REGISTRATION NO. 333-_____
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
/_/ PRE-EFFECTIVE AMENDMENT NO. __
/_/ POST-EFFECTIVE AMENDMENT NO. __
(CHECK APPROPRIATE BOX OR BOXES)
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
(212) 922-6000
(AREA CODE AND TELEPHONE NUMBER)
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES: NUMBER, STREET, CITY, STATE, ZIP CODE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
MARK N. JACOBS, ESQ.
C/O THE DREYFUS CORPORATION
200 PARK AVENUE
NEW YORK, NEW YORK 10166
COPY TO:
STUART H. COLEMAN, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038-4982
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Registration Statement is declared effective.
Registrant is registering shares of Common Stock, par value $.01 per share.
No filing fee is required because Registrant previously registered 100 million
shares on Form N-1A (Registration Nos. 811-4074; 2-92285) pursuant to Rule 24f-2
under the Investment Company Act of 1940.
It is proposed that this filing will become effective on June 4, 1999
pursuant to Rule 488.
<PAGE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
Form N-14
Cross Reference Sheet
Pursuant to Rule 481(a) Under the Securities Act of 1933
PROSPECTUS/PROXY STATEMENT
FORM N-14 ITEM NO. CAPTION
- ----------------- ---------------------------
PART A
- ------
Item 1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
Item 2. Beginning and Outside Cover Page
Back Cover Page of Prospectus
Item 3. Synopsis Information and Summary
Risk Factors
Item 4. Information About the Letter to Stockholders;
Transaction Summary; Reasons for the
Exchange; Information
About the Exchange
Item 5. Information About the Letter to Stockholders;
Registrant Information About Each Fund
Item 6. Information About the Letter to Stockholders;
Company Being Acquired Information About Each Fund
Item 7. Voting Information Letter to Stockholders;
Voting Information
Item 8. Interest of Certain Not Applicable
Persons and Experts
Item 9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION
- ------ ------------------------
Item 10. Cover Page Statement of Additional
Information Cover Page
Item 11. Table of Contents Not Applicable
Item 12. Additional Information Statement of Additional
about the Registrant Information of General
New York Municipal Bond
Fund, Inc. dated
March 1, 1999(1)
Item 13. Additional Information about Statement of Additional
the Company being Acquired Information of Dreyfus
New York Insured Tax
Exempt Bond Fund dated
May 1, 1999(2)
Item 14. Financial Statements Statement of Additional
Information of General
New York Municipal Bond
Fund, Inc. dated March 1,
19991; Statement of
Additional Information of
Dreyfus New York Insured
Tax Exempt Bond Fund
dated May 1, 19992; and
pro forma Financial
Statements
PART C
- ------
Item 15. Indemnification
Item 16. Exhibits
Item 17. Undertakings
- ----------------
1 Incorporated herein by reference to the Registration Statement of the
Registrant on Form N-1A dated March 1, 1999 (File No.2-92285).
2 Incorporated herein by reference to the Registration Statement of Dreyfus
New York Insured Tax Exempt Bond Fund on Form N-1A dated May 1, 1999 (File
No. 33-9654).
<PAGE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Dear Shareholder:
As a shareholder of Dreyfus New York Insured Tax Exempt Bond Fund (the
"Fund"), you are entitled to vote on the proposal described below and in the
enclosed materials.
Management of the Fund has determined that it would be in the best interest
of the Fund and its shareholders if the Fund were to exchange its assets
(subject to liabilities) for shares of another fund advised by The Dreyfus
Corporation that has the same investment objective and substantially similar
management policies, but which does not invest primarily in insured Municipal
Obligations. A larger fund should enhance the ability of portfolio managers to
select a larger number of portfolio securities on more favorable terms and
thereby diversify investments through a larger number of portfolio issues.
Additionally, greater aggregate net assets should enable shareholders to share
in the benefits of economies of scale, which may result in lower overall expense
ratios by spreading the fixed and variable costs of fund operations over a
larger asset base.
The fund selected for this purpose is General New York Municipal Bond Fund,
Inc. (the "Acquiring Fund"). The Fund would exchange (the "Exchange") all of its
assets, subject to liabilities, for shares of the Acquiring Fund (collectively,
the "Acquiring Fund Shares"). Promptly thereafter, the Fund would distribute pro
rata the Acquiring Fund Shares received in the Exchange to its shareholders in
complete liquidation of the Fund. Thus, each shareholder will receive for his or
her shares of the Fund a number of corresponding Acquiring Fund Shares equal to
the value of such Fund shares as of the date of the Exchange. The Exchange will
not result in the imposition of federal income tax on you. Shareholders who do
not wish to participate in the Exchange may redeem their shares prior to the
Exchange.
Further information about the transaction is contained in the enclosed
materials. Please take the time to review carefully the enclosed materials and
then vote by completing, dating, signing and returning the enclosed proxy card.
A self-addressed, postage-paid envelope has been enclosed for your convenience.
THE FUND'S BOARD MEMBERS RECOMMEND THAT SHAREHOLDERS VOTE IN FAVOR OF THE
PROPOSED TRANSACTION. IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE
RECEIVED NO LATER THAN AUGUST 4, 1999.
If you have any questions after considering the enclosed materials, please
call toll-free 1-800-645-6561.
Sincerely,
Marie E. Connolly,
President, DREYFUS NEW YORK
INSURED TAX EXEMPT BOND FUND
June __, 1999
<PAGE>
Preliminary Copy
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders:
A Special Meeting of Shareholders of Dreyfus New York Insured Tax Exempt
Bond Fund (the "Fund") will be held at the offices of The Dreyfus Corporation,
200 Park Avenue, 7th Floor, New York, New York 10166, on Wednesday, August 4,
1999 at 10:00 a.m. for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the Fund's assets and liabilities to
General New York Municipal Bond Fund, Inc. (the "Acquiring Fund") solely in
exchange (the "Exchange") for shares of the Acquiring Fund. The Fund will
distribute the Acquiring Fund shares received in the Exchange to its
shareholders in an amount equal in net asset value to shares of the Fund held by
such shareholders as of the date of the Exchange, after which the Fund will be
terminated; and
2. To transact such other business as may properly come before the meeting,
or any adjournment or adjournments thereof.
Shareholders of record at the close of business on April 30, 1999, will be
entitled to receive notice of and to vote at the meeting.
By Order of the Board of Trustees
Margaret W. Chambers,
Secretary
New York, New York
June __, 1999
===============================================================================
WE NEED YOUR PROXY VOTE IMMEDIATELY.
A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS VITAL.
BY LAW, THE MEETING OF SHAREHOLDERS WILL HAVE TO BE ADJOURNED WITHOUT
CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM OF THE SHARES ELIGIBLE TO
VOTE ARE REPRESENTED. IN THAT EVENT, THE FUND, AT SHAREHOLDERS' EXPENSE,
WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT TO ACHIEVE A QUORUM. CLEARLY,
YOUR VOTE COULD BE CRITICAL TO ENABLE THE FUND TO HOLD THE MEETING AS
SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD IMMEDIATELY. YOU AND ALL OTHER
SHAREHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
===============================================================================
<PAGE>
Preliminary Copy __________, 1999
TRANSFER OF THE ASSETS OF
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
TO AND IN EXCHANGE FOR SHARES OF
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, AUGUST 4, 1999
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of Dreyfus New York Insured Tax
Exempt Bond Fund (the "Acquired Fund") to be used at its Special Meeting of
Shareholders (the "Meeting") to be held on Wednesday, August 4, 1999 at 10:00
a.m., at the offices of The Dreyfus Corporation, 200 Park Avenue, 7th Floor, New
York, New York 10166, for the purposes set forth in the accompanying Notice of
Special Meeting of Shareholders. Shareholders of record at the close of business
on April 30, 1999 (each, a "Shareholder" and, collectively, the "Shareholders")
are entitled to receive notice of and to vote at the Meeting.
It is proposed that the Acquired Fund transfer all of its assets, subject
to liabilities, to General New York Municipal Bond Fund, Inc. (the "Acquiring
Fund" and, together with the Acquired Fund, the "Funds") in exchange (the
"Exchange") for Acquiring Fund Shares, all as more fully described herein. Upon
completion of the Exchange, Acquiring Fund Shares received by the Acquired Fund
will be distributed to Shareholders, with each Shareholder receiving a pro rata
distribution of Acquiring Fund Shares (or fractions thereof) for Acquired Fund
Shares held prior to the Exchange. Thus, each Shareholder will receive a number
of Acquiring Fund Shares (or fractions thereof) equal in value to the aggregate
net asset value of the Shareholder's Acquired Fund Shares as of the date of the
Exchange.
----------------------------------
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely information about the Acquiring Fund that
Shareholders should know before voting on the Proposal or receiving Acquiring
Fund Shares.
A Statement of Additional Information dated __________, 1999, relating to
this Prospectus/Proxy Statement, has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated herein by reference in its
entirety. The Commission maintains a Web site (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference, and
other information regarding the Acquiring Fund and the Acquired Fund. For a free
copy of the Statement of Additional Information, write to the Acquiring Fund at
its principal executive offices located at 200 Park Avenue, New York, New York
10166, or call 1-800-654-6561.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT BANK DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. MUTUAL
FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<PAGE>
Each Fund is an open-end, non-diversified, management investment company
with the same investment adviser, distributor and investment objective. Both
Funds also have substantially similar management policies and invest primarily
in Municipal Obligations (as defined below), but the Acquired Fund invests
primarily in Municipal Obligations that are insured as to the timely payment of
principal and interest by recognized insurers of Municipal Obligations. The
substantive differences between the Acquired Fund and the Acquiring Fund are set
forth in this Prospectus/Proxy Statement.
The Acquiring Fund Prospectus dated March 1, 1999 and Annual Report for the
fiscal year ended October 31, 1998 accompany this Prospectus/Proxy Statement and
are incorporated herein by reference. FOR FREE COPIES OF THE ACQUIRED FUND
PROSPECTUS DATED MAY 1, 1999 AND ANNUAL REPORT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 WRITE TO THE ACQUIRED FUND AT ITS PRINCIPAL EXECUTIVE OFFICES,
LOCATED AT 200 PARK AVENUE, NEW YORK, NEW YORK 10166, OR CALL 1-800-645-6561.
Shareholders are entitled to one vote for each Acquired Fund Share held and
fractional votes for each fractional Acquired Fund Share held. Acquired Fund
Shares represented by executed and unrevoked proxies will be voted in accordance
with the specifications made thereon. If the enclosed form of proxy is executed
and returned, it nevertheless may be revoked by giving another proxy or by
letter or telegram directed to the Acquired Fund, which must indicate the
Shareholder's name and account number. To be effective, such revocation must be
received before the Meeting. Also, any Shareholder who attends the Meeting in
person may vote by ballot at the Meeting, thereby canceling any proxy previously
given. As of April 29, 1999, 10,618,557.549 Acquired Fund Shares were issued
and outstanding.
Proxy materials will be mailed to shareholders of record on or about
June __, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Summary...........................................................
Reasons for the Exchange..........................................
Information about the Exchange....................................
Additional Information about each Fund............................
Voting Information................................................
Financial Statements and Experts..................................
Other Matters.....................................................
Notice to Banks, Broker/Dealers and
Voting Trustees and Their Nominees..............................
Appendix A: Form of Agreement and
Plan of Reorganization.......................................... A-1
<PAGE>
APPROVAL OR DISAPPROVAL OF AN AGREEMENT AND PLAN OF
REORGANIZATION PROVIDING FOR THE TRANSFER OF ALL OF THE
ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND
SUMMARY
This Summary is qualified by reference to the more complete information
contained elsewhere in this Prospectus/Proxy Statement, the Acquired Fund
Prospectus, the Acquiring Fund Prospectus and the form of Agreement and Plan of
Reorganization attached to this Prospectus/Proxy Statement as Appendix A.
PROPOSED TRANSACTION. The Acquired Fund's Board, including the Board
members who are not "interested persons" (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")), has unanimously approved an Agreement
and Plan of Reorganization (the "Plan"). The Plan provides that, subject to the
requisite approval of Acquired Fund Shareholders, the Acquired Fund transfer to
the Acquiring Fund all of its assets (subject to liabilities) in exchange for
Acquiring Fund Shares having an aggregate net asset value equal to the aggregate
net asset value of Acquired Fund Shares. The Acquired Fund will distribute such
Acquiring Fund Shares among its Shareholders. Each Shareholder of the Acquired
Fund will receive Acquiring Fund Shares (or fractions thereof) having an
aggregate net asset value equal to the aggregate net asset value of the
Shareholder's Acquired Fund Shares as of the date of the Exchange. Thereafter,
the Acquired Fund will be terminated.
As a result of the Exchange, each Shareholder will cease to be a
shareholder of the Acquired Fund and will become a shareholder of the Acquiring
Fund as of the close of business on the closing date of the Exchange.
The Acquired Fund's Board has concluded unanimously that the Exchange would
be in the best interests of Shareholders of the Acquired Fund and the interests
of existing Shareholders of the Acquired Fund would not be diluted as a result
of the transactions contemplated by the Exchange. See "Reasons for the
Exchange."
TAX CONSEQUENCES. The Exchange is designed to qualify for federal income
tax purposes as a tax-free reorganization. As a condition to the closing of the
Exchange, each Fund will receive an opinion of counsel to the effect that, for
federal income tax purposes, (a) no gain or loss will be recognized by Acquired
Fund Shareholders for federal income tax purposes as a result of the Exchange,
(b) the holding period and aggregate tax basis of Acquiring Fund Shares received
by an Acquired Fund Shareholder will be the same as the holding period and
aggregate tax basis of the Shareholder's Acquired Fund Shares, and (c) the
holding period and tax basis of the Acquired Fund's assets transferred to the
Acquiring Fund as a result of the Exchange will be the same as the holding
period and tax basis of such assets held by the Acquired Fund immediately prior
to the Exchange. See "Information about the Exchange--Tax Consequences."
COMPARISON OF THE FUNDS. The following discussion is qualified by the more
complete information set forth in the Funds' Prospectuses, which are
incorporated herein by reference.
GENERAL. Each Fund is an open-end, non-diversified, management investment
company advised by The Dreyfus Corporation ("Dreyfus"). Each Fund seeks to
maximize current income exempt from Federal, New York State and New York City
personal income taxes to the extent consistent with the preservation of capital.
Each Fund invests primarily in debt securities issued by the State of New
York, its political subdivisions, authorities and corporations, the interest
from which is, in the opinion of bond counsel to the issuer, exempt from
Federal, New York State and New York City personal income tax ("Municipal
Obligations"). The Acquired Fund invests primarily in Municipal Obligations
insured as to the timely payment of principal and interest under insurance
policies (i) purchased by the Acquired Fund or by a previous owner of the
Municipal Obligation or (ii) obtained by the issuer or underwriter of the
Municipal Obligation. The Acquiring Fund may, but is not required by its
management policies to, purchase insured Municipal Obligations. See "Risk
Factors" below.
The Acquired Fund invests only in Municipal Obligations considered
investment grade by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A and
Baa), Standard & Poor's Ratings Group ("S&P") (AAA, AA, A and BBB) or Fitch
IBCA, Inc. ("Fitch") (AAA, AA, A and BBB), or the unrated equivalent as
determined by Dreyfus.
The Acquiring Fund must invest at least 65% of its net assets in Municipal
Obligations considered investment grade by Moody's, S&P or Fitch, or the unrated
equivalent as determined by Dreyfus. The Acquiring Fund may invest up to 35% of
its net assets in Municipal Obligations rated lower than investment grade ("high
yield" or "junk bonds") and as low as the lowest rating assigned by Moody's, S&P
or Fitch, or the unrated equivalent as determined by Dreyfus. Investments rated
below investment grade by Moody's, S&P and Fitch ordinarily provide higher
yields but involve greater risk because of their speculative characteristics.
See "Risk Factors" below.
Each Fund may invest on a temporary basis (but not to exceed 20% of its net
assets) or for temporary defensive purposes, in taxable short-term investments
("Taxable Investments"), such as obligations of the U.S. Government, its
agencies or instrumentalities, commercial paper, certificates of deposit, time
deposits, bankers' acceptances and other short-term bank obligations and
repurchase agreements. In addition, each Fund may invest in Municipal
Obligations the interest from which may be subject to the alternative minimum
tax. The Acquiring Fund may invest without limitation in such Municipal
Obligations if Dreyfus determines that their purchase is consistent with the
Fund's investment objective. The Acquired Fund may invest up to 20% of its net
assets in such Municipal Obligations and, except for temporary defensive
purposes, in other investments subject to federal income tax.
Each Fund may engage in various investment techniques, such as options and
futures transactions, and lending portfolio securities, which may give rise to
taxable income.
For more information on either Fund's management policies, see "The Fund -
- - Goal/Approach" in that Fund's Prospectus.
The Acquiring Fund is incorporated under the laws of the State of Maryland.
The Acquired Fund is an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts. See "Certain Organizational Differences
Between the Acquiring Fund and Acquired Fund" below.
RISK FACTORS. The Acquired Fund invests primarily in insured Municipal
Obligations; the Acquiring Fund does not. An insurance feature on a Municipal
Obligation is designed to reduce the financial risk of the investment. If a
Municipal Obligation held by the Acquired Fund defaults, the Acquired Fund, if
it continues to pay the insurance premium, is entitled to collect interest
payments and the full amount of principal from the insurer when such payments
come due. Some types of insurance purchased for a Municipal Obligation increase
the market value and marketability of the Municipal Obligation. However, the
cost of insurance and the restrictions on investments imposed by the guidelines
in insurance policies result in a lower yield on such Municipal Obligations.
Because the Acquiring Fund does not invest primarily in insured Municipal
Obligations, the Acquiring Fund's portfolio securities are exposed to a greater
extent to the risk of loss if a Municipal Obligation held by the Acquiring Fund
defaults.
The Acquired Fund invests only in Municipal Obligations rated investment
grade by Moody's, S&P or Fitch. The Acquiring Fund, however, 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 Ba by Moody's or BB by S&P or Fitch
or as low as the lowest rating assigned by Moody's, S&P or Fitch. These bonds
generally are considered by Moody's, S&P and Fitch to be predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation and generally will involve more
credit risk than securities in the higher rating categories. The market price
and yield of these bonds are more volatile than those of higher rated bonds.
Factors adversely affecting the market price and yield of these securities will
adversely affect the Acquiring Fund's net asset value. In addition, the retail
secondary market for these bonds may be less liquid than that of higher rated
bonds; adverse market conditions could make it difficult at times for the
Acquiring Fund to sell certain securities or could result in lower prices than
those used in calculating the Acquiring Fund's net asset value.
For the fiscal year ended December 31, 1998 for the Acquired Fund and
October 31, 1998 for the Acquiring Fund, each Fund's average distribution of
investments (at value) in Municipal Obligations by ratings, computed on a
monthly basis, was as follows:
FITCH MOODY'S S&P PERCENTAGE OF VALUE
- ----- ------- --- -----------------------
ACQUIRING FUND ACQUIRED FUND
-------------- -------------
AAA Aaa AAA 21.7% 98.4%
AA Aa AA 9.4% --
A A A 33.2% --
BBB Baa BBB 28.0% --
BB Ba BB 1.4% --
F-1 VMIG1, MIG1, P-1 SP-1+,
0.7% 1.6%
SP-1, A-1
Not Rated Not Rated Not Rated 5.6%* --
------ --
100.0% 100.0%
====== ======
- ----------------------
* Included in the Not Rated category are securities comprising 5.6% of the
Acquiring Fund's market value which, while not rated, have been determined
by Dreyfus to be of comparable quality to securities in the Baa/BBB rating
category.
In all other material respects, the investment risks of each Fund are
substantially the same.
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 either Fund
could fluctuate, which means that you could lose money.
Other risk factors could have an effect on each Fund's performance:
o New York's economy and revenues underlying municipal bonds may decline.
o Investing primarily in a single state may make the Fund's portfolio
securities more sensitive to risks specific to the state.
o Each 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.
In addition, each 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.
See "The Fund--Main Risks" in the relevant Fund Prospectus for a further
description of investment risks.
FEES AND EXPENSES. The following information concerning fees and expenses
of each Fund is derived from information set forth under the caption "The
Fund--Expenses" in the relevant Fund Prospectus. Annual fund operating expenses
set forth below are for the fiscal year ended December 31, 1998 for the Acquired
Fund and October 31, 1998 for the Acquiring Fund. The "Pro Forma After Exchange"
information is based on assets of each Fund as of February 26, 1999. Annual fund
operating expenses are paid out of Fund assets, so their effect is included in
the Fund's share price.
ANNUAL FUND
OPERATING EXPENSES
(as a percentage
of average daily
net assets):
PRO FORMA
AFTER
EXCHANGE
ACQUIRED ACQUIRING ACQUIRING
FUND FUND FUND
-------- --------- -----------
Management Fees .60% .60% .60%
12b-1 Fees .25% .20% .20%
(distribution and servicing)
Other Expenses .17% .10% .09%
Total Fund Operating Expenses 1.02% .90% .89%
EXAMPLE
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.
PRO FORMA
AFTER
EXCHANGE
ACQUIRED ACQUIRING ACQUIRING
FUND FUND FUND
-------- --------- -----------
1 Year $ 104 $ 92 $ 91
3 Years $ 325 $ 287 $ 284
5 Years $ 563 $ 498 $ 493
10 Years $1,248 $1,108 $1,096
PAST PERFORMANCE. The two tables below show the Acquiring Fund's annual
returns and long-term performance. The first table shows you how the Acquiring
Fund's performance has varied from year to year. The second compares the
Acquiring 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. For performance information of the
Acquired Fund, see that Fund's Prospectus under the caption of "The Fund -- Past
Performance." 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
- ----------------------------------------------------------------------------
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Best Quarter: Q1 '95 +6.86
Worst Quarter: Q1 '94 -5.47
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
1 Year 5 Years 10 Years
Acquiring Fund 6.35% 5.38% 7.80%
Lehman Brothers 6.48% 6.22% 8.22%
Municipal Bond Index
INVESTMENT RESTRICTIONS. The 1940 Act requires that certain investment
policies and restrictions be designated as fundamental policies that cannot be
changed without shareholder approval. The fundamental policies and investment
restrictions of the Funds are identical.
In addition, each Fund has adopted certain non-fundamental policies which
may be changed by vote of a majority of the Fund's Board members at any time.
These non-fundamental policies and restrictions of the Funds are also identical,
except that the Acquiring Fund has adopted as a non-fundamental policy a
restriction on investing in companies for the purpose of exercising control.
PRIMARY PORTFOLIO MANAGERS. The primary portfolio manager of the Acquired
Fund is Richard J. Moynihan. Mr. Moynihan has held that position since October
1996, and has been employed by Dreyfus since May 1973. Since October 1996, Mr.
Moynihan has served as Director of Municipal Portfolio Management at Dreyfus. He
is also a portfolio manager of the Acquiring Fund. The primary portfolio manager
of the Acquiring Fund is Monica S. Wieboldt. Ms. Wieboldt has held that position
since June 1988 and has been employed by Dreyfus since November 1983. She is
also a portfolio manager of the Acquired Fund.
BOARD MEMBERS. The Acquiring Fund and Acquired Fund have different Board
members, except for the Chairman of the Board. For a description of the Board
members, see the relevant Statement of Additional Information under the caption
"Management of the Fund."
