General New York Municipal Bond Fund, Inc.
Investing for income exempt from federal, New York state and New York city
income taxes
PROSPECTUS March 1, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Contents
THE FUND
- ----------------------------------------------------
2 Goal/Approach
3 Main Risks
4 Past Performance
5 Expenses
6 Management
7 Financial Highlights
YOUR INVESTMENT
- --------------------------------------------------------------------
8 Account Policies
11 Distributions and Taxes
12 Services for Fund Investors
14 Instructions for Regular Accounts
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Back Cover
What every investor should know about the fund
Information for managing your fund account
Where to learn more about this and other Dreyfus funds
<PAGE>
The Fund
General New York Municipal Bond Fund, Inc.
- --------------------------------------------
Ticker Symbol: GNYMX
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal, New York state
and New York city personal income taxes, as is consistent with the preservation
of capital. To pursue this goal, the fund normally invests substantially all of
its assets in municipal bonds the interest from which is exempt from federal,
New York state and New York city personal income taxes.
The fund will invest at least 65% of its assets in investment grade municipal
bonds or the unrated equivalent as determined by Dreyfus. For additional yield,
it may invest up to 35% of net assets in municipal bonds rated below investment
grade ("high yield" or "junk" bonds) or the unrated equivalent as determined by
Dreyfus.
The portfolio manager buys and sells bonds based on credit quality, financial
outlook and yield potential. Bonds with deteriorating credit quality are
potential sell candidates, while those offering higher yields are potential buy
candidates.
INFORMATION ON THE FUND'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE
CURRENT ANNUAL/SEMIANNUAL REPORT (SEE BACK COVER).
Concepts to understand
MUNICIPAL BONDS: debt securities that provide income free from federal income
taxes. Municipal bonds are typically divided into two types:
(pound) GENERAL OBLIGATION BONDS, which are secured by the full faith and credit
of the issuer and its taxing power
(pound) REVENUE BONDS, which are payable from the revenues derived from a
specific revenue source, such as charges for water and sewer service or highway
tolls
<PAGE 2>
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and therefore in the fund's share price
as well. As a result, the value of your investment in the fund could go up and
down, which means that you could lose money.
Other risk factors could have an effect on the fund's performance:
(pound) if an issuer fails to make timely interest or
principal payments or there is a decline in the credit quality of a
bond, or perception of a decline, the bond's value could fall,
potentially lowering the fund's share price
(pound) New York's economy and revenues underlying municipal bonds may decline
(pound) investing primarily in a single state may make the
fund's portfolio securities more sensitive to risks specific to the
state
(pound) lower-rated, higher-yielding municipal obligations are subject to
greater credit risk, including the risk of default, than investment
grade obligations; lower-rated bonds tend to be more volatile and less
liquid
Although the fund's objective is to generate income exempt from federal, New
York state and New York city income taxes, interest from some of its holdings
may be subject to the alternative minimum tax. In addition, the fund
occasionally may invest in taxable bonds and municipal bonds that are exempt
only from federal personal income tax.
Other potential risks
The fund may invest in certain derivatives, such as futures and options.
Derivatives can be illiquid and highly sensitive to changes in their underlying
security, interest rate or index, and as a result can be highly volatile. A
small investment in certain derivatives could have a potentially large impact
on the fund's performance.
The fund is non-diversified, which means that a relatively high percentage of
the fund's assets may be invested in a limited number of issuers. Therefore,
its performance may be more vulnerable to changes in the market value of a
single issuer or group of issuers.
The Fund
<PAGE 3>
PAST PERFORMANCE
The two tables below show the fund's annual returns and its long-term
performance. The first table shows you how the fund's performance has varied
from year to year. The second compares the fund's performance over time to that
of the Lehman Brothers Municipal Bond Index, an unmanaged total-return
performance benchmark. Both tables assume reinvestment of dividends and
distributions. As with all mutual funds, the past is not a prediction of the
future.
--------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
6.60 6.67 14.07 10.09 14.18 -7.19 16.54 3.09 9.58 6.35
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
BEST QUARTER: Q1 '95 +6.86%
WORST QUARTER: Q1 '94 -5.47%
--------------------------------------------------------
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FUND 6.35% 5.38% 7.80%
LEHMAN BROTHERS
MUNICIPAL
BOND INDEX 6.48% 6.22% 8.22%
</TABLE>
What this fund is -- and isn't
This fund is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE 4>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Shareholder transaction fees are paid
from your account. Annual fund operating expenses are paid out of fund assets,
so their effect is included in the share price.
--------------------------------------------------------
Fee table
SHAREHOLDER TRANSACTION FEES
% OF TRANSACTION AMOUNT
Maximum redemption fee 0.10%
CHARGED ONLY WHEN SELLING SHARES YOU
HAVE OWNED FOR LESS THAN 15 DAYS
--------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.60%
12b-1 fee (distribution and servicing) 0.20%
Other expenses 0.10%
- --------------------------------------------------------------------------------
TOTAL 0.90%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$92 $287 $498 $1,108
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
12B-1 FEE: a fee of 0.20% to reimburse the fund's distributor for distributing
the fund's shares and pay Dreyfus for advertising and shareholder account
service and maintenance. Because this fee is paid out of the fund's assets on an
ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
The Fund
<PAGE 5>
MANAGEMENT
The fund's investment adviser is The Dreyfus Corporation, 200 Park Avenue, New
York, New York 10166. Founded in 1947, Dreyfus manages one of the nation's
leading mutual fund complexes, with more than $121 billion in more than 160
mutual fund portfolios. Dreyfus is the mutual fund business of Mellon Bank
Corporation, a broad-based financial services company with a bank at its core.
With more than $350 billion of assets under management and $1.7 trillion of
assets under administration and custody, Mellon provides a full range of
banking, investment and trust products and services to individuals, businesses
and institutions. Its mutual fund companies place Mellon as the leading bank
manager of mutual funds. Mellon is headquartered in Pittsburgh, Pennsylvania.
The Dreyfus asset management philosophy is based on the belief that discipline
and consistency are important to investment success. For each fund, the firm
seeks to establish clear guidelines for portfolio management and to be
systematic in making decisions. This approach is designed to provide each fund
with a distinct, stable identity, and offers the potential for measuring
performance and volatility in consistent ways.
Monica Wieboldt has managed the fund since June 1988 and has been a portfolio
manager at Dreyfus since November 1983. Ms. Wieboldt also manages several other
Dreyfus municipal bond funds.
Concepts to understand
YEAR 2000 ISSUES: the fund could be adversely affected if the computer systems
used by Dreyfus and the fund's other service providers do not properly process
and calculate date-related information from and after January 1, 2000.
Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
<PAGE 6>
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods indicated.
"Total return" shows how much your investment in the fund would have increased
(or decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been independently audited by Ernst & Young
LLP, whose report, along with the fund's financial statements, is included in
the annual report.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 20.20 19.66 19.90 18.73 21.53
Investment operations:
Investment income -- net .96 .98 1.01 1.06 1.14
Net realized and unrealized gain
(loss) on investments .65 .66 (.10) 1.29 (2.49)
Total from investment operations 1.61 1.64 .91 2.35 (1.35)
Distributions:
Dividends from investment
income -- net (.96) (.98) (1.01) (1.06) (1.15)
Dividends from net realized gain
on investments (.19) (.12) (.14) (.12) (.30)
Total distributions (1.15) (1.10) (1.15) (1.18) (1.45)
Net asset value, end of period 20.66 20.20 19.66 19.90 18.73
Total return (%) 8.14 8.63 4.68 12.98 (6.59)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .90 .91 .91 .86 .76
Ratio of net investment income
to average net assets (%) 4.70 4.98 5.12 5.51 5.62
Decrease reflected in above expense
ratios due to actions by Dreyfus (%) -- -- -- .04 .12
Portfolio turnover rate (%) 32.96 66.32 80.30 65.91 24.56
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 293,231 304,958 309,690 322,636 307,996
</TABLE>
The Fund
<PAGE 7>
Your Investment
ACCOUNT POLICIES
Buying shares
YOUR PRICE FOR FUND SHARES is the fund's net asset value per share (NAV), which
is generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open.
YOUR ORDER WILL BE PRICED at the next NAV calculated after your order is
accepted by the fund's transfer agent or other entity authorized to accept
orders on behalf of the fund. Because the fund seeks tax exempt income, it is
not recommended for purchase in IRAs or other qualified retirement plans.
- --------------------------------------------------------------------------------
Minimum investments
Initial Additional
- --------------------------------------------------------------------------------
REGULAR ACCOUNTS $2,500 $100
$500 FOR
TELETRANSFER
INVESTMENTS
DREYFUS AUTOMATIC $100 $100
INVESTMENT PLANS
All investments must be in U.S. dollars. Third-party
checks cannot be accepted. You may be charged a fee for
any check that does not clear. Maximum TeleTransfer
purchase is $150,000 per day.
Concepts to understand
NET ASSET VALUE (NAV): a mutual fund's share price on a given day. A fund's NAV
is calculated by dividing the value of its net assets by the number of existing
shares.
When calculating its NAV, the fund's investments are valued by an independent
pricing service approved and supervised by the fund's board.
<PAGE 8>
Selling shares
YOU MAY SELL SHARES AT ANY TIME. Your shares will be sold at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
entity authorized to accept orders on behalf of the fund. Any certificates
representing fund shares being sold must be returned with your redemption
request. Your order will be processed promptly and you will generally receive
the proceeds within a week.
BEFORE SELLING RECENTLY PURCHASED SHARES, please note that:
(pound) if the fund has not yet collected payment for the
shares you are selling, it may delay sending the proceeds for up to
eight business days or until it has collected payment
(pound) if you are selling or exchanging shares
you have owned for less than 15 days, the fund may deduct a 0.10%
redemption fee (not charged on shares sold through the Automatic
Withdrawal Plan or Dreyfus Auto-Exchange Privilege, or on shares
acquired through dividend
reinvestment)
- --------------------------------------------------------------------------------
Limitations on selling shares by phone
Proceeds
sent by Minimum Maximum
- --------------------------------------------------------------------------------
CHECK NO MINIMUM $150,000 PER DAY
WIRE $1,000 $250,000 FOR JOINT
ACCOUNTS
EVERY 30 DAYS
TELETRANSFER $500 $250,000 FOR JOINT
ACCOUNTS
EVERY 30 DAYS
Written sell orders
Some circumstances require written sell orders along with signature guarantees.
These include:
(pound) amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
(pound) requests to send the proceeds to a different payee or address
Written sell orders of $100,000 or more must also be signature guaranteed.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
Your Investment
<PAGE 9>
ACCOUNT POLICIES (CONTINUED)
General policies
IF YOUR ACCOUNT FALLS BELOW $500, the fund may ask you to increase your balance.
If it is still below $500 after 45 days, the fund may close your account and
send you the proceeds.
UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.
THE FUND RESERVES THE RIGHT TO:
(pound) refuse any purchase or exchange request that could
adversely affect the fund or its operations, including those from any
individual or group who, in the fund's view, is likely to engage in
excessive trading (usually defined as more than four exchanges out of
the fund within a calendar year)
(pound) refuse any purchase or exchange request in excess of
1% of the fund's total assets
(pound) change or discontinue its exchange privilege, or
temporarily suspend this privilege during unusual market conditions
(pound) change its minimum investment amounts
(pound) delay sending out redemption proceeds for up to
seven days (generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
The fund also reserves the right to make a "redemption in kind" -- payment in
portfolio securities rather than cash -- if the amount you are redeeming is
large enough to affect fund operations (for example, if it represents more than
1% of the fund's assets).
Third-party investments
If you invest through a third party (rather than directly with Dreyfus), the
policies and fees may be different than those described here. Banks, brokers,
401(k) plans, financial advisers and financial supermarkets may charge
transaction fees and may set different minimum investments or limitations on
buying or selling shares. Consult a representative of your plan or financial
institution if in doubt.
<PAGE 10>
DISTRIBUTIONS AND TAXES
THE FUND USUALLY PAYS ITS SHAREHOLDERS dividends from its net investment income
once a month, and distributes any net capital gains that it has realized once a
year. Your distributions will be reinvested in the fund unless you instruct the
fund otherwise. There are no fees or sales charges on reinvestments.
THE FUND ANTICIPATES THAT VIRTUALLY ALL OF ITS INCOME DIVIDENDS will be exempt
from federal, New York state and New York city personal income taxes. However,
any dividends and capital gains from taxable investments are taxable as ordinary
income, whether or not you reinvested them. The tax status of any distribution
is the same regardless of how long you have been in the fund and whether you
reinvest your distributions or take them in cash. In general, distributions are
taxable as follows:
- --------------------------------------------------------------------------------
Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
- --------------------------------------------------------------------------------
INCOME GENERALLY GENERALLY
DIVIDENDS TAX EXEMPT TAX EXEMPT
SHORT-TERM ORDINARY ORDINARY
CAPITAL GAINS INCOME RATE INCOME RATE
LONG-TERM
CAPITAL GAINS 10% 20%
The tax status of your dividends and distributions will be detailed in your
annual tax statement from the fund.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
Taxes on transactions
Any sale or exchange of fund shares, including through the checkwriting
privilege, may generate a tax liability.
The table at right also can provide a guide for your potential tax liability
when selling or exchanging fund shares. "Short-term capital gains" applies to
fund shares sold up to 12 months after buying them. "Long-term capital gains"
applies to shares sold after 12 months.
Your Investment
<PAGE 11>
SERVICES FOR FUND INVESTORS
Automatic services
BUYING OR SELLING SHARES AUTOMATICALLY is easy with the services described
below. With each service, you select a schedule and amount, subject to certain
restrictions. You can set up most of these services with your application or by
calling 1-800-645-6561.
- --------------------------------------------------------------------------------
For investing
DREYFUS AUTOMATIC For making automatic investments
ASSET BUILDER((reg.tm)) from a designated bank account.
DREYFUS PAYROLL For making automatic investments
SAVINGS PLAN through a payroll deduction.
DREYFUS GOVERNMENT For making automatic investments
DIRECT DEPOSIT from your federal employment,
PRIVILEGE Social Security or other regular
federal government check.
DREYFUS DIVIDEND For automatically reinvesting the
SWEEP dividends and distributions from
one Dreyfus fund into another
(not available for IRAs).
- --------------------------------------------------------------------------------
For exchanging shares
DREYFUS AUTO- For making regular exchanges
EXCHANGE PRIVILEGE from one Dreyfus fund into
another.
- --------------------------------------------------------------------------------
For selling shares
DREYFUS AUTOMATIC For making regular withdrawals
WITHDRAWAL PLAN from most Dreyfus funds.
Dreyfus Financial Centers
Through a nationwide network of Dreyfus Financial Centers, Dreyfus offers a full
array of investment services and products. This includes information on mutual
funds, brokerage services, tax-advantaged products and retirement planning.
Our experienced financial consultants can help you make informed choices and
provide you with personalized attention in handling account transactions. The
Financial Centers also offer informative seminars and events. To find the
Financial Center nearest you, call 1-800-499-3327.
