yield is computed pursuant to a formula which operates
as follows: The amount of the Fund's expenses accrued for the 30-day
period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned (computed in accordance with regulatory
requirements) by the Fund during the period. That result is then divided
by the product of: (a) the average daily number of shares outstanding
during the period that were entitled to receive dividends, and (b) the net
asset value per share on the last day of the period less any undistributed
earned income per share reasonably expected to be declared as a dividend
shortly thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The current yield is
then arrived at by multiplying the result by 2.
Based upon a combined 1994 Federal, New York State and New York City
effective tax rate of 47.05%, the Fund's tax equivalent yield for the
30-day period ended October 31, 1995 was 9.24%. Tax equivalent yield is
computed by dividing that portion of the current yield (calculated as
described above) which is tax exempt by 1 minus a stated tax rate and
adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt.
The tax equivalent yield noted above represents the application of the
highest Federal, New York State and New York City marginal personal income
tax rates presently in effect. For Federal personal income tax purposes, a
39.60% tax rate has been used. For New York State personal income tax
purposes, a 7.875% tax rate has been used. For New York City personal
income tax purposes, a 4.46% tax rate has been used. The tax equivalent
figure, however, does not reflect the potential effect of any local
(including, but not limited to, county, district or city, other than New
York City) taxes, including applicable surcharges. In addition, there may
be pending legislation which could affect such stated tax rates or yields.
Each investor should consult its tax adviser, and consider its own factual
circumstances and applicable tax laws, in order to ascertain the relevant
tax equivalent yield.
The Fund's average annual total return for the 1, 5 and 10 year
periods ended October 31, 1995 was 12.98%, 9.12% and 8.05%, respectively.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
The Fund's total return for the period from November 19, 1984 to
October 31, 1995 was 145.44%. Total return is calculated by subtracting
the amount of the Fund's net asset value per share at the beginning of a
stated period from the net asset value per share at the end of the period
(after giving effect to the reinvestment of dividends and distributions
during the period), and dividing the result by the net asset value per
share at the beginning of the period.
Certain performance figures set forth above are for periods when the
Fund's investment restrictions were different from what they are as of the
date hereof. See "Information About the Fund."
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and not as representative of the Fund's
past or future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or
events, including those relating to or arising from actual or proposed tax
legislation, statistical or other information relating to investment
companies, as compiled by industry associations such as the Investment
Company Institute, and Morningstar ratings and related analysis supporting
such rating.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Fund shares are of one class and have equal rights as to
dividends and liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the
Fund, the Transfer Agent arranges for the maintenance of shareholder
account records for the Fund, the handling of certain communications
between shareholders and the Fund and the payment of dividends and
distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month, and is reimbursed for
certain out-of-pocket expenses. The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's custodian. Neither the
Transfer Agent nor The Bank of New York has any part in determining the
investment policies of the Fund or which securities are to be purchased or
sold by the Fund.
Stroock & Stroock & Lavan, Seven Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
The financial condition of New York State (the "State") and certain of
its public bodies (the "Agencies") and municipalities, particularly New
York City (the "City"), could affect the market values and marketability of
New York Municipal Obligations which may be held by the Fund. The
following information constitutes only a brief summary, does not purport to
be a complete description, and is based on information drawn from official
statements relating to securities offerings of the State, the City and the
Municipal Assistance Corporation for the City of New York ("MAC") available
as of the date of this Statement of Additional Information. While the Fund
has not independently verified such information, it has no reason to
believe that such information is not correct in all material respects.
A national recession commenced in mid-1990. The downturn continued
through the remainder of the 1990-91 fiscal year, and was followed by a
period of weak economic growth during the remainder of the 1991 calendar
year. For the calendar year 1992, the national economy continued to
recover, although at a rate below all post-war recoveries. The recession
was more severe in the State than in other parts of the nation, owing to a
significant retrenchment in the financial services industry, cutbacks in
defense spending, and an overbuilt real estate market. The State economy
remained in recession until 1993, when employment growth resumed. Since
early 1993, the State has gained approximately 100,000 jobs. The State's
economy expanded modestly during 1995. Although industries that export
goods and services abroad are expected to benefit from the lower dollar,
growth will be slowed by government cutbacks at all levels. On an average
annual basis, employment growth in 1995 was estimated to be about the same
as 1994. Both personal income and wages were estimated to have recorded
moderate gains in 1995. Employment growth is expected to slow
significantly in 1996 as the pace of national economic growth slackens,
entire industries experience consolidations, and governmental employment
continues to shrink. Personal income is estimated to increase by 4.0% in
1996.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for 1995-96 fiscal year was
formulated on June 20, 1995 and is based on the State's budget as enacted
by the Legislature and signed into law by the Governor.
The 1995-96 budget was the first to be enacted in the administration
of the Governor, who assumed office on January 1. It was the first budget
in over half a century which proposed and, as enacted, projected an
absolute year-over-decline in General Fund disbursements. Spending for
State operations was projected to drop even more sharply, by 4.6%. Nominal
spending from all State funding sources (i.e., excluding Federal aid) was
proposed to increase by only 2.5% from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0% annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of
unfunded 1994-95 initiatives, primarily for local aid programs; and the use
of one-time solutions, primarily surplus funds from the prior year, to fund
recurring spending in the 1994-95 budget. The Governor proposed additional
tax cuts, to spur economic growth and provide relief for low and middle-
income tax payers, which were larger than those ultimately adopted, and
which added $240 million to the then projected imbalance or budget gap,
bringing their total to approximately $5 billion.
This gap was projected to be closed in the 1995-96 State Financial
Plan based on the enacted budget, through a series of actions, mainly
spending reductions and cost containment measures and certain reestimates
that were expected to be recurring, but also through the use of one-time
solutions.
The General Fund was projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds were
projected to be $33.110 billion, a decrease of $48 million from total
receipts in the prior fiscal year. Total General Fund disbursements and
transfers to other funds were projected to be $33.055 billion, a decrease
of $344 million from the total amount disbursed in the prior fiscal year.
The State Financial Plan was based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to
predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the
national and State economies, including consumer attitudes toward spending,
Federal financial and monetary policies, the availability of credit and the
condition of the world economy, which could have an adverse effect on the
State. There can be no assurance that the State economy will not
experience worse-than-predicted results, with corresponding material and
adverse effects on the State's projections of receipts and disbursements.
The State issued its second quarterly update to the cash-basis 1995-96
State Financial Plan (the "Mid-Year Update") on October 26, 1995.