CAPITALIZATION. The Acquired Fund is authorized to issue an unlimited
number of shares of beneficial interest, par value $.001 per share. The
Acquiring Fund is authorized to issue 100 million shares of Common Stock, par
value $.01 per share. The following table sets forth as of February 26, 1999 (1)
the capitalization of the Acquired Fund's shares, (2) the capitalization of the
Acquiring Fund's shares and (3) the pro forma capitalization of the Acquiring
Fund's shares, as adjusted showing the effect of the Exchange had it occurred on
such date, not including the estimated expenses of the Exchange.
<TABLE>
<CAPTION>
PRO FORMA
AFTER
EXCHANGE
ACQUIRED ACQUIRING ACQUIRING
FUND FUND FUND
-------- --------- -----------
<S> <C> <C> <C>
Total net assets.................... $121,560,091 $296,014,686 $417,574,777
Net asset value $11.30 $20.35 $20.35
per share.........................
Shares outstanding.................. 10,758,630 14,549,490 20,519,645
</TABLE>
As of April 29, 1999, there were 14,559,442.956 shares of the Acquiring
Fund outstanding at a net asset value per share of $20.29. As of such date,
there were 10,618,557.549 shares of the Acquired Fund outstanding at a net
asset value per share of $11.25. For information as to beneficial or record
ownership of shares of the Acquired Fund and Acquiring Fund, see "Voting
Information" below.
PURCHASE PROCEDURES. The purchase procedures of each Fund are identical.
See "Your Investment--Account Policies--Buying Shares" in the relevant Fund
Prospectus for a discussion of purchase procedures.
REDEMPTION PROCEDURES. The redemption procedures of each Fund are
identical. See "Your Investment--Account Policies--Selling Shares" in the
relevant Fund Prospectus for a discussion of redemption procedures.
Each Fund charges a redemption fee on shares redeemed or exchanged less
than 15 days following the issuance of such shares. The Acquiring Fund deducts
.10% and the Acquired Fund deducts 1.0% of the net asset value of such shares.
Neither Fund charges the redemption fee on shares sold through the Automatic
Withdrawal Plan or Dreyfus Auto-Exchange Privilege, or on shares acquired
through dividend reinvestment. No redemption fee will be charged in connection
with the Exchange.
RULE 12B-1 PLAN. Each Fund has adopted a Service Plan pursuant to Rule
12b-1 under the 1940 Act. Under such Plan, the Fund reimburses its distributor
for distributing Fund shares and pays Dreyfus for advertising and shareholder
account service and maintenance at an aggregate annual rate of .20% with respect
to the Acquiring Fund and .25% with respect to the Acquired Fund. 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.
DISTRIBUTIONS. The dividend and distribution policies of each Fund are
identical. See "Your Investment-Distributions and Taxes" in the relevant Fund
Prospectus for a discussion of such policies.
SHAREHOLDER SERVICES. The shareholder services offered by each Fund are
identical. See "Your Investment-Services For Fund Investors" in the relevant
Fund Prospectus for a description of shareholder services.
CERTAIN ORGANIZATIONAL DIFFERENCES BETWEEN THE ACQUIRING FUND AND ACQUIRED
FUND. The Acquired Fund is a Massachusetts business trust, and the rights of its
shareholders are governed by its Agreement and Declaration of Trust (the "Trust
Agreement"), Bylaws and applicable Massachusetts law. The Acquiring Fund is a
Maryland corporation, and the rights of its shareholders are governed by its
Articles of Incorporation (the "Charter"), Bylaws and the Maryland General
Corporation Law (the "Maryland Code"). Certain relevant differences between the
two forms of organization are summarized below.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Generally, neither Fund is required
to hold annual meetings of its shareholders. The Board of the relevant Fund is
required to call a special meeting of shareholders for any purpose when
requested in writing to do so by the holders of at least 10% of its outstanding
shares entitled to vote. Moreover, each 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.
Under the Trust Agreement, Acquired Fund shareholders are entitled to vote
only with respect to the following matters: (1) the election or removal of
Trustees if a meeting is called for such purpose; (2) the adoption of any
contract for which shareholder approval is required by the 1940 Act; (3) any
amendment of the Trust Agreement, other than amendments to change the Acquired
Fund's name, authorize additional series or classes of shares, supply any
omission or cure, correct or supplement any ambiguity or defective or
inconsistent provision contained in the Trust Agreement; (4) any termination or
reorganization of the Acquired Fund to the extent and as provided in the Trust
Agreement; (5) a determination as to whether a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Acquired Fund or its shareholders, to the same extent as the
shareholders of a Massachusetts business corporation would be entitled to vote
on such a determination; and (6) such additional matters relating to the
Acquired Fund as may be required by law, the Trust Agreement, the Acquired
Fund's Bylaws, or any registration of the Acquired Fund with the Commission or
any state, or as the Trustees may consider necessary or desirable. Acquired Fund
shareholders also vote upon changes in fundamental investment policies or
restrictions.
The Trust Agreement provides that a majority of the outstanding voting
shares of the Acquired Fund is required to decide any question (except the
election of Trustees, which requires a plurality, and the removal of a Trustee,
which requires two-thirds of the outstanding shares of the Acquired Fund),
unless the 1940 Act requires a larger vote. On any matter submitted to a vote of
shareholders, all shares of the Acquired Fund then entitled to vote will be
voted in the aggregate as a single class without regard to series or classes of
shares, except (i) when required by the 1940 Act or when the Trustees shall have
determined that the matter affects one or more series or classes differently,
shares will be voted by individual series or class, and (ii) when the Trustees
have determined that the matter affects only the interests of one or more series
or classes, then only shareholders of such series or classes will be entitled to
vote thereon.
The Acquiring Fund's charter documents provide that certain matters, such
as an amendment to the Charter, a merger, consolidation or transfer of all or
substantially all assets, dissolution, and removal of a Director, require the
affirmative vote of a majority of the votes entitled to be cast; election of
Directors requires a plurality of votes cast; and other matters require the
approval of the affirmative vote of a majority of the votes cast at a meeting at
which a quorum is present. All holders of shares of stock vote as a single class
except as may otherwise be required by law pursuant to any applicable order,
rule or interpretation issued by the Commission, or otherwise, or except with
respect to any matter which affects only one or more classes of stock, in which
case only the holders of shares of the class or classes affected will be
entitled to vote.
The Acquired Fund's Trust Agreement provides that 30% of the shares
entitled to vote shall constitute a quorum for the transaction of business at a
shareholders' meeting. The Acquiring Fund's Charter provides that one-third of
the shares entitled to vote shall constitute a quorum for the transaction of
business at a stockholders meeting. Matters requiring a larger vote by law or
under the organization documents for the Fund are not affected by such quorum
requirements.
SHAREHOLDER LIABILITY. Under Maryland law, Acquiring Fund stockholders have
no personal liability as such for the Fund's acts or obligations.
Under Massachusetts law, shareholders of a Massachusetts business trust,
under certain circumstances, could be held personally liable for the obligations
of the business trust. However, the Trust Agreement disclaims shareholder
liability for acts or obligations of the Acquired Fund and requires that notice
of such disclaimer be given in every note, bond, contract or other undertaking
issued or entered into by or on behalf of the Acquired Fund, or its Trustees.
The Trust Agreement provides for indemnification out of the Acquired Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Acquired Fund solely by reason of his being or having
been an Acquired Fund shareholder and not because of his acts or omissions or
some other reason. Thus, the Acquired Fund considers the risk of a Fund
shareholder incurring financial loss on account of shareholder liability to be
remote since it is limited to circumstances in which a disclaimer is inoperative
or the Acquired Fund itself would be unable to meet its obligations. The Trust
Agreement also provides that the Trust, upon request, shall assume the defense
of any claim made against any shareholder for any act or obligation of the Fund
and satisfy any judgment thereon.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND TRUSTEES. Under the
Acquiring Fund's Charter and Maryland law, subject to the 1940 Act, a Director
or officer of the Acquiring Fund is not liable to the Fund or its stockholders
for monetary damages except to the extent he or she receives an improper
personal benefit or his or her action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated.
In addition, a Director is entitled to indemnification against judgments,
penalties, fines, settlements and reasonable expenses unless his act or omission
was material to the cause of action and was committed in bad faith or was the
result of active and deliberate dishonesty or the individual received an
improper personal benefit (or, in a criminal case, had reasonable cause to
believe that his act or omission was unlawful). Indemnification may be made
against amounts recoverable by settlement of suits brought by or in the right of
the Acquiring Fund except where the individual is adjudged liable to the
Acquiring Fund. The termination of a civil proceeding by judgment, order or
settlement does not create a presumption that the requisite standard of conduct
was not met. A Director or officer is entitled to advances of expenses in the
course of litigation if (i) such Director or officer undertakes to repay such
sums if indemnification is ultimately denied and provides acceptable security,
(ii) the Acquiring Fund is insured against losses arising from the advances, or
(iii) the disinterested non-party directors or independent legal counsel
determine there is a reason to believe the Director or officer ultimately will
be found to be entitled to indemnification. Officers, employees and agents may
be indemnified to the same extent as Directors and to such further extent as is
consistent with law.
If these provisions of Maryland law are amended, the Directors and officers
will be entitled to limited liability and to indemnification to the fullest
extent of Maryland law as amended. No amendment or repeal of the provisions of
the Charter relating to limited liability and indemnification will apply to any
event, omission or proceeding which precedes the amendment or repeal.
Under the Acquired Fund's Trust Agreement, a Trustee is entitled to
indemnification against all liability and expenses reasonably incurred by him in
connection with the defense or disposition of any threatened or actual
proceeding by reason of his being or having been a Trustee, unless such Trustee
shall have been adjudicated to have acted with bad faith, willful misfeasance,
gross negligence or in reckless disregard of his duties. Officers, employees and
agents of the Acquired Fund may be indemnified to the same extent as Trustees.
Under the 1940 Act, a director or trustee may not be protected against
liability to a fund and its security holders to which he would otherwise be
subject as a result of his willful misfeasance, bad faith or gross negligence in
the performance of his duties, or by reason of reckless disregard of his
obligations and duties. The staff of the Commission interprets the 1940 Act to
require additional limits on indemnification of directors or trustees, and
officers.
RIGHT OF INSPECTION. Under Maryland law, persons who have been stockholders
of record for six months or more and who own at least 5% of the shares of the
Acquiring Fund may inspect the books of account and stock ledger of the Fund.
Acquired Fund shareholders have the right to inspect the records, accounts and
books of the Acquired Fund for any legitimate business purpose.
* * *
The foregoing is only a summary of certain differences between the
Acquiring Fund, the Acquiring Fund's Charter, Bylaws and Maryland law, and the
Acquired Fund, the Acquired Fund's Trust Agreement, Bylaws or Massachusetts law.
It is not a complete list of differences, but only of material differences.
Shareholders desiring copies of Acquiring Fund's Charter and Bylaws or the
Acquired Fund's Trust Agreement and Bylaws should write to the relevant Fund at
200 Park Avenue, New York, New York 10166, Attention: Legal Department.
REASONS FOR THE EXCHANGES
The Board of each Fund has concluded that the Exchange is in the best
interests of their respective shareholders. Each Board believes that the
Exchange will permit shareholders to pursue substantially similar investment
goals in a larger fund without diluting shareholders' interests. A larger fund
should enhance the portfolio managers' ability to select a larger number of
portfolio securities on more favorable terms and give portfolio managers greater
investment flexibility. Additionally, the expense ratio of the Acquiring Fund is
lower than that of the Acquired Fund. By combining the Acquired Fund with the
Acquiring Fund and creating one fund with greater aggregate net assets, Acquired
Fund Shareholders should obtain the benefits of economies of scale, which may
result in lower overall expense ratios by spreading the fixed and variable costs
of fund operations over a larger asset base.
In determining whether to recommend approval of the Exchange, each Board
considered the following factors, among others: (1) the compatibility of each
Fund's investment objective, management policies and investment restrictions, as
well as shareholder services offered by each Fund; (2) the terms and conditions
of the Exchange and whether the Exchange would result in dilution of shareholder
interests; (3) expense ratios and published information regarding the fees and
expenses of each Fund, as well as the expense ratios of similar funds and the
estimated expense ratio of the combined Funds; (4) the tax consequences of the
Exchange; and (5) the estimated costs incurred by each Fund as a result of the
Exchange.
INFORMATION ABOUT THE EXCHANGE
PLAN OF EXCHANGE. The following summary of the Plan is qualified in its
entirety by reference to the form of Plan attached hereto as Appendix A. The
Plan provides that the Acquiring Fund will acquire all of the assets of the
Acquired Fund in exchange for Acquiring Fund Shares, and the assumption by the
Acquiring Fund of the Acquired Fund's stated liabilities on August _, 1999, or
such later date as may be agreed upon by the parties (the "Closing Date"). The
number of Acquiring Fund Shares to be issued to the Acquired Fund will be
determined on the basis of the relative net asset values per share of each Fund,
generally computed as of the close of trading on the floor of the New York Stock
Exchange (currently at 4:00 p.m., New York time) (except for options and futures
contracts, if any, which will be valued 15 minutes after such close of trading)
on the Closing Date (the "Valuation Time"). Portfolio securities of each Fund
will be valued in accordance with the valuation practices of the Acquiring Fund,
which are described under the caption "Your Investment--Account Policies" in the
Acquiring Fund Prospectus and under the caption "Determination of Net Asset
Value" in the Acquiring Fund Statement of Additional Information.
Prior to the Closing Date, the Acquired Fund will declare a dividend or
other distribution which, together with all previous dividends and other
distributions, will have the effect of distributing to Acquired Fund
Shareholders all of the Acquired Fund's previously undistributed investment
company taxable income (computed without regard to any deduction for dividends
paid), its net exempt interest income, and its net capital gain realized (after
reduction for any capital loss carryforward), if any, for all taxable years
ending on or prior to, and for its current taxable year through, the Closing
Date.
As conveniently as practicable after the Closing Date, the Acquired Fund
will distribute the Acquiring Fund Shares received by it in the Exchange pro
rata to its shareholders of record as of the Valuation Time, in liquidation of
the Acquired Fund. Such distribution will be accomplished by establishing an
account on the share records of the Acquiring Fund in the name of each Acquired
Fund Shareholder, each account representing the respective pro rata number of
Acquiring Fund Shares due to each Acquired Fund Shareholder. After such
distribution and the winding up of its affairs, the Acquired Fund will be
terminated. After the Closing Date, any outstanding certificates representing
Acquired Fund Shares will represent the Acquiring Fund Shares distributed to the
record holders of the Acquired Fund. Upon presentation to the transfer agent of
the Acquiring Fund, Acquired Fund Share certificates will be exchanged for
Acquiring Fund Share certificates, at the applicable exchange rate. Certificates
for Acquiring Fund Shares will be issued only upon the investor's written
request.
The Plan may be amended at any time prior to the Exchange. The Acquired
Fund will provide its Shareholders with information describing any material
amendment to the Plan prior to the Meeting. The obligations of each Fund under
the Plan are subject to various conditions, including approval by the requisite
number of Acquired Fund Shares and the continuing accuracy of various
representations and warranties of each Fund being confirmed by the respective
parties.
The total expenses of the Exchange are expected to be approximately
$43,500, and will be borne pro rata according to the aggregate net assets of
each Fund.
If the Exchange is not approved by Shareholders of the Acquired Fund, the
Acquired Fund's Board will consider other appropriate courses of action.
TEMPORARY SUSPENSION OF CERTAIN OF THE ACQUIRED FUND'S INVESTMENT
RESTRICTIONS. Since certain of the Acquired Fund's existing investment
restrictions could preclude the Acquired Fund from consummating the Exchange in
the manner contemplated in the Plan, Acquired Fund Shareholders are requested to
authorize the temporary suspension of certain investment restrictions which
restrict the Acquired Fund's ability to (i) purchase securities other than
Municipal Obligations and Taxable Investments and (ii) invest more than 25% of
its total assets in the securities of issuers in any single industry, as set
forth in the Acquired Fund Statement of Additional Information, as well as the
temporary suspension of any other investment restriction of the Acquired Fund to
the extent necessary to permit the consummation of the Exchange. The temporary
suspension of the Acquired Fund's investment restrictions will not affect the
investment restrictions of the Acquiring Fund. A vote in favor of the Proposal
is deemed to be a vote in favor of the temporary suspensions.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of the Acquired Fund's assets
for Acquiring Fund Shares is intended to qualify for federal income tax purposes
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). As a condition to the closing of the Exchange,
each Fund will receive the opinion of Stroock & Stroock & Lavan LLP, counsel to
each Fund, substantially to the effect that, on the basis of the existing
provisions of the Code, Treasury regulations issued thereunder, current
administrative regulations and pronouncements and court decisions, and certain
facts, assumptions and representations, for federal income tax purposes: (1) the
transfer of all of the Acquired Fund's assets in exchange for Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Acquired Fund's
liabilities will constitute a "reorganization" within the meaning of Section
368(a)(1)(C); (2) no gain or loss will be recognized by the Acquired Fund upon
the transfer of its assets to the Acquiring Fund solely in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the Acquired
Fund's liabilities or upon the distribution (whether actual or constructive) of
Acquiring Fund Shares to the Acquired Fund Shareholders in exchange for their
Acquired Fund Shares; (3) no gain or loss will be recognized by the Acquiring
Fund upon the receipt of the Acquired Fund's assets solely in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the Acquired
Fund's liabilities; (4) no gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of Acquired Fund Shares for Acquiring Fund Shares
pursuant to the Plan; (5) the aggregate tax basis for Acquiring Fund Shares
received by each Acquired Fund Shareholder pursuant to the Exchange will be the
same as the aggregate tax basis for Acquired Fund Shares held by such
Shareholder immediately prior to the Exchange, and the Shareholder's holding
period for those Acquiring Fund Shares will include the period the Acquired Fund
Shares surrendered in exchange therefor were held by such Shareholder (provided
the Acquired Fund Shares were held as capital assets on the date of the
Exchange); and (6) the tax basis of the Acquired Fund assets transferred to the
Acquiring Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Exchange, and the holding period of Acquired Fund
assets in the hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.
No opinion will be expressed as to the effect of the reorganization on (i)
the Acquired Fund or the Acquiring Fund with respect to any asset as to which
any unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting, and (ii) any Acquired Fund
Shareholder that is required to recognize unrealized gains and losses for
federal income tax purposes under a mark-to-market system of accounting.
NEITHER FUND HAS SOUGHT A TAX RULING FROM THE INTERNAL REVENUE SERVICE
("IRS"). THE OPINION OF COUNSEL IS NOT BINDING ON THE IRS NOR DOES IT PRECLUDE
THE IRS FROM ADOPTING A CONTRARY POSITION. Acquired Fund Shareholders should
consult their tax advisers regarding the effect, if any, of the proposed
Exchange in light of their individual circumstances. Since the foregoing
discussion relates only to the federal income tax consequences of the Exchange,
Acquired Fund Shareholders also should consult their tax advisers as to state
and local tax consequences, if any, of the Exchange.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
The Acquired Fund's Board has approved the Plan and the Exchange and has
determined that (i) participation in the Exchange is in the Acquired Fund's best
interests and (ii) the interests of Acquired Fund Shareholders will not be
diluted as a result of the Exchange. An affirmative vote of the holders of a
majority of the Acquired Fund's Shares is required to approve the Plan and the
Exchange.
THE BOARD OF THE ACQUIRED FUND, INCLUDING THE "NON-INTERESTED" BOARD
MEMBERS, RECOMMENDS THAT ACQUIRED FUND SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
PLAN AND THE EXCHANGE.
ADDITIONAL INFORMATION ABOUT EACH FUND
Information about the Acquiring Fund is incorporated by reference into this
Prospectus/Proxy Statement from the Acquiring Fund Prospectus and Statement of
Additional Information, each dated March 1, 1999, forming a part of its
Registration Statement on Form N-1A (File No. 2-92285).
Information about the Acquired Fund is incorporated by reference into this
Prospectus/Proxy Statement from the Acquired Fund Prospectus and Statement of
Additional Information, each dated May 1, 1999, forming a part of its
Registration Statement on Form N-1A (File No. 33-9654).
Each Fund is subject to the requirements of the 1940 Act, and files
reports, proxy statements and other information with the Commission. Reports,
proxy statements and other information filed by each Fund may be inspected and
copied at the Public Reference Facilities of the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the Northeast regional office of
the Commission at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material also can be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
VOTING INFORMATION
In addition to the use of the mails, proxies may be solicited personally,
by telephone or by telegraph, and the Acquired Fund may pay persons holding its
Shares in their names or those of their nominees for their expenses in sending
soliciting materials to their principals. Authorizations to execute proxies may
be obtained by telephonic or electronically transmitted instructions in
accordance with procedures designed to authenticate the shareholder's identity.
In all cases where a telephonic proxy is solicited, the shareholder will be
asked to provide his or her address, social security number (in the case of an
individual) or taxpayer identification number (in the case of a non-individual)
and the number of shares owned and to confirm that the shareholder has received
the Prospectus/Proxy Statement and proxy card in the mail. Within 72 hours of
receiving a shareholder's telephonic or electronically transmitted voting
instructions, a confirmation will be sent to the shareholder to ensure that the
vote has been taken in accordance with the shareholder's instructions and to
provide a telephone number to call immediately if the shareholder's instructions
are not correctly reflected in the confirmation. Shareholders requiring further
information with respect to telephonic or electronically transmitted voting
instructions or the proxy generally should contact _________ toll free at
___________________. Any shareholder giving a proxy may revoke it at any time
before it is exercised by submitted to the Acquired Fund a written notice of
revocation or a subsequently executed proxy or by attending the Meeting and
voting in person.
If a proxy is properly executed and returned accompanied by instructions to
withhold authority to vote, represents a broker "non-vote" (that is, a proxy
from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote Acquired
Fund Shares on a particular matter with respect to which the broker or nominee
does not have discretionary power) or is marked with an abstention
(collectively, "abstentions"), the Acquired Fund Shares represented thereby will
be considered to be present at a Meeting for purposes of determining the
existence of a quorum for the transaction of business. Abstentions will not
constitute a vote "for" or "against" a matter and will be disregarded in
determining the "votes cast" on an issue. For this reason, abstentions will have
the effect of a "no" vote for the purpose of obtaining requisite approval for
the Proposal.
If a quorum is not present at the Meeting, or if a quorum is present but
sufficient votes to approve the Proposal are not received, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. In determining whether to adjourn the Meeting, the
following factors may be considered: the nature of the Proposal, the percentage
of votes actually cast, the percentage of negative votes actually cast, the
nature of any further solicitation and the information to be provided to
Shareholders with respect to the reasons for the solicitation. Any adjournment
will require the affirmative vote of a majority of those shares affected by the
adjournment that are represented at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote "FOR" the Proposal in favor of such adjournment, and
will vote those proxies required to be voted "AGAINST" the Proposal against any
adjournment. A quorum is constituted with respect to the Acquired Fund by the
presence in person or by proxy of the holders of more than 30% of the
outstanding Acquired Fund Shares entitled to vote at the Meeting.
The votes of Acquiring Fund Shareholders are not being solicited since
their approval or consent is not necessary for the Exchange.
As of April 29, 1999, no Shareholder was known by the Acquired Fund to own
beneficially or of record 5% or more of the outstanding voting shares of the
Acquired Fund.
It is not anticipated that any Shareholder will own beneficially or of
record 5% or more of the Acquiring Fund's outstanding shares as a result of the
Exchange.
As of April 29, 1999, no Shareholder was known by the Acquiring Fund to own
beneficially or of record 5% or more of the outstanding voting shares of the
Acquiring Fund.