<PAGE 12>
Checkwriting privilege
YOU MAY WRITE REDEMPTION CHECKS against your account in amounts of $500 or more.
These checks are free; however, a fee will be charged if you request a stop
payment or if the transfer agent cannot honor a redemption check due to
insufficient funds or another valid reason. Please do not postdate your checks
or use them to close your account.
Exchange privilege
YOU CAN EXCHANGE $500 OR MORE from one Dreyfus fund into another. You can
request your exchange in writing or by phone. Be sure to read the current
prospectus for any fund into which you are exchanging. Any new account
established through an exchange will have the same privileges as your original
account (as long as they are available). There is currently no fee for
exchanges, although you may be charged a sales load when exchanging into any
fund that has one.
Dreyfus TeleTransfer privilege
TO MOVE MONEY BETWEEN YOUR BANK ACCOUNT and your Dreyfus fund account with a
phone call, use the Dreyfus TeleTransfer privilege. You can set up TeleTransfer
on your account by providing bank account information and following the
instructions on your application.
The Dreyfus Touch((reg.tm))
FOR 24-HOUR AUTOMATED ACCOUNT ACCESS, use Dreyfus Touch. With a touch-tone
phone, you can easily manage your Dreyfus accounts, obtain information on other
Dreyfus mutual funds and get current stock market quotes.
Your Investment
<PAGE 13>
INSTRUCTIONS FOR REGULAR ACCOUNTS
TO OPEN AN ACCOUNT
In Writing
Complete the application.
Mail your application and a check to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your account number on your check.
Mail the slip and the check to:
The Dreyfus Family of Funds
P.O. Box 105, Newark, NJ 07101-0105
By Telephone
WIRE Have your bank send your
investment to The Bank of New York, with these instructions:
* ABA# 021000018
* DDA# 8900052406
* the fund name
* your Social Security or tax ID number
* name(s) of investor(s)
Call us to obtain an account number. Return your application.
WIRE Have your bank send your investment to The Bank of New York, with these
instructions:
* ABA# 021000018
* DDA# 8900052406
* the fund name
* your account number
* name(s) of investor(s)
ELECTRONIC CHECK Same as wire, but insert "1111" before your account number.
TELETRANSFER Request TeleTransfer on your application. Call us to request your
transaction.
Automatically
WITH AN INITIAL INVESTMENT Indicate on your application which automatic
service(s) you want. Return your application with your investment.
WITHOUT ANY INITIAL INVESTMENT Check the Dreyfus Step Program option on your
application. Return your application, then complete the additional materials
when they are sent to you.
ALL SERVICES Call us to request a form to add any automatic investing service
(see "Services for Fund Investors"). Complete and return the forms along with
any other required materials.
Via the Internet
COMPUTER Visit the Dreyfus Web site http://www.dreyfus.com and follow the
instructions to download an account application.
<PAGE 14>
TO SELL SHARES
Write a redemption check OR letter of instruction that includes:
* your name(s) and signature(s)
* your account number
* the fund name
* the dollar amount you want to sell
* how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see "Account
Policies -- Selling Shares").
Mail your request to: The Dreyfus Family of Funds P.O. Box 9671, Providence, RI
02940-9671
WIRE Be sure the fund has your bank account information on file. Call us to
request your transaction. Proceeds will be wired to your bank.
TELETRANSFER Be sure the fund has your bank account information on file. Call
us to request your transaction. Proceeds will be sent to your bank by electronic
check.
CHECK Call us to request your transaction. A check will be sent to the address
of record.
DREYFUS AUTOMATIC WITHDRAWAL PLAN Call us to request a form to add the plan.
Complete the form, specifying the amount and frequency of withdrawals you would
like.
Be sure to maintain an account balance of $5,000 or more.
To reach Dreyfus, call toll free in the U.S.
1-800-645-6561
Outside the U.S. 516-794-5452
Make checks payable to:
THE DREYFUS FAMILY OF FUNDS
You also can deliver requests to any Dreyfus Financial Center. Because
processing time may vary, please ask the representative when your account will
be credited or debited.
Concepts to understand
WIRE TRANSFER: for transferring money from one financial institution to another.
Wiring is the fastest way to move money, although your bank may charge a fee to
send or receive wire transfers. Wire redemptions from the fund are subject to a
$1,000 minimum.
ELECTRONIC CHECK: for transferring money out of a bank account. Your transaction
is entered electronically, but may take up to eight business days to clear.
Electronic checks usually are available without a fee at all Automated Clearing
House (ACH) banks.
Your Investment
<PAGE 15>
NOTES
<PAGE 16>
<PAGE 17>
For More Information
General New York Municipal Bond Fund, Inc.
-----------------------------
SEC file number: 811-4074
More information on this fund is available free upon
request, including the following:
Annual/Semiannual Report
Describes the fund's performance, lists portfolio
holdings and contains a letter from the fund's manager
discussing recent market conditions, economic trends and
fund strategies that significantly affected the fund's
performance during the last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the fund and its policies. A
current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is
legally considered part of this prospectus).
To obtain information:
BY TELEPHONE Call 1-800-645-6561
BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request to [email protected]
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from:
SEC
http://www.sec.gov
DREYFUS
http://www.dreyfus.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
(c) 1999, Dreyfus Service Corporation 949P0399
<PAGE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
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,
1999, 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. -- Call 516-794-5452
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are
incorporated by reference into this Statement of Additional Information.
TABLE OF CONTENTS
Page
Description of the Fund B-2
Management of the Fund B-15
Management Arrangements B-20
How to Buy Shares B-22
Service Plan B-24
How to Redeem Shares B-25
Shareholder Services B-28
Determination of Net Asset Value B-31
Dividends, Distributions and Taxes B-32
Portfolio Transactions B-34
Performance Information B-35
Information About the Fund B-36
Counsel and Independent Auditors B-38
Appendix A B-39
Appendix B B-64
DESCRIPTION OF THE FUND
The Fund is a Maryland corporation formed on November 19, 1984. The
Fund is an open-end management investment company, known as a municipal bond
fund.
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.
Certain Portfolio Securities
The following information supplements and should be read in conjunction
with the Fund's Prospectus.
Municipal Obligations. The Fund will invest at least 80% of the value
of its net assets (except when maintaining a temporary defensive position)
in Municipal Obligations. Municipal Obligations are debt obligations issued
by states, territories and possessions of the United States and the District
of Columbia and their political subdivisions, agencies and
instrumentalities, or multistate agencies of authorities, the interest from
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax. Municipal Obligations generally include debt obligations issued
to obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities. Municipal
Obligations are classified as general obligation bonds, revenue bonds and
notes. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general
taxing power. Tax exempt industrial development bonds, in most cases, are
revenue bonds that do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal Obligations include municipal lease/purchase agreements
which are similar to installment purchase contracts for property or
equipment issued by municipalities. Municipal Obligations bear fixed,
floating or variable rates of interest, which are determined in some
instances by formulas under which the Municipal Obligation's interest rate
will change directly or inversely to changes in interest rates or an index,
or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier
than their stated maturity pursuant to call options, which may be separated
from the related Municipal Obligation and purchased and sold separately.
The 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 payment of the management fee, as well as other operating expenses, will
have the effect of reducing the yield to the Fund's investors.
Certain Tax Exempt Obligations. The Fund may purchase floating and variable
rate demand notes and bonds, which 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.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Fund, as lender, and
the borrower. These obligations permit daily changes in the amount
borrowed. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary
market for these obligations, although they are redeemable at face value,
plus accrued interest. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Fund's right
to redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Each obligation purchased by the Fund will meet the
quality criteria established for the purchase of Municipal Obligations.
Tax Exempt Participation Interests. The Fund may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to
the total principal amount of the Municipal Obligation. These instruments
may have fixed, floating or variable rates of interest. If the
participation interest is unrated, it will be backed by an irrevocable
letter of credit or guarantee of a bank that the Fund's Board has determined
meets prescribed quality standards for banks, or the payment obligation
otherwise will be collateralized by U.S. Government securities. For certain
participation interests, the Fund will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest.
As to these instruments, the Fund intends to exercise its right to demand
payment only upon a default under the terms of the Municipal Obligation, as
needed to provide liquidity to meet redemptions, or to maintain or improve
the quality of its investment portfolio.
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
the 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 canceled; (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.
Tender Option Bonds. The Fund may purchase tender option bonds. A tender
option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing
interest at a fixed rate substantially higher than prevailing short-term tax
exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to
which such institution grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the
face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between
the Municipal Obligation's fixed coupon rate and the rate, as determined by
a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at
the prevailing short-term tax exempt rate. The Manager, on behalf of the
Fund, will consider on an ongoing basis the creditworthiness of the issuer
of the underlying Municipal Obligation, of any custodian and of the third
party provider of the tender option. In certain instances and for certain
tender option bonds, the option may be terminable in the event of a default
in payment of principal or interest on the underlying Municipal Obligation
and for other reasons.
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.
Custodial Receipts. The Fund may purchase custodial receipts representing
the right to receive certain future principal and interest payments on
Municipal Obligations which underlie the custodial receipt. A number of
different arrangements are possible. In a typical custodial receipt
arrangement, an issuer or a third party owner of Municipal Obligations
deposits such obligations with a custodian in exchange for two classes of
custodial receipts. The two classes have different characteristics, but, in
each case, payments on the two classes are based on payment received on the
underlying Municipal Obligations. One class has the characteristics of a
typical auction rate security, where at specified intervals its interest
rate is adjusted, and ownership changes, based on an auction mechanism.
This class's interest rate generally is expected to be below the coupon rate
of the underlying Municipal Obligations and generally is at a level
comparable to that of a Municipal Obligation of similar quality and having a
maturity equal to the period between interest rate adjustments. The second
class bears interest at a rate that exceeds the interest rate typically
borne by a security of comparable quality and maturity; this rate also is
adjusted, but in this case inversely to changes in the rate of interest of
the first class. In no event will the aggregate interest paid with respect
to the two classes exceed the interest paid by the underlying Municipal
Obligations. The value of the second class and similar securities should be
expected to fluctuate more than the value of a Municipal Obligation of
comparable quality and maturity and their purchase by the Fund should
increase the volatility of its net asset value and, thus, its price per
share. These custodial receipts are sold in private placements. The Fund
also may purchase directly from issuers, and not in a private placement,
Municipal Obligations having characteristics similar to custodial receipts.
These securities may be issued as part of a multi-class offering and the
interest rate on certain classes may be subject to a cap or floor.
Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Fund obligates a broker, dealer or bank to repurchase, at
the Fund's option, specified securities at a specified price and, in this
respect, stand-by commitments are comparable to put options. The exercise
of a stand-by commitment, therefore, is subject to the ability of the seller
to make payment on demand. The Fund will acquire stand-by commitments
solely to facilitate its portfolio liquidity and does not intend to exercise
its rights thereunder for trading purposes. The Fund may pay for stand-by
commitments if such action is deemed necessary, thus increasing to a degree
the cost of the underlying Municipal Obligation and similarly decreasing
such security's yield to investors. Gains realized in connection with stand-
by commitments will be taxable. The Fund also may acquire call options on
specific Municipal Obligations. The Fund generally would purchase these
call options to protect the Fund from the issuer of the related Municipal
Obligation redeeming, or other holder of the call option from calling away,
the Municipal Obligation before maturity. The sale by the Fund of a call
option that it owns on a specific Municipal Obligation could result in the
receipt of taxable income by the Fund.
Ratings of Municipal Obligations. The Fund will invest at least 65% of the
value of its net assets in Municipal Obligations which, in the case of
bonds, are rated no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch IBCA,
Inc. ("Fitch"). The Fund may invest up to 35% of the value of its net
assets in Municipal Obligations which, in the case of bonds, are rated lower
than Baa by Moody's and BBB by S&P and Fitch and as low as the lowest rating
assigned by Moody's, S&P or Fitch. The Fund also may invest in securities
which, while not rated, are determined by the Manager to be of comparable
quality to the rated securities in which the Fund may invest; for purposes
of the 65% requirement described in this paragraph, such unrated securities
will be considered to have the rating so determined.
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended October
31, 1998, computed on a monthly basis, was as follows:
Percentage of
Fitch or Moody's or S&P Value
AAA Aaa AAA 21.7%
AA Aa AA 9.4%
A A A 33.2%
BBB Baa BBB 28.0%
BB Ba BB 1.4%
F-1+/F-1 VMIG1/MIG1, P-1 SP-1+/SP-1, A-1 .7%
Not Rated Not Rated Not Rated 5.6% *
100.0%
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 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 and the
creditworthiness of the issuers of such securities.
Taxable Investments. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of
the Fund's net assets) or for temporary defensive purposes, the Fund may
invest in taxable short-term investments ("Taxable Investments") consisting
of: notes of issuers having, at the time of purchase, a quality rating
within the two highest grades of Moody's, S&P or Fitch; obligations of the
U.S. Government, its agencies or instrumentalities; commercial paper rated
not lower than P-2 by Moody's, A-2 by S&P or F-2 by Fitch; certificates of
deposit of U.S. domestic banks, including foreign branches of domestic
banks, with assets of one billion dollars or more; time deposits; bankers'
acceptances and other short-term bank obligations; and repurchase agreements
in respect of any of the foregoing. Dividends paid by the Fund that are
attributable to income earned by the Fund from Taxable Investments will be
taxable to investors. Except for temporary defensive purposes, at no time
will more than 20% of the value of the Fund's net assets be invested in
Taxable Investments. When the Fund has adopted a temporary defensive position,
including when acceptable New York Municipal Obligations are unavailable for
investment by the Fund, in excess of 35% of the Fund's net assets may be
invested in securities that are not exempt from New York State and New York
City personal income taxes. Under normal market conditions, the Fund
anticipates that not more than 5% of the value of its total assets will be
invested in any one category of Taxable Investments.
Zero Coupon Securities. The Fund may invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date) and pay-in-
kind bonds (bonds which pay interest through the issuance of additional
bonds). The amount of the discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of
the security and perceived credit quality of the issuer. Zero coupon
securities also may take the form of debt securities that have been stripped
of their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interest in such stripped debt obligations and
coupons. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to a greater degree to changes in interest rates
than non-zero coupon securities having similar maturities and credit
qualities. Federal income tax law requires the holder of a zero coupon
security or of certain pay-in-kind bonds to accrue income with respect to
these securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
Illiquid Securities. The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. These securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, and repurchase agreements providing for
settlement in more than seven days after notice. As to these securities,
the Fund is subject to a risk that should the Fund desire to sell them when
a ready buyer is not available at a price that the Fund deems representative
of their value, the value of the Fund's net assets could be adversely
affected.
Investment Techniques
The following information supplements and should be read in conjunction
with the Fund's Prospectus. The Fund's use of certain of the investment
techniques described below may give rise to taxable income.
Derivatives. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the 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 level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in derivatives could
have a large potential impact on the Fund's performance.
If the Fund invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its
derivatives were poorly correlated with its other investments, or if the
Fund were unable to liquidate its position because of an illiquid secondary
market. The market for many derivatives is, or suddenly can become,
illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for derivatives.