Revisions have been made to estimates of both receipts and disbursements
based on: (1) updated economic forecasts for both the nation and the
State, (2) an analysis of actual receipts and disbursements through the
first six months of the fiscal year, and (3) an assessment of changing
program requirements and cost savings initiatives. The Mid-Year Update
projects continued balance in the State's 1995-96 Financial Plan,with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million. The resulting General Fund balance decreases
to $172 million in the Mid-Year Update, reflecting the expected use of $41
million from the Contingency Reserve Fund for payment of litigation and
disallowance expenses.
On October 2, 1995, the State Comptroller released a report entitled
"Comptroller's Report on the Financial Condition of New York State 1995" in
which he identified several risks to the State Financial Plan and
reaffirmed his estimate that the State faces a potential imbalance in
receipts and disbursements of at least $2.7 billion for the State's 1996-97
fiscal year and at least $3.9 billion for the State's 1997-98 fiscal year.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts
base and the spending required to maintain State programs at current
levels. To address any potential budgetary imbalance, the State may need
to take significant actions to align recurring receipts and disbursements
in future fiscal years.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and
January 13, 1992, S&P changed its ratings on all of the State's outstanding
general obligation bonds from AA- to A and from A to A-, respectively. In
February 1991, Moody's lowered its rating on the City's general obligation
bonds from A to Baa1 and in July 1995, S&P lowered its rating on such bonds
from A- to BBB+. Ratings reflect only the respective views of such
organizations, and their concerns about the financial condition of New York
State and City, the debt load of the State and City and any economic
uncertainties about the region. There is no assurance that a particular
rating will continue for any given period of time or that any such rating
will not be revised downward or withdrawn entirely if, in the judgment of
the agency originally establishing the rating, circumstances so warrant.
(1) The State, Agencies and Other Municipalities. During the mid-
1970s, some of the Agencies and municipalities (in particular, the City)
faced extraordinary financial difficulties, which affected the State's own
financial condition. These events, including a default on short-term notes
issued by the New York State Urban Development Corporation ("UDC") in
February 1975, which default was cured shortly thereafter, and a
continuation of the financial difficulties of the City, created substantial
investor resistance to securities issued by the State and by some of its
municipalities and Agencies. For a time, in late 1975 and early 1976,
these difficulties resulted in a virtual closing of public credit markets
for State and many State related securities.
In response to the financial problems confronting it, the State
developed and implemented programs for its 1977 fiscal year that included
the adoption of a balanced budget on a cash basis (a deficit of $92 million
that actually resulted was financed by issuing notes that were paid during
the first quarter of the State's 1978 fiscal year). In addition,
legislation was enacted limiting the occurrence of additional so-called
"moral obligation" and certain other Agency debt, which legislation does
not, however, apply to MAC debt.
State Financial Plan--GAAP-Basis Results--1995-96 Update. The State
issued its first update to the GAAP-basis Financial Plan for the State's
1995-96 fiscal year on September 1, 1995. The September GAAP-basis update
projected a General Fund operating surplus of $401 million. The prior
projection of the 1995-96 GAAP-basis State Financial Plan, issued in March
1995 as part of the 1995-96 Executive Budget, projected an operating
surplus in the General Fund of $800 million. The change to the projection
primarily reflects the impact of legislative changes to the 1995-96
Executive Budge, as well as increases in projected accruals for certain
local assistance programs (primarily Medicaid).
Total revenues in the General Fund are projected at $31.871 billion,
consisting of $29.625 billion in tax revenues and $2.246 billion in
miscellaneous revenue. Total expenditures in the General Fund are
projected at $32.444 billion, including $22.678 billion for grants to local
governments, $8.037 billion for State operations, $1.711 billion for
general State charges, and $18 million for debt service. Compared to the
projections made in March, expenditures for grants to local governments are
substantially increased, primarily because of legislative changes to the
1995-96 Executive Budget and increased projected accruals for Medicaid.
For all governmental funds, the summary GAAP-basis Financial Plan
shows an excess of revenues and other financing sources over expenditures
and other financing uses of $359 million.
GAAP-Basis Results--1994-95 Fiscal Year. The State's Combined Balance
Sheet as of March 31, 1995 showed an accumulated deficit in its combined
governmental funds of $1.666 billion reflecting liabilities of $14.778
billion and assets of $13.112 billion. This accumulated governmental funds
deficit includes a $3.308 billion accumulated deficit in the General Fund,
as well as accumulated surpluses in the special Revenue and Debt Service
fund types of $877 million and $1.753 billion, respectively, and a $988
million accumulated deficit in the Capital Projects fund type.
The State completed its 1994-95 fiscal year with a combined
Governmental Funds operating deficit of $1.791 billion, which included
operating deficits int he General Fund of $1.426 billion, in the Capital
Projects Funds of $366 million, and in the Debt Service Funds of $38
million. There is an operating surplus in the Special Revenue Funds of $39
million.
GAAP-Basis Results--1993-94 Fiscal Year. The State reported a General Fund
operating surplus of $914 million for the 1993-94 fiscal year, as compared
to an operating surplus of $2.065 billion for the prior fiscal year. The
1993-94 fiscal year surplus reflects several major factors, including the
cash basis surplus recorded in 1993-94, the use of $671 million of the
1992-93 surplus to fund operating expenses in 1993-94, net proceeds of $575
million in bonds issued by the New York Local Government Assistance
Corporation ("LGAC") and the accumulation of a $265 million balance in the
Contingency Reserve Fund ("CRF"). Revenues increased $543 million (1.7%)
over prior fiscal year revenues with the largest increase occurring in
personal income taxes. Expenditures increased $1.659 billion (5.6%) over
the prior fiscal year, with the largest increase occurring in State aid for
social services programs.
The Special Revenue fund and Debt Service fund ended 1993-94 with
operating surpluses of $149 million and $23 million, respectively. The
Capital Projects fund ended with an operating deficit of $35 million.
GAAP-Basis Results--1992-93 Fiscal Year. The State completed its 1992-93
fiscal year with a GAAP-basis operating surplus of $2.065 billion in the
General Fund and an accumulated deficit of $2.551 billion. The Combined
Statement of Revenues, Expenditures and Changes in Fund Balances reported
total revenues of $31.085 billion, total expenditures of $29.337 billion,
and net other financing sources and uses of $317 million. The surplus
primarily reflects the 1992-93 cash-basis surplus and the net proceeds of
$881 million in bonds issued by LGAC.
The Special Revenue, Debt Service and Capital Projects fund types
ended the 1992-93 fiscal year with GAAP-basis operating surpluses of $131
million, $381 million, and $57 million, respectively.
State Financial Plan--Cash-Basis Results--General Fund. The General
Fund is the principal operating fund of the State and is used to account
for all financial transactions, except those required to be accounted for
in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes.