As of April 29, 1999, Board members and officers of the Acquiring Fund, as
a group, owned less than 1% of the Acquiring Fund's outstanding shares. As of
April 29, 1999, Board members and officers of the Acquired Fund, as a group,
owned less than 1% of the Acquired Fund's outstanding shares.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Acquired Fund for the fiscal year
ended December 31, 1998 and of the Acquiring Fund for the fiscal year ended
October 31, 1998, have been incorporated herein by reference in reliance upon
the authority of the reports given by Ernst & Young LLP, each Fund's independent
auditors, as experts in accounting and auditing.
OTHER MATTERS
The Acquired Fund's Board members are not aware of any other matters which
may come before the Meeting. However, should any such matters properly come
before the Meeting, it is the intention of the persons named in the accompanying
form of proxy to vote the proxy in accordance with their judgment on such
matters.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise the Acquired Fund, in care of Dreyfus Transfer, Inc.,
Attention: Dreyfus New York Insured Tax Exempt Bond Fund, P.O. Box 9671,
Providence, Rhode Island 02940-9671, whether other persons are the beneficial
owners of Acquired Fund Shares for which proxies are being solicited from you,
and, if so, the number of copies of the Prospectus/Proxy Statement and other
soliciting material you wish to receive in order to supply copies to the
beneficial owners of such Shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
OF THE ACQUIRED FUND WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED
TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED STAMPED
ENVELOPE.
<PAGE>
APPENDIX A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated April 14, 1999 (the
"Agreement"), between DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND, a
Massachusetts business trust (the "Acquired Fund"), and GENERAL NEW YORK
MUNICIPAL BOND FUND, INC., a Maryland corporation (the "Acquiring Fund" and,
together with the Acquired Fund, the "Funds").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund, attributable to such Fund's shares, in exchange solely for shares
of Common Stock, par value $.01 per share, of the Acquiring Fund ("Acquiring
Fund Shares"), and the assumption by the Acquiring Fund of certain liabilities
of the Acquired Fund and the distribution of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are registered, open-end,
non-diversified, management investment companies, and the Acquired Fund owns
securities which are assets of the character in which the Acquiring Fund is
permitted to invest;
WHEREAS, the Acquiring Fund and the Acquired Fund are authorized to issue
their respective shares of common stock and beneficial interest;
WHEREAS, the Board of the Acquiring Fund has determined that the exchange
of all of the assets of the Acquired Fund for Acquiring Fund Shares, and the
assumption of the Acquired Fund's liabilities by the Acquiring Fund is in the
best interests of the Acquiring Fund and its shareholders and that the interests
of the Acquiring Fund's existing shareholders would not be diluted as a result
of this transaction; and
WHEREAS, the Board of the Acquired Fund has determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares, and the
assumption of the Acquired Fund's liabilities by the Acquiring Fund is in the
best interests of the Acquired Fund and its shareholders and that the interests
of the Acquired Fund's existing shareholders would not be diluted as a result of
this transaction:
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF ACQUIRED FUND LIABILITIES AND
LIQUIDATION OF THE ACQUIRED FUND.
1.1. Subject to the terms and conditions contained herein, the Acquired
Fund agrees to assign, transfer and convey to the Acquiring Fund all of the
assets of the Acquired Fund, including all securities and cash (subject to
liabilities), attributable to the Acquired Fund's shares, and the Acquiring Fund
agrees in exchange therefor (i) to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3; and (ii) to assume certain liabilities of the
Acquired Fund, as set forth in paragraph 1.2. Such transactions shall take place
at the closing (the "Closing") on the closing date (the "Closing Date") provided
for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the books of the Acquiring Fund and shall deliver a
confirmation thereof to the Acquired Fund.
1.2. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
assume all liabilities, expenses, costs, charges and reserves reflected on an
unaudited statement of assets and liabilities of the Acquired Fund prepared by
The Dreyfus Corporation, as of the Valuation Time (as defined in paragraph 2.1),
in accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Fund shall assume only those
liabilities of the Acquired Fund reflected in that unaudited statement of assets
and liabilities and shall not assume any other liabilities, whether absolute or
contingent.
1.3. Delivery of the assets of the Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to The Bank of New York, 90
Washington Street, New York, New York 10286, the Acquiring Fund's custodian (the
"Custodian"), for the account of the Acquiring Fund, with all securities not in
bearer or book-entry form duly endorsed, or accompanied by duly executed
separate assignments or stock powers, in proper form for transfer, with
signatures guaranteed, and with all necessary stock transfer stamps, sufficient
to transfer good and marketable title thereto (including all accrued interest
and dividends and rights pertaining thereto) to the Custodian for the account of
the Acquiring Fund free and clear of all liens, encumbrances, rights,
restrictions and claims. All cash delivered shall be in the form of immediately
available funds payable to the order of the Custodian for the account of the
Acquiring Fund.
1.4. The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any interest received on or after the Closing Date with respect to assets
transferred to the Acquiring Fund hereunder. The Acquired Fund will transfer to
the Acquiring Fund any distributions, rights or other assets received by the
Acquired Fund after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5. As soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the Valuation Time
(the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will
be accomplished by the transfer of the Acquiring Fund Shares then credited to
the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders. All issued and outstanding shares
of the Acquired Fund simultaneously will be canceled on the books of the
Acquired Fund.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7. Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquiring Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8. Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing Date and
such later date on which the Acquired Fund's existence is terminated.
2. VALUATION.
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of trading on the floor of the New York Stock Exchange (currently, 4:00
p.m., New York time), except that options and futures contracts will be valued
15 minutes after the close of trading on the floor of the New York Stock
Exchange, on the Closing Date (such time and date being hereinafter called the
"Valuation Time"), using the valuation procedures set forth in the Acquiring
Fund's Articles of Incorporation dated November 19, 1984, as the same may have
been amended (the "Acquiring Fund's Articles of Incorporation"), and
then-current prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed as of the Valuation Time, using the valuation
procedures set forth in the Acquiring Fund's Articles of Incorporation and
then-current prospectus or statement of additional information.
2.3. The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Fund's net assets shall be
determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4. All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1. The Closing Date shall be August __, 1999 or such later date as the
parties may mutually agree. All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided. The Closing shall be held at 4:30 p.m., New York
time, at the offices of The Dreyfus Corporation, 200 Park Avenue, New York, New
York, or such other time and/or place as the parties may mutually agree.
3.2. The Custodian shall deliver at the Closing a certificate of an
authorized officer stating that the Acquired Fund's portfolio securities, cash
and any other assets have been presented for examination to the Acquiring Fund
prior to the Closing Date and have been delivered in proper form to the
Acquiring Fund.
3.3. If at the Valuation Time (a) the New York Stock Exchange or another
primary trading market for portfolio securities of either Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of either Fund is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
3.4. The transfer agent for the Acquired Fund shall deliver at the Closing
a certificate of an authorized officer stating that its records contain the
names and addresses of the Acquired Fund Shareholders and the number and
percentage ownership of outstanding shares of the Acquired Fund owned by each
such Shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Acquired Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, receipts or other documents as such other party or its
counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1. The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a business trust duly organized and validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has power to own all of its properties and assets and to carry
out this Agreement.
(b) The Acquired Fund is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end, non-diversified,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Acquired Fund's Agreement and Declaration of Trust dated September 19, 1986, as
the same may have been amended (the "Acquired Fund's Trust Agreement"), or its
Bylaws or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will be terminated with liability
to it on or prior to the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquired Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquired Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
(f) The Statements of Assets and Liabilities of the Acquired Fund for
the ten fiscal years ended December 31, 1998 have been audited by Ernst & Young
LLP, independent auditors, and are in accordance with generally accepted
accounting principles, consistently applied, and such statements (copies of
which have been furnished to the Acquiring Fund) fairly reflect the financial
condition of the Acquired Fund as of such dates, and there are no known
contingent liabilities of the Acquired Fund as of such dates not disclosed
therein.
(g) Since December 31, 1998, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as disclosed on the statement of
assets and liabilities referred to in Section 1.2 hereof.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquired Fund required by law to have been filed by such dates shall have
been filed, and all federal and other taxes shall have been paid so far as due,
or provision shall have been made for the payment thereof, and to the best of
the Acquired Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(i) For each fiscal year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company. The Acquired Fund has not made an election under
Section 475 of the Code and is not otherwise required under such section to
recognize unrealized gains and losses for Federal income tax purposes under a
mark-to-market system of accounting.
(j) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Acquired Fund. All of the issued and outstanding
shares of the Acquired Fund will, at the time of Closing, be held by the persons
and in the amounts set forth in the records of the transfer agent as provided in
paragraph 3.4. The Acquired Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquired Fund shares,
nor is there outstanding any security convertible into any of the Acquired Fund
shares.
(k) On the Closing Date, the Acquired Fund will have full right, power
and authority to sell, assign, transfer and deliver the assets to be transferred
by it hereunder.
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of the Acquired Fund's Board and, subject to the approval of the
Acquired Fund Shareholders and assuming due execution and delivery hereof by the
Acquiring Fund, this Agreement will constitute the valid and legally binding
obligation of the Acquired Fund, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(m) The proxy statement of the Acquired Fund (the "Proxy Statement")
included in the Registration Statement referred to in paragraph 5.5 (other than
information therein that has been furnished by the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading.
4.2. The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
power to carry on its business as it is now being conducted and to carry out
this Agreement.
(b) The Acquiring Fund is registered under the 1940 Act as an
open-end, non-diversified, management investment company, and such registration
has not been revoked or rescinded and is in full force and effect.
(c) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act and the rules and regulations of the Securities and Exchange Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Acquiring Fund's Articles of Incorporation or its Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquiring Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions contemplated herein.
(f) The Statements of Assets and Liabilities of the Acquiring Fund for
the ten fiscal years ended October 31, 1998 have been audited by Ernst & Young
LLP, independent auditors, and are in accordance with generally accepted
accounting principles, consistently applied, and such statements (copies of
which have been furnished to the Acquired Fund) fairly reflect the financial
condition of the Acquiring Fund as of such dates.
(g) Since October 31, 1998, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as disclosed on the
statement of assets and liabilities as of October 31, 1998 referred to in
Section 4.2(f) hereof.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to be filed shall have been filed,
and all Federal and other taxes shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company.
(j) All issued and outstanding shares of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Acquiring Fund. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action, if
any, on the part of the Acquiring Fund's Directors and Shareholders, and,
subject to the approval of the Acquired Fund Shareholders and assuming due
execution and delivery hereof by the Acquired Fund, this Agreement will
constitute the valid and legally binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the discretion of
the court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(l) The Proxy Statement included in the Registration Statement (only
insofar as it relates to the Acquiring Fund and is based on information
furnished by the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading.
5. COVENANTS OF THE FUNDS.
5.1. Each Fund will operate its business in the ordinary course between the
date hereof and the Closing Date, it being understood that such ordinary course
of business will include payment of customary dividends and distributions.
5.2. The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3. Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4. As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for Federal income tax purposes which
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code and which will be certified by the Acquired Fund's President or its Vice
President and Treasurer.
5.5. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement, referred to in paragraph 4.1(m), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended, and the 1940 Act in connection with the
meeting of the Acquired Fund Shareholders to consider approval of this Agreement
and the transactions contemplated herein.
5.6. The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1. All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the assets and liabilities, together with a list of the Acquired
Fund's portfolio securities showing the tax basis of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by the Acquired Fund's President
or Vice President and its Treasurer, in form and substance satisfactory to the
Acquiring Fund, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquiring Fund shall
reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by the Acquiring Fund's
President or Vice President and its Treasurer, in form and substance reasonably
satisfactory to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to either Fund, the other party to this Agreement
shall, at its option, not be required to complete the transactions contemplated
by this Agreement.
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Acquired Fund's Trust
Agreement.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Securities and Exchange Commission and of state Blue Sky and securities
authorities) deemed necessary by either Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
either Fund, provided that either party hereto may for itself waive any of such
conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The Acquired Fund shall have declared a dividend or other distribution
which, together with all previous dividends and other distributions, shall have
the effect of distributing to the Acquired Fund Shareholders all of the Acquired
Fund's investment company taxable income for all taxable years ending on or
prior to the Closing Date and for its current taxable year through the Closing
Date (computed without regard to any deduction for dividends paid); the excess
of its interest income excludable from gross income under Section 103(a) of the
Code over its disallowed deductions under Sections 265 and 171(a)(2) of the Code
for all such taxable years; and all of its net capital gain realized in all such
taxable years (after reduction for any capital loss carryforward).
8.6. The parties shall have received an opinion of Stroock & Stroock &
Lavan LLP substantially to the effect that for federal income tax purposes:
(a) The transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of certain identified
liabilities of the Acquired Fund; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring
Fund solely in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund or upon
the distribution (whether actual or constructive) of the Acquiring Fund Shares
to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for Acquiring Fund Shares; (e) The
aggregate tax basis for the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the same as
the aggregate tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization, and the holding period of the Acquiring
Fund Shares to be received by each Acquired Fund Shareholder will include the
period during which the Acquired Fund shares exchanged therefor were held by
such Shareholder (provided the Acquired Fund shares were held as capital assets
on the date of the Reorganization); and (f) The tax basis of the Acquired Fund
assets transferred to the Acquiring Fund will be the same as the tax basis of
such assets to the Acquired Fund immediately prior to the Reorganization, and
the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund.
No opinion will be expressed as to the effect of the reorganization on (i)
the Acquired Fund or the Acquiring Fund with respect to any asset as to which
any unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting, and (ii) any Acquired Fund
Shareholder that is required to recognize unrealized gains and losses for
federal income tax purposes under a mark-to-market system of accounting.
9. TERMINATION OF AGREEMENT.
9.1. This Agreement and the transaction contemplated hereby may be
terminated and abandoned by resolution of the Board of either Fund, at any time
prior to the Closing Date (and notwithstanding any vote of the Acquired Fund
Shareholders) if circumstances should develop that, in the opinion of the Board
of either Fund, make proceeding with the Agreement inadvisable.
9.2. If this Agreement is terminated and the transaction contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this Agreement
shall become void and have no effect, without any liability on the part of any
party hereto or the Board members, officers or shareholders of either Fund, in
respect of this Agreement, except that the parties shall bear the aggregate
expenses of the transaction contemplated hereby in proportion to their
respective net assets as of the date this Agreement is terminated or the
exchange contemplated hereby is abandoned.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may
be waived by the Board of either Fund if, in the judgment of such Board, such
waiver will not have a material adverse effect on the benefits intended under
this Agreement to the shareholders of its Fund.
10. MISCELLANEOUS.
11.1. None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2. This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and merges
and supersedes all prior discussions, agreements and understandings of every
kind and nature between them relating to the subject matter hereof. Neither
party shall be bound by any condition, definition, warranty or representation,
other than as set forth or provided in this Agreement or as may be, on or
subsequent to the date hereof, set forth in a writing signed by the party to be
bound thereby.
11.3. This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflict of laws; provided, however, that the due authorization, execution and
delivery of this Agreement by each Fund shall be governed and construed in
accordance with the internal laws of the Commonwealth of Massachusetts and the
State of Maryland, respectively, without giving effect to principles of conflict
of laws.
11.4. This Agreement may be executed in counterparts, each of which, when
executed and delivered, shall be deemed to be an original.
11.5. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6. (a) The names "General New York Municipal Bond Fund, Inc." and
"Directors" of General New York Municipal Bond Fund, Inc. refer respectively to
the Acquiring Fund and its Directors, as directors but not individually or
personally, acting from time to time under the Acquiring Fund's Articles of
Incorporation and Bylaws, a copy of which is on file at the office of the
Secretary of the State of Maryland and at the principal office of the Acquiring
Fund. The obligations of the Acquiring Fund entered into by any of the
Directors, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Directors, shareholders or
representatives of the Acquiring Fund personally, but bind only the Acquiring
Fund's property, and all persons dealing with any class of shares of the
Acquiring Fund must look solely to the Acquiring Fund's property belonging to
such class for the enforcement of any claims against the Acquiring Fund.
(b) The names "Dreyfus New York Insured Tax Exempt Bond Fund" and
"Trustees" of Dreyfus New York Insured Tax Exempt Bond Fund refer respectively
to the Acquired Fund and its Trustees, as trustees but not individually or
personally, acting from time to time under the Acquired Fund's Trust Agreement,
a copy of which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and at the principal office of the Acquired Fund. The obligations
of the Acquired Fund entered into by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders or representatives of the Acquired Fund
personally, but bind only the Acquired Fund's property, and all persons dealing
with any class of shares of the Acquired Fund must look solely to the Acquired
Fund's property belonging to such class for the enforcement of any claims
against the Acquired Fund.
IN WITNESS WHEREOF, each Fund has caused this Agreement and Plan of
Reorganization to be executed and attested on its behalf by its duly authorized
representatives as of the date first above written.
GENERAL NEW YORK MUNICIPAL BOND
FUND, INC.
By: __________________________
Marie E. Connolly,
President
ATTEST: __________________________
__________________________
DREYFUS NEW YORK INSURED TAX
EXEMPT BOND FUND
By: __________________________
Marie E. Connolly,
President
ATTEST: __________________________
__________________________
<PAGE>
Preliminary Copy
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
The undersigned shareholder of the Dreyfus New York Insured Tax Exempt Bond
Fund (the "Fund") hereby appoints ______________ and _____________, and each of
them, the attorneys and proxies of the undersigned, with full power of
substitution, to vote, as indicated herein, all of the shares of beneficial
interest of the Fund standing in the name of the undersigned at the close of
business on April 30, 1999, at a Special Meeting of Shareholders to be held at
the offices of The Dreyfus Corporation, 200 Park Avenue, 7th Floor, New York,
New York 10166, at 10:00 a.m. on Wednesday, August 14, 1999, and at any and
all adjournments thereof, with all of the powers the undersigned would possess
if then and there personally present and especially (but without limiting the
general authorization and power hereby given) to vote as indicated on the
proposal, as more fully described in the Prospectus/Proxy Statement for the
meeting.
Please mark boxes in blue or black ink.
1. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Fund in exchange solely
for shares of General New York Municipal Bond Fund, Inc. and the assumption by
General New York Municipal Bond Fund, Inc. of the Fund's liabilities, and the
pro rata distribution of those shares to Fund shareholders and subsequent
termination of the Fund.
FOR AGAINST ABSTAIN
/ / / / / /
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournment(s) thereof.
<PAGE>
THIS PROXY IS SOLICITED BY THE FUND'S BOARD OF TRUSTEES AND WILL BE VOTED FOR
THE ABOVE PROPOSAL UNLESS OTHERWISE INDICATED.
Signature(s) should be exactly as name or names
appearing on this proxy. If shares are held jointly,
each holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please
give full title.
Dated: ______________, 1999
--------------------------
Signature(s)
--------------------------
Signature(s)
Sign, Date and Return the Proxy
Card Promptly Using the
Enclosed Envelope
<PAGE>
PRELIMINARY COPY
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
___________, 1999
Transfer of the Assets of
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
200 Park Avenue
New York, New York 10166
1-800-654-6561
To and in Exchange for Shares of
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
200 Park Avenue
New York, New York 10166
1-800-654-6561
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated ___________, 1999, relating specifically to the proposed
transfer of all of the assets and liabilities of the Dreyfus New York Insured
Tax Exempt Bond Fund attributable to its shares in exchange for shares of
General New York Municipal Bond Fund, Inc. The transfer is to occur pursuant to
an Agreement and Plan of Reorganization. This Statement of Additional
Information consists of this cover page and the following described documents,
each of which is attached hereto and incorporated herein by reference:
1. The Statement of Additional Information of General New York
Municipal Bond Fund, Inc. dated March 1, 1999.
2. The Statement of Additional Information of Dreyfus New York Insured
Tax Exempt Bond Fund dated May 1, 1999.
3. Annual Report of General New York Municipal Bond Fund, Inc. for the
fiscal year ended October 31, 1998.
4. Annual Report of Dreyfus New York Insured Tax Exempt Bond Fund for
the fiscal year ended December 31, 1998.
5. Pro forma Financial Statements.
The Prospectus/Proxy Statement dated ______________, 1999 may be obtained
by writing to General New York Municipal Bond Fund, Inc., 200 Park Avenue, New
York, New York 10166.
<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 has numerous 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.
<PAGE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus New York Insured Tax Exempt Bond Fund (the "Fund"), dated May 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 one of 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-18
Management Arrangements....................................................B-23
How to Buy Shares..........................................................B-25
Service Plan...............................................................B-27
How to Redeem Shares.......................................................B-28
Shareholder Services.......................................................B-31
Determination of Net Asset Value...........................................B-35
Dividends, Distributions and Taxes.........................................B-35
Portfolio Transactions.....................................................B-37
Performance Information....................................................B-38
Information About the Fund.................................................B-39
Counsel and Independent Auditors...........................................B-41
Appendix A.................................................................B-42
Appendix B.................................................................B-56
<PAGE>
DESCRIPTION OF THE FUND
The Fund, a Massachusetts business trust, commenced operations on
February 18, 1987. 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 primarily in the debt
securities of the State of New York, its political subdivisions, authorities and
corporations, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from Federal and State of New York personal income taxes
(collectively, "New York Municipal Obligations"). To the extent acceptable Nw
York Municipal Obligations are at any time unavailable for investment by the
Fund, the Fund will invest temorarily in other debt securities the interest from
which is, in the opinion of bond counsel to the issuer, exempt from Federal, but
not State of New York income tax. 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 or 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.
INSURANCE FEATURE. At the time they are purchased by the Fund, the
Municipal Obligations held in the Fund's portfolio that are subject to insurance
will be insured as to timely payment of principal and interest under an
insurance policy (i) purchased by the Fund or by a previous owner of the
Municipal Obligation ("Mutual Fund Insurance") or (ii) obtained by the issuer or
underwriter of the Municipal Obligation ("New Issue Insurance"). The insurance
of principal refers to the face or par value of the Municipal Obligation and is
not affected by nor does it insure the price paid therefor by the Fund or the
market value thereof. The value of Fund shares is not insured.
New Issue Insurance is obtained by the issuer of the Municipal
Obligations and all premiums respecting such securities are paid in advance by
such issuer. Such policies are noncancelable and continue in force so long as
the Municipal Obligations are outstanding and the insurer remains in business.
Certain types of Mutual Fund Insurance obtained by the Fund are
effective only so long as the Fund is in existence, the insurer remains in
business and the Municipal Obligations described in the policy continue to be
held by the Fund. The Fund will pay the premiums with respect to such insurance.
Depending upon the terms of the policy, in the event of a sale of any Municipal
Obligation so insured by the Fund, the Mutual Fund Insurance may terminate as to
such Municipal Obligation on the date of sale and in such event the insurer may
be liable only for those payments of principal and interest which then are due
and owing. Other types of Mutual Fund Insurance may not have this termination
feature. The Fund may purchase Municipal Obligations with this type of insurance
from parties other than the issuer and the insurance would continue for the
Fund's benefit.
Typically, the insurer may not withdraw coverage on insured securities
held by the Fund, nor may the insurer cancel the policy for any reason except
failure to pay premiums when due. The insurer may reserve the right at any time
upon 90 days' written notice to the Fund to refuse to insure any additional
Municipal Obligations purchased by the Fund after the effective date of such
notice. The Fund's Board has reserved the right to terminate the Mutual Fund
Insurance policy if it determines that the benefits to the Fund of having its
portfolio insured are not justified by the expense involved. See "Investment
Considerations and Risks--Investing in Insured Municipal Obligations" below.