Although the Fund will not be a commodity pool, certain derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such derivatives.
The Fund may invest in futures contracts and options with respect thereto
for hedging purposes without limit. However, the Fund may not invest in
such contracts and options for other purposes if the sum of the amount of
initial margin deposits and premiums paid for unexpired options with respect
to such contracts, other than for bona fide hedging purposes, exceeds 5% of
the liquidation value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
derivatives. Exchange-traded derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such derivatives.
This guarantee usually is supported by a daily 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 set aside permissible
liquid assets in a segregated account to cover its obligations relating to
its transactions in derivatives. To maintain this required cover, the Fund
may have to sell portfolio securities at disadvantageous prices or times
since it may not be possible to liquidate a derivative position at a
reasonable price. In addition, the segregation of such assets will have the
effect of limiting 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 invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options.
The Fund may write (i.e., sell) covered call and put option contracts to the
extent of 20% of the value of its net assets at the time such option
contracts are written. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying security or
securities at the exercise price at any time during the option period, or at
a specific date. Conversely, a put option gives the purchaser of the option
the right to sell, and obligates the writer to buy, the underlying security
or securities at the exercise price at any time during the option period, or
at a specific date.
A covered call option written by 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, the Fund sets aside in a
segregated account cash or liquid securities having a value equal to or
greater than the exercise price of the option to fulfill the obligation
undertaken. The principal reason for writing covered call and put options
is to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. 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.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
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.
Lending Portfolio Securities. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to
be entitled to payments in amounts equal to the interest or other
distributions payable on the loaned securities which affords the Fund an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 33-
1/3% of the value of the Fund's total assets, and the Fund will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. Such
loans are terminable by the Fund at any time upon specified notice. The
Fund might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Fund.
Borrowing Money. The Fund is permitted to borrow to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940
Act"), which permits an investment company to borrow in an amount up to 33-
1/3% of the value of its total assets. The Fund currently intends to borrow
money only for temporary or emergency (not leveraging) purposes, in an
amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
Forward Commitments. The Fund may purchase Municipal Obligations and
other securities on a forward commitment or when-issued basis, which means
that delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate
receivable on a forward commitment or when-issued security are fixed when
the Fund enters into the commitment, but the Fund does not make payment
until it receives delivery from the counterparty. The Fund will commit to
purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement
date if it is deemed advisable. The Fund will set aside in a segregated
account permissible liquid assets at least equal at all times to the amount
of the Fund's purchase 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 forward commitment or 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.
Investment Considerations and Risks
Investing in Municipal Obligations. The Fund may invest more than 25%
of the value of its total assets in Municipal Obligations which are related
in such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for
example, securities the interest upon which is paid from revenues of similar
types of projects. As a result, the Fund may be subject to greater risk as
compared to a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, the Manager will consider, on an
ongoing basis, a number of factors including the likelihood that the issuing
municipality will discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), relating to the issuance of Municipal Obligations may reduce
the volume of Municipal Obligations qualifying for Federal tax exemption.
One effect of these provisions could be to increase the cost of the
Municipal Obligations available for purchase by the Fund and thus reduce
available yield. Shareholders should consult their tax advisers concerning
the effect of these provisions on an investment in the Fund. Proposals that
may restrict or eliminate the income tax exemption for interest on Municipal
Obligations may be introduced in the future. If any such proposal were
enacted that would reduce the availability of Municipal Obligations for
investment by the Fund so as to adversely affect Fund shareholders, the Fund
would reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Municipal Obligation as
taxable, the Fund would treat such security as a permissible Taxable
Investment within the applicable limits set forth herein.
Investing in New York Municipal Obligations. You should consider
carefully the special risks inherent in the Fund's investment in New York
Municipal Obligations. These risks result from the financial condition of
New York State, certain of its public bodies and municipalities and 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 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 recent fiscal years. For its fiscal year periods 1993
through 1998, the State recorded balanced budgets on a cash basis, with
substantial fund balances in the General Fund in fiscal 1992-93 and 1993-94
and smaller fund balances in fiscal 1994-95 and 1995-96. The State
completed its 1996-97 and 1997-98 fiscal years in balance on a cash basis
with General Fund cash surpluses of approximately $1.4 billion and $2.0
billion, respectively. There can be no assurance that New York will not
face substantial potential budget gaps in future years. You should review
"Appendix A" which more fully sets forth these and other risk factors.
Lower Rated Bonds. The Fund may invest up to 35% of the value of its
net assets in higher yielding (and, therefore, higher risk) debt securities
such as those rated below investment grade by Moody's, S&P and Fitch
(commonly known as junk bonds). They may be subject to certain risks with
respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated Municipal Obligations. See "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.
You 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
and will fluctuate over time. These bonds generally are considered by S&P,
Moody's and Fitch to be, on balance, 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 the Distributor or any other 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 total assets. Zero coupon bonds and pay-in-kind
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."
Simultaneous Investments. Investment decisions for the Fund are made
independently from those of other investment companies advised by the
Manager. If, however, such other investment companies desire to invest in,
or dispose of, the same securities as the Fund, available investments or
opportunities for sales will be allocated equitably to each investment
company. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or
received by the Fund.
Investment Restrictions
The Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the
1940 Act) of the Fund's outstanding voting shares. In addition, the Fund
has adopted investment restrictions numbered 1 through 7 as fundamental
policies. Investment restrictions numbered 8 through 12 are not fundamental
policies and may be changed by a 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.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of
the Fund. The Board approves all significant agreements between the Fund
and those companies that furnish services to the Fund. These companies are
as follows:
The Dreyfus Corporation.............Investment Adviser
Premier Mutual Fund Services, Inc...Distributor
Dreyfus Transfer, Inc...............Transfer Agent
The Bank of New York................Custodian
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below.
Board Members of the Fund
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. He also is
a director of The Noel Group, Inc., a venture capital company (for
which, from February 1995 until November 1997, he was Chairman of the
Board), The Muscular Dystrophy Association, HealthPlan Services
Corporation, a provider of marketing, administrative and risk
management services to health and other benefit programs, Carlyle
Industries, Inc. (formerly, Belding Heminway, Inc.), a button packager
and distributor, Career Blazers, Inc. (formerly, Staffing Resources,
Inc.), a temporary placement agency, and Century Business Services,
Inc., a provider of various outsourcing functions for small and medium
sized companies. For more than five years prior to January 1995, he
was President, a director and, until August 1994, Chief Operating
Officer of the Manager and Executive Vice President and a director of
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager
and, until August 24, 1994, the Fund's distributor. From August 1994
until December 31, 1994, he was a director of Mellon Bank Corporation.
He is 55 years old and his address is 200 Park Avenue, New York, New
York 10166.
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, IMS
Health, a service provider of marketing information and information
technology, The Dun & Bradstreet Corporation, MCI WorldCom and Mutual
of America Life Insurance Company. He is 65 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 55 years old and her address is
c/o New York University School of Law, 249 Sullivan Street, New York,
New York 10011.
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 and has published many articles on subjects in
the field of psychoanalysis. He is 66 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 79 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
served as Chairman of Citizens Union, an organization which strives to
reform and modernize city and state government from June 1994 until
June 1997. He is 55 years old and his address is 70 Lincoln Center
Plaza, New York, New York 10023-6583.
For so long as the Fund's plans described in the sections captioned
"Service Plan" and "Shareholder Services Plan" remain 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 for the fiscal year ended
October 31, 1998, 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, 1998, was as follows:
Total Compensation
Aggregate from Fund and Fund
Name of Board Compensation Complex Paid to
Member from Board
Fund* Member
Joseph S. DiMartino $7,500 $619,660.00(99)
Peggy C. Davis $6,000 $ 64,000.00(16)
Clifford L. Alexander, Jr. $6,000 $ 80,917.58(21)
Ernest Kafka $5,500 $ 57,500.00(16)
Saul B. Klaman $6,000 $ 64,000.00(16)
Nathan Leventhal $6,000 $ 64,000.00(16)
_____________________
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $978 for all Board members as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor and
Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 41 years old.
MARGARET W. CHAMBERS, Vice President and Secretary. Senior Vice President
and General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
August 1996 to March 1998, she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July
1996, she was an associate with the law firm of Ropes & Gray. She is
38 years old.
MICHAEL S. PETRUCELLI, Vice President, Assistant Secretary and Assistant
Treasurer. Senior Vice President of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From December 1989 through November 1996, he was employed by
GE Investment Services where he held various financial, business
development and compliance positions. He also served as Treasurer of
the GE Funds and as a Director of GE Investment Services. He is 36
years old.
STEPHANIE D. PIERCE, Vice President, Assistant Secretary and Assistant
Treasurer. Vice President and Client Development Manager of Funds
Distributor, Inc., and an officer of other investment companies advised
or administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August
1995 to April 1997, she was an Assistant Vice President with Hudson
Valley Bank, and from September 1990 to August 1995, she was Second
Vice President with Chase Manhattan Bank. She is 30 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of
the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
September 1989 to July 1994, she was an Assistant Vice President and
Client Manager for The Boston Company, Inc. She is 34 years old.
GEORGE A. RIO, Vice President and Assistant Treasurer. Executive Vice
President and Client Service Director of Funds Distributor, Inc., and
an officer of other investment companies advised or administered by the
Manager. From June 1995 to March 1998, he was Senior Vice President
and Senior Key Account Manager for Putnam Mutual Funds. From May 1994
to June 1995, he was Director of Business Development for First Data
Corporation. From September 1983 to May 1994, he was Senior Vice
President and Manager of Client Services and Director of Internal Audit
at The Boston Company, Inc. He is 43 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., 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 36 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. He is 29 years old.
CHRISTOPHER J. KELLEY, Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of Funds Distributor,
Inc., and an officer of other investment companies advised or
administered by the Manager. From April 1994 to July 1996, he was
Assistant Counsel at Forum Financial Group. From October 1992 to March
1994, he was employed by Putnam Investments in legal and compliance
capacities. He is 33 years old.
KATHLEEN K. MORRISEY, Vice President and Assistant Secretary. Manager of
Treasury Services Administration of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From July 1994 to November 1995, she was a Fund Accountant
for Investors Bank & Trust Company. She is 26 years old.
ELBA VASQUEZ, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
March 1990 to May 1996, she was employed by U.S. Trust Company of New
York where she held various sales and marketing positions. She is 37
years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's shares outstanding on December 1, 1998.
MANAGEMENT ARRANGEMENTS
Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company
incorporated under Pennsylvania law in 1971 and registered under the Federal
Bank Holding Company Act of 1956, as amended. Mellon provides a
comprehensive range of financial products and services in domestic and
selected international markets. Mellon is among the twenty-five largest
bank holding companies in the United States based on total assets.
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 16, 1998. 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:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a Director; Thomas F. Eggers, Vice Chairman-Institutional and a
director; Lawrence S. Kash, Vice Chairman and a director; Ronald P. O'Hanley
III, Vice Chairman; J. David Officer, Vice Chairman and a director; William
T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice President,
General Counsel and Secretary; Patrice M. Kozlowski, Vice
President-Corporate Communications; Mary Beth Leibig, Vice President-Human
Resources; Andrew S. Wasser, Vice President-Information Systems; Theodore A.
Schachar, Vice President; Wendy Strutt, Vice President; Richard Terres, Vice
President; William H. Maresca, Controller; James Bitetto, Assistant
Secretary; Steven F. Newman, Assistant Secretary; and Mandell L. Berman,
Burton C. Borgelt, Steven G. Elliott, Martin G. McGuinn, Richard W. Sabo and
Richard F. Syron, directors.
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 Fund's Board to
execute purchases and sales of securities. The Fund's portfolio managers
are Joseph P. Darcy, A. Paul Disdier, Douglas J. Gaylor, Karen M. Hand,
Stephen C. Kris, Richard J. Moynihan, Jill C. Shaffro, 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 and for other funds advised by the
Manager.
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 holder of 5% or more of the
outstanding voting securities of the Manager, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining 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 to existing shareholders, costs of
shareholders' reports and meetings, and any extraordinary expenses. In
addition, Fund shares are subject to an annual service and distribution fee.
See "Service Plan."
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 may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not
including the management fee paid by the Fund. The Distributor may use part
or all of such payments to pay Service Agents (as defined below) in respect
of these services. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
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. All fees and expenses are
accrued daily and deducted before payment of dividends to investors. For
the fiscal years ended October 31, 1996, 1997 and 1998, the management fees
paid by the Fund amounted to $1,891,456, $1,831,617 and $1,862,525,
respectively.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage fees, 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.
Distributor. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the Fund's distributor on a best efforts
basis pursuant to an agreement which is renewable annually.
Transfer and Dividend Disbursing Agent and Custodian. Dreyfus
Transfer, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the
Manager, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Fund's
transfer and dividend disbursing agent. Under a transfer agency agreement
with the Fund, the Transfer Agent arranges for the maintenance of
shareholder account records for the Fund, the handling of certain
communications between shareholders and the Fund and the payment of
dividends and distributions payable by the Fund. For these services, the
Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Fund during the month, and is
reimbursed for certain out-of-pocket expenses.
The Bank of New York (the "Custodian"), 90 Washington Street, New York,
New York 10286, is the Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to
be purchased or sold by the Fund. Under a custody agreement with the Fund,
the Custodian holds the Fund's securities and keeps all necessary accounts
and records. For its custody services, the Custodian receives a monthly fee
based on the market value of the Fund's assets held in custody and receives
certain securities transactions charges.
HOW TO BUY SHARES
General. Fund shares may be purchased through the Distributor or
certain financial institutions (which may include banks), securities dealers
and other industry professionals, such as investment advisers, accountants
and estate planning firms (collectively, "Service Agents") that have entered
into service agreements with the Distributor. Stock certificates are issued
only upon your written request. No certificates are issued for fractional
shares. The Fund reserves the right to reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a client
of a Service Agent which maintains an omnibus account in the Fund and has
made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. The initial investment must
be accompanied by the Account Application. For full-time or part-time
employees of the Manager or any of its affiliates or subsidiaries, directors
of the Manager, Board members of a fund advised by the Manager, including
members of the Fund's Board, or the spouse or minor child of any of the
foregoing, the minimum initial investment is $1,000. For full-time or part-
time employees of the Manager or any of its affiliates or subsidiaries who
elect to have a portion of their pay directly deposited into their Fund
accounts, the minimum initial investment is $50. The Fund reserves the
right to vary the initial and subsequent investment minimum requirements at
any time.
Fund shares also are offered without regard to the minimum initial
investment requirements through Dreyfus-Automatic Asset Builder(R) Registered,
Dreyfus Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan
pursuant to the Dreyfus Step Program described under "Shareholder Services."
These services enable you to make regularly scheduled investments and may
provide you with a convenient way to invest for long-term financial goals.
You should be aware, however, that periodic investment plans do not guarantee
a profit and will not protect an investor against loss in a declining market.
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in the
Fund's Prospectus and this Statement of Additional Information, and, to the
extent permitted by applicable regulatory authority, may charge their
clients direct fees. You should consult your Service Agent in this regard.