General Fund moneys are also transferred to other funds, primarily to
support certain capital projects and debt service payments in other fund
types.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds are
projected to be $33.110 billion, a decrease of $48 million from total
receipts in the prior fiscal year. Total General Fund disbursements and
transfers to other funds are projected to be $33.055 billion, a decrease of
$344 million from the total amount disbursed in the prior fiscal year.
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State
incurred General Fund operating deficits that were closed with receipts
from the issuance of tax and revenue anticipation notes ("TRANs"). First,
the national recession, and then the lingering economic slowdown in the New
York and regional economy, resulted in repeated shortfalls in receipts and
three budget deficits. For its 1992-93, 1993-94 and 1994-95 fiscal years,
the State recorded balanced budgets on a cash basis, with substantial fund
balances in 1992-93 and 1993-94, and smaller fund balance in 1994-95, as
described below.
New York State ended its 1994-95 fiscal year with the General fund in
balance. The closing fund balance of $158 million reflects $157 million in
the Tax Stabilization Reserve Fund and $1 million in the Contingency
Reserve Fund ("CRF"). The CRF was established in State Fiscal year 1993-
94, funded partly with surplus monies, to assist the State in financing the
1994-95 fiscal year costs of extraordinary litigation known or anticipated
at that time; the opening fund balance in State fiscal year 1994-95 was
$265 million. The $241 million change in the fund balance reflects the use
of $264 million in the CRF as planned, as well as the required deposit of
$23 million to the Tax Stabilization Reserve Fund. In addition, $278
million was on deposit in the tax refund reserve account, $250 million of
which was deposited at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as part of the
New York Local Government Assistance Corporation ("LGAC") program.
Compared to the State Financial Plan for 1994-1995 as formulated on
June 16, 1994, reported receipts fell short of original projections by
$1.163 billion, primarily in the categories of personal income and business
taxes. Of this amount, the personal income tax accounts for $800 million,
reflecting weak estimated tax collections and lower withholding due to
reduced wage and salary growth, more severe reductions in brokerage
industry bonuses than projected earlier, and deferral of capital gains
realizations in anticipation of potential Federal tax changes. Business
taxes fell short by $373 million, primarily reflecting lower payments from
banks as substantial overpayments of 1993 liability depressed net
collections in the 1994-95 fiscal year. These shortfalls were offset by
better performance in the remaining taxes, particularly the user taxes and
fees, which exceeded projections by $210 million. Of this amount, $277
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact
on balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to
the CRF and LGAC which raised disbursements by $38 million, the variance is
$886 million. Well over two-thirds of this variance is in the category of
grants to local governments, primarily reflecting the conservative nature
of the original estimates of projected costs for social services and other
programs. Lower education costs are attributable to the availability of
$110 million in additional lottery proceeds and the use of LGAC bond
proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap
in the 1994-95 State Financial Plan. These actions included savings from a
hiring freeze, halting the development of certain services, and the
suspension of non-essential capital projects. These actions, together with
$71 million in other measures comprised the Governor's $259 million gap-
closing plan, submitted to the Legislature in connection with the 1995-96
Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in the CRF and $134
million in its tax stabilization reserve fund. These fund balances were
primarily the result of an improving national economy, State employment
growth, tax collections that exceeded earlier projections and disbursements
that were below expectations.
Before the deposit of $1.140 billion in the tax refund reserve
account, General Fund receipts in 1993-94 exceeded those originally
projected when the State Financial Plan for the year was formulated on
April 16, 1993 by $1.002 billion. Greater-than-expected receipts in the
personal income tax, the bank tax, the corporation franchise tax and the
estate tax accounted for most of this variance, and more than offset
weaker-than-projected collections from the sales and use tax and
miscellaneous receipts. The higher receipts resulted, in part, because the
New York economy performed better than forecasted. Employment growth
started in the first quarter of the State's 1993-94 year, and although this
lagged the national economic recovery, the growth in New York began earlier
than forecasted. The New York economy exhibited signs of strength in the
service sector, in construction, and in trade.
Disbursements and transfer from the General Fund were $303 million
below the level projected in April 1993, an amount that would have been
$423 million had the State not accelerated the payment of Medicaid
billings, which in the April 1993 State Financial Plan were planned to be
deferred into the 1994-95 fiscal year. Compared to the estimates included
in the State Financial Plan formulated in April 1993, disbursements were
lower for Medicaid, capital projects, and debt service (due to refundings).
In addition, $114 million of school and payments were funded from the
proceeds of LGAC bonds. Disbursements were higher-than-expected for
general support for public schools. The State also made the first of six
required payments to the State of Delaware related to the settlement of
Delaware's litigation against the State regarding the disposition of
abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal
year. In addition, the State augmented this initial deposit with $132
million on debt service savings attributable to the refinancing of State
and public authority bonds during 1993-94. A year-end transfer of $36
million was also made to the CRF, which, after a disbursement for
authorized fund purposes, brought the CRF balance at the end of 1993-94 to
$265 million. This amount was $165 million higher than the amount
originally targeted for this reserve fund.
The State ended the 1992-93 fiscal year with a balance on a cash basis
of $671 million in the General Fund that was deposited in the tax refund
reserve account and $67 million in the Tax Stabilization Fund.
After reflecting a 1992-93 year-end deposit to the refund reserve
account of $671 million, reported 1992-93 General Fund receipts were $45
million higher than originally projected in April 1992. If not for that
year-end transaction, which had the effect of reducing 1992-93 receipts by
$671 million and making those receipts available in 1993-94, General Fund
receipts would have been $716 million higher than originally projected.
During its 1989-90, 1990-91 and 1991-92 fiscal years, the State
incurred cash-basis operating deficits in the General Fund of $775 million,
$1.081 billion and $575 million, respectively, prior to the issuance of
short-term TRANs, owing to lower-than-projected receipts.
Cash-Basis Results--Other Governmental Funds. Activity in the three other
governmental funds has remained relatively stable over the last three
fiscal years, with Federally-funded programs comprising approximately two-
thirds of these funds. The most significant change in the structure of
these funds has been the redirection, beginning in the 1993-94 fiscal year,
of a portion of transportation-related revenues from the General Fund to
two new dedicated funds in the Special Revenue and Capital Projects Fund
types. These revenues totalling $676 million in the 1994-95 fiscal year
were used to support the capital programs of the Department of
Transportation and the Metropolitan Transportation Authority ("MTA").
The Special Revenue Funds account for State receipts from specific
sources that are legally restricted in use to specified purposes and
include all moneys received from the Federal government. Total receipts in
Special Revenue Funds are projected at $25.547 billion in the State's 1995-
96 fiscal year. Disbursements from Special Revenue Funds are projected to
be $26.002 billion for the State's 1995-96 fiscal year.