Mutual Fund Insurance and New Issue Insurance have been obtained from
Financial Guaranty Insurance Company ("Financial Guaranty"), MBIA Insurance
Corporation ("MBIA"), Ambac Assurance Corporation ("Ambac Assurance") and
Financial Security Assurance, Inc. ("FSA"), although the Fund may purchase
insurance from, or Municipal Obligations insured by, other insurers.
The following information regarding these insurers has been derived
from information furnished by the insurers. The Fund has not independently
verified any of the information, but the Fund is not aware of facts which would
render such information inaccurate.
Financial Guaranty is a New York stock insurance company regulated by
the New York State Department of Insurance and authorized to provide insurance
in 50 states and the District of Columbia. Financial Guaranty is a subsidiary of
FGIC Corporation, a Delaware holding company, which is a subsidiary of General
Electric Capital Corporation. Financial Guaranty, in addition to providing
insurance for the payment of interest on and principal of Municipal Obligations
held in unit investment trust and mutual fund portfolios, provides New Issue
Insurance and insurance for secondary market issues of Municipal Obligations and
for portions of new and secondary market issues of Municipal Obligations. The
claims-paying ability of Financial Guaranty is rated "AAA" by S&P and Fitch and
"Aaa" by Moody's.
MBIA, formerly known as Municipal Bond Investors Assurance
Corporation, is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. MBIA is domiciled in the State of New York and
licensed to do business in all 50 states and the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of Northern Mariana Islands, the
Virgin Islands of the United States and the Territory of Guam. The claims-paying
ability of MBIA is rated "AAA" by S&P and Fitch and "Aaa" by Moody's.
Ambac Assurance is a Wisconsin-domiciled stock insurance corporation,
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states, the District of Columbia,
the Commonwealth of Puerto Rico and the Territory of Guam. Ambac Assurance is a
wholly-owned subsidiary of Ambac Inc., a publicly-held company. The
claims-paying ability of Ambac Assurance is rated "AAA" by S&P and Fitch and
"Aaa" by Moody's.
FSA, which acquired Capital Guaranty Insurance Company in December
1995, is a wholly-owned subsidiary of Financial Security Assurance Holdings,
Ltd., a New York Stock Exchange listed company. FSA is authorized to provide
insurance in 50 states, the District of Columbia and three U.S. territories. The
claims-paying ability of FSA is rated "AAA" by S&P and Fitch and "Aaa" by
Moody's.
The Mutual Fund Insurance policies provide for a policy period of one
year which the insurer typically renews for successive annual periods at the
request of the Fund for so long as the Fund is in compliance with the terms of
the relevant policy. The insurance premiums are payable monthly by the Fund and
are adjusted for purchases and sales of covered Municipal Obligations during the
month on a daily basis. Premium rates for each issue of Municipal Obligations
covered by the Mutual Fund Insurance are fixed for as long as the Fund owns the
security, although similar Municipal Obligations purchased at different times
may have different premiums. In addition to the payment of premiums, each Mutual
Fund Insurance policy requires that the Fund notify the insurer on a daily basis
as to all Municipal Obligations in the insured portfolio and permits the insurer
to audit its records. The insurer cannot cancel coverage already in force with
respect to Municipal Obligations owned by the Fund and covered by the Mutual
Fund Insurance policy, except for nonpayment of premiums.
Municipal Obligations are eligible for Mutual Fund Insurance if, at
the time of purchase by the Fund, they are identified separately or by category
in qualitative guidelines furnished by the insurer and are in compliance with
the aggregate limitations set forth in such guidelines. Premium variations are
based in part on the rating of the security being insured at the time the Fund
purchases such security. The insurer may prospectively withdraw particular
securities from the classifications of securities eligible for insurance or
change the aggregate amount limitation of each issue or category of eligible
Municipal Obligations but must continue to insure the full amount of such
securities previously acquired so long as they remain in the Fund's portfolio.
The qualitative guidelines and aggregate amount limitations established by the
insurer from time to time will not necessarily be the same as the Fund or the
Manager would use to govern selection of securities for the Fund's portfolio.
Therefore, from time to time such guidelines and limitations may affect
portfolio decisions.
New Issue Insurance provides that in the event of a municipality's
failure to make payment of principal or interest on an insured Municipal
Obligation, the payment will be made promptly by the insurer. There are no
deductible clauses or cancellation provisions, and the tax exempt status of the
securities is not affected. The premiums, whether paid by the issuing
municipality or the municipal bond dealer underwriting the issue, are paid in
full for the life of the Municipal Obligation. The statement of insurance is
attached to or printed on the instrument evidencing the Municipal Obligation
purchased by the Fund and becomes part of the Municipal Obligation. The benefits
of the insurance accompany the Municipal Obligations in any resale.
The Fund, at its option, may purchase secondary market insurance
("Secondary Market Insurance") on any Municipal Obligation purchased by the
Fund. By purchasing Secondary Market Insurance, the Fund would obtain, upon
payment of a single premium, insurance against nonpayment of scheduled principal
and interest for the remaining term of the Municipal Obligation regardless of
whether the Fund then owned such security. Such insurance coverage would be
non-cancelable and would continue in force so long as the security so insured is
outstanding and the insurer remains in business. The purpose of acquiring
Secondary Market Insurance would be to enable the Fund to sell a Municipal
Obligation to a third party as a high rated insured Municipal Obligation at a
market price greater than what otherwise might be obtainable if the security
were sold without the insurance coverage.
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 other potential
buyers; (3) the willingness of dealers to undertake to make a market in the
lease obligation; (4) the nature of the marketplace trades, including the time
needed to dispose of the lease obligation, the method of soliciting offers and
the mechanics of transfer; and (5) such other factors concerning the trading
market for the lease obligation as the Manager may deem relevant. In addition,
in evaluating the liquidity and credit quality of a lease obligation that is
unrated, the Fund's Board has directed the Manager to consider; (a) whether the
lease can be canceled; (b) what assurance there is that the assets represented
by the lease can be sold; (c) the strength of the leasee's general credit (e.g.,
its debt, administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as the Manager
may deem relevant. The Fund will not invest more than 15% of the value of its
net assets in lease obligations that are illiquid and in other illiquid
securities. See "Investment Restriction No. 11" below.
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 receipts. 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 payments 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 80% 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" and, together with Moody's and S&P, the "Rating Agencies"). 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.
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended December 31,
1998, computed on a monthly basis, was as follows:
Percentage
FITCH or Moody's or S&P OF VALUE
AAA Aaa AAA 98.4%
F-1 MIG1, P-1 SP-1, A-1 1.6%
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 the Rating Agencies 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 the
Rating Agencies 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.
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). 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.
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.
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 a Rating Agency; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated not lower than P-1 by Moody's, A-1 by
S&P or F-1 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. See "Dividends, Distributions and Taxes." 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 and Municipal
Obligations the interest from which gives rise to a preference item for the
purpose of the alternative minimum tax. 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 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.
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.
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.
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. In connection with its securities lending transactions, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
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. However, 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 is 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 ability
of the Manager to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging purposes,
to ascertain the appropriate correlation between the transaction being hedged
and the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets 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 options with respect to Municipal
Obligations. 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.
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.
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.
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 segregate permissible liquid assets at least equal at all times to the
amount of the purchase commitments. No additional when-issued commitments will
be made if more than 20% of the value of the Fund's net assets would be so
committed.
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 on 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 vested
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 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 and certain of its public bodies and municipalities, including New
York City. Beginning in early 1975, New York State, New York City and other
State entities faced serious financial difficulties which jeopardized the credit
standing and impaired the borrowing abilities of such entities and contributed
to high interest rates on, and lower market prices for, debt obligations issued
by them. A recurrence of such financial difficulties or a failure of certain
financial recovery programs could result in defaults or declines in the market
values of various New York Municipal Obligations in which the Fund may invest.
If there should be a default or other financial crisis relating to New York
State, New York City, a State or City agency, or a State municipality, the
market value and marketability of outstanding New York Municipal Obligations in
the Fund's portfolio and the interest income to the Fund could be adversely
affected. Moreover, the national recession and the significant slowdown in the
New York and regional economies in the early 1990's 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 issued
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 1997, 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 fiscal year in balance on a cash basis with a General Fund cash surplus
of approximately $1.4 billion. In January 1992, Moody's lowered from A to Baa1
its ratings of certain appropriation-backed debt of New York State and its
agencies. The State's general obligation, State-guaranteed and New York State
Local Government Assistance Corporation bonds continued to be rated A by
Moody's. In January 1992, S&P lowered from A to A- ratings of New York State
general obligation bonds and stated that it continued to assess the ratings
outlook as negative. S&P also lowered its ratings of various agency debt, State
moral obligations, contractual obligations, lease purchase obligations and State
guarantees. In February 1991, Moody's lowered its rating of New York City's
general obligation bonds from A to Baa1. The rating changes reflected the rating
agencies' concerns about the financial condition of New York State and City, the
heavy debt load of the State and City and economic uncertainties in the region.
In March 1998, Moody's changed its rating on New York City's general obligation
bonds from Baa1 to A3. You should review "Appendix A" which sets forth these and
other risk factors.
INVESTING IN INSURED MUNICIPAL OBLIGATIONS. The insurance feature is
intended to reduce financial risk, but the cost thereof and the restrictions on
investments imposed by the guidelines in the insurance policy will result in a
reduction in the yield on the Municipal Obligations purchased by the Fund.
Because coverage under certain Mutual Fund Insurance policies may
terminate upon sale of a security from the Fund's portfolio, insurance with this
termination feature should not be viewed as assisting the marketability of
securities in the Fund's portfolio, whether or not the securities are in default
or subject to a serious risk of default. The Manager intends to retain any
Municipal Obligations subject to such insurance which are in default or, in the
view of the Manager, in significant risk of default and to recommend to the
Fund's Board that the Fund place a value on the insurance which will be equal to
the difference between the market value of the defaulted security and the market
value of similar securities of minimum investment grade (i.e., rated Baa by
Moody's or BBB by S&P or Fitch) which are not in default. To the extent the Fund
holds defaulted securities subject to Mutual Fund Insurance with this
termination feature, it may be limited in its ability in certain circumstances
to purchase other Municipal Obligations. While a defaulted Municipal Obligation
is held in the Fund's portfolio, the Fund continues to pay the insurance premium
thereon but also is entitled to collect interest payments from the insurer and
retains the right to collect the full amount of principal from the insurer when
the security comes due.
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.
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 11 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 total assets in securities of issuers
in any single industry; provided that there shall be no such 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 interest 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 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, forward contracts,
futures contracts, including those related 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 or Statement of Additional Information 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
the value of its net assets would be so invested.
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. Each Board member who is deemed to be an "interested" person" of
the Fund, as defined in the 1940 Act, is indicated by an asterisk.
BOARD MEMBERS OF THE FUND
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.
GORDON J. DAVIS, BOARD MEMBER. Since October 1994, senior partner with the law
firm of LeBoeuf, Lamb, Greene & MacRae. From 1983 to September 1994, Mr.
Davis was a senior partner with the law firm of Lord Day & Lord, Barrett
Smith. From 1978 to 1983, he was Commissioner of Parks and Recreation for
the City of New York. He also is a Director of Consolidated Edison, a
utility company, and Phoenix Home Life Insurance Company and a member of
various other corporate and not-for-profit boards. He is 56 years old and
his address is 241 Central Park West, New York, New York 10024.
DAVID P. FELDMAN, BOARD MEMBER. Director of several mutual funds in the 59 Wall
Street Mutual Funds Group, and of the Jeffrey Company, a private investment
company. Mr. Feldman was employed by AT&T from July 1961 to his retirement
in April 1997, most recently serving as Chairman and Chief Executive
Officer of AT&T Investment Management Corporation. He is 59 years old and
his address is 466 Lexington Avenue, New York, New York 10017.
LYNN MARTIN, BOARD MEMBER. Professor, J.L. Kellogg Graduate School of
Management, Northwestern University. During the Spring Semester 1993, she
was a Visiting Fellow at the Institute of Politics, Kennedy School of
Government, Harvard University. She also is an advisor to the international
accounting firm of Deloitte & Touche, LLP and chair of its Council for the
Advancement of Women. From January 1991 through January 1993, Ms. Martin
served as Secretary of the United States Department of Labor. From 1981 to
1991, she served in the United States House of Representatives as a
Congresswoman from the State of Illinois. She also is a Director of
Harcourt General, Inc., Ameritech, Ryder System, Inc., The Proctor & Gamble
Co., a consumer company, and TRW, Inc., an aerospace and automotive
equipment company. She is 59 years old and her address is c/o Deloitte &
Touche, LLP, Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, Illinois
60601.
DANIEL ROSE, BOARD MEMBER. President and Chief Executive Officer of Rose
Associates, Inc., a New York based real estate development and management
firm. In July 1994, Mr. Rose received a Presidential appointment to serve
as a Director of the Baltic-American Enterprise Fund, which will make
equity investments and loans, and provide technical business assistance to
new business concerns in the Baltic states. He also is Chairman of the
Housing Committee of the Real Estate Board of New York, Inc., and a trustee
of Corporate Property Investors, a real estate investment company. He is 69
years old and his address is c/o Rose Associates, Inc., 200 Madison Avenue,
New York, New York 10016.
*PHILIP L. TOIA, BOARD MEMBER. Retired. Mr. Toia was employed by the Manager
from August 1986 through January 1997, most recently serving as Vice
Chairman, Administration and Operations. He is 65 years old and his address
is 9022 Michael Circle, Naples, Florida 34113.
SANDER VANOCUR, BOARD MEMBER. Since January 1992, President of Old Owl
Communications, a full-service communications firm. From May 1995 to June
1996, he was a Professional in Residence at the Freedom Forum in Arlington,
VA; from January 1994 to May 1995, he served as Visiting Professional
Scholar at the Freedom Forum Amendment Center at Vanderbilt University; and
from November 1989 to November 1995, he was a director of the Damon
Runyon-Walter Winchell Cancer Research Fund. From June 1977 to December
1991, he was a Senior Correspondent of ABC News and, from October 1986 to
December 1991, he was Anchor of the ABC News program "Business World," a
weekly business program on the ABC television network. He is 71 years old
and his address is 2928 P Street, N.W., Washington, D.C. 20007.
ANNE WEXLER, BOARD MEMBER. Chairman of the Wexler Group, consultants
specializing in government relations and public affairs. She also is a
director of Wilshire Mutual Funds, Comcast Corporation, The New England
Electric System, and a member of the Council of Foreign Relations and the
National Park Foundation. She is 69 years old and her address is c/o The
Wexler Group, 1317 F Street, Suite 600, N.W., Washington, D.C. 20004.
REX WILDER, BOARD MEMBER. Financial Consultant. He is 78 years old and his
address is 290 Riverside Drive, New York, New York 10025.
For so long as the Fund's plan described in the section captioned
"Service Plan" remains in effect, the Board members of the Fund who are not
"interested persons" of the Fund, as defined in the 1940 Act, will be selected
and nominated by the Board members who are not "interested persons" of the Fund.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the Board
receives an additional 25% of such compensation. Emeritus Board members are
entitled to receive an annual retainer and a per meeting fee of one-half the
amount paid to them as Board members.
The aggregate amount of compensation paid to each Board member by the
Fund and by all other funds in the Dreyfus Family of Funds for which such person
was a Board member (the number of which is set forth in parenthesis next to each
Board member's total compensation)* during the year ended December 31, 1998 was
as follows:
<PAGE>
Aggregate Total Compensation
Name of Board Compensation from from Fund and Fund
MEMBER FUND** COMPLEX PAID TO BOARD
MEMBER
Joseph S. DiMartino $4,688 $619,660 (187)
Gordon J. Davis $3,750 $ 83,500 (29)
David P. Feldman $3,000 $106,750 (56)
Lynn Martin $3,750 $ 38,500 (14)
Eugene McCarthy+ $1,250 $ 13,375 (14)
Daniel Rose $3,750 $ 76,250 (30)
Philip L. Toia $3,750 $ 38,500 (14)
Sander Vanocur $3,750 $ 76,250 (30)
Anne Wexler $3,750 $ 60,250 (28)
Rex Wilder $3,750 $ 38,500 (4)
- -------------------------
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Fund, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $1,246 for all Board members as a group.
+ Board member Emeritus since March 29, 1996.
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 39 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 35 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
44 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 37
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 30 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 34 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 February 28, 1999.
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" (as defined in
the 1940 Act) of any party to the Agreement, at a meeting held on June 29, 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 outstanding voting
shares, or, upon 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; Lawrence S. Kash, Vice Chairman and a director; J. David
Officer, Vice Chairman and a director; Thomas F. Eggers, Vice
Chairman--Institutional and a director; Ronald P. O'Hanley III, Vice Chairman;
William T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Diane P. Durnin,
Vice-President--Product Development; 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. Elliot, Martin C. 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: A. Paul
Disdier, Karen M. Hand, Stephen C. Kris, Richard J. Moynihan, W. Michael Petty,
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: taxes, interest, loan commitment fees, interest and
distributions paid on securities sold short, brokerage fees and commissions, if
any, fees of Board members who are not officers, directors, employees or holders
of 5% or more of the outstanding voting securities of the Manager, Securities
and Exchange 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 the Fund's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings and any extraordinary expenses. Pursuant to the Fund's Service
Plan, the Fund bears expenses for advertising, marketing and distributing the
Fund's shares and servicing shareholder accounts, and also bears the cost of
preparing and printing prospectuses and statements of additional information and
costs associated with implementing and operating such plan. 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 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
December 31, 1996, 1997 and 1998, the management fees paid by the Fund amounted
to $885,380, $823,270 and $759,077, respectively.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings and
(with the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed 1-1/2% of the
value of the Fund's average net assets for the 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 are sold through the Distributor or certain
financial institutions (which may include banks), securities dealers ("Selected
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. It is not recommended that the Fund be used as a vehicle for Keogh, IRA
or other qualified plans. 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), 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 each business day 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 ("ACH") 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 for
servicing shareholder accounts ("Servicing") and (ii) pays the Manager and
Dreyfus Service Corporation and any affiliate of either of them (collectively,
"Dreyfus") for advertising and marketing relating to the Fund and for Servicing,
at an aggregate annual rate of .25% of the value of the Fund's average daily net
assets. The Fund's Board believes that there is a reasonable likelihood that the
Service Plan will benefit the Fund and its shareholders.
Each of the Distributor and Dreyfus may pay one or more Service Agents
a fee in respect of the Fund's shares owned by shareholders with whom the
Service Agent has a Servicing relationship or for whom the Service Agent is the
dealer or holder of record. Each of the Distributor and Dreyfus determine the
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 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 is
permitted to bear (i) 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 amount not to exceed in any fiscal year of the Fund the greater of $100,000
or .005% 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 the Rule.
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
Fund's 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 Fund's
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 by the Fund's Board at a meeting held on June
29, 1998. The Service 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 December 31, 1998, the Fund (i) reimbursed
the Distributor $1,482 for payments made to Service Agents for distributing
shares and Servicing, (ii) paid Dreyfus $314,800 for advertising and marketing
shares and Servicing and (iii) paid $1,579 for printing the Fund's prospectus
and statement of additional information, as well as implementing and operating
the Service Plan all of which was reimbursed by the Manager.
HOW TO REDEEM SHARES
REDEMPTION FEE. The Fund will deduct a redemption fee equal to 1% 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 December 31, 1998, the Fund
retained $0 in redemption fees.
No redemption fee will be charged on the redemption or exchange of
shares (i) through the Fund's Check Redemption Privilege, Automatic Withdrawal
Plan or Dreyfus Auto-Exchange Privilege, (ii) through accounts that are
reflected on the records of the Transfer Agent as omnibus accounts approved by
Dreyfus Service Corporation, (iii) through accounts established by Service
Agents approved by Dreyfus Service Corporation that utilize the National
Securities Clearing Corporation's networking system, or (iv) 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 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 ACH 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 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 sells 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 1% 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"), but 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 Touch(R) automated
telephone system) from any person representing himself or herself to be you, or
a representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. Telephone exchanges may be subject to limitations as to the
amount involved or the number of telephone exchanges permitted. Shares issued in
certificate form are not eligible for telephone exchange. 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 of which you are a shareholder. 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). DreyfuS-AUTOMATic Asset Builder
permits you to purchase 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 Builder(R), 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 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"), but 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 ACH 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
and fees pursuant to the Service Plan, are accrued daily and are taken into
account for the purpose of determining the net asset value of Fund shares.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, 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 December 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
dividend or distribution 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.
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 and 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 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 ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as such,
are paid by the Fund for such purchases and sales, although the price paid
usually includes an undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers ordinarily are executed at a price between the bid and
asked price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and analysis
with the views and information of other securities firms and 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 December 31, 1998
was 3.43%. Current yield is computed pursuant to a formula which operates as
follows: The amount of the Fund's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned (computed in accordance with regulatory requirements) by the Fund during
the period. That result is then divided by the product of: (a) the average daily
number of shares outstanding during the period that were entitled to receive
dividends, and (b) the net asset value per share on the last day of the period
less any undistributed earned income per share reasonably expected to be
declared as a dividend shortly thereafter. The quotient is then added to 1, and
that sum is raised to the 6th power, after which 1 is subtracted. The current
yield is then arrived at by multiplying the result by 2.
Based upon a combined 1998 Federal, New York State and New York City
personal income tax rate of 46.43%, the Fund's tax equivalent yield for the
30-day period ended December 31, 1998 was 6.40%. 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 income
tax rates currently in effect. For Federal income tax purposes, a 39.60% tax
rate has been used. For New York State and New York City personal income tax
purposes, tax rates of 6.85% and 4.46%, respectively, have been used. The tax
equivalent figure, however, does not reflect the potential effect of any other
local (including, but not limited to, county, district or city, other than New
York City) taxes, including applicable surcharges. In addition, there may be
pending legislation which could affect such stated tax rates or yields. Each
investor should consult its tax adviser, and consider its own factual
circumstances and applicable tax laws, in order to ascertain the relevant tax
equivalent yield.
The Fund's average annual total return for the 1, 5 and 10 year
periods ended December 31, 1998 was 5.38%, 4.49% and 6.94%, respectively.
Average annual total return is calculated by determining the ending redeemable
value of an investment purchased with a hypothetical $1,000 payment made at the
beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.
The Fund's total return for the period February 18, 1987 (commencement
of operations) to December 31, 1998 was 88.16%. 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.
From time to time, the Fund may use hypothetical equivalent yields or
charts in its advertising. These hypothetical yields or charts will be used for
illustrative purposes only and 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 CDA Investment
Technologies, Inc., Lipper Analytical Services, 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. 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 managers and may refer to, or
include commentary by a 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.
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 organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts. Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Fund. However, the Fund's Agreement and Declaration of Trust
(the "Trust Agreement") disclaims shareholder liability for acts or obligations
of the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations, a possibility
which management believes is remote. Upon payment of any liability incurred by
the Fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Fund intends to conduct
its operations in such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund.
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.
To offset the relatively higher costs of servicing smaller accounts,
the Fund will charge regular accounts with balances below $2,000 an annual fee
of $12. The valuation of accounts and the deductions are expected to take place
during the last four months of each year. The fee will be waived for any
investor whose aggregate Dreyfus mutual fund investments total at least $25,000,
and will not apply to IRA accounts or to accounts participating in automatic
investment programs or opened through a securities dealer, bank or other
financial institution, or to other fiduciary accounts.
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 auditors of the Fund.