Shares are sold on a continuous basis at the net asset value per share
next determined after an order in proper form is received by the Transfer
Agent or other entity authorized to receive orders on behalf of the Fund.
Net asset value per share is determined as of the close of trading on the
floor of the New York Stock Exchange (currently 4:00 p.m., New York time) on
each day the New York Stock Exchange is open for business. For purposes of
computing net asset value per share, options and futures will be valued 15
minutes after the close of trading on the floor of the New York Stock
Exchange. Net asset value per share is computed by dividing the value of
the Fund's net assets (i.e., the value of its assets less liabilities) by
the total number of shares outstanding. The Fund's investments are valued
by an independent pricing service approved by the Fund's Board and are
valued at fair value as determined by the pricing service. The pricing
service's procedures are reviewed under the general supervision of the
Fund's Board. For further information regarding the methods employed in
valuing the Fund's investments, see "Determination of Net Asset Value."
Dreyfus TeleTransfer Privilege. You may purchase shares by telephone
if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. The proceeds will be transferred between the
bank account designated in one of these documents and your Fund account.
Only a bank account maintained in a domestic financial institution which is
an Automated Clearing House member may be so designated.
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 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 "How to Redeem Shares--Dreyfus TeleTransfer
Privilege."
Reopening an Account. You 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
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 "Service Plan") pursuant to which the Fund (i)
reimburses the Distributor for payments to Service Agents for distributing
the Fund's shares and servicing shareholder accounts ("Servicing") and (ii)
pays the Manager, Dreyfus Service Corporation and any affiliate of either of
them (collectively, "Dreyfus") for advertising and marketing relating to the
Fund and for servicing shareholder accounts, at an aggregate annual rate of
.20% of the value of the Fund's average daily net assets. The Fund's Board
believes that there is a reasonable likelihood that the Plan may benefit the
Fund and its shareholders.
Each of the Distributor and Dreyfus may pay one or more Service Agents
a fee in respect of Fund 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 amount, if any, to be paid to Service Agents under the Service Plan and
the basis on which such payments are made. The fees payable under the
Service Plan are payable without regard to actual expenses incurred.
The Fund also bears the costs of preparing and printing prospectuses
and statements of additional information used for regulatory purposes and
for distribution to existing shareholders. Under the Service Plan, the Fund
bears (a) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes and (b) the
costs associated with implementing and operating the Service Plan (such as
costs of printing and mailing service agreements), the aggregate of such
amounts not to exceed in any fiscal year of the Fund the greater of $100,000
or .005 of 1% of the value of the Fund's average daily net assets for such
fiscal year. Each item for which a payment may be made under the Service
Plan may constitute an expense of distributing Fund shares as the Securities
and Exchange Commission construes such term under Rule 12b-1.
A quarterly report of the amounts expended under the Service Plan, and
the purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Service Plan provides that it may
not be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Service Plan without shareholder approval and
that other material amendments of the Service Plan must be approved by the
Board, and by the Board members who are not "interested persons" (as defined
in the 1940 Act) of the Fund or the Manager and have no direct or indirect
financial interest in the operation of the Service Plan or in the related
service agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Service 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
Service Plan. The Service Plan was last so approved at a meeting held on
September 16, 1998. 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 Service 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, 1998, the Fund (a) reimbursed the
Distributor $30,295 for payments made to Service Agents for distributing
Fund shares and servicing shareholder accounts, and (b) paid Dreyfus
$590,547 for advertising and marketing Fund shares and for servicing
shareholder accounts. In addition, the Fund paid $2,798 for printing the
Fund's prospectuses and statements of additional information as well as
implementing and operating the Service Plan.
HOW TO REDEEM SHARES
Redemption Fee. The Fund will deduct a redemption fee equal to .10% of
the net asset value of Fund shares redeemed (including redemptions through
the use of the Fund Exchanges service) less than 15 days following the
issuance of such shares. The redemption fee will be deducted from the
redemption proceeds and retained by the Fund. For the fiscal year ended
October 31, 1998, the Fund retained $5,041 in redemption fees.
No redemption fee will be charged on the redemption or exchange of
shares (1) through the Fund's Check Redemption Privilege, Automatic
Withdrawal Plan or Dreyfus Auto-Exchange Privilege, (2) through accounts
that are reflected on the records of the Transfer Agent as omnibus accounts
approved by Dreyfus Service Corporation, (3) through accounts established by
Service Agents approved by Dreyfus Service Corporation that utilize the
National Securities Clearing Corporation's networking system, or (4)
acquired through the reinvestment of dividends or distributions. The
redemption fee may be waived, modified or terminated at any time.
Check Redemption Privilege. The Fund provides Redemption Checks
("Checks") automatically upon opening an account, unless you specifically
refuse the Check Redemption Privilege by checking the applicable "No" box on
the Account Application. The Check Redemption Privilege may be established
for an existing account by a separate signed Shareholder Services Form.
Checks will be sent only to the registered owner(s) of the account and only
to the address of record. The Account Application or Shareholder Services
Form 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
your agent, will cause the Fund to redeem a sufficient number of shares in
your 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
you. You generally will be subject to the same rules and regulations that
apply to checking accounts, although the election of this Privilege creates
only a shareholder-transfer agent relationship with the Transfer Agent.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will
honor, upon presentment, even if presented before the date of the Check, all
postdated Checks which are dated within six months of presentment for
payment, if they are otherwise in good order.
Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the shares in your account, the Check
will be returned marked insufficient funds. Checks should not be used to
close an account.
This Privilege will be terminated immediately, without notice, with
respect to any account which is, or becomes, subject to backup withholding
on redemptions. Any Redemption Check written on an account which has become
subject to backup withholding on redemptions will not be honored by the
Transfer Agent.
Wire Redemption Privilege. By using this Privilege, you authorize the
Transfer Agent to act on wire, telephone or letter redemption instructions
from any person representing himself or herself to be you 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 a 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 you on
the Account Application or Shareholder Services Form, or to a correspondent
bank if your bank is not a member of the Federal Reserve System. Fees
ordinarily are imposed by such bank and borne by the investor. Immediate
notification by the correspondent bank to your bank is necessary to avoid a
delay in crediting the funds to your bank account.
If you have access to telegraphic equipment, you may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
If you do not have direct access to telegraphic equipment, you may have
the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
toll free. You 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. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an Automated Clearing House member may be designated. Holders of
jointly registered Fund or bank accounts may redeem through the Dreyfus
TeleTransfer Privilege for transfer to their bank account not more than
$250,000 within any 30-day period. You should be aware that if you 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 your
account at an ACH member bank ordinarily two business days after receipt of
the redemption request. See "How to Buy Shares--Dreyfus TeleTransfer
Privilege."
Redemption Through a Selected Dealer. If you are a customer of a
Selected Dealer, you may make redemption requests to your Selected Dealer.
If the Selected Dealer transmits the redemption request so that it is
received by the Transfer Agent prior to the close of trading on the floor of
the New York Stock Exchange (currently 4:00 p.m., New York time), the
redemption request will be effective on that day. If a redemption request
is received by the Transfer Agent after the close of trading on the floor of
the New York Stock Exchange, the redemption request will be effective on
the next business day. It is the responsibility of the Selected Dealer to
transmit a request so that it is received in a timely manner. The proceeds
of the redemption are credited to your account with the Selected Dealer.
See "How to Buy Shares" for a discussion of additional conditions or fees
that may be imposed upon redemption.
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 and is a fundamental policy of the Fund which may not be changed
without shareholder approval. In the case of requests for redemption in
excess of such amount, the 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 might 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 determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
SHAREHOLDER SERVICES
Fund Exchanges. You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by the Manager, to the
extent such shares are offered for sale in your state of residence. The
Fund will deduct a redemption fee equal to .10% of the net asset value of
Fund shares exchanged where the exchange is made less than 15 days after the
issuance of such shares. 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, you must notify the
Transfer Agent of your prior ownership of fund shares and your account
number.
To request an exchange, you or your Service Agent acting on your 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 you check the applicable "No"
box on the Account Application, indicating that you specifically refuse this
Privilege. By using the Telephone Exchange Privilege, you authorize the
Transfer Agent to act on telephonic instructions (including over The Dreyfus
Touchr automated telephone system) from any person representing himself or
herself to be you 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. No fees currently
are charged shareholders directly in connection with exchanges, although the
Fund reserve the right, upon not less than 60 days' written notice, to
charge shareholders a nominal administrative fee in accordance with rules
promulgated by the Securities and Exchange Commission.
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.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits you 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. You will be
notified if your account falls below the amount designated to be exchanged
under this Privilege. In this case, your 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 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.
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. Shares may be exchanged only
between accounts having identical names and other identifying designations.
The Fund Exchanges service or the Dreyfus Auto-Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
Dreyfus-Automatic Asset Builder(R) Registered. Dreyfus-Automatic
Asset Builder permits you to purchases Fund shares (minimum of $100
and maximum of $150,000 per transaction) at regular intervals selected
by you. Fund shares are purchased by transferring funds from the bank
account designated by you.
Dreyfus Government Direct Deposit Privilege. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the U.S.
Government automatically deposited into your fund account. You may deposit
as much of such payments as you elect.
Dreyfus Payroll Savings Plan. Dreyfus Payroll Savings Plan permits you
to purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you
may have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus Payroll Savings Plan account, you must
file an authorization form with your employer's payroll department. It is
the sole responsibility of your employer, not the Distributor, the Manager,
the Fund, the Transfer Agent or any other person, to arrange for
transactions under the Dreyfus Payroll Savings Plan.
Dreyfus Step Program. The Dreyfus Step Program enables you to purchase
Fund shares without regard to the Fund's minimum initial investment
requirements through Dreyfus-Automatic Asset Builderr, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a
Dreyfus Step Program account, you must supply the necessary information on
the Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-782-6620.
You may terminate your participation in this Program at any time by
discontinuing your participation in Dreyfus-Automatic Asset Builder, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time.
Dreyfus Dividend Options. Dreyfus Dividend Sweep allows you to invest
automatically your 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 you are 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 that
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.
Dreyfus Dividend ACH permits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so
designated. Banks may charge a fee for this service.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits you
to request withdrawal of a specified dollar amount (minimum of $50) on
either a monthly or quarterly basis if you have a $5,000 minimum account.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends and
distributions, your shares will be reduced and eventually may be depleted.
Automatic Withdrawal may be terminated at any time by you, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
DETERMINATION OF NET ASSET VALUE
Valuation of Portfolio Securities. The Fund's investments are valued
each business day 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), 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, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that the Fund has qualified for the fiscal year
ended October 31, 1998 as a "regulated investment company" under the Code.
The Fund intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Such qualification relieves the Fund of
any liability for Federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. If the
Fund did not qualify as a regulated investment company, it would be treated
for tax purposes as an ordinary corporation subject to Federal income tax.
The Fund ordinarily declares dividends from its net investment income
on each day the New York Stock Exchange is open for business. Fund shares
begin earning income dividends on the day following the date of purchase.
Dividends usually are paid on the last business day of each month and are
automatically reinvested in additional Fund shares at net asset value or, at
your option, paid in cash. The Fund's earnings for Saturdays, Sundays and
holidays are declared as dividends on the next business day. If you redeem
all shares in your account at any time during the month, all dividends to
which you are entitled will be paid to you along with the proceeds of the
redemption. If you are an omnibus accountholder and indicate in a partial
redemption request that a portion of any accrued dividends to which such
account is entitled belongs to an underlying accountholder who has redeemed
all shares in his or her account, such portion of the accrued dividends will
be paid to you along with the proceeds of the redemption.
If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest
such dividends or distributions and all future dividends and distributions
payable to you in additional Fund shares at net asset value. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
If, at the close of each quarter of its taxable year, at least 50% of
the value of the Fund's total assets consists of Federal tax exempt
obligations, then the Fund may designate and pay Federal exempt-interest
dividends from interest earned on all such tax exempt obligations. Such
exempt-interest dividends may be excluded by shareholders of the Fund from
their gross income for Federal income tax purposes. Dividends derived from
Taxable Investments, together with distributions from any net realized short-
term securities gains, generally are taxable as ordinary income for Federal
income tax purposes whether or not reinvested. Distributions from net
realized long-term securities gains generally are taxable as long-term
capital gains to a shareholder who is a citizen or resident of the United
States, whether or not reinvested and regardless of the length of time the
shareholder has held his shares.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of the shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated under
"Distributions and Taxes" in the Prospectus. In addition, the Code provides
that if a shareholder holds Fund shares for six months or less 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" transactions, 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, any gain or loss realized by the Fund
from certain financial 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 financial
futures contracts or 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, override or modify 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" and/or conversion transactions may
be recharacterized as ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in financial futures contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the futures or
options 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." If no election is made, to the extent the straddle and
conversion transaction rules apply to positions established by the Fund,
losses realized by the Fund will be deferred to the extent of unrealized
gain in the related offsetting position. Moreover, as a result of the
straddle and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain on straddle positions may be recharacterized as short-
term capital gain or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short
sale, futures, forward, or offsetting notional principal contract
(collectively, a "Contract") respecting the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract
and then acquires property that is the same as, or substantially identical
to, the underlying property. In each instance, with certain exceptions, the
Fund generally will be taxed as if the appreciated financial position were
sold at its fair market value on the date the Fund enters into the financial
position or acquires the property, respectively. Transactions that are
identified as hedging or straddle transactions under other provisions of the
Code can be subject to the constructive sale provisions.
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.
PORTFOLIO TRANSACTIONS
Portfolio securities 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 and may be
selected based upon their sales of shares of the Fund or other funds advised
by the Manager or its affiliates.
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 expenses of its
research department.
PERFORMANCE INFORMATION
The Fund's current yield for the 30-day period ended October 31, 1998
was 3.95%. 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 distributions, 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 1998 Federal, New York State and New York City
effective tax rate of 46.43%, the Fund's tax equivalent yield for the
30-day period ended October 31, 1998 was 7.37%. 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 quoted above represents the application of the
highest Federal, New York State and New York City marginal personal 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 6.85% 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 include 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, 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, 1998 was 8.14%, 5.35% and 7.72%, 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 aggregate total return for the period November 19, 1984
(commencement of operations) through October 31, 1998 was 201.82%. 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 are not indicative of the Fund's
past or future performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Moody's Bond
Survey Bond Index, Lehman Brothers Municipal Bond Index, Morningstar, Inc.
and other industry publications. From time to time, advertising materials
for the Fund may refer to or discuss then-current or past economic
conditions, developments and/or events, actual or proposed tax legislation,
or to statistical or other information concerning trends relating to
investment companies, as compiled by industry associations such as the
Investment Company Institute. From time to time, advertising materials for
the Fund also may refer to Morningstar ratings and related analyses
supporting such ratings.
From time to time, advertising material for the Fund may include
biographical information relating to its portfolio manager and may refer to,
or include commentary by the portfolio manager relating to investment
strategy, asset growth, current or past business, political, economic or
financial conditions and other matters of general interest to investors.
INFORMATION ABOUT THE FUND
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 in
liquidation. Shares have no preemptive, subscription or conversion rights
and are freely transferable.