The Capital Projects Funds are used to finance the acquisition and
construction of major capital facilities and to aid local government units
and Agencies in financing capital constructions. Federal grants for
capital projects, largely highway-related, are projected to account for 24%
of the $4.170 billion in total projected receipts in Capital Projects Funds
in the State's 1995-96 fiscal year. Total disbursements for capital
projects are projected to be $4.160 billion during the State's 1995-96
fiscal year.
The Debt Service Funds serve to fulfill State debt service on long-
term general obligation State debt and other State lease/purchase and
contractual obligation financing commitments. Total receipts in Debt
Service Funds are projected to reach $2.409 billion in the State's 1995-96
fiscal year. Total disbursements from Debt Service Funds for debt service,
lease/purchase and contractual obligation financing commitments are
projected to be $2.506 billion for the 1995-96 fiscal year.
State Borrowing Plan. The State anticipates that its capital programs
will be financed, in part, through borrowings by the State and public
authorities in the 1995-96 fiscal year. The State expects to issue $248
million in general obligation bonds (including $70 million for purposes of
redeeming outstanding BANs) and $186 million in general obligation
commercial paper. The Legislature has also authorized the issuance of up
to $33 million in COPs during the State's 1995-96 fiscal year for equipment
purchases and $14 million for capital purposes. The projection of the
State regarding its borrowings for the 1995-96 fiscal year may change if
circumstances require.
In addition, the LGAC is authorized to provide net proceeds of up to
$529 million during the 1995-96 fiscal year to redeem notes sold in June
1995.
State Agencies. The fiscal stability of the State is related, at
least in part, to the fiscal stability of its localities and various of its
Agencies. Various Agencies have issued bonds secured, in part, by
non-binding statutory provisions for State appropriations to maintain
various debt service reserve funds established for such bonds (commonly
referred to as "moral obligation" provisions).
At September 30, 1994, there were 18 Agencies that had outstanding
debt of $100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 18 Agencies was $70.3 billion as of September 30,
1994. As of March 31, 1995, aggregate Agency debt outstanding as State-
supported debt was $27.9 billion and as State-related was $36.1 billion.
Debt service on the outstanding Agency obligations normally is paid out of
revenues generated by the Agencies' projects or programs, but in recent
years the State has provided special financial assistance, in some cases on
a recurring basis, to certain Agencies for operating and other expenses and
for debt service pursuant to moral obligation indebtedness provisions or
otherwise. Additional assistance is expected to continue to be required in
future years.
Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. Failure of the State to appropriate
necessary amounts or to take other action to permit certain Agencies to
meet their obligations could result in a default by one or more of such
Agencies. If a default were to occur, it would likely have a significant
effect on the marketability of obligations of the State and the Agencies.
These Agencies are discussed below.
The New York State Housing Finance Agency ("HFA") provides financing
for multifamily housing, State University construction, hospital and
nursing home development, and other programs. In general, HFA depends upon
mortgagors in the housing programs it finances to generate sufficient funds
from rental income, subsidies and other payments to meet their respective
mortgage repayment obligations to HFA, which provide the principal source
of funds for the payment of debt service on HFA bonds, as well as to meet
operating and maintenance costs of the projects financed. From January 1,
1976 through March 31, 1987, the State was called upon to appropriate a
total of $162.8 million to make up deficiencies in the debt service reserve
funds of HFA pursuant to moral obligation provisions. The State has not
been called upon to make such payments since the 1986-87 fiscal year and no
payments are anticipated during the 1995-96 fiscal year.
UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975,
because a substantial number of these housing program mortgagors are unable
to make full payments on their mortgage loans. Through a subsidiary, UDC
is currently attempting to increase its rate of collection by accelerating
its program of foreclosures and by entering into settlement agreements.
UDC has been, and will remain, dependent upon the State for appropriations
to meet its operating expenses. The State also has appropriated money to
assist in the curing of a default by UDC on notes which did not contain the
State's moral obligation provision.
The MTA oversees New York City's subway and bus lines by its
affiliates, the New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the "TA"). Through
MTA's subsidiaries, the Long Island Rail Road Company, the Metro-North
Commuter Railroad Company and the Metropolitan Suburban Bus Authority, the
MTA operates certain commuter rail and bus lines in the New York
metropolitan area. In addition, the Staten Island Rapid Transit Authority,
an MTA subsidiary, operates a rapid transit line on Staten Island. Through
its affiliated agency, the Triborough Bridge and Tunnel Authority (the
"TBTA"), the MTA operates certain toll bridges and tunnels. Because fare
revenues are not sufficient to finance the mass transit portion of these
operations, the MTA has depended and will continue to depend for operating
support upon a system of State, local government and TBTA support and, to
the extent available, Federal operating assistance, including loans, grants
and subsidies. If current revenue projections are not realized and/or
operating expenses exceed current projections, the TA or commuter railroads
may be required to seek additional State assistance, raise fares or take
other actions.
Over the past several years the State has enacted several
taxes--including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in the
12-county region (the "Metropolitan Transportation Region") served by the
MTA and a special .25% regional sales and use tax--that provide additional
revenues for mass transit purposes, including assistance to the MTA. In
addition, since 1987, State law has required that the proceeds of .25%
mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993, the State dedicated a portion of
certain additional State petroleum business tax receipts to fund operating
or capital assistance to the MTA. For the 1995-96 State fiscal year, total
State assistance to the MTA is estimated at approximately $1.1 billion.
In 1981, the State Legislature authorized procedures for the adoption,
approval and amendment of a five-year plan for the capital program designed
to upgrade the performance of the MTA's transportation systems and to
supplement, replace and rehabilitate facilities and equipment, and also
granted certain additional bonding authorization therefor.
On April 5, 1993, the Legislature approved, and the Governor
subsequently signed into law, legislation authorizing a five-year $9.56
billion capital plan for the MTA for 1992-1996. The MTA has received
approval of the 1992-1996 Capital Program based on this legislation from
the MTA Capital Program Review Board (the "CPRB"), as State law requires.
This is the third five-year plan since the Legislature authorized
procedures for the adoption, approval and amendment of a five-year plan in
1981 for a capital program designed to upgrade the performance of the MTA's
transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of certain
statutory exclusions) to finance a portion of the 1992-96 Capital Program.
The 1992-96 Capital Program was expected to be financed in significant part
through dedication of the State petroleum business tax receipts.
There can be no assurance that such governmental actions will be
taken, that sources currently identified will not be decreased or
eliminated, or that the 1992-1996 Capital Program will not be delayed or
reduced. If the MTA capital program is delayed or reduced because of
funding shortfalls or other factors, ridership and fare revenues may
decline, which could, among other things, impair the MTA's ability to meet
its operating expenses without additional State assistance.