<PAGE>
APPENDIX A
INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
The financial condition of New York State (the "State") and certain of
its public bodies (the "Agencies") and municipalities, particularly New York
City (the "City"), could affect the market values and marketability of New York
Municipal Obligations which may be held by the Fund. The following information
constitutes only a brief summary, does not purport to be a complete description,
and is based on information drawn from official statements relating to
securities offerings of the State, the City and the Municipal Assistance
Corporation for the City of New York ("MAC") available as of the date of this
Statement of Additional Information. While the Fund has not independently
verified such information, it has no reason to believe that such information is
not correct in all material respects.
The State's budget for the 1997-98 fiscal year was enacted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year on April 1. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt service.
For 1997-98, total revenues in the General Fund are projected at
$33.37 billion, total expenditures are projected at $34.66 billion, and net
operating sources and uses are projected to contribute $331 million. For all
governmental funds, total revenues are projected at $67.48 billion, total
expenditures are projected at $68.24 billion, and financing uses are projected
to exceed financing sources by $220 million.
After adjustments for comparability between fiscal years, the adopted
1997-98 budget projects an increase in General Fund disbursements of $1.7
billion or 5.2% over 1996-97 levels. The average annual growth rate over the
last three fiscal years has been 1.2%. Adjusted State Funds (excluding Federal
grants) disbursements are projected to increase by 5.4% from the 1996-97 fiscal
year. All Governmental Funds disbursements are projected to increase by 7.0%
over the prior fiscal year, after adjustments for comparability.
The State revised the cash-basis 1997-98 State Financial plan on
January 20, 1998, in conjunction with the release of the Executive Budget for
the 1998-99 fiscal year. The changes reflect actual results through December
1997, as well as modified economic and spending projections for the balance of
the current fiscal year.
The 1997-98 General Fund Financial Plan continues to be balanced, with
a projected cash surplus of $1.83 billion, an increase of $1.3 billion over the
surplus estimate of $530 million in the October 1997 update. The increase in the
surplus results primarily from higher-than-expected tax receipts, which are
forecast to exceed the October estimate by $1.28 billion.
In order to make the surplus available to help finance 1998-99
requirements, the State plans to accelerate $1.18 billion in income tax refund
payments into 1997-98, or provide reserves for such payments. The balance in the
refund reserve on March 31, 1998 is projected to be $1.647 billion.
Personal income tax collections for 1997-98 are now projected at
$18.50 billion, or $363 million less than projected in October after accounting
for the refund reserve transaction. Business tax receipts are projected at $4.98
billion, an increase of $158 million. User tax collections are estimated at
$7.06 billion, or $52 million higher than the prior update, and reflected a
projected loss of $20 million in sales tax receipts from an additional week of
sales tax exemption for clothing and footwear costing less than $500, which was
authorized and implemented in January 1998. Other tax receipts are projected to
increase by $103 million over the prior update and total $1.09 billion for the
fiscal year. Miscellaneous receipts and transfers from other funds are projected
to reach $3.57 billion, or $153 million higher than the mid-year update.
The State projects that disbursements will increase by $565 million
over the mid-year update, with nearly the entire increase attributable to
one-time disbursements of $561 million that pre-pay expenditures previously
scheduled for 1998-99. In the absence of these accelerated payments, projected
General Fund spending in the current year would have remained essentially
unchanged from the mid-year update. The Governor is proposing legislation to use
a portion of the current year surplus to transfer $425 million to pay for
capital projects authorized under the Community Enhancement Facilities
Assistance Program (CEFAP) that were previously planned to be financed with bond
proceeds in 1998-99 and thereafter, and $136 million in costs for an additional
Medicaid payment originally schedule for 1998-99.
The 1997-98 adopted budget includes multi-year tax reductions,
including a State funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessment reductions have little or no impact on the 1997-98 Financial Plan,
and do not begin to materially affect the outyear projections until the State's
1999-2000 fiscal year.
The 1997-98 Financial Plan, as updated, also includes: a projected
General Fund reserve of $465 million; a projected balance of $400 million in the
Tax Stabilization Reserve Fund; and a projected $65 million balance in the
Contingency Reserve Fund.
The State Financial Plan was based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, Federal financial and
monetary policies, the availability of credit and the condition of the world
economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience worse-than-predicted
results, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The Governor presented his 1998-99 Executive Budget to the Legislature
on January 20, 1998. The Executive Budget contains financial projections for the
State's 1997-98 through 2000-01 fiscal years, detailed estimates of receipts
and a proposed Capital Program and Financing Plan for the 1997-98 through
2002-03 fiscal years. It is expected that the Governor will prepare amendments
to his Executive Budget as permitted under law and that these amendments will be
reflected in a revised Financial Plan to be released on or before February 19,
1998.
The 1998-99 Financial Plan is projected to be balanced on a cash basis
in the General Fund. Total General Fund receipts, including transfers from other
funds, are projected to be $36.22 billion, an increase of $1.02 billion over
projected receipts in the current fiscal year. Total General Fund disbursements,
including transfers to other funds, are projected to be $36.18 billion, an
increase of $1.02 billion over the projected expenditures (including
prepayments) for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89%. State Funds spending (i.e., General Fund plus other
dedicated funds, with the exception of federal aid) is projected to grow by
8.5%. Spending from All Governmental Funds (excluding transfers) is proposed to
increase by 7.6% from the prior fiscal year.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and January
13, 1992, S&P changed its ratings on all of the State's outstanding general
obligation bonds from AA- to A and from A to A-, respectively. In February 1991,
Moody's lowered its rating on the City's general obligation bonds from A to Baa1
and in July 1995, S&P lowered its rating on such bonds from A- to BBB+. Ratings
reflect only the respective views of such organizations, and their concerns
about the financial condition of New York State and City, the debt load of the
State and City and any economic uncertainties about the region. There is no
assurance that a particular rating will continue for any given period of time or
that any such rating will not be revised downward or withdrawn entirely if, in
the judgment of the agency originally establishing the rating, circumstances so
warrant.
(1) THE STATE, AGENCIES AND OTHER MUNICIPALITIES. During the
mid-1970s, some of the Agencies and municipalities (in particular, the City)
faced extraordinary financial difficulties, which affected the State's own
financial condition. These events, including a default on short-term notes
issued by the New York State Urban Development Corporation ("UDC") in February
1975, which default was cured shortly thereafter, and a continuation of the
financial difficulties of the City, created substantial investor resistance to
securities issued by the State and by some of its municipalities and Agencies.
For a time, in late 1975 and early 1976, these difficulties resulted in a
virtual closing of public credit markets for State and many State related
securities.
In response to the financial problems confronting it, the State
developed and implemented programs for its 1977 fiscal year that included the
adoption of a balanced budget on a cash basis (a deficit of $92 million that
actually resulted was financed by issuing notes that were paid during the first
quarter of the State's 1978 fiscal year). In addition, legislation was enacted
limiting the occurrence of additional so-called "moral obligation" and certain
other Agency debt, which legislation does not, however, apply to MAC debt.
GAAP-BASIS RESULTS--1996-97 FISCAL YEAR. The State completed its 1996-97 fiscal
year with a combined Governmental Funds operating surplus of $2.1 billion, which
included an operating surplus in the General Fund of $1.9 billion, in Capital
Projects Funds of $98 million and in the Special Revenue Funds of $65 million,
offset in part by an operating deficit of $37 million in the Debt Service Funds.
GAAP-BASIS RESULTS--1995-96 FISCAL YEAR. The State completed its 1995-96 fiscal
year with a combined Governmental Funds operating surplus of $432 million, which
included an operating surplus in the General Fund of $380 million, in the
Capital Projects Funds of $276 million and in the Debt Service Funds of $185
million. There was an operating deficit of $409 million in the Special Revenue
Funds.
GAAP-BASIS RESULTS--1994-95 FISCAL YEAR. The State's Combined Balance Sheet as
of March 31, 1995 showed an accumulated deficit in its combined Governmental
Funds of $1.666 billion reflecting liabilities of $14.778 billion and assets of
$13.112 billion. This accumulated Governmental Funds deficit includes a $3.308
billion accumulated deficit in the General Fund, as well as accumulated
surpluses in the Special Revenue and Debt Service Fund types of $877 million and
$1.753 billion, respectively, and a $988 million accumulated deficit in the
Capital Projects Fund type.
The State completed its 1994-95 fiscal year with a combined
Governmental Funds operating deficit of $1.791 billion, which included operating
deficits in the General Fund of $1.426 billion, in the Capital Projects Funds of
$366 million, and in the Debt Service Funds of $38 million. There was an
operating surplus in the Special Revenue Funds of $39 million.
STATE FINANCIAL PLAN--CASH-BASIS RESULTS--GENERAL FUND. The General
Fund is the principal operating fund of the State and is used to account for all
financial transactions, except those required to be accounted for in another
fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes. General Fund moneys are
also transferred to other funds, primarily to support certain capital projects
and debt service payments in other fund types.
In the State's 1997-98 fiscal year, the General Fund is expected to
account for approximately 48% of total Governmental Funds disbursements and 71%
of total State Funds disbursements. The General Fund is projected to be balanced
on a cash basis for the 1997-98 fiscal year. Total receipts and transfers from
other funds are projected to be $35.20 billion, an increase of $2.16 billion
from the prior fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $35.17 billion, an increase of $2.27 billion
from the total in the prior fiscal year.
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). First, the national recession,
and then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. During
its last five fiscal years, however, the State recorded balanced budgets on a
cash basis, with positive fund balances as described below.
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 $1.4 billion. The cash surplus was derived primarily from
higher-than-expected revenues and lower-than-expected spending for social
services programs. The Governor in his Executive Budget applied $1.05 billion of
the cash surplus amount to finance the 1997-98 Financial Plan, and the
additional $373 million is available for use in financing the 1997-98 Financial
Plan when enacted by the State Legislature.
The General Fund closing fund balance was $433 million. Of that
amount, $317 million was in the Tax Stabilization Reserve Fund ("TSRF"), after a
required deposit of $15 million and an additional deposit of $65 million in
1996-97. The TSRF can be used in the event of any future General Fund deficit,
as provided under the State Constitution and State Finance Law. In addition, $41
million remains on deposit in the Contingency Reserve Fund ("CRF"). This fund
assists the State in financing any extraordinary litigation costs during the
fiscal year. The remaining $75 million reflects amounts on deposit in the
Community Projects Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not include $1.86
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 as 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% from the previous fiscal
year (excluding deposits into the tax refund reserve account). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7% from the 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. Of that amount,
$65 million was deposited into the TSRF, and $380 million was used to reduce
1996-97 Financial Plan liabilities by accelerating 1996-97 payments, deferring
1995-96 revenues, and making a deposit to the tax refund reserve account.
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 the $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 includes $237
million on deposit in the TSRF, to be used in the event of any future General
Fund deficit as provided under the State Constitution and State Finance Law. In
addition, $41 million is on deposit in the CRF. The CRF was established in State
fiscal year 1993-94 to assist the State in financing the costs of extraordinary
litigation. The remaining $9 million reflects amounts on deposit in the Revenue
Accumulation Fund. This fund was created to hold certain tax receipts
temporarily before their deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which $521 million was
necessary to complete the restructuring of the State's cash flow under the LGAC
program.
General Fund receipts totaled $32.81 billion, a decrease of 1.1% from
1994-95 levels. This decrease reflects the impact of tax reductions enacted and
effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2% from 1994-95 levels.
The State ended its 1994-95 fiscal year with the General Fund in
balance. The $241 million decline in the fund balance reflects the planned use
of $264 million from the CRF, partially offset by the required deposit of $23
million to the TSRF. In addition, $278 million was on deposit in the tax refund
reserve account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.
General Fund receipts totaled $33.16 billion, an increase of 2.9% from
1993-94 levels. General Fund disbursements totaled $33.40 billion for the
1994-95 fiscal year, an increase of 4.7% from the previous fiscal year.
CASH-BASIS RESULTS--OTHER GOVERNMENTAL FUNDS. Activity in the three other
governmental funds has remained relatively stable over the last three fiscal
years ended March 31, 1997, 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").
The 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. Disbursements from Special Revenue Funds increased from $24.38 billion
to $26.02 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. Although activity in this fund type is expected to
comprise approximately 42% of total governmental funds receipts in the 1997-98
fiscal year, three-quarters of that activity relates to federally-funded
programs. Projected receipts in this fund type for the 1997-98 fiscal year total
$28.22 billion, an increase of $2.51 billion (9.7%) over the prior year.
Projected disbursements in this fund type total $28.45 billion, an increase of
$2.43 billion (9.3%) over 1996-97 levels. Disbursements from federal funds,
primarily the federal share of Medicaid and other social services programs, are
projected to total $21.19 billion in the 1997-98 fiscal year. Remaining
projected spending of $7.26 billion primarily reflects aid to SUNY supported by
tuition and dormitory fees, education aid funded from lottery receipts,
operating aid payments to the MTA funded from the proceeds of dedicated
transportation taxes, and costs of a variety of self-supporting programs which
deliver services financed by user fees.
The Capital Projects Funds are used to finance the acquisition,
construction or rehabilitation of major state capital facilities and to aid
local government units and Agencies in financing capital construction.
Disbursements in the Capital Projects Funds declined from $3.62 billion to $3.54
billion over the last three years, 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. The increase in the negative fund balance in 1994-95
resulted from delays in reimbursements caused by delays in the timing of public
authority bond sales.
In the 1997-98 fiscal year, activity in these funds is expected to
comprise 5% of total governmental receipts.
Total receipts in this fund type for the 1997-98 fiscal year are
projected at $3.30 billion. Bond and note proceeds are expected to provide $605
million in other financing sources. Disbursements from this fund type are
projected to be $3.70 billion, an increase of $154 million (4.3%) over
prior-year levels. The Dedicated Highway and Bridge Trust Fund is the single
largest dedicated fund, comprising an estimated $982 million (27%) of the
activity in this fund type. Total spending for capital projects will be financed
through a combination of sources: federal grants (29%), public authority bond
proceeds (31%), general obligation bond proceeds (15%), and pay-as-you-go
revenues (25%).
The Debt Service Funds are used to account for the payment of
principal of, and interest on, long-term debt of the State and to meet
commitments under lease-purchase and other contractual-obligation financing
arrangements.
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 implementation 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. This fund type is expected to comprise 4% of total
governmental fund receipts and 4.7% of total government disbursements in the
1997-98 fiscal year. Receipts in these funds in excess of debt service
requirements may be transferred to the General Fund and Special Revenue Funds,
pursuant to law.
The Debt Service fund type consists of the General Debt Service Fund,
which is supported primarily by tax receipts transferred from the General Fund,
and other funds established to accumulate moneys for the payment of debt
service. In the 1997-98 fiscal year, total disbursements in this fund type are
projected at $3.17 billion, an increase of $641 million or 25.3%, most of which
is explained by increases in the General Fund transfer as discussed earlier. The
projected transfer from the General Fund of $2.07 billion is expected to finance
65% of these payments.
The remaining payments are expected to be financed by pledged
revenues, including $2.03 billion in taxes and $601 million in dedicated fees
and other miscellaneous receipts. After required impoundment for debt service,
$3.77 billion is expected to be transferred to the General Fund and other funds
in support of State operations. The largest transfer-$1.86 billion-is made to
the Special Revenue fund type in support of operations of the mental hygiene
agencies. Another $1.47 billion in excess sales taxes is expected to be
transferred to the General Fund, following payments of projected debt service on
LGAC bonds.
STATE BORROWING PLAN. The State anticipates that its capital programs
will be financed, in part, through borrowings by the State and public
authorities in the 1997-98 fiscal year. The State expects to issue $501 million
in general obligation bonds (including $140 million for purposes of redeeming
outstanding BANs) and $140 million in general obligation commercial paper. The
Legislature has also authorized the issuance of $83 million in COPs during the
State's 1997-98 fiscal year for equipment purchases, and approximately $1.8
billion in borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State. The
projection of the State regarding its borrowings for the 1997-98 fiscal year may
change if circumstances require.
STATE AGENCIES. The fiscal stability of the State is related, at least
in part, to the fiscal stability of its localities and various of its Agencies.
Various Agencies have issued bonds secured, in part, by non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds established for such bonds (commonly referred to as "moral obligation"
provisions).
At September 30, 1996, there were 17 Agencies that had outstanding
debt of $100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 17 Agencies was $75.4 billion as of September 30,
1996. As of March 31, 1997, aggregate Agency debt outstanding as State-supported
debt was $32.8 billion and as State-related was $37.1 billion. Debt service on
the outstanding Agency obligations normally is paid out of revenues generated by
the Agencies' projects or programs, but in recent years the State has provided
special financial assistance, in some cases on a recurring basis, to certain
Agencies for operating and other expenses and for debt service pursuant to moral
obligation indebtedness provisions or otherwise. Additional assistance is
expected to continue to be required in future years.
Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. Failure of the State to appropriate
necessary amounts or to take other action to permit certain Agencies to meet
their obligations could result in a default by one or more of such Agencies. If
a default were to occur, it would likely have a significant effect on the
marketability of obligations of the State and the Agencies. These Agencies are
discussed below.
The New York State Housing Finance Agency ("HFA") provides financing
for multifamily housing, State University construction, hospital and nursing
home development, and other programs. In general, HFA depends upon mortgagors in
the housing programs it finances to generate sufficient funds from rental
income, subsidies and other payments to meet their respective mortgage repayment
obligations to HFA, which provide the principal source of funds for the payment
of debt service on HFA bonds, as well as to meet operating and maintenance costs
of the projects financed. From January 1, 1976 through March 31, 1987, the State
was called upon to appropriate a total of $162.8 million to make up deficiencies
in the debt service reserve funds of HFA pursuant to moral obligation
provisions. The State has not been called upon to make such payments since the
1986-87 fiscal year.
UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975, because
a substantial number of these housing program mortgagors are unable to make full
payments on their mortgage loans. Through a subsidiary, UDC is currently
attempting to increase its rate of collection by accelerating its program of
foreclosures and by entering into settlement agreements. UDC has been, and will
remain, dependent upon the State for appropriations to meet its operating
expenses. The State also has appropriated money to assist in the curing of a
default by UDC on notes which did not contain the State's moral obligation
provision.
The MTA oversees New York City's subway and bus lines by its
affiliates, the New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the "TA"). Through MTA's
subsidiaries, the Long Island Rail Road Company, the Metro-North Commuter
Railroad Company and the Metropolitan Suburban Bus Authority, the MTA operates
certain commuter rail and bus lines in the New York metropolitan area. In
addition, the Staten Island Rapid Transit Authority, an MTA subsidiary, operates
a rapid transit line on Staten Island. Through its affiliated agency, the
Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates certain
toll bridges and tunnels. Because fare revenues are not sufficient to finance
the mass transit portion of these operations, the MTA has depended and will
continue to depend for operating support upon a system of State, local
government and TBTA support and, to the extent available, Federal operating
assistance, including loans, grants and subsidies. If current revenue
projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.
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 region (the "Metropolitan
Transportation Region") served by the MTA and a special .25% regional sales and
use tax--that provide additional revenues for mass transit purposes, including
assistance to the MTA. In addition, since 1987, State law has required that the
proceeds of .25% mortgage recording tax paid on certain mortgages in the
Metropolitan Transportation Region be deposited in a special MTA fund for
operating or capital expenses. Further, in 1993, the State dedicated a portion
of certain additional State petroleum business tax receipts to fund operating or
capital assistance to the MTA. For the 1997-98 State fiscal year, total State
assistance to the MTA is estimated at approximately $1.2 billion, an increase of
$76 million over the 1996-97 fiscal year.
In 1981, the State Legislature authorized procedures for the adoption,
approval and amendment of a five-year plan for the capital program designed to
upgrade the performance of the MTA's transportation systems and to supplement,
replace and rehabilitate facilities and equipment, and also granted certain
additional bonding authorization therefor.
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 approved the 1995-99 Capital Program, which supersedes the
overlapping portion of the MTA's 1992-96 Capital Program. This 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 $5.1 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 such governmental actions will be
taken, that sources currently identified will not be decreased or eliminated, or
that the 1995-1999 Capital Program will not be delayed or reduced. If the MTA
capital program is delayed or reduced because of funding shortfalls or other
factors, ridership and fare revenues may decline, which could, among other
things, impair the MTA's ability to meet its operating expenses without
additional State assistance.
The cities, towns, villages and school districts of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad powers and
responsibilities with respect to the government, finances and welfare of these
political subdivisions, especially in education and social services. In recent
years the State has been called upon to provide added financial assistance to
certain localities.
OTHER LOCALITIES. Certain localities in addition to the City could
have financial problems leading to requests for additional State assistance
during the last several State fiscal years. The potential impact on the State of
such actions by localities is not included in the projections of the State
receipts and disbursements in the State's 1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in the State, other than the City, was approximately $19 billion. A
small portion (approximately $102.3 million) of this indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Eighteen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1995.
From time to time, Federal expenditure reductions could reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities to increase local revenues to sustain those expenditures. If the
State, the City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range, potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing State assistance in the future.
Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these litigations are those that
involve: (i) the validity and fairness of agreements and treaties by which
various Indian tribes transferred title to the State of approximately six
million acres of land in central New York; (ii) certain aspects of the State's
Medicaid rates and regulations, including reimbursements to providers of
mandatory and optional Medicaid services; (iii) contamination in the Love Canal
area of Niagara Falls; (iv) a challenge to the State's practice of reimbursing
certain Office of Mental Health patient-care expenses with clients' Social
Security benefits; (v) a challenge to the methods by which the State reimburses
localities for the administrative costs of food stamp programs; (vi) a challenge
to the State's possession of certain funds taken pursuant to the State's
Abandoned Property law; (vii) alleged responsibility of State officials to
assist in remedying racial segregation in the City of Yonkers; (viii) an action,
in which the State is a third party defendant, for injunctive or other
appropriate relief, concerning liability for the maintenance of stone groins
constructed along certain areas of Long Island's shoreline; (ix) actions
challenging the constitutionality of legislation enacted during the 1990
legislative session which changed the actuarial funding methods for determining
contributions to State employee retirement systems; (x) an action against State
and City officials alleging that the present level of shelter allowance for
public assistance recipients is inadequate under statutory standards to maintain
proper housing; (xi) an action challenging legislation enacted in 1990 which had
the effect of deferring certain employer contributions to the State Teachers'
Retirement System and reducing State aid to school districts by a like amount;
(xii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991 (described
below in this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway Authority
authorized by Chapter 56 of the Laws of 1993 (described below in this Part);
(xiv) challenges to the delay by the State Department of Social Services in
making two one-week Medicaid payments to the service providers; (xv) challenges
by commercial insurers, employee welfare benefit plans, and health maintenance
organizations to provisions of Section 2807-c of the Public Health Law which
impose 13%, 11% and 9% surcharges on inpatient hospital bills and a bad debt and
charity care allowance on all hospital bills paid by such entities; (xvi)
challenges to the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid recipients;
(xvii) a challenge to State implementation of a program which reduces Medicaid
benefits to certain home-relief recipients; and (xviii) challenges to the
rationality and retroactive application of State regulations recelebrating
nursing home Medicaid rates.
(2) NEW YORK CITY. In the mid-1970s, the City had large accumulated
past deficits and until recently was not able to generate sufficient tax and
other ongoing revenues to cover expenses in each fiscal year. However, the City
has achieved balanced operating results for each of its fiscal years since 1981
as reported in accordance with the then-applicable GAAP standards. The City's
ability to maintain balanced operating results in future years is subject to
numerous contingencies and future developments.