On December 18, 1989, Fund shareholders approved a proposal to (a)
change the Fund's investment restrictions to permit the Fund to purchase and
sell futures and options on futures transactions, lend portfolio securities
and purchase stand-by commitments, and (b) change the Fund's name from
General New York Exempt Intermediate Bond Fund, Inc. to General New York
Municipal Bond Fund, Inc. In addition, prior thereto at least 80% of the
value of the Fund's portfolio was required to consist of Municipal
Obligations rated no lower than Baa by Moody's or BBB by S&P, and the dollar-
weighted average maturity of its portfolio ranged between three and ten
years.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a
result, Fund shareholders may not consider each year the election of Board
members or the appointment of auditors. However, the holders of at least
10% of the shares outstanding and entitled to vote may require the Fund to
hold a special meeting of shareholders for purposes of removing a Board
member from office. Fund shareholders may remove a Board member by the
affirmative vote of a majority of the Fund's outstanding voting shares. In
addition, the Board will call a meeting of shareholders for the purpose of
electing Board members if, at any time, less than a majority of the Board
members then holding office have been elected by shareholders.
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Fund's performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is following a market-
timing strategy or is otherwise engaging in excessive trading, the Fund,
with or without prior notice, may temporarily or permanently terminate the
availability of Fund Exchanges, or reject in whole or part any purchase or
exchange request, with respect to such investor's account. Such investors
also may be barred from purchasing other funds in the Dreyfus Family of
Funds. Generally, an investor who makes more than four exchanges out of the
Fund during any calendar year or who makes exchanges that appear to coincide
with a market-timing strategy may be deemed to be engaged in excessive
trading. Accounts under common ownership or control will be considered as
one account for purposes of determining a pattern of excessive trading. In
addition, the Fund may refuse or restrict purchase or exchange requests by
any person or group if, in the judgment of the Fund's management, the Fund
would be unable to invest the money effectively in accordance with its
investment objective and policies or could otherwise be adversely affected
or if the Fund receives or anticipates receiving simultaneous orders that
may significantly affect the Fund (e.g., amounts equal to 1% or more of the
Fund's total assets). If an exchange request is refused, the Fund will take
no other action with respect to the shares until it receives further
instructions from the investor. The Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would
be disruptive to efficient portfolio management or would adversely affect
the Fund. The Fund's policy on excessive trading applies to investors who
invest in the Fund directly or through financial intermediaries, but does
not apply to the Dreyfus Auto-Exchange Privilege, to any automatic
investment or withdrawal privilege described herein, or to participants in
employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange
requests based on their separate components -- redemption orders with a
simultaneous request to purchase the other fund's shares. In such a case,
the redemption request would be processed at the Fund's next determined net
asset value but the purchase order would be effective only at the net asset
value next determined after the fund being purchased receives the proceeds
of the redemption, which may result in the purchase being delayed.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as independent auditors of the
Fund.
APPENDIX A
INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 26, 1998 and a supplement
thereto dated November 4, 1998. The factors affecting the financial
condition of New York State (the "State") and New York City (the "City") are
complex and the following description constitutes only a summary.
General
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The state's economy is diverse,
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small
share of the nation's farming and mining activity. The State's location and
its excellent air transport facilities and natural harbors have made it an
important link in international commerce. Travel and tourism constitute an
important part of the economy. Like the rest of the nation, New York has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries.
Services: The services sector, which includes entertainment, personal
services, such as health care and auto repairs, and business-related
services, such as information processing, law and accounting, is the State's
leading economic sector. The services sector accounts for more than three
of every ten nonagricultural jobs in New York and has a noticeably higher
proportion of total jobs than does the rest of the nation.
Manufacturing: Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's economy is
less reliant on this sector than is the nation. The principal manufacturing
industries in recent years produced printing and publishing materials,
instruments and related products, machinery, apparel and finished fabric
products, electronic and other electric equipment, food and related
products, chemicals and allied products, and fabricated metal products.
Trade: Wholesale and retail trade is the second largest sector in terms
of nonagricultural jobs in New York but is considerably smaller when
measured by income share. Trade consists of wholesale businesses and retail
businesses, such as department stores and eating and drinking
establishments.
Finance, Insurance and Real Estate: New York City is the nation's
leading center of banking and finance and, as a result, this is a far more
important sector in the State than in the nation as a whole. Although this
sector accounts for under one-tenth of all nonagricultural jobs in the
State, it contributes over one-sixth of all nonfarm labor and proprietors'
income.
Agriculture: Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part of total
State output. Principal agricultural products of the State include milk and
dairy products, greenhouse and nursery products, apples and other fruits,
and fresh vegetables. New York ranks among the nation's leaders in the
production of these commodities.
Government: Federal, State and local government together are the third
largest sector in terms of nonagricultural jobs, with the bulk of the
employment accounted for by local governments. Public education is the
source of nearly one-half of total state and local government employment.
Relative to the nation, the State has a smaller share of manufacturing
and construction and a larger share of service-related industries. The
State's finance, insurance, and real estate share, as measured by income, is
particularly large relative to the nation. The State is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more
affected during a recession that is concentrated in the service-producing
sector.
Economic Outlook
U. S. Economy
Economic growth during both 1998 and 1999 is expected to be slower than
it was during 1997. The financial and economic turmoil which started in
Asia and has spread to other parts of the world is expected to continue to
negatively affect U.S. trade balances throughout most of 1999. In addition,
growth in domestic consumption, which has been a major driving force behind
the nation's strong economic performance in recent years, is expected to
slow in 1999 as consumer confidence retreats from historic highs and the
stock market ceases to provide large amounts of extra discretionary income.
However, the lower short-term interest rates which are expected to be in
force during 1999 should help prevent a recession. The revised forecast
projects real GDP growth of 3.4 percent in 1998, moderately below the 1997
growth rate. In 1999, real GDP growth is expected to fall further, to 1.6
percent. The growth of nominal GDP is projected to decline from 5.9 percent
in 1997 to 4.6 percent in 1998 and 3.7 percent in 1999. The inflation rate
is expected to drop to 1.7 percent in 1998 before rising to 2.7 percent in
1999. The annual rate of job growth is expected to be 2.5 percent in 1998,
almost equaling the strong growth rate experienced in 1997. In 1999,
however, employment growth is forecast to slow markedly, to 1.9 percent.
Growth in personal income and wages is expected to slow in 1998 and again in
1999.
State Economy
Continued growth is projected in 1998 and 1999 for employment, wages,
and personal income, although, for 1999, a significant slowdown in the
growth rates of personal income and wages are expected. The growth of
personal income is projected to rise from 4.7 percent in 1997 to 5.0 percent
in 1998, but then drop to 3.4 percent in 1999, in part because growth in
bonus payments is expected to moderate significantly, a distinct shift from
the unusually high increases of the last few years. Overall employment
growth is expected to be 2.0 percent in 1998, the strongest in a decade, but
is expected to drop to 1.0 percent in 1999, reflecting the slowing growth of
the national economy, continued spending restraint in government, less
robust profitability in the financial sector and continued restructuring in
the manufacturing, health care, and banking sectors.
State Financial Plan
The State Constitution requires the Governor to submit to the
legislature a balanced executive budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by
bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. A final budget must be approved before the statutory deadline of
April 1. The State Financial Plan is updated quarterly pursuant to law.
1998-99 Fiscal Year
The State's current fiscal year began on April 1, 1998 and ends on
March 31, 1999 and is referred to herein as the State's 1998-99 fiscal year.
The Legislature adopted the debt service component of the State budget for
the 1998-99 fiscal year on March 30, 1998 and the remainder of the budget on
April 18, 1998. In the period prior to adoption of the budget for the
current fiscal year, the Legislature also enacted appropriations to permit
the State to continue its operations and provide for other purposes. On
April 25, 1998, the Governor vetoed certain items that the Legislature added
to the Executive Budget. The Legislature had not overridden any of the
Governor's vetoes as of the start of the legislative recess on June 19, 1998
(under the State Constitution, the Legislature can override one or more of
the Governor's vetoes with the approval of two-thirds of the members of each
house).
General Fund disbursements in 1998-99 are now projected to grow by
$2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions
taken at the end of the regular legislative session, as well as spending
that was originally anticipated to occur in 1997-98 but is now expected to
occur in 1998-99. The State projects that the 1998-99 State Financial Plan
is balanced on a cash basis, with an estimated reserve for future needs of
$761 million.
The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and
local income tax relief for senior citizens under the School Tax Relief
Program (STAR), expansion of the child care income-tax credit for middle-
income families, a phased-in reduction of the general business tax, and
reduction of several other taxes and fees, including an accelerated phase-
out of assessments on medical providers. The enacted budget also provides
for significant increases in spending for public schools, special education
programs, and for the State and City university systems. It also allocates
$50 million for a new Debt Reduction Reserve Fund (DRRF) that may eventually
be used to pay debt service costs on or to prepay outstanding State-
supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the
General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax
Stabilization Reserve Fund (TSRF), a balance of $158 million in the
Community Projects Fund (CPF), and a balance of $100 million in the
Contingency Reserve Fund (CRF). The TSRF can be used in the event of an
unanticipated General Fund cash operating deficit, as provided under the
State Constitution and State Finance Law. The CPF is used to finance
various legislative and executive initiatives. The CRF provides resources
to help finance any extraordinary litigation costs during the fiscal year.
Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to
fiscal year and are influenced by governments, institutions, and
organizations that are not subject to the State's control. The State
Financial Plan is also necessarily 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. The Division of Budget believes that its projections
of receipts and disbursements relating to the current State Financial Plan,
and the assumptions on which they are based, are reasonable. Actual
results, however, could differ materially and adversely from the projections
set forth herein, and those projections may be changed materially and
adversely from time to time. See "Special Considerations" below for a
discussion of risks and uncertainties faced by the State.
Second Update (current fiscal year)
On October 30, 1998, the State issued the second of its three quarterly
updates to the 1998-99 Financial Plan. In the Mid-Year Update, the State
continues to project that the State Financial Plan for 1998-99 will remain
in balance. The State now projects total receipts in 1998-99 of $37.84
billion, an increase of $29 million over the amount projected in the First
Quarterly Update. The State has made no changes to its July disbursement
projections, with total disbursements of $36.78 billion expected for the
current fiscal year. The additional receipts increase the State's projected
surplus (reserve for future needs) by $29 million over the July estimate, to
$1.04 billion.
The Financial Plan now projects a closing balance in the General Fund
of $1.7 billion. The balance is comprised of the $1.04 billion reserve for
future needs, $400 million in the Tax Stabilization Reserve Fund, $100
million in the Contingency Reserve Fund (after a planned deposit of $32
million in 1998-99), and $158 million in the Community Projects Fund.
The State ended the first six months of 1998-99 fiscal year with a
General Fund cash balance of $5.02 billion, roughly $143 million higher than
projected in the cash flow accompanying the July Update to the Financial
Plan. Total receipts, including transfers from other funds, were
approximately $52 million higher than expected, with the increase comprised
of additional tax revenues ($22 million) and transfers from other funds ($30
million). Total spending through the first six months of the fiscal year
was $16.28 billion, or $91 million lower than projected in July. This
variance resulted primarily from higher spending in Grants to Local
Governments ($27 million), offset by lower spending in State Operations
($124 million). These variances are timing-related and should not affect
total disbursements for the fiscal year.
Outyear Projections Of Receipts And Disbursements
State law requires the Governor to propose a balanced budget each year.
In recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-
00 General Fund budget gap of approximately $1.7 billion and a 2000-01 gap
of $3.7 billion. As a result of changes made in the 1998-99 enacted budget,
the 1999-00 gap is now expected to be roughly $1.3 billion, or about $400
million less than previously projected, after application of reserves
created as part of the 1998-99 budget process. Such reserves would not be
available against subsequent year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of higher-
than-projected tax receipts and in lower-than-expected entitlement spending.
However, the State's projections in 1999-00 currently assume actions to
achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of
the current round of contracts at the end of the 1998-99 fiscal year. The
State expects that the 1999-00 Financial Plan will achieve savings from
initiatives by State agencies to deliver services more efficiently,
workforce management efforts, maximization of federal and non-General Fund
spending offsets, and other actions necessary to bring projected
disbursements and receipts into balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-
00 Executive Budget process, as required by law. The revised expectations
for years 2000-01 and 2001-02 will reflect the cumulative impact of tax
reductions and spending commitments enacted over the last several years as
well as new 1999-00 Executive Budget recommendations. The STAR program,
which dedicates a portion of personal income tax receipts to fund school tax
reductions, has a significant impact on General Fund receipts. STAR is
projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99
base, scheduled reductions to estate and gift, sales and other taxes,
reflecting tax cuts enacted in 1997-98 and 1998-99, will lower General Fund
taxes and fees by an estimated $1.8 billion in 2000-01. Disbursement
projections for the outyears currently assume additional outlays for school
aid, Medicaid, welfare reform, mental health community reinvestment, and
other multi-year spending commitments in law. See "Special Considerations"
below for a description of other risks and uncertainties associated with the
State Financial Plan process.
Special Considerations
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. These factors
can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its
agencies and instrumentalities, but also by entities, such as the federal
government, that are not under the control of the State. Because of the
uncertainty and unpredictability of these factors, their impact cannot, as a
practical matter, be included in the assumptions underlying the State's
projections at this time.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of
State and national economic forecasts prepared by commercial forecasting
services and other public and private forecasters. 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, the extent of corporate and governmental
restructuring, the condition of the financial sector, federal fiscal and
monetary policies, the level of interest rates, 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 results in the
current fiscal year that are worse than predicted, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
Projections of total State receipts in the Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to
State tax receipts. In preparing projections of State receipts, economic
forecasts relating to personal income, wages, consumption, profits and
employment have been particularly important. The projection of receipts
from most tax or revenue sources is generally made by estimating the change
in yield of such tax or revenue source caused by economic and other factors,
rather than by estimating the total yield of such tax or revenue source from
its estimated tax base. The forecasting methodology, however, ensures that
State fiscal year collection estimates for taxes that are based on a
computation of annual liability, such as the business and personal income
taxes, are consistent with estimates of total liability under such taxes.
Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations.
Factors that may affect the level of disbursements in the fiscal year
include uncertainties relating to the economy of the nation and the State,
the policies of the federal government, and changes in the demand for and
use of State services.
An additional risk to the State Financial Plan arises from the
potential impact of certain litigation and of federal disallowances now
pending against the State, which could adversely affect the State's
projections of receipts and disbursements. The State Financial Plan assumes
no significant litigation or federal disallowance or other federal actions
that could affect State finances, but has significant reserves in the event
of such an action.
The Division of the Budget believes that its projections of receipts
and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from the projections set
forth herein. In the past, the State has taken management actions to
address potential Financial Plan shortfalls, and DOB believes it could take
similar actions should variances occur in its projections for the current
fiscal year.
Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of
the State and regional economy, and actions by the federal government have
helped to create projected structural budget gaps for the State. These gaps
result from a significant disparity between recurring revenues and the costs
of maintaining or increasing the level of support for State programs. To
address a potential imbalance in any given fiscal year, the State would be
required to take actions to increase receipts and/or or reduce disbursements
as it enacts the budget for that year, and, under the State Constitution,
the Governor is required to propose a balanced budget each year. There can
be no assurance, however, that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years. For example, the fiscal effects of
tax reductions adopted in the last several fiscal years (including 1998-99)
are projected to grow more substantially beyond the 1998-99 fiscal year,
with the incremental annual cost of all currently enacted tax reductions
estimated at over $4 billion by the time they are fully effective in State
fiscal year 2002-03. These actions will place pressure on future budget
balance in New York State.
1998-99 State Financial Plan
Four governmental fund types comprise the State Financial Plan: the
General Fund, the Special Revenue Funds, the Capital Projects Funds, and the
Debt Service Funds.
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. In the State's 1998-99 fiscal year, the General Fund is expected
to account for approximately 47.6 percent of all Governmental Funds
disbursements and 70.1 percent of total State Funds disbursements. General
Fund moneys are also transferred to other funds, primarily to support
certain capital projects and debt service payments in other fund types.
Total receipts and transfers from other funds are projected to be $37.56
billion, an increase of $3.01 billion from the 1997-98 fiscal year. Total
General Fund disbursements and transfers to other funds are projected to be
$36.78 billion, an increase of $2.43 billion from the 1997-98 fiscal year.
Projected General Fund Receipts
Total General Fund receipts in 1998-99 are projected to be $37.56
billion, an increase of over $3 billion from the $34.55 billion recorded in
1997-98. This total includes $34.36 billion in tax receipts, $1.40 billion
in miscellaneous receipts, and $1.80 billion in transfers from other funds.
The transfer of a portion of the surplus recorded in 1997-98 to 1998-99
exaggerates the "real" growth in State receipts from year to year by
depressing reported 1997-98 figures and inflating 1998-99 projections.
Conversely, the incremental cost of tax reductions newly effective in 1998-
99 and the impact of statutes earmarking certain tax receipts to other funds
work to depress apparent growth below the underlying growth in receipts
attributable to expansion of the State's economy. On an adjusted basis,
State tax revenues in the 1998-99 fiscal year are projected to grow at
approximately 7.5 percent, following an adjusted growth of roughly nine
percent in the 1997-98 fiscal year. The discussion below summarizes the
State's projections of General Fund taxes and other revenues for the 1998-99
Fiscal year.
The Personal Income Tax is imposed on the income of individuals,
estates and trusts and is based with certain modifications on federal
definitions of income and deductions. This tax continues to account for
over half of the State's General Fund receipts base. Net personal income
tax collections are projected to reach $21.24 billion, nearly $3.5 billion
above the reported 1997-98 collection total. Since 1997 represented the
completion of the 20 percent income tax reduction program enacted in 1995,
growth from 1997 to 1998 will be unaffected by major income tax reductions.
Adding to the projected annual growth is the net impact of the transfer of
the surplus from 1997-98 to the current year which affects reported
collections by over $2.4 billion on a year-over-year basis, as partially
offset by the diversion of slightly over $700 million in income tax receipts
to the STAR fund to finance the initial year of the school tax reduction
program. The STAR program was enacted in 1997 to increase the State share
of school funding and reduce residential school taxes. Adjusted for these
transactions, the growth in net income tax receipts is roughly $1.7 billion,
an increase of over 9 percent. This growth is largely a function of over 8
percent growth in income tax liability projected for 1998 as well as the
impact of the 1997 tax year settlement on 1998-99 net collections.
User taxes and fees are comprised of three-quarters of the State four
percent sales and use tax (the balance, one percent, flows to support Local
Government Assistance Corporation (LGAC) debt service requirements),
cigarette, alcoholic beverage, container, and auto rental taxes, and a
portion of the motor fuel excise levies. Also included in this category are
receipts from the motor vehicle registration fees and alcoholic beverage
license fees. A portion of the motor fuel tax and motor vehicle
registration fees and all of the highway use tax are earmarked for dedicated
transportation funds.
Receipts from user taxes and fees are projected to total $7.14 billion,
an increase of $107 million from reported collections in the prior year.
The sales tax component of this category accounts for all of the 1998-99
growth, as receipts from all other sources decline $100 million. The growth
in yield of the sales tax in 1998-99, after adjusting for tax law and other
changes, is projected at 4.7 percent. The yields of most of the excise
taxes in this category show a long-term declining trend, particularly
cigarette and alcoholic beverage taxes. These General Fund declines are
exacerbated in 1998-99 by revenue losses from scheduled and newly enacted
tax reductions, and by an increase in earmarking of motor vehicle
registration fees to the Dedicated Highway and Bridge Trust Fund.
Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as gross-receipts-
based taxes on utilities and gallonage-based petroleum business taxes.
Beginning in 1994, a 15 percent surcharge on these levies began to be phased
out and, for most taxpayers, there is no surcharge liability for taxable
periods ending in 1997 and thereafter.
Total business tax collections in 1998-99 are now projected to be $4.96
billion, $91 million less than received in the prior fiscal year. The
category includes receipts from the largely income-based levies on general
business corporations, banks and insurance companies, gross receipts taxes
on energy and telecommunication service providers and a per-gallon
imposition on petroleum business. The year-over-year decline in projected
receipts in this category is largely attributable to statutory changes
between the two years. These include the first year of utility-tax rate
cuts and the Power for Jobs tax reduction program for energy providers, and
the scheduled additional diversion of General Fund petroleum business and
utility tax receipts to other funds. In addition, profit growth is also
expected to slow in 1998.
Other taxes include estate, gift and real estate transfer taxes, a tax
on gains from the sale or transfer of certain real estate (this tax was
repealed in 1996), a pari-mutuel tax and other minor levies. They are now
projected to total $1.02 billion -- $75 million below last year's amount.
Two factors account for a significant part of the expected decline in
collections from this category. First, the effects of the elimination of
the real property gains tax collections; second, a decline in estate tax
receipts, following the explosive growth recorded in 1997-98, when receipts
expanded by over 16 percent.
Miscellaneous receipts include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Total
miscellaneous receipts are projected to reach $1.40 billion, down almost
$200 million from the prior year, reflecting the loss of non-recurring
receipts in 1997-98 and the growing effects of the phase-out of the medical
provider assessments.
Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, particularly the one
percent sales tax used to support payments to LGAC. Transfers from other
funds are expected to total $1.8 billion, or $222 million less than total
receipts from this category during 1997-98. Total transfers of sales taxes
in excess of LGAC debt service requirements are expected to increase by
approximately $51 million, while transfers from all other funds are expected
to fall by $273 million, primarily reflecting the absence, in 1998-99, of a
one-time transfer of nearly $200 million for retroactive reimbursement of
certain social services claims from the federal government.
Projected General Fund Disbursements
General Fund disbursements in 1998-99, including transfers to support
capital projects, debt service and other funds are estimated at $36.78
billion. This represents an increase of $2.43 billion or 7.1 percent from
1997-98. Nearly one-half of the growth is for educational purposes,
reflecting increased support for public schools, special education programs
and the State and City university systems. The remaining increase is
primarily for Medicaid, mental hygiene, and other health and social welfare
programs, including children and family services. The 1998-99 Financial
Plan also includes funds for the current negotiated salary increases for
State employees, as well as increased transfers for debt service.
Grants to Local Governments is the largest category of General Fund
disbursements and includes financial assistance to local governments and not-
for-profit corporations, as well as entitlement benefits to individuals.
The 1998-99 Financial Plan projects spending of $25.14 billion in this
category, an increase of $1.88 billion or 8.1 percent over the prior year.
The largest annual increases are for educational programs, Medicaid, other
health and social welfare programs, and community projects grants.
The 1998-99 budget provides $9.65 billion in support of public schools.
The year-to-year increase of $769 million is comprised of partial funding
for a 1998-99 school year increase of $847 million as well as the remainder
of the 1997-98 school year increase that occurs in State fiscal year 1998-
99. Spending for all other educational programs, which includes the State
and City university systems, the Tuition Assistance Programs, and
handicapped programs, is estimated at $3.00 billion, an increase of $270
million over 1997-98 levels.
Medicaid costs are estimated at $5.60 billion, an increase of $144
million from the prior year. After adjusting 1997-98 for the $116 million
prepayment of an additional Medicaid cycle, Medicaid spending is projected
to increase $260 million or 4.9 percent. Disbursements for all other health
and social welfare programs are projected to total $3.63 billion, an
increase of $131 million from 1997-98. This includes an increase in support
for children and families and local public health programs, offset by a
decline in welfare spending of $75 million that reflects continuing State
and local efforts to reduce welfare fraud, declining caseloads, and the
impact of State and federal welfare reform legislation.
Remaining disbursements primarily support community-based mental
hygiene programs, community and public health programs, local transportation
programs, and revenue sharing payments to local governments. Revenue
sharing and other general purpose aid to local governments are projected at
$837 million, an increase of approximately $37 million from 1997-98.
State operations spending reflects the administrative costs of
operating the State's agencies, including the prison system, mental hygiene
institutions, the State University system (SUNY), the Legislature, and the
court system. Personal service costs account for approximately 73 percent
of spending in this category. Since January 1995, the State's workforce has
been reduced by about 10 percent and is projected to remain at its current
level of approximately 191,000 persons in 1998-99.
State operations spending is projected at $6.70 billion, an increase of
$511 million of 8.3 percent from the prior year. This increase is primarily
due to an additional payroll cycle in 1998-99, a 3.5 percent general salary
increase on October 1, 1998 for most State employees, the loss of federal
receipts that would otherwise lower General Fund spending in mental hygiene
programs, and a projected 15.6 percent increase in the Judiciary's budget.
General State charges account primarily for the costs of providing
fringe benefits for State employees, including contributions to pension
systems, the employer's share of social security contributions, employer
contributions toward the cost of health insurance, and the costs of
providing worker's compensation and unemployment insurance benefits. This
category also reflects certain fixed costs such as payments in lieu of
taxes, and payments of judgments against the State or its public officers.
Disbursements in this category are estimated at $2.22 billion, a
decrease of $50 million from the prior year. This annual decline reflects
projected decreases in pension costs and Court of Claims payments, offset by
modest projected increases for health insurance contributions, social
security costs, and the loss of reimbursements due to a reduction in the
fringe benefit rate charged to positions financed by non-General Fund
sources.
Debt service paid from the General Fund reflects debt service on short-
term obligations of the State, and includes only interest costs on the
State's commercial paper program. The 1998-99 debt service estimate is $11
million, reflecting relative stability in short-term interest rates. The
State's short-term TRAN borrowing program was eliminated in 1995.
Transfers to other funds from the General Fund are made primarily to
finance certain portions of State capital projects spending and debt service
on long-term bonds where these costs are not funded from other sources.
Transfers in support of debt service are projected at $2.13 billion in
1998-99, an increase of $110 million from 1997-98. The increase reflects
the impact of certain prior year bond sales (net of refunding savings), and
certain bond sales planned to occur during the 1998-99 fiscal year. The
State Financial Plan also establishes a transfer of $50 million to the new
Debt Reduction Reserve Fund. The Fund may be used, subject to enactment of
new appropriations, to pay the debt service costs on or to prepay State-
supported bonds.
Transfers in support of capital projects provide General Fund support
for projects not otherwise financed through bond proceeds, dedicated taxes
and other revenues, or federal grants. These transfers are projected at
$200 million for 1998-99, comparable to last year.
Remaining transfers from the General Fund to other funds are estimated
to decline $59 million in 1998-99 to $327 million. This decline is
primarily the net impact of one-time transfers in 1997-98 to the State
University Tuition Stabilization Fund and to the Lottery Fund to support
school aid, offset by a 1998-99 increase in the State subsidy to the Roswell
Park Cancer Research Institute.
Non-recurring Resources
The Division of the Budget estimates that the 1998-99 State Financial
Plan contains actions that provide non-recurring resources or savings
totaling approximately $64 million, the largest of which is a retroactive
reimbursement of federal welfare claims.
The 1998-99 Financial Plan projects a closing fund balance in the
General Fund of $1.42 billion. This fund balance is composed of a reserve
of $761 million available for future needs, a $400 million balance in the
TSRF, a $158 million balance in the CPF, and a balance of $100 million in
the CRF, after a projected deposit of $32 million in 1998-99.
Other Governmental Funds
In addition to the General Fund, the State Financial Plan includes
Special Revenue Funds, Capital Projects Funds and Debt Service Funds which
are discussed below. Amounts below do not include other sources and uses of
funds transferred to or from other fund types.
Special Revenue Funds
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as federal grants that are legally restricted, either
by the Legislature or outside parties, to expenditures for specified
purposes. Although activity in this fund type is expected to comprise
approximately 41 percent of total governmental funds receipts in the 1998-99
fiscal year, three-quarters of that activity relates to federally-funded
programs.
Total disbursements for programs supported by Special Revenue Funds are
projected at $29.97 billion, an increase of $2.32 billion or 8.4 percent
from 1997-98. Federal grants account for approximately three-quarters of
all spending in the Special Revenue fund type. Disbursements from federal
funds are estimated at $21.78 billion, an increase of $1.12 billion or 5.4
percent. The single largest program in this fund group is Medicaid, which
is projected at $13.65 billion, an increase of $465 million or 3.5 percent
above last year. Federal support for welfare programs is projected at $2.53
billion, similar to 1997-98. The remaining growth in federal funds is
primarily due to the new Child Health Plus program, estimated at $197
million in 1998-99. This program will expand health insurance coverage to
children of indigent families.
State special revenue spending is projected to be $8.19 billion, an
increase of $1.20 billion or 17.2 percent from last year's levels. Most of
this projected increase in spending is due to the $704 million cost of the
first phase of the STAR program, as well as $231 million in additional
operating assistance for mass transportation, and $113 million for the State
share of the new Child Health Plus program.
Capital Projects Funds
Capital Projects Funds account for the financial resources used in the
acquisition, construction, or rehabilitation of major State capital
facilities, and for capital assistance grants to certain local governments
or public authorities. This fund type consists of the Capital Projects
Fund, which is supported by tax receipts transferred from the General Fund,
and various other capital funds established to distinguish specific capital
construction purposes supported by other revenues. In the 1998-99 fiscal
year, activity in these funds is expected to comprise 5.5 percent of total
governmental receipts.
Capital Projects Funds spending in fiscal year 1998-99 is projected at
$4.14 billion, an increase of $575 million or 16.1 percent from last year.
The major components of this expected growth are transportation and
environmental programs, including continued increased spending for 1996
Clean Water/Clean Air Bond Act projects and higher projected disbursements
from the Environmental Protection Fund (EPF). Another significant component
of this projected increase is in the area of public protection, primarily
for facility rehabilitation and construction of additional prison capacity.
Debt Service Funds
Debt Service Funds are used to account for the payment of principal and
interest on long-term debt of the State and to meet commitments under lease-
purchase and other contractual-obligation financing arrangements. This fund
type is expected to comprise 3.8 percent of total governmental fund receipts
in the 1998-99 fiscal year. Receipts in these funds in excess of debt
service requirements may be transferred to the General Fund, Capital
Projects Funds and Special Revenue Funds, pursuant to law.