The cities, towns, villages and school districts of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad
powers and responsibilities with respect to the government, finances and
welfare of these political subdivisions, especially in education and social
services. In recent years the State has been called upon to provide added
financial assistance to certain localities.
Other Localities. Certain localities in addition to the City could
have financial problems leading to requests for additional State assistance
during the State's 1995-96 fiscal year and thereafter. The potential
impact on the State of such actions by localities is not included in the
projections of the State receipts and disbursements in the State's 1995-96
fiscal year.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1993, the total indebtedness of
all localities in the State, other than the City, was approximately $17.7
billion. A small portion (approximately $105 million) of this indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
to enabling State legislation. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local
government units other than the City authorized by State law to issue debt
to finance deficits during the period that such deficit financing is
outstanding. Fifteen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1993.
Certain proposed Federal expenditure reductions would reduce, or in
some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those
expenditures. If the State, the City or any of the Agencies were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. The
longer-range, potential problems of declining city population, increasing
expenditures and other economic trends could adversely affect localities
and require increasing State assistance in the future.
Because of significant fiscal difficulties experienced from time to
time by the City of Yonkers, a Financial Control Board was created by the
State in 1984 to oversee Yonkers' fiscal affairs. Future actions taken by
the Governor or the State Legislature to assist Yonkers in this crisis
could result in the allocation of State resources in amounts that cannot
yet be determined.
Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these litigations are those that
involve: (i) the validity and fairness of agreements and treaties by which
various Indian tribes transferred title to the State of approximately six
million acres of land in central New York; (ii) certain aspects of the
State's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services; (iii) contamination
in the Love Canal area of Niagara Falls; (iv) a challenge to the State's
practice of reimbursing certain Office of Mental Health patient-care
expenses with clients' Social Security benefits; (v) a challenge to the
methods by which the State reimburses localities for the administrative
costs of food stamp programs; (vi) a challenge to the State's possession
of certain funds taken pursuant to the State's Abandoned Property law;
(vii) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (viii) an action, in which the
State is a third party defendant, for injunctive or other appropriate
relief, concerning liability for the maintenance of stone groins
constructed along certain areas of Long Island's shoreline; (ix) actions
challenging the constitutionality of legislation enacted during the 1990
legislative session which changed the actuarial funding methods for
determining contributions to State employee retirement systems; (x) an
action against State and City officials alleging that the present level of
shelter allowance for public assistance recipients is inadequate under
statutory standards to maintain proper housing; (xi) an action challenging
legislation enacted in 1990 which had the effect of deferring certain
employer contributions to the State Teachers' Retirement System and
reducing State aid to school districts by a like amount; (xii) a challenge
to the constitutionality of financing programs of the Thruway Authority
authorized by Chapters 166 and 410 of the Laws of 1991 (described below in
this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway
Authority authorized by Chapter 56 of the Laws of 1993 (described below in
this Part); (xiv) challenges to the delay by the State Department of Social
Services in making two one-week Medicaid payments to the service providers;
(xv) challenges by commercial insurers, employee welfare benefit plans, and
health maintenance organizations to provisions of Section 2807-c of the
Public Health Law which impose 13%, 11% and 9% surcharges on inpatient
hospital bills and a bad debt and charity care allowance on all hospital
bills paid by such entities; (xvi) challenges to the promulgation of the
State's proposed procedure to determine the eligibility for and nature of
home care services for Medicaid recipients; (xvii) a challenge to State
implementation of a program which reduces Medicaid benefits to certain
home-relief recipients; and (xviii) challenges to the rationality and
retroactive application of State regulations recelebrating nursing home
Medicaid rates.
Adverse developments or decisions in such cases could affect the
ability of the State to maintain a balanced 1995-96 State Financial Plan.
(2) New York City. In the mid-1970s, the City had large accumulated
past deficits and until recently was not able to generate sufficient tax
and other ongoing revenues to cover expenses in each fiscal year. However,
the City's operating results for the fiscal year ending June 30, 1995 were
balanced in accordance with GAAP, the thirteenth consecutive year in which
the City achieved balanced operating results in accordance with GAAP. The
City's ability to maintain balanced operating results in future years is
subject to numerous contingencies and future developments.
The City's economy, whose rate of growth slowed substantially over the
past three years, is currently in recession. During the 1990 and 1991
fiscal years, as a result of the slowing economy, the City has experienced
significant shortfalls in almost all of its major tax sources and increases
in social services costs, and has been required to take actions to close
substantial budget gaps in order to maintain balanced budgets in accordance
with the Financial Plan.
In 1975, the City became unable to market its securities and entered a
period of extraordinary financial difficulties. In response to this
crisis, the State created MAC to provide financing assistance to the City
and also enacted the New York State Financial Emergency Act for the City of
New York (the "Emergency Act") which, among other things, created the
Financial Control Board (the "Control Board") to oversee the City's
financial affairs and facilitate its return to the public credit markets.
The State also established the Office of the State Deputy Comptroller
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the Control Board's powers of approval
over the City Financial Plan were suspended pursuant to the Emergency Act.
However, the Control Board, MAC and OSDC continue to exercise various
monitoring functions relating to the City's financial condition. The City
prepares and operates under a four-year financial plan which is submitted
annually to the Control Board for review and which the City periodically
updates.
The City's independently audited operating results for each of its
fiscal years from 1981 through 1995 show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in
its net General Fund position.
According to a recent OSDC economic report, the City's economy was
slow to recover from the recession and is expected to experience a weak
employment situation, and moderate wage and income growth, during the 1995-
96 period. Also, Financial Plan reports of OSDC, the Control Board, and
the City Comptroller have variously indicated that many of the City's
balanced budgets have been accomplished, in part, through the use of non-
recurring resource, tax and fee increases, personnel reductions and
additional State assistance; that the City has not yet brought its long-
term expenditures in line with recurring revenues; that the City's proposed
gap-closing programs, if implemented, would narrow future budget gaps; that
these programs tend to rely heavily on actions outside the direct control
of the City; and that the City is therefore likely to continue to face
futures projected budget gaps requiring the City to reduce expenditures
and/or increase revenues. According to the most recent staff reports of
OSDC, the Control Board and the City Comptroller during the four-year
period covered by the current Financial Plan, the City is relying on
obtaining substantial resources from initiatives needing approval and
cooperation of its municipal labor unions, Covered Organizations, and City
Council, as well as the State and Federal governments, among others, and
there can be no assurance that such approval can be obtained.