In 1975, the City became unable to market its securities and entered a
period of extraordinary financial difficulties. In response to this crisis, the
State created MAC to provide financing assistance to the City and also enacted
the New York State Financial Emergency Act for the City of New York (the
"Emergency Act") which, among other things, created the Financial Control Board
(the "Control Board") to oversee the City's financial affairs and facilitate its
return to the public credit markets. The State also established the Office of
the State Deputy Comptroller ("OSDC") to assist the Control Board in exercising
its powers and responsibilities. On June 30, 1986, the Control Board's powers of
approval over the City Financial Plan were suspended pursuant to the Emergency
Act. However, the Control Board, MAC and OSDC continue to exercise various
monitoring functions relating to the City's financial condition. The City
prepares and operates under a four-year financial plan which is submitted
annually to the Control Board for review and which the City periodically
updates.
The City's independently audited operating results for each of its
fiscal years from 1981 through 1995 show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in its net
General Fund position.
During the 1990 and 1991 fiscal years, as a result of a slowing
economy, the City has experienced significant shortfalls in almost all of its
major tax sources and increases in social services costs, and was required to
take actions to close substantial budget gaps in order to maintain balanced
budgets in accordance with the Financial Plan.
According to a recent OSDC economic report, the City's economy was
slow to recover from the recession and was expected to have experienced a weak
employment situation, and moderate wage and income growth, during the 1995-96
period. Also, Financial Plan reports of OSDC, the Control Board, and the City
Comptroller have variously indicated that many of the City's balanced budgets
have been accomplished, in part, through the use of non-recurring resource, tax
and fee increases, personnel reductions and additional State assistance; that
the City has not yet brought its long-term expenditures in line with recurring
revenues; that the City's proposed gap-closing programs, if implemented, would
narrow future budget gaps; that these programs tend to rely heavily on actions
outside the direct control of the City; and that the City is therefore likely to
continue to face futures projected budget gaps requiring the City to reduce
expenditures and/or increase revenues. According to the most recent staff
reports of OSDC, the Control Board and the City Comptroller during the four-year
period covered by the current Financial Plan, the City is relying on obtaining
substantial resources from initiatives needing approval and cooperation of its
municipal labor unions, Covered Organizations, and City Council, as well as the
State and Federal governments, among others, and there can be no assurance that
such approval can be obtained.
The City requires certain amounts of financing for seasonal and
capital spending purposes. The City issued $1.75 billion of notes for seasonal
financing purposes during the 1994 fiscal year. The City's capital financing
program projects long-term financing requirements of approximately $17 billion
for the City's fiscal years 1995 through 1998 for the construction and
rehabilitation of the City's infrastructure and other fixed assets. The major
capital requirement include expenditures for the City's water supply system, and
waste disposal systems, roads, bridges, mass transit, schools and housing. In
addition, the City and the Municipal Water Finance Authority issued about $1.8
billion in refunding bonds in the 1994 fiscal year.
STATE ECONOMIC AND DEMOGRAPHIC TRENDS. The State historically has been
one of the wealthiest states in the nation. For decades, however, the State has
grown more slowly than the nation as a whole, gradually eroding its relative
economic position. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in the calendar years
1984 through 1991, the State's rate of economic expansion was somewhat slower
than that of the nation. In the 1990-91 recession, the economy of the State, and
that of the rest of the Northeast, was more heavily damaged than that of the
nation as a whole and has been slower to recover. The total employment growth
rate in the State has been below the national average since 1984. The
unemployment rate in the State dipped below the national rate in the second half
of 1981 and remained lower until 1991; since then, it has been higher. According
to data published by the U.S. Bureau of Economic Analysis, during the past ten
years, total personal income in the State rose slightly faster than the national
average only from 1986 through 1988.
At the State level, moderate growth is projected to continue in 1998
and 1999 for employment, wages, and personal income, although the growth rates
will lessen gradually during the course of the two years. Personal income is
estimated to grow by 5.4% in 1997, fueled in part by a continued large increase
in financial sector bonus payments, and is projected to grow 4.7% in 1998 and
4.4% in 1999. Increases in bonus payments at year-end 1998 are projected to be
modest, a substantial change from the rate of increase of the law few years.
Overall employment growth is expected to continue at a modest rate, reflecting
the slowing growth in the national economy, continued spending restraint in
government, and restructuring in the health care, social service, and banking
sectors.
<PAGE>
APPENDIX B
Description of certain 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 is 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.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by
the addition of a plus or minus designation 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
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation 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 (+)
designation.
A-2
Capacity for timely payment on issues with this 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 sometime 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.
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, Ba 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 and 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 RATINGS
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 range of financial markets and assured sources of alternate liquidity.
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 an 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.
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.
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.
<PAGE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
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LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the General New York
Municipal Bond Fund, Inc. for the 12-month period ended October 31, 1998. Your
Fund produced a total return, including share price changes and dividend income
generated, of 8.14%* and an annualized tax-free distribution rate per share of
4.60%.**
Economic Review
In the face of soaring consumer confidence and strong first-quarter
economic growth, the Federal Reserve Board earlier this year refrained from
increasing interest rates, partially to avoid further roiling international
financial markets. In addition, the Fed evidently felt then that the economic
slowdown overseas might curtail the U.S. economy to some degree, which would
alleviate the need for monetary restraint. The Fed's expectations have proven to
be true, and its judgment accurate. The U.S. balance of trade has worsened and
there have been increasing signs of a slowdown in export-related industries. On
September 29, concerns about a weakening U.S. economy caused the Federal Open
Market Committee (the F.O.M.C., the policy-making arm of the Fed) to pare the
Federal Funds target rate by 25 basis points, the first reduction since January
1996. (The Federal Funds rate is the rate of interest that banks charge each
other for overnight loans.) Fed Chairman Alan Greenspan described the economic
outlook for the United States as having "weakened measurably." Two weeks later,
on October 15, the F.O.M.C. again reduced its target rate by an additional 25
basis points, putting the Federal Funds rate at 5.0%.
Despite the concerns of the Fed regarding an economic slowdown, aggregate
economic statistics showed a growing and resilient economy during the reporting
period. Low unemployment and negligible inflation, combined with car makers
rebuilding inventory after a long strike and rising consumer incomes, resulted
in solid economic growth (3.3%) for the third quarter of this year. While a
significant portion of this gain was due to inventory replenishment after the
automobile strike, the overall results were still an improvement over
second-quarter economic growth of 1.8%. Inflation, as measured by the Consumer
Price Index, remained at levels not witnessed since 1963.
The Fed's responsibility is to enact monetary policy that is anticipatory
of future economic conditions. The U.S. trade deficit has continued to widen
because of the global economic slide. Slumping exports have weakened
manufacturing activity since midyear and there is concern that this slackness
could become more pronounced and widen into other sectors of the economy. While
the increase in imports also restrains domestic production, it has helped
contain inflation as well, since domestic producers are reluctant to raise
prices. This provides additional flexibility for the Fed to lower interest rates
still further. So far, economic problems overseas have not caused any measurable
reaction in the U.S. labor market. Only the growth rate in new jobs has eased
from its torrid pace earlier in the year. The unemployment rate has remained
near 30-year lows and worker inflation-adjusted take-home pay has been rising.
The condition of the labor market is a key determinant of consumer confidence
which, of course, relates directly to consumer spending, a force that accounts
for two thirds of all economic activity. Business spending has shown signs of
weakness, so the role of the consumer will be of even greater importance in the
future. It is significant that measures of consumer confidence have receded from
earlier record high levels, largely because of concerns about the volatility of
financial markets.
Market Environment
Prices moved higher during the reporting period as demand from various
classes of investors found municipal bonds appealing, despite the extent to
which equities vied for investors' attention for most of the period. Low
inflation and low interest rates helped create and maintain a "bond friendly"
atmosphere. Not to be overlooked, either, is the improved fiscal posture enjoyed
by many states and municipalities, the result of several years of strong
economic growth that enhanced the creditworthiness of many municipal securities'
issuers, and gave added comfort to investors. The dollar value of newly issued
bonds so far in 1998 has surpassed the volume experienced in all but a few
previous years. At $245 billion, it is approximately 29% over the same period
last year, but it should be noted that a dearth of appropriate bonds persists in
several states. The market has absorbed the new issuance without inordinate
volatility in the process. Municipal yields have been, and continue to be, very
favorably aligned vis-a-vis U.S. Treasury Bonds. Historically, longer-term
municipals have been viewed as being good values when their yields approached
80% to 85% of the yields available on comparable Treasuries. Presently, most
measures place the ratio well in excess of 90%. The environment for municipal
bonds still appears to be positive, particularly with the Fed's current
preference for lower interest rates.
Portfolio Overview
The market has gone through several cycles during the past year, from
subdued volatility to substantial same-day movements. During periods of low
volatility we found it advantageous to maintain a full coupon position, since
the greater part of the performance earlier in the year came mainly from coupons
rather than market movement. Except for underlying corporate credits, the yield
spreads in the municipal market tightened. We also apportioned a percentage of
the portfolio to paper that would benefit from a downswing in rates. We saw the
expected results of these positions as the 30-year Treasury Bond's yield dropped
below 5% . There were several issues that contributed to the Fund's performance
during the year. The buyout of LILCO by the Long Island Power Authority (LIPA)
brought to market the largest single issue in the history of the municipal
industry. The interest in this deal was very strong, and it was priced to
attract investors. Perhaps the most notable change in the New York market was
the strong improvement in New York City debt and other lower rated State and
City issues. When compared to AAA paper, the value spread on these issues has
tightened significantly. The Fund currently holds a large percentage of this
type of paper. During the upheaval in the stock market and the taxable fixed
income markets, the Fund experienced some drag from issues whose credit quality
is tied to corporate issuers; however, since the portfolio holds a limited
amount of this type of paper, the underperformance of that sector had only a
minimal effect on the overall performance. As measured within our Lipper sector
(New York Municipal Debt) , the Fund produced a total return of 8.14%, which
compares favorably to the sector's average return of 7.34%.
Very truly yours,
[Richard J. Moynihan signature]
Richard J. Moynihan
Director, Municipal Portfolio Management
The Dreyfus Corporation
November 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
Income may be subject to state and local income taxes for non-New York
residents.
** Distribution rate per share is based upon dividends per share paid from net
investment income during the period (annualized), divided by the net asset
value per share at the end of the period, adjusted for any capital gain
distributions. Some income may be subject to the Federal Alternative
Minimum Tax (AMT) for certain shareholders.
GENERAL NEW YORK MUNICIPAL BOND FUND, INC. OCTOBER 31, 1998
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN GENERAL NEW YORK
MUNICIPAL BOND FUND, INC. AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
Dollars
$21,915
Lehman Brothers Municipal Bond Index*
$21,044
General New York Municipal Bond Fund, Inc.
*Source: Lehman Brothers
Average Annual Total Returns
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One Year Ended Five Years Ended Ten Years Ended
October 31, 1998 October 31, 1998 October 31, 1998
_______________ ________________ ________________
8.14% 5.35% 7.72%
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Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in the General New York
Municipal Bond Fund, Inc. on 10/31/88 to a $10,000 investment made in the Lehman
Brothers Municipal Bond Index on that date. All dividends and capital gain
distributions are reinvested.
The Fund invests primarily in New York municipal securities and its performance
shown in the line graph takes into account fees and expenses. The Lehman
Brothers Municipal Bond Index is not limited to investments principally in New
York municipal obligations and does not take into account fees and expenses. The
Lehman Brothers Municipal Bond Index, unlike the Fund, is an unmanaged total
return performance benchmark for the long-term, investment-grade, geographically
unrestricted tax exempt bond market, calculated by using municipal bonds
selected to be representative of the municipal market overall. These factors can
contribute to the Index potentially outperforming the Fund. Further information
relating to Fund performance, including expense reimbursements, if applicable,
is contained in the Financial Highlights section of the Prospectus and elsewhere
in this report.
<TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
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STATEMENT OF INVESTMENTS OCTOBER 31, 1998
Principal
Long-Term Municipal Investments--98.6% Amount Value
- ------------------------------------------------------- _____________ _____________
<S> <C> <C>
New York--94.5%
Albany Industrial Development Agency:
IDR (Hampton Plaza Project) 6.25%, 3/15/2018 . . . . . . . . . . . . . . . . . . . . . . $ 5,600,000 $ 5,859,840
LR:
(New York State Assembly Building Project) 7.75%, 1/1/2010 . . . . . . . . . . . . . . 3,460,000 3,785,967
(New York State Department of Health Building Project) 7.25%, 10/1/2010 . . . . . . . 1,730,000 1,969,726
Board of Cooperative Educational Services, COP (Greenport Vocational Facility
Project)
7.875%, 10/1/2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606,192 626,687
Cohoes Industrial Development Agency, IDR (Norlite Corp. Project)
6.75%, 5/1/2009 (LOC; Dresdner Bank, Prerefunded 5/1/2002) (a) . . . . . . . . . . . . . 2,400,000 2,674,320
Franklin County Solid Waste Management Authority, Solid Waste Systems Revenue
6.125%, 6/1/2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350,000 1,409,494
Jefferson County Industrial Development Agency, SWDR
(Champion International Corp.) 7.20%, 12/1/2020 . . . . . . . . . . . . . . . . . . . . 2,000,000 2,204,100
Long Island Power Authority, Electric System Revenue 5.50%, 12/1/2029. . . . . . . . . . . 2,960,000 3,058,805
Metropolitan Transportation Authority, Transportation Facilities Revenue:
6%, 7/1/2016 (Insured; FSA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,613,400
Refunding (Service Contract) 5.375%, 7/1/2021 . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,053,430
New York City:
5.875%, 8/15/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300,000 3,592,644
5.875%, 8/15/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,715,000 2,918,842
Refunding:
6.375%, 8/15/2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,670,000 2,983,832
6%, 8/1/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 4,347,520
6%, 8/1/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,183,660
6%, 8/1/2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 6,550,980
6.125%, 8/1/2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,495,850
New York City Industrial Development Agency:
Civic Facility Revenue:
(College of Aeronautics Project) 5.50%, 5/1/2028 . . . . . . . . . . . . . . . . . . . 1,600,000 1,636,288
(YMCA of Greater New York Project) 5.80%, 8/1/2016 . . . . . . . . . . . . . . . . . . 1,500,000 1,593,165
IDR, Refunding (LaGuardia Association LP Project) 6%, 11/1/2028 . . . . . . . . . . . . 2,790,000 2,798,035
Special Facility Revenue (Terminal One Group Association Project)
6%, 1/1/2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,193,440
New York City Municipal Water Finance Authority, Water and Sewer System Revenue
6%, 6/15/2025 (Prerefunded 6/15/2005) (a) . . . . . . . . . . . . . . . . . . . . . . . 9,750,000 10,988,933
State of New York, GO 5.70%, 3/15/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,150,480
New York State Dormitory Authority, Revenues:
Consolidated City University Systems:
5.75%, 7/1/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,005,000 11,148,171
5.625%, 7/1/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,701,650
5.75%, 7/1/2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,747,750
Department of Health:
5.75%, 7/1/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,240,000 5,564,880
(Roswell Park Cancer) 6.625%, 7/1/2024 (Prerefunded 7/1/2005) (a) . . . . . . . . . . 2,700,000 3,151,710
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Long-Term Municipal Investments (continued) Amount Value
- ------------------------------------------------------- _____________ _____________
New York (continued)
New York State Dormitory Authority, Revenues (continued):
Refunding:
(Mental Health Services Facility) 6%, 8/15/2021 . . . . . . . . . . . . . . . . . . . $ 1,750,000 $ 1,911,315
Secured Hospital (New York Downtown Hospital) 5.30%, 2/15/2020 . . . . . . . . . . . . 5,000,000 5,049,950
State University Educational Facilities:
5.50%, 5/15/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,631,145
5.875%, 5/15/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,060,000 2,298,775
6%, 5/15/2025 (Prerefunded 5/15/2005) (a) . . . . . . . . . . . . . . . . . . . . . . 3,825,000 4,333,496
4.75%, 5/15/2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,500,000 5,211,690
WK Nursing Home Corp. 6.05%, 2/1/2026 (Insured; FHA) . . . . . . . . . . . . . . . . . . 5,000,000 5,430,400
New York State Energy Research and Development Authority:
Electric Facilities Revenue (Long Island Lighting) 7.15%, 9/1/2022 . . . . . . . . . . . 3,435,000 3,754,043
Facilities Revenue (Consolidated Edison Co. of New York, Inc. Project) 7.125%, 12/1/2029 . . 2,000,000 2,308,940
Gas Facilities Revenue (Brooklyn Union Gas Co. Project) 6.368%, 4/1/2020 . . . . . . . . 5,000,000 5,750,500
New York State Environmental Facilities Corp.:
PCR (Pilgrim State Sewer Project) 6.30%, 3/15/2016 . . . . . . . . . . . . . . . . . . . 5,200,000 5,799,404
Water Facilities Revenue (New Rochelle Water Co. Project) 6.40%, 12/1/2024 . . . . . . . 2,000,000 2,130,400
New York State Housing Finance Agency, Revenue:
LooseStrife Fields Apartments and Fairway Manor 6.75%, 11/15/2036 (Insured; FHA) . . . . 5,925,000 6,475,255
Multi-Family Housing, Second Mortgage 6.625%, 8/15/2012 . . . . . . . . . . . . . . . . 2,500,000 2,667,350
Refunding:
Health Facilities 6%, 11/1/2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 6,703,380
(Housing Mortgage Project) 6.10%, 11/1/2015 (Insured; FSA) . . . . . . . . . . . . . . 1,965,000 2,146,684
Service Contract Obligation:
6%, 9/15/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,675,000 9,347,486
6%, 3/15/2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,645,000 7,170,885
Refunding:
5.25%, 3/15/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,102,460
5.50%, 9/15/2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 6,160,500
New York State Medical Care Facilities Finance Agency, Revenue:
Hospital & Nursing Home Insured Mortgage:
6.85%, 2/15/2012 (Prerefunded 2/15/2002)(Insured; FHA) (a) . . . . . . . . . . . . . . 2,670,000 2,972,538
6.20%, 8/15/2013 (Insured; FHA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,222,570
6.125%, 2/15/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,170,000 5,613,017
Improvement (Mental Health Services Facilities) 6.50%, 2/15/2019 . . . . . . . . . . . . 4,705,000 5,199,119
New York State Mortgage Agency, Homeowner Revenue:
6%, 4/1/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,155,740
6.60%, 10/1/2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 3,816,435
6.05%, 4/1/2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,610,000 6,037,594
6.40%, 4/1/2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,980,000 4,361,403
New York State Thruway Authority, Service Contract Revenue
(Local Highway and Bridge):
6%, 4/1/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,195,000 6,844,608
6.25%, 4/1/2014 (Prerefunded 4/1/2005) (a) . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,278,000
5.75%, 4/1/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,950,000 5,216,458
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Long-Term Municipal Investments (continued) Amount Value
- ------------------------------------------------------- _____________ _____________
New York (continued)
New York State Urban Development Corp., Correctional Facilities Revenue:
5.375%, 1/1/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,000,000 $ 3,102,900
Refunding 5.50%, 1/1/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,209,160
Niagara Frontier Transportation Authority, Airport Revenue
(Greater Buffalo International Airport) 6.125%, 4/1/2014 (Insured; AMBAC) . . . . . . . 2,700,000 2,928,798
Onondaga County Industrial Development Agency, Sewer Facilities Revenue
(Bristol Meyers Squibb Co. Project) 5.75%, 3/1/2024 . . . . . . . . . . . . . . . . . . 4,000,000 4,443,400
Orange County Industrial Development Agency, Life Care Community Revenue
(Glenn Arden Inc. Project) 5.625%, 1/1/2018 . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,001,610
Port Authority of New York and New Jersey, Special Obligation Revenue
(Special Project-JFK International Air Terminal) 5.75%, 12/1/2025 (Insured; MBIA) . . . 4,500,000 4,772,475
Rensselaer County Industrial Development Agency, IDR (Albany International
Corp.)
7.55%, 6/1/2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 4,882,760
Scotia Housing Authority, Housing Revenue (Coburg Village Inc. Project)
6.15%, 7/1/2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,042,090
Triborough Bridge and Tunnel Authority, General Purpose Revenue, Refunding
6.125%, 1/1/2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,513,570
Yonkers Industrial Development Agency, Civic Facilities Revenue (St. Joseph
Hospital)
5.90%, 3/1/2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,900,000 3,954,951
U.S. Related--4.1%
Puerto Rico Commonwealth, Refunding (Public Improvement)
6%, 7/1/2026 (Prerefunded 7/1/2007) (a) . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,773,450
Puerto Rico Electric Power Authority, Power Revenue
5.929%, 7/1/2023 (Prerefunded 7/1/2002) (a) . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,178,060
Virgin Islands Public Finance Authority, Revenue, Refunding 5.50%, 10/1/2014 . . . . . . . 4,000,000 4,145,040
_____________
TOTAL INVESTMENTS
(cost $264,733,634) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98.6% $289,053,403
_______ _____________
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4% $ 4,177,401
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $293,230,804
_______ _____________
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
Summary of Abbreviations
- -----------------------------------------------------------------------------
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
COP Certificate of Participation LR Lease Revenue
FHA Federal Housing Administration MBIA Municipal Bond Investors Assurance
FSA Financial Security Assurance Insurance Corporation
GO General Obligation PCR Pollution Control Revenue
IDR Industrial Development Revenue SWDR Solid Waste Disposal Revenue
Summary of Combined Ratings (Unaudited)
- -----------------------------------------------------------------------------
Fitch or Moody's or Standard & Poor's Percentage of Value
____ ________ ________________ __________________
AAA Aaa AAA 26.0%
AA Aa AA 9.7
A A A 28.8
BBB Baa BBB 27.1
BB Ba BB .4
Not Rated (b) Not Rated (b) Not Rated (b) 8.0
_______
100.0%
_______
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(b) Securities which, while not rated by Fitch, Moody's and Standard & Poor's
have been determined by the Manager to be of comparable quality to those
securities in which the Fund may invest.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
_____________ _____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $264,733,634 $289,053,403
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 199,015
Interest receivable . . . . . . . . . . . . . . . . . . . 4,247,653
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 9,377
_____________
293,509,448
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 198,633
Due to Distributor . . . . . . . . . . . . . . . . . . . 5,726
Accrued expenses . . . . . . . . . . . . . . . . . . . . 74,285
_____________
278,644
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $293,230,804
_____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $265,247,276
Accumulated undistributed investment income--net . . . . 36,940
Accumulated net realized gain (loss) on investments . . . 3,626,819
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 . . . . . . . . . . . . . . . . 24,319,769
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $293,230,804
_____________
_____________
SHARES OUTSTANDING
(100 MILLION SHARES OF $.01 PAR VALUE COMMON STOCK AUTHORIZED) . . . . . . . . . . . . . . 14,196,414
NET ASSET VALUE, offering and redemption price per share--Note 3(d). . . . . . . . . . . . $20.66
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME Interest income . . . . . . . . . . . . . . . . . . . . . $17,363,517
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . $ 1,862,525
Shareholder servicing costs--Note 3(b) . . . . . . . . . 776,809
Directors' fees and expenses--Note 3(c) . . . . . . . . . 35,630
Professional fees . . . . . . . . . . . . . . . . . . . . 34,046
Custodian fees . . . . . . . . . . . . . . . . . . . . . 31,760
Prospectus and shareholders' reports--Note 3(b) . . . . . 13,085
Registration fees . . . . . . . . . . . . . . . . . . . . 11,726
Loan commitment fees--Note 2 . . . . . . . . . . . . . . 2,322
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 17,062
____________
Total Expenses . . . . . . . . . . . . . . . . . . 2,784,965
____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,578,552
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . . . . . $ 3,851,809
Net unrealized appreciation (depreciation) on investments . . 6,042,756
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . 9,894,565
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . $24,473,117
____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1998 October 31, 1997
________________ ________________
OPERATIONS:
<S> <C> <C>
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,578,552 $ 15,209,729
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . 3,851,809 2,723,016
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . 6,042,756 7,610,372
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . . . 24,473,117 25,543,117
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,541,612) (15,209,729)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,945,618) (1,872,173)
_____________ _____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,487,230) (17,081,902)
_____________ _____________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,000,612 168,930,855
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,761,186 12,405,077
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104,474,425) (194,529,439)
_____________ _____________
Increase (Decrease) in Net Assets from Capital Stock Transactions . . . . . . . . . . (18,712,627) (13,193,507)
_____________ _____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . . . . (11,726,740) (4,732,292)
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304,957,544 309,689,836
_____________ _____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 293,230,804 $ 304,957,544
_____________ _____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,940 --
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,587,659 8,559,560
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . 625,795 626,648
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,110,787) (9,841,404)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . . . . (897,333) (655,196)
_____________ _____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of Common
Stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from the Fund's financial statements.