Total disbursements form the Debt Service Fund type are estimated at
$3.36 billion in 1998-99, an increase of $275 million or 8.9 percent from
1997-98 levels. Of the increase, $102 million is for transportation
purposes, including debt service on bonds issued for State and local highway
and bridge programs financed through the New York State Thruway Authority
and supported by the Dedicated Highway and Bridge Trust Fund. Another $45
million is for education purposes, including State and City University
programs financed through the Dormitory Authority of the State of New York
(DASNY). The remainder is for a variety of programs in such areas as mental
health and corrections, and for general obligation financings.
Year 2000 Compliance
New York State is currently addressing "Year 2000" data processing
compliance issues. The Year 2000 compliance issue ("Y2K") arises because
most computer software programs allocate two digits to the data field for
"year" on the assumption that the first two digits will be "19." Such
programs will thus interpret the year 2000 as the year 1900 absent
reprogramming. Y2K could impact both the ability to enter data into
computer programs and the ability of such programs to correctly process
data.
In 1996, the State created the Office for Technology (OFT) to help
address statewide technology issues, including the Year 2000 issue. OFT has
estimated that investments of at least $140 million will be required to
bring approximately 350 State mission-critical and high-priority computer
systems not otherwise scheduled for replacement into Year 2000 compliance,
and the State is planning to spend $100 million in the 1998-99 fiscal year
for this purpose. Mission-critical computer applications are those which
impact the health, safety and welfare of the State and its citizens, and for
which failure to be in Y2K compliance could have a material and adverse
impact upon State operations. High-priority computer applications are those
that are critical for a State agency to fulfill its mission and deliver
services, but for which they are manual alternatives. Work has been
completed on roughly 20 percent of these systems. All remaining unfinished
mission-critical and high-priority systems have at least 40 percent or more
of the work completed. Contingency planning is underway for those systems
which may be non-compliant prior to failure dates. The enacted budget also
continues funding for major systems scheduled for replacement, including the
State payroll, civil service, tax and finance and welfare management
systems, for which Year 2000 compliance is included as a part of the
project.
OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission-
critical systems, with most compliance testing expected to be completed by
mid-1999. There can be no guarantee, however, that all of the State's
mission-critical and high-priority computer systems will be Year 2000
compliant and that there will not be an adverse impact upon State operations
or State finances as a result.
Cash-Basis Results for Prior Fiscal Years
The State reports its financial results on two bases of accounting: the
cash basis, showing receipts and disbursements; and the modified accrual
basis, prescribed by Generally Accepted Accounting Principles ("GAAP"),
showing revenues and expenditures.
General Fund 1995-96 through 1997-98
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
most 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. A narrative description of cash-basis results in the General Fund is
presented below.
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"). A national
recession, followed by the lingering economic slowdown in New York and the
regional economy, resulted in repeated shortfalls in receipts and three
budget deficits during those years. During its last six fiscal years,
however, the State has recorded balanced budgets on a cash basis, with
positive fund balances as described below.
1997-98 Fiscal Year
The State ended its 1997-98 fiscal year in balance on a cash basis,
with a General Fund cash surplus as reported by DOB of approximately $2.04
billion. The cash surplus was derived primarily from higher-than-
anticipated receipts and lower spending on welfare, Medicaid, and other
entitlement programs.
The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The balance is held in three
accounts within the General Fund: the Tax Stabilization Reserve Fund
(TSRF), the Contingency Reserve Fund (CRF) and the Community Projects Fund
(CPF). The TSRF closing balance was $400 million, following a required
deposit of $15 million (repaying a transfer made in 1991-92) and an
extraordinary deposit of $68 million made from the 1997-98 surplus. The CRF
closing balance was $68 million, following a $27 million deposit from the
surplus. The CPF, which finances legislative initiatives, closed the fiscal
year with a balance of $170 million, an increase of $95 million. The
General Fund closing balance did not include $2.39 billion in the tax refund
reserve account, of which $521 million was made available as a result of the
Local Government Assistance Corporation (LGAC) financing program and was
required to be on deposit on March 31, 1998.
General Fund receipts and transfers from other funds for the 1997-98
fiscal year (including net tax refund reserve account activity) totaled
$34.55 billion, an annual increase of $1.51 billion, or 4.57 percent over
1996-97. General Fund disbursements and transfers to other funds were
$34.35 billion, an annual increase of $1.45 billion or 4.41 percent.
1996-97 Fiscal Year
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on
a cash basis, with a General Fund cash surplus as reported by DOB of
approximately $1.42 billion. The cash surplus was derived primarily from
higher-than-expected receipts and lower-than-expected spending for social
services programs.
The General Fund closing balance was $433 million, an increase of $146
million from the 1995-96 fiscal year. The balance included $317 million in
the TSRF, after a required deposit of $15 million and an additional deposit
of $65 million in 1996-97. In addition, $41 million remained on deposit in
the CRF. The remaining $75 million reflected amounts then on deposit in the
Community Projects Fund. The General Fund closing balance did not include
$1.86 billion in the tax refund reserve account, of which $521 million was
made available as a result of the LGAC financing program and was required to
be on deposit as of March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the
previous fiscal year (including net tax refund reserve account activity).
General Fund disbursements and transfers to other funds totaled $32.90
billion for the 1996-97 fiscal year, an increase of 0.7 percent from the
1995-96 fiscal year.
1995-96 Fiscal Year
The State ended its 1995-96 fiscal year on March 31, 1996 with a
General Fund cash surplus, as reported by DOB, of $445 million. The cash
surplus was derived from higher-than-expected receipts, savings generated
through agency cost controls, and lower-than-expected welfare spending.
The General Fund closing fund balance was $287 million, an increase of
$129 million from 1994-95 levels. The $129 million change in fund balance
is attributable to a $65 million voluntary deposit to the TSRF, a $15
million required deposit to the TSRF, a $40 million deposit to the CRF, and
a $9 million deposit to the Revenue Accumulation Fund. The closing fund
balance included $237 million on deposit in the TSRF. In addition, $41
million was on deposit in the CRF. The remaining $9 million reflected
amounts then on deposit in the Revenue Accumulation Fund. The General Fund
closing balance did not include $678 million in the tax refund reserve
account of which $521 million was made available as a result of the LGAC
financing program and was required to be on deposit as of March 31, 1996.
General Fund receipts and transfers from other funds (including net
refund reserve account activity) totaled $32.81 billion, a decrease of 1.1
percent from 1994-95 levels. General Fund disbursements and transfers to
other funds totaled $32.68 billion for the 1995-96 fiscal year, a decrease
of 2.2 percent from 1994-95 levels.
Other Governmental Funds (1995-96 through 1997-98)
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 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 are used to support the capital programs of the Department of
Transportation and the Metropolitan Transportation Authority (MTA).
In the Special Revenue Funds, disbursements increased from $26.26
billion to $27.65 billion over the last three years, primarily as a result
of increased costs for the federal share of Medicaid. Other activity
reflected dedication of taxes to a new fund for mass transportation, new
lottery games, and new fees for criminal justice programs.
Disbursements in the Capital Projects Funds declined over the three
year period from $3.97 billion to $3.56 billion as spending for
miscellaneous capital programs decreased, partially offset by increases for
mental hygiene, health and environmental programs. The composition of this
fund type's receipts also changed as the dedicated transportation taxes
began to be deposited, general obligation bond proceeds declined
substantially, federal grants remained stable, and reimbursements from
public authority bonds (primarily transportation related) increased.
Activity in the Debt Service Funds reflected increased use of bonds
during the three-year period for improvements to the State's capital
facilities and the continued costs of the LGAC fiscal reform program. The
increases were moderated by the refunding savings achieved by the State over
the last several years using strict present value savings criteria. The
growth in LGAC debt service was offset by reduced short-term borrowing costs
reflected in the General Fund.
Litigation
State Finance Policies
Insurance Law
Proceedings have been brought by two groups of petitioners challenging
regulations promulgated by the Superintendent of Insurance that established
excess medical malpractice premium rates for fiscal years 1986-87 through
1996-97 (New York State Health Maintenance Organization Conference, Inc., et
al. v. Muhl, et al. ["HMO"], and New York State Conference of Blue Cross and
Blue Shield Plans, et al. v. Muhl, et al. ["Blue Cross 'I' and 'II'"],
Supreme Court, Albany County). By order filed January 22, 1997, the Court
in Blue Cross I permitted the plaintiffs in HMO to intervene and dismissed
the challenges to the rates for the period prior to 1995-96. By decision
dated July 24, 1997, the Court in Blue Cross I held that the determination
made by the Superintendent in establishing the 1995-96 rate was arbitrary
and capricious and directed that premiums paid pursuant to that
determination be returned to the payors. The State has appealed this
decision. The petitioners did not cross appeal. In Blue Cross II, by
amended judgment dated April 2, 1998, the Supreme Court annulled the
regulation setting the 1996-97 premium rate and directed that all 1996-97
excess malpractice premiums be returned to the payors. The State will not
be obligated in either case to pay moneys to any petitioner. Adverse
determinations would result in refunds from the affected insurers.
Tax Law
In New York Association of Convenience Stores, et al. v. Urbach, et
al., petitioners, New York Association of Convenience Stores, National
Association of Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek
Stores, Inc. seek to compel respondents, the Commissioner of Taxation and
Finance and the Department of Taxation and Finance, to enforce sales and
excise taxes imposed pursuant to Tax Law Articles 12-A, 20 and 28 on tobacco
products and motor fuel sold to non-Indian consumers on Indian reservations.
In orders dated August 13, 1996 and August 24, 1996, the Supreme Court,
Albany County, ordered, inter alia, that there be equal implementation and
enforcement of said taxes for sales to non-Indian consumers on and off
Indian reservations, and further ordered that, if respondents failed to
comply within 120 days, no tobacco products or motor fuel could be
introduced onto Indian reservations other than for Indian consumption or,
alternately, the collection and enforcement of such taxes would be suspended
statewide. Respondents appealed to the Appellate Division, Third
Department, and invoked CPLR 5519(a)(1), which provides that the taking of
the appeal stayed all proceedings to enforce the orders pending the appeal.
Petitioner's motion to vacate the stay was denied. In a decision entered
May 8, 1997, the Third Department modified the orders by deleting the
portion thereof that provided for the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco products. The Third Department held, inter alia, that petitioners
had not sought such relief in their petition and that it was an error for
the Supreme Court to have awarded such undemanded relief without adequate
notice of its intent to do so. On May 22, 1997, respondents appealed to the
Court of Appeals on other grounds, and again invoked the statutory stay. On
October 23, 1997, the Court of Appeals granted petitioners' motion for leave
to cross-appeal from the portion of the Third Department's decision that
deleted the statewide suspension of the enforcement and collection of the
sales and excise taxes on motor fuel and tobacco. The case was argued
before the Court of Appeals on March 24, 1998.
Clean Water/Clean Air Bond Act of 1996
In Robert L. Schulz, et al. v. The New York State Executive, et al.
(Supreme Court, Albany County, commenced October 16, 1996), plaintiffs
challenge the enactment of the Clean Water/Clean Air Bond Act of 1996 and
its implementing legislation (1996 Laws of New York, Chapters 412 and 413).
Plaintiffs claim, inter alia, that the Bond Act and its implementing
legislation violate provisions of the State Constitution requiring that such
debt be authorized by law for some single work or purpose distinctly
specified therein and forbidding incorporation of other statutes by
reference.
In an opinion dated June 9, 1998, the Court of Appeals affirmed the
July 17, 1997 order of the Appellate Division, Third Department, affirming
the lower court dismissal of this case.
Line Item Veto
In an action commenced in June 1998 by the Speaker of the Assembly of
the State of New York against the Governor of the State of New York (Silver
v. Pataki, Supreme Court, New York County), the Speaker challenges the
Governor's application of his constitutional line item veto authority to
certain portions of budget bills adopted by the State Legislature contained
in Chapters 56, 57 and 58 of the Laws of 1998.
State Programs
Medicaid
Several cases challenge provisions of Chapter 81 of the Laws of 1995
which alter the nursing home Medicaid reimbursement methodology on and after
April 1, 1995. Included are New York State Health Facilities Association,
et al. v. DeBuono, et al., St. Luke's Nursing Center, et al. v. DeBuono, et
al., New York Association of Homes and Services for the Aging v DeBuono et
al (three cases), Healthcare Association of New York State v. DeBuono and
Bayberry Nursing Home et al. v. Pataki, et al. Plaintiffs allege that the
changes in methodology have been adopted in violation of procedural and
substantive requirements of State and federal law.
In a consolidated action commenced in 1992, Medicaid recipients and
home health care providers and organizations challenge promulgation by the
State Department of Social Services (DSS) in June 1992 of a home assessment
resource review instrument (HARRI), which is to be used by DSS to determine
eligibility for and the nature of home care services for Medicaid
recipients, and challenge the policy of DSS of limiting reimbursable hours
of service until a patient is assessed using the HARRI (Dowd, et al. v.
Bane, Supreme Court, New York County).
In several cases, plaintiffs seek retroactive claims for reimbursement
for services provided to Medicaid recipients who were also eligible for
Medicare during the period January 1, 1987 to June 2, 1992. Included are
Matter of New York State Radiological Society v. Wing, Appel v. Wing, E.F.S.
Medical Supplies v. Dowling, Kellogg v. Wing, Lifshitz v. Wing, New York
State Podiatric Medical Association v. Wing and New York State Psychiatric
Association v. Wing. These cases were commenced after the State's
reimbursement methodology was held invalid in New York City Health and
Hospital Corp. v. Perales. The State contends that these claims are
time-barred. In a judgment dated September 5, 1996, the Supreme Court,
Albany County, dismissed Matter of New York State Radiological Society v.
Wing as time-barred. By order dated November 26, 1997, the Appellate
Division, Third Department, affirmed that judgment. By decision dated June
9, 1998, the Court of Appeals denied leave to appeal.
Several cases, including Port Jefferson Health Care Facility, et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionality of
Public Health Law 2807-d, which imposes a tax on the gross receipts
hospitals and residential health care facilities receive from all patient
care services. Plaintiffs allege that the tax assessments were not
uniformly applied, in violation of federal regulations. In a decision dated
June 30, 1997, the Court held that the 1.2 percent and 3.8 percent
assessments on gross receipts imposed pursuant to Public Health Law
2807-d(2)(b)(ii) and 2807-d(2)(b)(iii), respectively, are unconstitutional.
An order entered August 27, 1997 enforced the terms of the decision. The
State has appealed that order.
Shelter Allowance
In an action commenced in March 1987 against State and New York City
officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New York
County), plaintiffs allege that the shelter allowance granted to recipients
of public assistance is not adequate for proper housing. In a decision
dated April 16, 1997, the Court held that the shelter allowance promulgated
by the Legislature and enforced through DSS regulations is not reasonably
related to the cost of rental housing in New York City and results in
homelessness to families in New York City. A judgment was entered on July
25, 1997, directing, inter alia, that the State (i) submit a proposed
schedule of shelter allowances (for the Aid to Dependent Children program
and any successor program) that bears a reasonable relation to the cost of
housing in New York City; and (ii) compel the New York City Department of
Social Services to pay plaintiffs a monthly shelter allowance in the full
amount of their contract rents, provided they continue to meet the
eligibility requirements for public assistance, until such time as a lawful
shelter allowance is implemented, and provide interim relief to other
eligible recipients of Aid to Dependent Children under the interim relief
system established in this case. The State has appealed to the Appellate
Division, First Department from each and every provision of this judgment
except that portion directing the continued provision of interim relief.