The City requires certain amounts of financing for seasonal and
capital spending purposes. The City has issued $1.75 billion of notes for
seasonal financing purposes during the 1994 fiscal year. The City's
capital financing program projects long-term financing requirements of
approximately $17 billion for the City's fiscal years 1995 through 1998 for
the construction and rehabilitation of the City's infrastructure and other
fixed assets. The major capital requirement include expenditures for the
City's water supply system, and waste disposal systems, roads, bridges,
mass transit, schools and housing. In addition, the City and the Municipal
Water Finance Authority issued about $1.8 billion in refunding bonds in the
1994 fiscal year.
State Economic Trends. The State historically has been one of the
wealthiest states in the nation. For decades, however, the State has grown
more slowly than the nation as a whole, gradually eroding its relative
economic position. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an
influx of generally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City
has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less
dependent on the specialized services traditionally available almost
exclusively in the City.
During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in the calendar
years 1984 through 1991, the State's rate of economic expansion was
somewhat slower than that of the nation. In the 1990-91 recession, the
economy of the State, and that of the rest of the Northeast, was more
heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State dipped
below the national rate in the second half of 1981 and remained lower until
1991; since then, it has been higher. According to data published by the
U.S. Bureau of Economic Analysis, during the past ten years, total personal
income in the State rose slightly faster than the national average only
from 1986 through 1988.
APPENDIX B
Description of Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and Fitch Investors Service, L.P.
("Fitch") ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will
include: (1) likelihood of default--capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature and provisions of
the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A
Principal and interest payments on bonds in this category are regarded
as safe. This rating describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" rating is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC or C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to
pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the
major ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus sign (+) designation. Capacity for timely payment on
issues with an A-2 designation is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
Municipal Note Ratings
Moody's ratings for state municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance
in bond risk, long-term secular trends for example, may be less important
over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature
is not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to
the external liquidity with no or limited legal recourse to the issuer in
the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a wide range of financial
markets and assured sources of alternative liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of
interest and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the highest
potential for recovery on these bonds and D represents the lowest potential
for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months or the DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
STATEMENT OF INVESTMENTS OCTOBER 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS--98.3% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
NEW YORK--95.8%
Albany Industrial Development Agency:
IDR (Hampton Plaza Project) 6.25%, 3/15/2018 (a)........................ $ 5,600,000 $ 5,448,464
LR:
(New York State Assembly Building Project) 7.75%, 1/1/2010............ 3,615,000 3,975,777
(New York State Department of Health Building Project) 7.25%, 10/1/2010 1,755,000 1,870,707
Board of Cooperative Educational Services, COP (Greenport Vocational Facility
Project)
7.875%, 10/1/2000....................................................... 1,120,000 1,222,592
Buffalo and Erie Public Building Authority, Toll Bridge System Revenue
5.75%, 1/1/2025 (Insured; MBIA)......................................... 4,200,000 4,218,522
Cohoes Industrial Development Agency, IDR (Norlite Corp. Project)
6.75%, 5/1/2009 (LOC; Dresdner Bank) (b)................................ 2,400,000 2,520,120
Franklin County Solid Waste Management Authority, Solid Waste Systems Revenue
6.125%, 6/1/2009........................................................ 2,150,000 2,169,242
Jefferson County Industrial Development Agency, SWDR
(Champion International Corp.) 7.20%, 12/1/2020......................... 2,000,000 2,145,480
Metropolitan Transportation Authority, Service Contract,
Transportation Facilities Revenue, Refunding 5.50%, 7/1/2022............ 6,000,000 5,808,060
New York City:
7.65%, 2/1/2006......................................................... 3,000,000 3,356,250
7%, 10/1/2008........................................................... 1,750,000 1,871,870
6.25%, 8/1/2011 (Insured; FSA, Prerefunded 8/1/2002) (c)................ 1,550,000 1,728,281
6.375%, 8/15/2012....................................................... 3,395,000 3,486,665
6%, 2/15/2020 (d)....................................................... 5,500,000 5,365,580
New York City Industrial Development Agency:
Civic Facility Revenue:
(Saint Christopher Ottilie Project) 7.50%, 7/1/2021 (LOC; Allied Irish Banks) (b) 2,620,000 2,804,422
(YMCA of Greater New York Project) 8%, 8/1/2016....................... 3,300,000 3,544,959
IDR:
7.625%, 11/1/2009 (LOC; ABN Amro Bank) (b)............................ 1,285,000 1,301,101
(Plaza Packaging Corp. Project) 7.65%, 12/1/2009 (LOC; Barclays Bank) (b) 2,640,000 2,800,486
Special Facility Revenue:
(Terminal One Group Association Project):
6%, 1/1/2015...................................................... 4,375,000 4,303,687
6%, 1/1/2019...................................................... 3,600,000 3,526,884
6.125%, 1/1/2024.................................................. 9,000,000 8,915,580
New York City Municipal Water Finance Authority, Water and Sewer System
Revenue:
5.50%, 6/15/2015 (Insured: MBIA)........................................ 5,000,000 4,943,500
5.50%, 6/15/2019........................................................ 6,990,000 6,639,871
6.125%, 6/15/2020....................................................... 5,000,000 5,053,450
New York State, Crossover, Refunding 6.125%, 11/15/2012..................... $ 5,000,000 $ 5,201,000
New York State, GO:
5.70%, 3/15/2010........................................................ 6,060,000 6,173,867
5.70%, 8/15/2012........................................................ 1,000,000 1,009,740
5.70%, 3/15/2013........................................................ 2,000,000 2,013,840
New York State Dormitory Authority, Revenues:
City University 5.75%, 7/1/2011......................................... 5,955,000 5,914,982
Consolidated City University Systems:
2nd Generation 5.75%, 7/1/2013........................................ 5,000,000 4,920,600
5.75%, 7/1/2013....................................................... 26,005,000 25,508,304