Year Ended October 31,
______________________________________________________
PER SHARE DATA: 1998 1997 1996 1995 1994
______ ______ ______ ______ ______
<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 INVESTMENT 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 undertakings by the Manager . . . . . . . . . -- -- -- .04% .12%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 32.96% 66.32% 80.30% 65.91% 24.56%
Net Assets, end of period (000's Omitted) . . . . . . . . $293,231 $304,958 $309,690 $322,636 $307,996
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
General New York Municipal Bond Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act") as a non-diversified
open-end management investment company. The Fund's investment objective is to
maximize current income exempt from Federal, New York State and New York City
income taxes to the extent consistent with the preservation of capital. The
Dreyfus Corporation (the "Manager") serves as the Fund's investment adviser. The
Manager is a direct subsidiary of Mellon Bank, N.A. Premier Mutual Fund
Services, Inc. (the "Distributor" ) is the distributor of the Fund's shares,
which are sold to the public without a sales load.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the Board
of Directors. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the Service
are valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service, based on methods which include consideration
of: yields or prices of municipal securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. Options and financial futures on municipal and U.S. treasury
securities are valued at the last sales price on the securities exchange on
which such securities are primarily traded or at the last sales price on the
national securities market on each business day. Investments not listed on an
exchange or the national securities market, or securities for which there were
no transactions, are valued at the average of the most recent bid and asked
prices. Bid price is used when no asked price is available.
(b) Securities transactions and investment income: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Interest income,
adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual basis.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date. Under the terms of the custody
agreement, the Fund receives net earnings credits based on available cash
balances left on deposit.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations held
by the Fund.
(c) Dividends to shareholders: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). To the extent that net realized capital gain can be offset
by capital loss carryovers, if any, it is the policy of the Fund not to
distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Code, and to make
distributions of income and net realized capital gain sufficient to relieve it
from substantially all Federal income and excise taxes.
NOTE 2--BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility (the "Facility" ) to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Fund has agreed to pay commitment fees on its pro rata portion of the
Facility. Interest is charged to the Fund at rates based on prevailing market
rates in effect at the time of borrowings. During the period ended October 31,
1998, the Fund did not borrow under the Facility.
NOTE 3--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is computed at the annual rate of .60 of 1% of the value of the
Fund's average daily net assets and is payable monthly. The Agreement provides
that if in any full year the aggregate expenses of the Fund, exclusive of taxes,
brokerage, interest on borrowings, commitment fees and extraordinary expenses,
exceed 1 1/2% of the value of the Fund's average net assets, the Fund may deduct
from the payments to be made to the Manager, or the Manager will bear such
excess expense. During the period ended October 31, 1998, there was no expense
reimbursement pursuant to the Agreement.
(b) Under the Service Plan (the "Plan") adopted pursuant to Rule 12b-1
under the Act, the Fund (a) reimburses the Distributor for payments to certain
Service Agents (a securities dealer, financial institution or other industry
professional) for distributing the Fund's shares and servicing shareholder
accounts ("Servicing") and (b) pays the Manager, Dreyfus Service Corporation, a
wholly-owned subsidiary of the Manager, and any affiliate of either of them
(collectively, "Dreyfus") for advertising and marketing relating to the Fund and
for Servicing, at an aggregate annual rate of .20 of 1% of the value of the
Fund's average daily net assets. Both the Distributor and Dreyfus may pay one or
more Service Agents a fee in respect of the Fund's shares owned by shareholders
with whom the Service Agent has a Servicing relationship or for whom the Service
Agent is the dealer or holder of record. Both the Distributor and Dreyfus
determine the amounts, if any, to be paid to Service Agents under the Plan and
the basis on which such payments are made. The fees payable under the Plan are
payable without regard to actual expenses incurred. The Plan also separately
provides for the Fund to bear the costs of preparing, printing and distributing
certain of the Fund's prospectuses and statements of additional information and
costs associated with implementing and operating the Plan, not to exceed the
greater of $100,000 or .005 of 1% of the value of the Fund's average daily net
assets for any full fiscal year. During the period ended October 31, 1998, the
Fund was charged $623,640 pursuant to the Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the period
ended October 31, 1998, the Fund was charged $101,850 pursuant to the transfer
agency agreement.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $500 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
(d) A .10% redemption fee is charged and retained by the Fund on certain
redemptions of Fund shares (including redemption through use of the Fund
Exchanges Service) where the redemption or exchange occurs less than fifteen
days following the date of issuance. During the period ended October 31, 1998,
redemption fees amounted to $5,041.
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended October 31, 1998
amounted to $100,553,186 and $127,229,876, respectively.
At October 31, 1998, accumulated net unrealized appreciation on investments
was $24,319,769, consisting of $24,355,549 gross unrealized appreciation and
$35,780 gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting purposes
(see the Statement of Investments).
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
General New York Municipal Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
General New York Municipal Bond Fund, Inc., including the statement of
investments, as of October 31, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
General New York Municipal Bond Fund, Inc. at October 31, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the indicated years, in conformity with generally accepted accounting
principles.
[ERNST & YOUNG LLP Signature Logo]
New York, New York
December 4, 1998
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
- -----------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
In accordance with Federal tax law, the Fund hereby makes the following
designations regarding its fiscal year ended October 31, 1998:
-- all the dividends paid from investment income-net are "exempt-interest
dividends" (not generally subject to regular Federal income tax and, for
individuals who are New York residents, New York State and New York City
personal income taxes), and
-- the Fund hereby designates $.1265 per share as a long-term capital gain
distribution of the $.1775 per share paid on December 4, 1997. The Fund also
designates $.0154 per share as a long-term capital gain distribution paid on
July 7, 1998.
As required by Federal tax law rules, shareholders will receive
notification of their portion of the Fund's taxable ordinary dividends (if any)
and capital gain distributions (if any) paid for the 1998 calendar year on Form
1099-DIV which will be mailed by January 31, 1999.
[reg.tm logo]
(reg.tm)
GENERAL NEW YORK
MUNICIPAL BOND FUND, INC.
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 949AR9810
General New York
Municipal Bond
Fund, Inc.
Annual Report
October 31, 1998
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN GENERAL NEW YORK
MUNICIPAL BOND FUND, INC. AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
EXHIBIT A:
LEHMAN GENERAL
BROTHERS NEW YORK
PERIOD MUNICIPAL MUNICIPAL
BOND INDEX * BOND FUND, INC.
10/31/88 10,000 10,000
10/31/89 10,811 10,479
10/31/90 11,613 11,052
10/31/91 13,026 12,691
10/31/92 14,119 13,735
10/31/93 16,108 16,215
10/31/94 15,406 15,146
10/31/95 17,692 17,113
10/31/96 18,700 17,913
10/31/97 20,288 19,460
10/31/98 21,915 21,044
*Source: Lehman Brothers
<PAGE>
YEAR 2000 ISSUES (UNAUDITED)
The fund could be adversely affected if the computer systems used by The
Dreyfus Corporation and the fund's other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
The Dreyfus Corporation 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.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus New York
Insured Tax Exempt Bond Fund for the 12-month period ended December 31, 1998.
Your Fund produced a total return, including share price changes and dividend
income generated, of 5.38%,* and a tax-free distribution rate per share of
4.24%.**
ECONOMIC REVIEW
During 1998, the main regions of the world had very different economic
fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board to contemplate a rise in interest rates early in the
year, but world economic weakness generated powerful enough disinflationary
forces that the Fed acted instead to ease credit beginning in September. After
many years of subpar economic growth, continental Europe moved into a sustained
economic expansion. The overall European economy benefited as interest rates in
peripheral countries such as Spain and Italy fell, approaching the lower levels
established by Germany, on the eve of currency unification. Unlike the U.S.,
Europe has substantial excess capacity of productive plant and labor. In Asia,
weak economies were pervasive as a result of a financial crisis. The Latin
American economies weakened in turn as the financial stresses spread throughout
that region. On balance, there was a substantial weakening of the world economy
over the course of 1998 moderated mainly by the American consumer's role as
"spender of last resort."
A main influence on the U.S. economy during the year was the foreign
financial crisis and consequent cooling of the world economy. The positive
effects hit first. Actual inflation and expected inflation dropped, causing a
decline in long-term Treasury bond yields and mortgage rates. This caused a boom
in housing. The fall in inflation left more of the growth in consumer income
with which to buy goods and services. Thus, consumers benefited from a
combination of good growth in income after inflation, a strong labor market and
increases in the prices of assets they owned, including bonds, stocks and real
estate. In a sense, 1998 was a year of disinflationary boom in the U.S., as
above-trend economic growth coincided with negligible inflation.
The negative effect of Asian weakness was felt in the industrial sector
more than in the consumer sector. Corporate profits weakened, especially in
sectors affected by the Asian crisis such as world-traded commodities (oil,
metals and paper) and exports.
Evidence of a weaker world economy accumulated during 1998 as the financial
stresses continued. A worsened financial crisis occurred between the Russian
default in mid-August and the fallout from the Long Term Capital Management
hedge fund crisis through early October. However, energetic steps were taken to
stabilize the Japanese banks, design a support package for Brazil, ease monetary
policy, and help overinvested financial institutions rebuild their cash
reserves. Indications of a calming of financial fears were evident in the final
months of the year. In any case, there appears to have been a shift in the
priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
The global economy survived a triple financial crisis in 1998 from Japan,
emerging market countries and overextended financial institutions. Excess
capacity persists in many worldwide industries after years of high capital
spending followed by the onset of a worldwide weakening in demand. Fortunately,
the U.S. has led the world in making the transition away from the old
manufacturing industries to the new growth industries, such as biotechnology,
software, computer hardware and the Internet. This contributed to the favorable
combination of low unemployment and low inflation in the U.S., and may yet lead
toward more efficient allocation of capital elsewhere in the world.
As 1998 ended, interest rates set by central banks remained in a downtrend
in most parts of the world including Europe and the U.S. A similar trend had
even begun in many emerging countries, as the stresses of financial crisis
relax.
MARKET COMMENTARY
In calendar year 1998, municipal prices moved upward on a nearly
uninterrupted track from month to month. The environment for fixed-income
securities was constructive generally, and that was reflected in municipal
prices. The positive atmosphere was largely attributable to continued low
inflation and low interest rates contained within a strong U.S. economy. Other
factors at work included the emphatic movement toward lower rates created by the
flight-to-quality buying of U.S. Treasury securities which began with the
unfolding global currency and economic crises. Municipal interest rates trended
downward along with Treasuries', although not to the same extent. During the
year, buyers of municipals were given comfort from a credit standpoint by the
continued strength of the U.S. economy, whose fiscal benefits extended to the
treasuries of states, cities, and beyond. A good measure of the willingness of
investors to buy municipals, and the ease with which municipalities felt new
debt could be sold even in a lower interest rate environment, can be seen in the
near record breaking volume of new bonds issued during the year. A total of $284
billion in bonds was issued in 1998, just $8 billion less than in the
record-breaking year of 1993. The issuance of new bonds is not usually evenly
dispersed across the country, and in 1998 it was often difficult to locate
desirable paper to purchase in several states. That sizable new issue calendar,
combined with global events and the effects of a dramatic stock market, made for
volatile trading sessions occasionally. As Treasury prices escalated in the face
of global turmoil, municipal yields vis-a-vis Treasury yields became
increasingly attractive. Historically, when long-term municipals yielded 80% to
85% of the yields available on Treasuries with comparable maturities, they were
considered to be good values. For much of 1998, the ratio hovered near 100%, and
even today is at 95% .
PORTFOLIO OVERVIEW
Activity in the Fund's portfolio during the past year has been directed
toward structuring the portfolio for improved investment performance within a
dynamic market environment. The Fund sold securities which either had met our
price objectives, or which provided funds to reemploy in what we expected would
be more rewarding situations. In the process, we established more diversity in
the portfolio, which provided enhanced liquidity. Early in the year, we took a
constructive approach with regard to the municipal bond market, and we
maintained that viewpoint through the year. As a result, we concluded that the
portfolio should not be locked into a defensive investment stance, but instead
should hold securities which might appreciate in price with the declines in
interest rates which we thought were likely to develop during the year;
subsequently, we established greater convexity in the portfolio, which
contributed positively to the investment results of 1998. The portfolio's
duration, or sensitivity to changes in interest rates, was also managed
carefully throughout the year so that it would stay in tune with our market
outlook. We hope that you are pleased with the investment performance, shown
above, which resulted from our management of your Fund.
Very truly yours,
[Richard J. Moynihan signature]
Richard J. Moynihan
Director, Municipal Portfolio Management
The Dreyfus Corporation
January 15, 1999
New York, N.Y.
*Total return includes reinvestment of dividends and any capital gains
paid. Income may be subject to state and local income taxes for non-New York
residents.
**Distribution rate per share is based upon dividends per share paid from
net investment income during the period, divided by the net asset value per
share at the end of the period, adjusted for capital gain distributions. Some
income may be subject to the Federal Alternative Minimum Tax (AMT) for certain
shareholders.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND DECEMBER 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS NEW YORK INSURED
TAX EXEMPT BOND FUND AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
Dollars
$22,025
Lehman Brothers Municipal Bond Index*
$19,555
Dreyfus New York Insured Tax Exempt Bond Fund
*Source: Lehman Brothers
Average Annual Total Returns
- -----------------------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
December 31, 1998 December 31, 1998 December 31, 1998
_________________ ___________________ ___________________
5.38% 4.49% 6.94%
- ------------------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus New York
Insured Tax Exempt Bond Fund on 12/31/88 to a $10,000 investment made in the
Lehman Brothers Municipal Bond Index on that date. All dividends and capital
gain distributions are reinvested.
The Fund invests primarily in New York municipal securities, which are
insured as to the timely payment of principal and interest by recognized
insurers of municipal securities. The Fund's performance shown in the line graph
takes into account fees and expenses. The Lehman Brothers Municipal Bond Index
is not limited to investments principally in New York municipal obligations and
does not take into account charges, fees and other expenses. The Lehman Brothers
Municipal Bond Index, unlike the Fund, is an unmanaged total return performance
benchmark for the long-term, investment-grade, geographically unrestricted tax
exempt bond market, calculated by using municipal bonds selected to be
representative of the municipal market overall; however, the bonds in the Index
generally are not insured. These factors can contribute to the Index potentially
outperforming or underperforming the Fund. Further information relating to Fund
performance, including expense reimbursements, if applicable, is contained in
the Financial Highlights section of the Prospectus and elsewhere in this report
<TABLE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS DECEMBER 31, 1998
Principal
Long-Term Municipal Investments--98.2% Amount Value
- ------------------------------------------------------- ____________ _____________
<S> <C> <C>
New York--94.9%
Development Authority of the North Country,
Solid Waste Management System Revenue, Refunding 6%, 5/15/2015 (Insured; FSA) . . . . . $ 2,260,000 $ 2,589,146
Islip Resource Recovery Agency, RRR 6.125%, 7/1/2013 (Insured; AMBAC). . . . . . . . . . . 1,425,000 1,565,989
Metropolitan Transportation Authority,
Transit Facilities Revenue:
6.50%, 7/1/2018 (Insured; FGIC) (Prerefunded 7/1/2002)(a) . . . . . . . . . . . . . 4,000,000 4,439,800
4.75%, 7/1/2026 (Insured: FGIC) . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,909,900
Nassau County Industrial Development Agency,
Civic Facility Revenue, Refunding (Hofstra University Project)
4.75%, 7/1/2028 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,907,000
New York City:
6%, 8/1/2007 (Insured; FGIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,256,040
5.375%, 6/1/2013 (Insured; AMBAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,825,000 4,050,637
7.25%, 3/15/2018 (Insured; FSA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,059,680
New York City Municipal Water Finance Authority, Water and Sewer System Revenue
6.20%, 6/15/2021 (Insured; AMBAC) (Prerefunded 6/15/2002) (a) . . . . . . . . . . . . 2,000,000 2,188,340
New York State Dormitory Authority
LR:
(Municipal Health Facilities Improvement Program) 4.75%, 1/15/2029 (Insured; FSA) . . 2,000,000 1,900,300
Revenue:
(City University):
5.35%, 7/1/2009 (Insured; FGIC) . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,444,300
6.30%, 7/1/2024 (Insured; AMBAC) . . . . . . . . . . . . . . . . . . . . . . . . 2,800,000 3,134,320
(Ithaca College) Refunding 6.25%, 7/1/2021 (Insured; MBIA) (Prerefunded 7/1/2001) (a) . . 2,000,000 2,164,480
(Mount Sinai School of Medicine):
5.15%, 7/1/2024 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . . . . . . 5,765,000 5,982,110
Refunding 6.75%, 7/1/2009 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . 3,000,000 3,272,850
(New York and Presbyterian Hospital) Refunding 4.75%, 8/1/2027 (Insured; AMBAC) . . 3,000,000 2,849,280
(St. John's University) 4.75%, 7/1/2028 (Insured; MBIA) . . . . . . . . . . . . . . 5,250,000 5,005,875
New York State Energy Research and Development Authority, Revenue:
Facilities (Con Edison Co. of New York Inc. Project)
6.375%, 12/1/2027 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,343,250
Pollution Control, Refunding (Niagara Mohawk Power Corp.)
6.625%, 10/1/2013 (Insured; FGIC) . . . . . . . . . . . . . . . . . . . . . . . . . 4,500,000 4,885,965
New York State Local Government Assistance Corp., Refunding
5.50%, 4/1/2017 (Insured; FSA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,411,150
New York State Medical Care Facilities Finance Agency,
Revenue:
(Aurelia Osborn Fox Memorial Hospital) 6.50%, 11/1/2019 (Insured; FSA) . . . . . . 1,000,000 1,082,270
(Hospital and Nursing Home) 6.125%, 2/15/2015 (Insured; MBIA) . . . . . . . . . . . 4,000,000 4,390,240
(Mental Health Service Facilities Improvement):
6.25%, 8/15/2018 (Insured; AMBAC) (Prerefunded 2/15/2002) (a) . . . . . . . . . 4,340,000 4,746,094
6.25%, 8/15/2018 (Insured; AMBAC) . . . . . . . . . . . . . . . . . . . . . . . 345,000 373,362
(Sisters of Charity Hospital) 6.625%, 11/1/2018 (Insured; AMBAC) . . . . . . . . . 2,000,000 2,171,160
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
Principal
Long-Term Municipal Investments (continued) Amount Value
- ------------------------------------------------------- ____________ _____________
New York (continued)
New York State Mortgage Agency, Revenue (Homeownership Mortgage)
6.45%, 10/1/2017 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 1,088,930
New York State Urban Development Corp., Revenue
(Correctional Facilities):
4.75%, 1/1/2028 (Insured; AMBAC) . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,857,170
Refunding 5.50%, 1/1/2014 (Insured; FSA) . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,285,120
Port Authority of New York and New Jersey:
5.80%, 11/1/2010 (Insured; FGIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,160,000 7,777,980
6.25%, 1/15/2027 (Insured; AMBAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,131,360
Special Obligation Revenue (JFK International Air Terminal Project)
6.25%, 12/1/2013 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,857,050
Triborough Bridge and Tunnel Authority:
General Purpose Revenues 6.125%, 1/1/2021 (Insured; CMAC) . . . . . . . . . . . . . . . 2,000,000 2,335,080
Special Obligation Refunding:
6%, 1/1/2015 (Insured; AMBAC) (Prerefunded 1/1/2002) (a) . . . . . . . . . . . . . 3,260,000 3,524,060
6%, 1/1/2015 (Insured; AMBAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 740,000 791,201
4.75%, 1/1/2024 (Insured; MBIA) . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,870,940
Yonkers 5.125%, 8/1/2009 (Insured; AMBAC). . . . . . . . . . . . . . . . . . . . . . . . . 3,125,000 3,322,281
U.S. Related--3.3%
Puerto Rico Electic Power Authority, Power Revenue
5.40%, 7/1/2013 (Insured; MBIA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,700,000 3,986,898
_____________
TOTAL INVESTMENTS (cost $112,840,743). . . . . . . . . . . . . . . . . . . . . . . . . . . 98.2% $119,951,608
_______ _____________
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8% $ 2,172,756
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $122,124,364
_______ _____________
Summary of Abbreviations
- -----------------------------------------------------------------------------
AMBAC American Municipal Bond Assurance Corporation LR Lease Revenue
CMAC Capital Market Assurance Corporation MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company Insurance Corporation
FSA Financial Security Assurance RRR Resources Recovery Revenue
Summary of Combined Ratings (Unaudited)
- -----------------------------------------------------------------------------
Fitch or Moody's or Standard & Poor's Percentage of Value
_____ ________ __________________ ____________________
AAA Aaa AAA 100.0%
_______
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(b) At December 31, 1998, 27.6% of the Fund's net assets are insured by AMBAC
and 34.3% are insured by MBIA.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998
Cost Value
____________ ____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $112,840,743 $119,951,608
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 168,789
Interest receivable . . . . . . . . . . . . . . . . . . . 2,152,865
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 8,497
_____________
122,281,759
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 94,143
Due to Distributor . . . . . . . . . . . . . . . . . . . 1,822
Accrued expenses . . . . . . . . . . . . . . . . . . . . 61,430
_____________
157,395
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $122,124,364
_____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $114,704,617
Accumulated net realized gain (loss) on investments . . . 308,882
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 . . . . . . . . . . . . . . . . 7,110,865
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $122,124,364
_____________
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) . . . . . . 10,784,377
NET ASSET VALUE, offering and redemption price per share--Note 3(d). . . . . . . . . . . . $11.32
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME Interest Income . . . . . . . . . . . . . . . . . $6,700,807
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . $ 759,077
Shareholder servicing costs--Note 3(b) . . . . . 383,068
Professional fees . . . . . . . . . . . . . . . . 45,672
Trustees' fees and expenses--Note 3(c) . . . . . 36,620
Registration fees . . . . . . . . . . . . . . . . 17,442
Prospectus and shareholders' reports--Note 3(b) . 15,814
Custodian fees . . . . . . . . . . . . . . . . . 13,091
Loan commitment fees--Note 2 . . . . . . . . . . 1,161
Miscellaneous . . . . . . . . . . . . . . . . . . 15,339
___________
Total Expenses . . . . . . . . . . . . . . . . 1,287,284
Less--reimbursement of prospectus costs--Note 3(b) . (1,579)
___________
Net Expenses . . . . . . . . . . . . . . . . . 1,285,705
___________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,415,102
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . $1,511,337
Net unrealized appreciation (depreciation)
on investments . . . . . . . . . . . . . . . . (230,294)
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . 1,281,043
___________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . $6,696,145
___________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 1998 December 31, 1997
_________________ _________________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,415,102 $ 6,137,142
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . 1,511,337 1,738,375
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . (230,294) 1,772,442
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . 6,696,145 9,647,959
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,415,102) (6,137,142)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . (1,743,200) (1,483,996)
_____________ _____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,158,302) (7,621,138)
_____________ _____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 8,985,439 11,403,371
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,818,825 5,088,496
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,040,030) (25,533,191)
_____________ _____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . . (13,235,766) (9,041,324)
_____________ _____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . (13,697,923) (7,014,503)
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,822,287 142,836,790
_____________ _____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $122,124,364 $135,822,287
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789,248 1,022,421
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . 424,000 454,542
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,375,683) (2,293,385)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . (1,162,435) (816,422)
_____________ _____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This information
has been derived from the Fund's financial statements.