Civil Rights Claims
In an action commenced in 1980 (United States, et al. v. Yonkers Board
of Education, et al.), the United States District Court for the Southern
District of New York found, in 1985, that Yonkers and its public schools
were intentionally segregated. In 1986, the District Court ordered Yonkers
to develop and comply with a remedial educational improvement plan (EIP I).
On January 19, 1989, the District Court granted motions by Yonkers and the
NAACP to add the State Education Department, the Yonkers Board of Education,
and the State Urban Development Corporation as defendants, based on
allegations that they had participated in the perpetuation of the segregated
school system. On August 30, 1993, the District Court found that vestiges
of a dual school system continued to exist in Yonkers. On March 27, 1995,
the District Court made factual findings regarding the role of the State and
the other State defendants (the State) in connection with the creation and
maintenance of the dual school system, but found no legal basis for imposing
liability. On September 3, 1996, the United States Court of Appeals for the
Second Circuit, based on the District Court's factual findings, held the
State defendants liable under 42 USC 1983 and the Equal Educational
Opportunity Act, 20 USC 1701, et seq., for the unlawful dual school
system, because the State, inter alia, had taken no action to force the
school district to desegregate despite its actual or constructive knowledge
of de jure segregation. By order dated October 8, 1997, the District Court
held that vestiges of the prior segregated school system continued to exist
and that, based on the State's conduct in creating and maintaining that
system, the State is liable for eliminating segregation and its vestiges in
Yonkers and must fund a remedy to accomplish that goal. Yonkers presented a
proposed educational improvement plan (EIP II) to eradicate these vestiges
of segregation. The October 8, 1997 order of the District Court ordered
that EIP II be implemented and directed that, within 10 days of the entry of
the Order, the State make available to Yonkers $450,000 to support planning
activities to prepare the EIP II budget for 1997-98 and the accompanying
capital facilities plan. A final judgment to implement EIP II was entered
on October 14, 1997. On November 7, 1997, the State appealed that judgment
to the Second Circuit. The appeal is pending. Additionally, the Court
adopted a requirement that the State pay to Yonkers approximately $9.85
million as its pro rata share of the funding of EIP I for the 1996-97 school
year. The requirement for State funding of EIP I was reduced to an order on
December 2, 1997 and reduced to a judgment on February 10, 1998. The State
appealed that order to the Second Circuit on December 31, 1997 and amended
the notice of appeal after entry of the judgment. That appeal has been
consolidated with the appeal of the EIP II appeal, and is also pending.
On June 15, 1998, the District Court issued an opinion setting
forth the formula for the allocation of the costs of EIP I and EIP II
between the State and the City for the school years 1997-98 through 2005-06.
That opinion has not yet been reduced to an order.
Real Property Claims
On March 4, 1985 in Oneida Indian Nation of New York, et al. v.
County of Oneida, the United States Supreme Court affirmed a judgment of the
United States Court of Appeals for the Second Circuit holding that the
Oneida Indians have a common-law right of action against Madison and Oneida
Counties for wrongful possession of 872 acres of land illegally sold to the
State in 1795. At the same time, however, the Court reversed the Second
Circuit by holding that a third-party claim by the counties against the
State for indemnification was not properly before the federal courts. The
case was remanded to the District Court for an assessment of damages, which
action is still pending. The counties may still seek indemnification in the
State courts.
Several other actions involving Indian claims to land in upstate
New York are also pending. Included are Cayuga Indian Nation of New York v.
Cuomo, et al., and Canadian St. Regis Band of Mohawk Indians, et al. v.
State of New York et al., both in the United States District Court for the
Northern District of New York. The Supreme Court's holding in Oneida Indian
Nation of New York may impair or eliminate certain of the State's defenses
to these actions but may enhance others.
Authorities and Localities
Public Authorities
The fiscal stability of the State is related in part to the fiscal
stability of its public authorities. For the purposes of this summary,
public authorities refer to public benefit corporations created pursuant to
State law, other than local authorities. Public authorities are not subject
to the constitutional restrictions on the incurrence of debt which apply to
the State itself and may issue bonds and notes within the amounts and
restrictions set forth in legislative authorization. The State's access to
the public credit markets could be impaired and the market price of its
outstanding debt may be materially and adversely affected if any of its
public authorities were to default on their respective obligations. As of
December 31, 1997, there were 17 public authorities that had outstanding
debt of $100 million or more, and the aggregate outstanding debt, including
refunding bonds, of all State authorities was $84 billion, only a portion of
which constitutes State-supported or State-related debt.
The State hasnumerous public authorities with various responsibilities,
including those which finance, construct and/or operate revenue producing
public facilities. Public authorities generally pay their operating expenses
and debt service costs from revenues generated by the projects they finance
or operate, such as tolls charged for the use of highways, bridges or tunnels,
charges for public power, electric and gas utility services, rentals charged
for housing units, and charges for occupancy at medical care facilities. Also,
there are statutory arrangements providing for State local assistance payments
otherwise payable to localities to be made under certain circumstances to
public authorities. Although the State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
public authorities under these arrangements, the affected localities may seek
additional State assistance if local assistance payments are diverted. Some
authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs. As described below, the MTA
receives the bulk of this money in order to provide transit and commuter
services.
Beginning in 1998, the Long Island Power Authority (LIPA) assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion
of Queen Counties, as part of an estimated $7 billion financing plan. As of
the date of this AIS, LIPA has issued over $5 billion in bonds secured
solely by ratepayer charges. LIPA's debt is not considered either State-
supported or State-related debt.
Metropolitan Transportation Authority
The MTA oversees the operation of subway and bus lines in New York City
by its affiliates, the New York City Transit Authority and the Manhattan and
Bronx Surface Transit Operating Authority (collectively, the "TA"). The MTA
operates certain commuter rail and bus services in the New York Metropolitan
area through MTA's subsidiaries, the Long Island Rail Road Company, the
Metro-North Commuter Railroad Company, and the Metropolitan Suburban Bus
Authority. In addition, the Staten Island Rapid Transit Operating
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 intrastate toll bridges and
tunnels. Because fare revenues are not sufficient to finance the mass
transit portion of these operations, the MTA has depended on, and will
continue to depend on, operating support from the State, local governments
and TBTA, 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.
Since 1980, 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 Metropolitan Transportation
Region served by the MTA and a special one-quarter of 1 percent regional
sales and use tax--that provide revenues for mass transit purposes,
including assistance to the MTA. Since 1987, State law also has required
that the proceeds of a one-quarter of 1 percent mortgage recording tax paid
on certain mortgages in the Metropolitan Transportation Region be deposited
in a special MTA fund for operating or capital expenses. 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 1998-
99 fiscal year, State assistance to the MTA is projected to total
approximately $1.3 billion, an increase of $133 million over the 1997-98
fiscal year.
State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, TBTA and TA to issue an aggregate of $6.5 billion in
bonds to finance a portion of the $12.17 billion MTA capital plan for the
1995 through 1999 calendar years (the "1995-99 Capital Program"). In July
1997, the Capital Program Review Board ("CPRB") approved the 1995-99 Capital
Program (subsequently amended in August 1997), which supersedes the
overlapping portion of the MTA's 1992-96 Capital Program. The 1995-99
Capital Program is the fourth capital plan since the Legislature authorized
procedures for the adoption, approval and amendment of MTA capital programs
and is designed to upgrade the performance of the MTA's transportation
systems by investing in new rolling stock, maintaining replacement schedules
for existing assets and bringing the MTA system into a state of good repair.
The 1995-99 Capital Program assumes the issuance of an estimated $5.2
billion in bonds under this $6.5 billion aggregate bonding authority. The
remainder of the plan is projected to be financed through assistance from
the State, the federal government, and the City of New York, and from
various other revenues generated from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. Should funding
levels fall below current projections, the MTA would have to revise its 1995-
99 Capital Program accordingly. If the 1995-99 Capital Program is delayed
or reduced, ridership and fare revenues may decline, which could, among
other things, impair the MTA's ability to meet its operating expenses
without additional assistance.
The City of New York
The fiscal health of the State may also be affected by the fiscal
health of New York City (the "City"), which continues to receive significant
financial assistance from the State. State aid contributes to the City's
ability to balance its budget and to meet its cash requirements. The State
may also be affected by the ability of the City and certain entities issuing
debt for the benefit of the City to market their securities successfully in
the public credit markets.
The City has achieved balanced operating results for each of its fiscal
years since 1981 as measured by the GAAP standards in force at that time.
The City prepares a four-year financial plan ("Financial Plan") annually and
updates it periodically, and prepares a comprehensive annual financial
report describing its most recent fiscal year each October.
The City of New York
Fiscal Oversight
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions,
the State established the Municipal Assistance Corporation for the City of
New York to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's
financial affairs; and the Office of the State Deputy Comptroller for the
City of New York ("OSDC") to assist the Control Board in exercising its
powers and responsibilities. A "control period" existed from 1975 to 1986
during which the City was subject to certain statutorily-prescribed fiscal
controls. The Control Board terminated the Control Period in 1986 when
certain statutory conditions were met. State law requires the Control Board
to reimpose a control period upon the occurrence, or "substantial likelihood
and imminence" of the occurrence, of certain events, including (but not
limited to) a City operating budget deficit of more than $100 million of
impaired access to the public credit markets.
Currently, the City and its Covered Organizations (i.e., those which
received or may receive moneys from the City directly, indirectly or
contingently) operate under the Financial Plan. The City's Financial Plan
summarizes its capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The
City's projections set forth in the Financial Plan are based on various
assumptions and contingencies, some of which are uncertain and may not
materialize. Unforeseen developments and changes in major assumptions could
significantly affect the city's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements.
To successfully implement its Financial Plan, the City and certain
entities issuing debt for the benefit of the city must market their
securities successfully. The City issues securities to finance, refinance
and rehabilitate infrastructure and other capital needs, as well as for
seasonal financing needs. In 1997, the State created the New York City
Transitional Finance Authority ("TFA") to finance a portion of the City's
capital program because the City was approaching its State Constitutional
general debt limit. Without the additional financing capacity of the TFA,
projected contracts for City capital projects would have exceeded the City's
debt limit during City fiscal year 1997-98. Despite this additional
financing mechanism, the City currently projects that, if no further action
is taken, it will reach its debt limit in City fiscal year 1999-2000. On
June 2, 1997, an action was commenced seeking a declaratory judgment
declaring the legislation establishing the TFA to be unconstitutional. On
November 25, 1997 the State Supreme Court found the legislation establishing
the TFA to be constitutional and granted the defendants' motion for summary
judgment. The plaintiffs have appealed the decision. Future developments
concerning the City or entities issuing debt for the benefit of the City,
and public discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability or cost to
sell securities issued by the City or such entities and may also affect the
market for their outstanding securities.
Monitoring Agencies
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the
City's forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance by the City and its Covered
Organizations with the Financial Plan. According to recent staff reports,
while economic growth in New York City has been slower than in other regions
of the country, a surge in Wall Street profitability resulted in increased
tax revenues and generated a substantial surplus for the City in City fiscal
year 1996-97. Recent staff reports also indicate that the City projects a
substantial surplus for City fiscal year 1997-98. Although several sectors
of the City's economy have expanded recently, especially tourism and
business and professional services, City tax revenues remain heavily
dependent on the continued profitability of the securities industries and
the course of the national economy. These reports have also indicated that
recent City budgets have been balanced in part through the use of non-
recurring resources and that the City's Financial Plan tends to rely on
actions outside its direct control. These reports have indicated that the
City has not yet brought its long-term expenditure growth in line with
recurring revenue growth and that the City is likely to continue to face
substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues. In
addition to these monitoring agencies, the Independent Budget Office ("IBO")
has been established pursuant to the City Charter to provide analysis to
elected officials and the public on relevant fiscal and budgetary issues
affecting the City.
Other Localities
Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during
the last several State fiscal years. The cities of Yonkers and Troy
continue to operate under State-ordered control agencies. The potential
impact on the State of any future requests by localities for additional
oversight or financial assistance is not included in the projections of the
State's receipts and disbursements for the State's 1998-99 fiscal year.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations
targeted for distressed cities, and twenty-eight municipalities received
more than $32 million in targeted unrestricted aid in the 1997-98 budget.
Both of these emergency aid packages were largely continued through the 1998-
99 budget. The State also dispersed an additional $21 million among all
cities, towns and villages after enacting a 3.9 percent increase in General
Purpose State Aid in 1997-98 and continued this increase in 1998-99.
The 1998-99 budget includes an additional $29.4 million in unrestricted
aid targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve
upstate cities will receive $24.2 million in one-time assistance from a cash
flow acceleration of State aid.
The appropriation and allocation of general purpose local government
aid among localities, including New York City, is currently the subject of
investigation by a State commission. While the distribution of general
purpose local government aid was originally based on a statutory formula, in
recent years both the total amount appropriated and the amounts appropriated
to localities have been determined by the Legislature. A State commission
was established to study the distribution and amounts of general purpose
local government aid and recommend a new formula by June 30, 1999, which may
change the way aid is allocated.
Municipalities and school districts have engaged in substantial short-
term and long-term borrowings. In 1996, the total indebtedness of all
localities in the State other than New York City was approximately $20.0
billion. A small portion (approximately $77.2 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
to State enabling legislation. State law requires the Comptroller to review
and make recommendations concerning the budgets of those local government
units other than New York City that are authorized by State law to issue
debt to finance deficits during the period that such deficit financing is
outstanding. Twenty-one localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1996.
Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some
cases eliminate) federal funding of some local programs which, in turn, may
require local governments to fund these expenditures from their own
resources. It is also possible that the State, New York City, or any of
their respective public authorities may suffer serious financial
difficulties that could jeopardize local access to the public credit
markets, which may adversely affect the marketability of notes and bonds
issued by localities within the State. Localities may also face
unanticipated problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Other large-scale potential
problems, such as declining urban populations, increasing expenditures, and
the loss of skilled manufacturing jobs, may also adversely affect localities
and necessitate State assistance.
APPENDIX B
Description of S&P, Moody's and 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 payments.
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.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for bonds in each of the generic rating categories
Aa, A, Baa, and B. Moody's also provides numerical modifiers of 2 and 3 in
each of these categories for bond issues in the health care, higher
education and other not-for-profit sectors; the modifier 1 indicates that
the issue ranks in the higher end of its generic rating category; the
modifier 2 indicates that the issue is in the mid-range of the generic
category; and the modifier 3 indicates that the issue is in the low end of
the generic 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.
_______________________________
* Included in the Not Rated category are securities comprising 5.6% of the
Fund's market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
category: Baa/BBB.