5.75%, 7/1/2018....................................................... 2,500,000 2,427,400
Department of Health - Roswell Park Cancer 6.625%, 7/1/2024............. 2,700,000 2,788,344
State University Educational Facilities:
6.25%, 5/15/2017...................................................... 8,500,000 8,569,530
5.40%, 5/15/2023...................................................... 10,750,000 9,838,615
Refunding 5.50%, 5/15/2008............................................ 5,000,000 4,908,950
Upstate Community Colleges 7.20%, 7/1/2021 (Prerefunded 7/1/2001) (c)... 2,130,000 2,446,603
New York State Energy Research and Development Authority:
Electric Facilities Revenue:
(Consolidated Edison Co. of New York, Inc.):
6.10%, 8/15/2020.................................................. 2,000,000 2,023,100
7.125%, 12/1/2029................................................. 2,000,000 2,192,340
(Long Island Lighting):
7.15%, 9/1/2019................................................... 3,430,000 3,499,149
7.15%, 2/1/2022................................................... 4,935,000 5,034,490
Gas Facilities Revenue 5.635%, 7/8/2026 (Insured; MBIA)................. 6,000,000 5,783,760
New York State Environmental Facilities Corp.:
PCR (State Water Revolving Fund):
7.25%, 6/15/2010...................................................... 1,300,000 1,453,933
7.20%, 3/15/2011...................................................... 4,500,000 4,956,660
7.50%, 6/15/2012...................................................... 2,000,000 2,245,460
6.30%, 3/15/2016...................................................... 5,200,000 5,466,292
Special Obligation Revenue (Riverbank State Park) 7.25%, 4/1/2012....... 2,500,000 2,704,700
Water Facilities Revenue (New Rochelle Water Co. Project) 6.40%, 12/1/2024 2,000,000 2,022,200
New York State Housing Finance Agency, Revenue:
LooseStrife Fields Apartments and Fairway Manor
6.75%, 11/15/2036 (Insured; FHA)...................................... 6,000,000 6,203,940
Multi-Family Housing:
Second Mortgage 6.625%, 8/15/2012..................................... 2,500,000 2,602,525
7.75%, 11/1/2020 (Insured; AMBAC)..................................... 2,195,000 2,381,575
Service Contract Obligation 7.375%, 9/15/2021 (Prerefunded 3/15/2002) (c) 2,000,000 2,351,560
New York State Local Government Assistance Corp. 6%, 4/1/2016............... $ 4,000,000 $ 4,017,800
New York State Medical Care Facilities Finance Agency, Revenue:
(Hospital & Nursing Home Insured Mortgage):
6.85%, 2/15/2012 (Insured; FHA)....................................... 3,000,000 3,215,400
6.20%, 8/15/2013 (Insured; FHA)....................................... 3,000,000 3,125,370
6.125%, 2/15/2015 (Insured; FHA)...................................... 5,170,000 5,285,705
8%, 2/15/2028 (Insured; FHA).......................................... 4,470,000 4,919,503
7.45%, 8/15/2031 (Insured; FHA)....................................... 3,000,000 3,314,400
Refunding 6.20%, 2/15/2023 (Insured; FHA)............................. 1,700,000 1,739,542
Improvement (Mental Health Services Facilities):
6.50%, 2/15/2019...................................................... 5,290,000 5,411,829
7.875%, 8/15/2020 (Prerefunded 8/15/2000) (c)......................... 1,250,000 1,463,012
6%, 2/15/2025 (Insured; MBIA)......................................... 4,400,000 4,455,308
(Long Term Health Care - Insured Program) 6.45%, 11/1/2010 (Insured; CGIC) 5,000,000 5,385,200
(Montefiore Medical Center) 5.75%, 2/15/2015 (Insured; AMBAC)........... 2,000,000 2,000,620
New York State Mortgage Agency, Revenue:
6.30%, 10/1/2017........................................................ 4,550,000 4,638,407
Homeowner Revenue:
6.60%, 10/1/2019...................................................... 3,500,000 3,613,015
6.45%, 10/1/2020...................................................... 3,740,000 3,834,809
6.65%, 4/1/2022....................................................... 2,000,000 2,062,160
7.95%, 4/1/2022....................................................... 1,950,000 2,088,138
New York State Thruway Authority:
Highway and Bridge Trust Fund 5.50%, 4/1/2015 (Insured; MBIA)........... 3,250,000 3,213,535
Service Contract Revenue (Local Highway and Bridge):
7.25%, 1/1/2010....................................................... 4,350,000 4,962,611
5.75%, 4/1/2013 (Insured: MBIA)....................................... 5,000,000 5,072,100
6.25%, 4/1/2014....................................................... 2,000,000 2,028,400
New York State Urban Development Corp., Revenue
(Alfred Technology Resources, Inc. Project) 7.875%, 1/1/2020............ 2,070,000 2,302,896
Onondaga County Industrial Development Agency, Sewer Facilities Revenue
(Bristol Meyers Squibb Co. Project) 5.75%, 3/1/2024..................... 4,000,000 3,988,520
Rensselaer County Industrial Development Agency, IDR (Albany International
Corp.)
7.55%, 6/1/2007......................................................... 4,000,000 4,540,720
Suffolk County Industrial Development Agency, Civic Facility Revenue
(Long Island Association of Children) 7.35%, 8/1/2009 (LOC; Barclays Bank) (b) 1,960,000 2,091,771
Triborough Bridge and Tunnel Authority, General Purpose Revenue
Zero Coupon, 1/1/2021................................................... 11,000,000 2,625,040
U.S. RELATED--2.5%
Commonwealth of Puerto Rico Infrastructure Financing Authority 7.50%, 7/1/2009 2,000,000 2,210,960
Guam Airport Authority, Revenue 6.60%, 10/1/2010............................ $ 2,615,000 $ 2,684,637
Puerto Rico Electric Power Authority, Power Revenue 6%, 7/1/2015............ 2,000,000 2,027,460
Puerto Rico Industrial Medical and Environmental Pollution Control
Facilities Financing Authority, Revenue, Refunding
(St Luke's Hospital Project) 6.25%, 6/1/2010.......................... 1,100,000 1,127,797
-------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $307,531,927)..................................................... $321,111,674
============
SHORT-TERM MUNICIPAL INVESTMENTS--1.7%
NEW YORK:
New York City, VRDN 4.05% (e)........................................... $ 3,500,000 $ 3,500,000
New York Energy Research and Development Authority, PCR (Niagara Power Corp.)
VRDN 4.05% (LOC; Morgan Guaranty Trust Co.) (b,e)..................... 2,000,000 2,000,000
-------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $5,500,000)....................................................... $ 5,500,000
============
TOTAL INVESTMENTS--100.0%
(cost $313,031,927)..................................................... $326,611,674
============
</TABLE>
<TABLE>
<CAPTION>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
CGIC Capital Guaranty Insurance Corporation LR Lease Revenue
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
FHA Federal Housing Administration Insurance Corporation
FSA Financial Security Assurance PCR Pollution Control Revenue
GO General Obligation SWDR Solid Waste Disposal Revenue
IDR Industrial Development Revenue VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (F) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- -------- -------- ------------------ --------------------
<S> <C> <C>
AAA Aaa AAA 26.7%
AA Aa AA 11.6
A A A 25.2
BBB Baa BBB 27.3
BB Ba BB 2.6
F-1,F-1+ VMIG1,MIG1,P1 SP1,A1 1.7
Not Rated (g) Not Rated (g) Not Rated (g) 4.9
-------
100.0%
=======
NOTES TO STATEMENT OF INVESTMENTS:
(a) Wholly held by the custodian in a segregated account as collateral
for when-issued securities.
(b) Secured by letters of credit.
(c) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(d) Purchased on a when-issued basis.
(e) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(f) Fitch currently provides creditworthiness information for a limited
number of investments.
(g) Securities which, while not rated by Fitch, Moody's or Standard &
Poor's, have been determined by the Manager to be of comparable quality
to those rated securities in which the Fund may invest.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $313,031,927)--see statement.................................... $326,611,674
Interest receivable..................................................... 5,499,928
Receivable for subscriptions to Common Stock............................ 30
Prepaid expenses........................................................ 9,989
-------------
332,121,621
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 219,100
Due to Distributor...................................................... 3,544
Due to Custodian........................................................ 3,812,986
Payable for investment securities purchased............................. 5,362,225
Payable for Common Stock redeemed....................................... 2,179
Accrued expenses........................................................ 85,551 9,485,585
------------ -----------
NET ASSETS ................................................................ $322,636,036
============
REPRESENTED BY:
Paid-in capital......................................................... $306,818,055
Accumulated undistributed net realized gain on investments.............. 2,238,234
Accumulated net unrealized appreciation on investments_Note 3........... 13,579,747
-------------
NET ASSETS at value applicable to 16,215,214 shares outstanding
(100 million shares of $.01 par value Common Stock authorized).......... $322,636,036
============
NET ASSET VALUE, offering and redemption price per share
($322,636,036 / 16,215,214 shares)...................................... $19.90
======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $19,924,771
EXPENSES:
Management fee--Note 2(a)............................................. $ 1,876,783
Shareholder servicing costs-Note 2(b)................................. 793,856
Professional fees..................................................... 50,364
Custodian fees........................................................ 36,735
Directors' fees and expenses-Note 2(c)................................ 30,084
Prospectus and shareholders' reports-Note 2(b)........................ 8,785
Registration fees..................................................... 1,567
Miscellaneous......................................................... 24,399
------------
2,822,573
Less-reduction in management fee due to undertakings-Note 2(a)........ 130,377
------------
TOTAL EXPENSES.................................................. 2,692,196
------------
INVESTMENT INCOME--NET.......................................... 17,232,575
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments--Note 3................................ $ 2,243,540
Net unrealized appreciation on investments.............................. 19,145,760
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 21,389,300
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $38,621,875
===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
---------------------------------
1994 1995
-------------- ------------
<S> <C> <C>
OPERATIONS:
Investment income-net.................................................. $ 20,263,846 $ 17,232,575
Net realized gain on investments....................................... 1,906,458 2,243,540
Net unrealized appreciation (depreciation) on investments for the year. (46,196,850) 19,145,760
-------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...... (24,026,546) 38,621,875
-------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net................................................. (20,385,019) (17,232,575)
Net realized gain on investments....................................... (5,588,704) (1,910,351)
-------------- ------------
TOTAL DIVIDENDS...................................................... (25,973,723) (19,142,926)
-------------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.......................................... 178,945,529 230,231,287
Dividends reinvested................................................... 19,895,760 14,084,296
Cost of shares redeemed................................................ (254,981,061) (249,154,107)
-------------- ------------
(DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS............. (56,139,772) (4,838,524)
-------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.......................... (106,140,041) 14,640,425
NET ASSETS:
Beginning of year...................................................... 414,135,652 307,995,611
-------------- ------------
End of year............................................................ $ 307,995,611 $ 322,636,036
============= ==============
SHARES SHARES
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 8,859,506 11,893,105
Shares issued for dividends reinvested................................. 980,345 735,731
Shares redeemed........................................................ (12,633,641) (12,857,380)
-------------- ------------
NET (DECREASE) IN SHARES OUTSTANDING................................. (2,793,790) (228,544)
============= ==============
See notes to financial statements.
</TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS
Reference is made to page 4 of the Prospectus, dated March 1, 1996.
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Premier Mutual
Fund Services, Inc. (the "Distributor") acts as the distributor of the Fund's
shares, which are sold to the public without a sales load. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc. The Dreyfus Corporation ("Manager") serves as the Fund's investment
adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
(A) PORTFOLIO VALUATION: The Fund's investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Directors. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment 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
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities 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 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.
(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. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain 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. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed 1 1/2% of the average value of the Fund's net
assets for any full fiscal year. However, the Manager had undertaken, from
November 1, 1994 through April 13, 1995, to reduce the management fee paid by
the Fund, to the extent that the Fund's aggregate expenses (exclusive of
certain expenses as described above) exceeded specified annual percentages of
the Fund's average daily net assets. The reduction in management fee,
pursuant to the undertakings, amounted to $130,377 for the year ended October
31, 1995.
(B) Under a Service Plan (the "Plan") adopted pursuant to Rule 12b-1
under the Act, the Fund (a) reimburses the Distributor for payments to
certain Service Agents for distributing the Fund's shares and servicing
shareholder accounts ("Servicing") and (b) pays the Manager, Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager, and any affiliate of
either of them (collectively, "Dreyfus") for advertising and marketing
relating to the Fund and for Servicing, at an aggregate annual rate of .20 of
1% of the value of the Fund's average daily net assets. Each of the
Distributor and Dreyfus may pay one or more Service Agents a fee in respect
of the Fund's shares owned by shareholders with whom the Service Agent has a
Servicing relationship or for whom the Service Agent is the dealer or holder
of record. Each of the Distributor and Dreyfus determine the amounts, if any,
to be paid to Service Agents under the Plan and the basis on which such
payments are made. The fees payable under the Plan are payable without regard
to actual expenses incurred. The Plan also separately provides for the Fund
to bear the costs of preparing, printing and distributing certain of the
Fund's prospectuses and statements of additional information and costs
associated with implementing and operating the Plan, not to exceed the
greater of $100,000 or .005 of 1% of the Fund's average daily net assets for
any full fiscal year. During the year ended October 31, 1995, $634,133 was
charged to the Fund pursuant to the Plan.
(C) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendence fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $402,501,287 and $400,792,117, respectively, for the year ended
October 31, 1995, and consisted entirely of long-term and short-term
municipal investments.
At October 31, 1995, accumulated net unrealized appreciation on
investments was $13,579,747, consisting of $14,133,639 gross unrealized
appreciation and $553,892 gross unrealized depreciation.
At October 31, 1995, 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).
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
We have audited the accompanying statement of assets and liabilities of
General New York Municipal Bond Fund, Inc., including the statement of
investments, as of October 31, 1995, 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 generally accepted auditing
standards. 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. Our procedures included confirmation of
securities owned as of October 31, 1995 by correspondence with the custodian
and brokers. 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 General New York Municipal Bond Fund, Inc. at October 31, 1995,
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 years, in conformity with generally
accepted accounting principles.
New York, New York
November 30, 1995