Year Ended December 31,
____________________________________________________________
PER SHARE DATA: 1998 1997 1996 1995 1994
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . $11.37 $11.19 $11.68 $10.66 $12.04
______ ______ ______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . .49 .50 .54 .59 .60
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . .11 .30 (.31) 1.02 (1.39)
______ ______ ______ ______ ______
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . .60 .80 .23 1.61 (.79)
______ ______ ______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . (.49) (.50) (.54) (.59) (.59)
Dividends from net realized gain on investments . (.16) (.12) (.18) -- --
______ ______ ______ ______ ______
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.65) (.62) (.72) (.59) (.59)
______ ______ ______ ______ ______
Net asset value, end of period . . . . . . . . . $11.32 $11.37 $11.19 $11.68 $10.66
______ ______ ______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . 5.38% 7.41% 2.12% 15.38% (6.62%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . . 1.02% .99% 1.02% .99% .98%
Ratio of net investment income
to average net assets . . . . . . . . . . . . . 4.28% 4.47% 4.78% 5.20% 5.31%
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . . -- -- -- -- .01%
Portfolio Turnover Rate . . . . . . . . . . . . 44.69% 116.40% 84.24% 31.13% 12.79%
Net Assets, end of period (000's Omitted) . . . $122,124 $135,822 $142,837 $157,317 $151,696
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus New York Insured Tax Exempt Bond Fund (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
non-diversified open-end management investment company. The Fund's investment
objective is to provide investors with as high a level of current income exempt
from Federal, New York State and New York City income taxes as is consistent
with the preservation of capital. The Dreyfus Corporation ("Manager") serves as
the Fund's investment adviser. The Manager is a direct subsidiary of Mellon
Bank, N.A. Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares, which are sold to the public without a sales
load.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the Board
of Trustees. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the Service
are valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service, based on methods which include consideration
of: yields or prices of municipal securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. Options and financial futures on municipal and U.S. treasury
securities are valued at the last sales price on the securities exchange on
which such securities are primarily traded or at the last sales price on the
national securities market on each business day. Investments not listed on an
exchange or the national securities market, or securities for which there were
no transactions, are valued at the average of the most recent bid and asked
prices. Bid price is used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Interest income,
adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual basis.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date. Under the terms of the custody
agreement, the Fund receives net earnings credits based on available cash
balances left on deposit.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations held
by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). To the extent that net realized capital gain can be offset
by capital loss carryovers, if any, it is the policy of the Fund not to
distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Code, and to make
distributions of income and net realized capital gain sufficient to relieve it
from substantially all Federal income and excise taxes.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility (" Facility" ) to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended
December 31, 1998, the Fund did not borrow under the Facility.
NOTE 3--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is computed at the annual rate of .60 of 1% of the value of the
Fund's average daily net assets and is payable monthly. The Agreement provides
that if in any full fiscal year the aggregate expenses of the Fund, exclusive of
taxes, brokerage, commitment fees, interest on borrowings and extraordinary
expenses of the Fund, exceed 1 1/2% of the value of the Fund's average daily net
assets, the Fund may deduct from payments to be made to the Manager, or the
Manager will bear such excess expense. During the period ended December 31,
1998, there was no expense reimbursement pursuant to the Agreement.
(B) Under the Service Plan (the "Plan") adopted pursuant to Rule 12b-1
under the Act, the Fund (a) reimburses the Distributor for payments to certain
Service Agents (a securities dealer, financial institution or other industry
professional) for distributing the Fund's shares and servicing shareholder
accounts ("Servicing") and (b) pays the Manager, Dreyfus Service Corporation, a
wholly-owned subsidiary of the Manager, or any affiliate (collectively, "
Dreyfus") for advertising and marketing relating to the Fund and Servicing, at
an aggregate annual rate of .25 of 1% of the value of the Fund's average daily
net assets. Both the Distributor and Dreyfus may pay Service Agents a fee in
respect of the Fund's shares owned by shareholders with whom the Service Agent
has a Servicing relationship or for whom the Service Agent is the dealer or
holder of record. Both the Distributor and Dreyfus determine the amounts to be
paid to Service Agents to which it will make payments and the basis on which
such payments are made. The Plan also separately provides for the Fund to bear
the costs of preparing, printing and distributing certain of the Fund's
prospectuses and statements of additional information and costs associated with
implementing and operating the Plan, not to exceed the greater of $100,000 or .
005 of 1% of the value of the Fund's average daily net assets for any full year.
During the period ended December 31, 1998, $317,861 was charged to the Fund
pursuant to the Plan, of which $1,579 was reimbursed by the Manager.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the period
ended December 31, 1998, the Fund was charged $44,907 pursuant to the transfer
agency agreement.
(C) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation and the Trustee Emeritus receives 50% of such compensation.
(D) A 1% redemption fee is charged and retained by the Fund on shares
redeemed within fifteen days of their issuance, including redemptions made
through the use of the Fund Exchange privilege.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended December 31, 1998
amounted to $55,057,097 and $68,246,503, respectively.
At December 31, 1998, accumulated net unrealized appreciation on
investments was $7,110,865, consisting of $7,300,059 gross unrealized
appreciation and $189,194 gross unrealized depreciation.
At December 31, 1998, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting purposes
(see the Statement of Investments).
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus New York Insured Tax Exempt Bond Fund, including the statement of
investments, as of December 31, 1998 and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Dreyfus New York Insured Tax Exempt Bond Fund at December 31, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated years, in conformity with generally accepted accounting
principles.
New York, New York
February 1, 1999
IMPORTANT TAX INFORMATION (UNAUDITED)
In accordance with Federal tax law, the Fund hereby makes the following
designations regarding its fiscal year ended December 31, 1998:
--all the dividends paid from investment income-net are "exempt-interest
dividends" (not subject to regular Federal and, for residents of New York, New
York State and New York City personal income taxes), and
--the Fund hereby designates $.0222 per share as a long-term capital gain
distribution of the $.1099 per share paid on December 8, 1998 and also
designates $.0184 per share as a long-term capital gain distribution of the
$.0510 per share paid on July 7, 1998.
As required by Federal tax law rules, shareholders will receive
notification of their portion of the Fund's taxable ordinary dividends and
capital gains distributions paid for the 1998 calendar year on Form 1099-DIV
which will be mailed by January 31, 1999.
[reg.tm logo]
(reg.tm)
DREYFUS NEW YORK INSURED
TAX EXEMPT BOND FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 577AR9812
New York Insured
Tax Exempt
Bond Fund
Annual Report
December 31, 1998
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS NEW YORK
INSURED TAX EXEMPT BOND FUND AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
EXHIBIT A:
PERIOD LEHMAN BROTHERS DREYFUS NEW YORK
MUNICIPAL INSURED TAX EXEMPT
BOND INDEX* BOND FUND
12/31/88 10,000 10,000
12/31/89 11,079 10,875
12/31/90 11,886 11,518
12/31/91 13,329 13,023
12/31/92 14,504 14,136
12/31/93 16,286 15,702
12/31/94 15,444 14,662
12/31/95 18,140 16,917
12/31/96 18,943 17,276
12/31/97 20,685 18,556
12/31/98 22,025 19,555
*Source: Lehman Brothers
<PAGE>
Pro Forma Statement of Assets and Liabilities
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
General Dreyfus New York
New York Insured Tax Pro Forma
Municipal Bond Exempt Combined
Fund, Inc. Bond Fund Adjustments (Note 1)
ASSETS: Investments in securities, at value -
<S> <C> <C> <C> <C>
See Statement of Investments $292,305,899 $119,951,608 $ - $412,257,507
Cash - 168,789 (59,849)(a) 108,940
Interest receivable 4,956,327 2,152,865 - 7,109,192
Receivable for shares of Common Stock
subscribed 8,500 - 8,500
Prepaid expenses and other assets 10,819 8,497 19,316
------------ ------------ --------------- ------------
Total Assets 297,281,545 122,281,759 (59,849) 419,503,455
------------ ------------ --------------- ------------
LIABILITIES: Due to The Dreyfus Corporation and
affiliates 213,433 94,143 - 307,576
Due to Distributor 4,864 1,822 - 6,686
Cash overdraft due to Custodian 59,849 - (59,849)(a) -
Payable for shares of Common Stock
redeemed 1,978,180 - - 1,978,180
Dividends payable - - 308,882(b) 308,882
Accrued expenses 52,587 61,430 - 114,017
------------ ------------ --------------- ------------
Total Liabilities 2,308,913 157,395 249,033 2,715,341
------------ ------------ --------------- ------------
NET ASSETS $294,972,632 $122,124,364 $(308,882) $416,788,114
============ ============ =============== ============
REPRESENTED BY: Paid-in capital $271,068,978 $114,704,617 $- $385,773,595
Accumulated undistributed investment
income-net 8,028 - - 8,028
Accumulated net realized gain (loss)
on investments 212,747 308,882 (308,882)(b) 212,747
Accumulated net unrealized appreciation
(depreciation) on investments 23,682,879 7,110,865 - 30,793,744
------------ ------------ --------------- ------------
NET ASSETS $294,972,632 $122,124,364 $(308,882) $416,788,114
============ ============ =============== ============
Shares of Common Stock outstanding (100 million
shares of $.01 par value authorized):
General New York Municipal Bond Fund, Inc. 14,480,601
=============
Shares of Beneficial Interest outstanding
(unlimited number of $.001 par value
shares authorized):
Dreyfus New York Insured Tax Exempt Bond Fund 10,784,377
============
NET ASSET VALUE per share:
General New York Municipal Bond Fund, Inc.
($294,972,632 / 14,480,601 shares) $20.37
======
Dreyfus New York Insured Tax Exempt Bond Fund
($122,124,364 / 10,784,377 shares) $11.32
======
Pro forma Combined Portfolio -
($416,788,114 / 20,460,742 shares) $20.37
======
Investments in securities, at cost $268,623,020 $112,840,743 $381,463,763
(a) Reflects reclassification and netting of cash balances.
(b) Reflects the payment of undistributed net realized gain on investments.
See notes to pro forma financial statements.
</TABLE>
<PAGE>
Pro Forma Statement of Operations
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
General Dreyfus New York
New York Insured Tax Pro Forma
Municipal Bond Exempt Combined
Fund, Inc. Bond Fund Adjustments (Note 1)
INVESTMENT INCOME
<S> <C> <C> <C> <C>
INCOME Interest Income $17,109,028 $6,700,807 $- $23,809,835
EXPENSES: Management fee $1,846,702 $759,077 $- $2,605,779
Shareholder servicing costs 766,236 383,068 (63,000)(a) 1,086,304
Custodian fees 31,035 13,091 44,126
Prospectus and shareholders' reports 13,080 15,814 (6,000)(a) 22,894
Legal fees 2,051 12,462 14,513
Audit fees 36,847 33,210 (30,000)(a) 40,057
Registration fees 13,267 17,442 (17,000)(a) 13,709
Trustees/Directors' fees and expenses 35,649 36,620 (36,000)(a) 36,269
Loan commitment fees 2,286 1,161 - 3,447
Miscellaneous 20,998 15,339 (2,000)(a) 34,337
------------ ------------ --------------- ------------
Total Expenses 2,768,151 1,287,284 (154,000) 3,901,435
------------ ------------ --------------- ------------
Less-reduction in management fee due to
undertaking - (1,579) - (1,579)
------------ ------------ --------------- ------------
Net Expenses 2,768,151 1,285,705 (154,000) 3,899,856
------------ ------------ --------------- ------------
INVESTMENT INCOME-NET 14,340,877 5,415,102 154,000 19,909,979
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments $3,741,940 $1,511,337 $- $5,253,277
Net unrealized appreciation (depreciation)
on investments 1,042,638 (230,294) - 812,344
------------ ------------ --------------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 4,784,578 1,281,043 - 6,065,621
------------ ------------ --------------- ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $19,125,455 $6,696,145 $154,000 $25,975,600
=========== ========== ======== ===========
(a) Reflects the anticipated savings of the Merger.
See notes to pro forma financial statements.
</TABLE>
<PAGE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Basis of Combination:
On April 12,1999 and April 14, 1999, the Boards of Dreyfus New York
Insured Tax Exempt Bond Fund and General New York Municipal Bond Fund, Inc.,
respectively, approved an Agreement and Plan of Reorganization (the "Plan")
whereby, subject to approval by the shareholders of Dreyfus New York Insured Tax
Exempt Bond Fund, General New York Municipal Bond Fund, Inc. will acquire all
the assets, subject to the liabilities, of Dreyfus New York Insured Tax Exempt
Bond Fund, in exchange for a number of General New York Municipal Bond Fund,
Inc. shares equal to the pro rata net assets of Dreyfus New York Insured Tax
Exempt Bond Fund (the "Merger").
The Merger will be accounted for as a tax free merger of investment
companies. The unaudited pro forma statement of investments and statement of
assets and liabilities reflect the financial position of General New York
Municipal Bond Fund, Inc. and Dreyfus New York Insured Tax Exempt Bond Fund at
December 31, 1998. The unaudited pro forma statement of operations reflects the
results of operations of General New York Municipal Bond Fund, Inc. and Dreyfus
New York Insured Tax Exempt Bond Fund for the twelve months ended December 31,
1998 and the year ended December 31, 1998, respectively. These statements have
been derived from the Funds' respective books and records utilized in
calculating daily net asset value at the dates indicated above for General New
York Municipal Bond Fund, Inc. and Dreyfus New York Insured Tax Exempt Bond
Fund, under generally accepted accounting principles. The historical cost of
investment securities will be carried forward to the surviving entity and
results of operations of General New York Municipal Bond Fund, Inc. for
pre-combination periods will not be restated.
The pro forma statements of investments, assets and liabilities and
operations should be read in conjunction with the historical financial
statements of the Funds included or incorporated by reference in the respective
Statements of Additional Information. The pro forma combined financial
statements are presented for information only and may not necessarily be
representative of what the actual combined financial statements would have been
had the reorganization occurred at December 31, 1998.
NOTE 2--Portfolio Valuation:
Investments in securities (excluding options and financial futures on
municipal and U.S. treasury securities) are valued each business day by an
independent pricing service ("Service") approved by the Board of
Trustees/Directors. Investments for which quoted bid prices are readily
available, are representative of the bid side of the market and in the judgment
of the Service are valued at the mean between the quoted bid prices (as obtained
by the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service based on methods which
include consideration of: yields or prices of municipal securities of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. Options and financial futures on municipal and U.S.
treasury securities are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market on each business day. Investments not
listed on an exchange or the national securities market, or securities for which
there were no transactions, are valued at the average of the most recent bid and
asked prices. Bid price is used when no asked price is available.
NOTE 3--Capital Shares:
The pro forma net asset value per share assumes 5,980,141 additional
shares of Common Stock of General New York Municipal Bond Fund, Inc. were issued
in connection with the proposed acquisition by General New York Municipal Bond
Fund, Inc. of Dreyfus New York Insured Tax Exempt Bond Fund as of December 31,
1998. The pro forma number of shares that would be issuable was calculated by
dividing the net assets (adjusted to reflect payment of undistributed net
realized gain on investments) of Dreyfus New York Insured Tax Exempt Bond Fund
at December 31, 1998 by the net asset value per share of General New York
Municipal Bond Fund, Inc. at December 31, 1998 of $20.37. The pro forma combined
number of shares outstanding of 20,460,742 consists of the 5,980,141 shares
issuable to Dreyfus New York Insured Tax Exempt Bond Fund as a result of the
merger and the 14,480,601 shares of General New York Municipal Bond Fund, Inc.
outstanding at December 31, 1998.
NOTE 4--Pro Forma Operating Expenses:
The accompanying pro forma financial statements reflect changes in
fund expenses as if the merger had taken place on December 31, 1998. Although it
is anticipated that there will be an elimination of certain duplicative expenses
as a result of the Merger, the actual amount of such expenses cannot be
determined because it is not possible to predict the cost of future operations.
NOTE 5--Merger Cost:
Merger costs are estimated at approximately $43,500 and are not
included in the pro forma statement of operations since these costs are not
recurring. These costs represent the estimated expenses of the Funds carrying
out their obligations under the Plan and consist of management's estimate of
legal fees, accounting fees, printing costs and mailing charges related to the
Merger.
NOTE 6--Federal Income Taxes:
Each Fund has elected to be taxed as a "regulated investment company"
under the Internal Revenue Code. After the Merger, General New York Municipal
Bond Fund, Inc. intends to continue to qualify as a regulated investment
company, if such qualification is in the best interests of its shareholders, by
complying with the provisions available to certain investment companies, as
defined in applicable sections of the Internal Revenue Code, and to make
distributions of taxable income sufficient to relieve it from all, or
substantially all, Federal income taxes.
The identified cost of investments for the Funds is substantially the
same for both financial accounting and Federal income tax purposes. The tax cost
of investments will remain unchanged for the combined entity.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF INVESTMENTS
GENERAL NEW YORK MUNICIPAL BOND FUND, INC. DECEMBER 31, 1998 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
------------------------------- ---------------------
GENERAL DREYFUS GENERAL DREYFUS
NEW YORK NEW YORK NEW YORK NEW YORK
MUNICIPAL INSURED MUNICIPAL INSURED TAX
BOND TAX EXEMPT BOND EXEMPT
LONG-TERM MUNICIPAL INVESTMENTS--99.7% FUND, INC. BOND FUND TOTAL FUND, INC. BOND FUND TOTAL
- ------------------------------------- ----------- ------------ ------- ----------- ---------- --------
NEW YORK--95.8%
Albany Industrial Development Agency:
IDR (Hampton Plaza Project) 6.25%,
<S> <C> <C> <C> <C> <C> <C>
3/15/2018.......................... $5,600,000 $ - $5,600,000 $5,836,265 $ $5,836,265
LR:
(New York State Assembly Building
Project) 7.75%, 1/1/ 2010.......... 3,460,000 - 3,460,000 3,761,816 - 3,761,816
(New York State Department of
Health Building Project) 7.25%,
10/1/2010.......................... 1,730,000 - 1,730,000 1,955,263 - 1,955,263
Board of Cooperative Educational
Services, COP (Greenport Vocational
Facility Project) 7.875%, 10/1/2000.. 606,192 - 606,192 625,202 - 625,202
Cohoes Industrial Development
Agency, IDR (Norlite Corp. Project)
6.75%, 5/1/2009 (LOC; Dresdner
Bank, Prerefunded 5/1/2002)(a)...... 2,400,000 - 2,400,000 2,664,432 - 2,664,432
Development Authority of the North
Country, Solid Waste Management
System Revenue, Refunding 6%,
5/15/2015 (Insured; FSA)............ - 2,260,000 2,260,000 - 2,589,146 2,589,146
Franklin County Solid Waste
Management Authority, Solid Waste
Systems Revenue 6.125%, 6/1/2009.... 1,350,000 - 1,350,000 1,402,636 - 1,402,636
Islip Resource Recovery Agency,
RRR 6.125%, 7/1/2013 (Insured;
AMBAC).............................. - 1,425,000 1,425,000 - 1,565,989 1,565,989
Jefferson County Industrial
Development Agency, SWDR
(Champion International Corp.)
7.20%, 12/1/2020.................... 2,000,000 - 2,000,000 2,193,180 - 2,193,180
Long Island Power Authority,
Electric System Revenue 5.50%,
12/1/2029........................... 2,960,000 - 2,960,000 3,056,526 - 3,056,526
Metropolitan Transportation
Authority, Transit Facilities
Revenue:
6%, 7/1/2016 (Insured; FSA)........ 5,000,000 - 5,000,000 5,517,600 - 5,517,600
6.50%, 7/1/2018 (Insured; FGIC)
(Prerefunded 7/1/2002)(a)......... - 4,000,000 4,000,000 - 4,439,800 4,439,800
4.75%, 7/1/2026 (Insured: FGIC).... - 2,000,000 2,000,000 - 1,909,900 1,909,900
Refunding (Service Contract)
5.375%, 7/1/2021................... 3,000,000 - 3,000,000 3,045,720 - 3,045,720
Nassau County Industrial Development Agency,
Civic Facility Revenue, Refunding
(Hofstra University Project) 4.75%,
7/1/2028 (Insured; MBIA)........... - 2,000,000 2,000,000 - 1,907,000 1,907,000
New York City:
6%, 8/1/2007 (Insured; FGIC)....... - 2,000,000 2,000,000 - 2,256,040 2,256,040
5.375%, 6/1/2013 (Insured; AMBAC).. - 3,825,000 3,825,000 - 4,050,637 4,050,637
5.875%, 8/15/2013.................. 3,300,000 - 3,300,000 3,602,511 - 3,602,511
5.875%, 8/15/2016.................. 2,715,000 - 2,715,000 2,917,756 - 2,917,756
7.25%, 3/15/2018 (Insured; FSA).... - 1,000,000 1,000,000 - 1,059,680 1,059,680
Refunding:
6.375%, 8/15/2012............... 2,670,000 - 2,670,000 2,980,654 - 2,980,654
6%, 8/1/2016.................... 4,000,000 - 4,000,000 4,345,120 - 4,345,120
6%, 8/1/2017.................... 2,000,000 - 2,000,000 2,182,640 - 2,182,640
6%, 8/1/2021.................... 6,000,000 - 6,000,000 6,547,920 - 6,547,920
6.125%, 8/1/2025................ 5,000,000 - 5,000,000 5,492,800 - 5,492,800
New York City Industrial Development Agency:
Civic Facility Revenue:
(College of Aeronautics Project)
5.50%, 5/1/2028.................. 1,600,000 - 1,600,000 1,635,776 - 1,635,776
(YMCA of Greater New York
Project) 5.80%, 8/1/2016......... 1,500,000 - 1,500,000 1,594,500 - 1,594,500
IDR:
(Brooklyn Navy Yard) 5.75%,
10/1/2036....................... 1,970,000 - 1,970,000 2,025,771 - 2,025,771
Refunding (LaGuardia
Association LP Project) 6%,
11/1/2028...................... 2,790,000 - 2,790,000 2,783,583 - 2,783,583
Special Facility Revenue
(Terminal One Group Association
Project) 6%, 1/1/2019............. 3,000,000 - 3,000,000 3,191,190 - 3,191,190
New York City Municipal Water Finance
Authority, Water and Sewer System Revenue
6.20%, 6/15/2021 (Insured; AMBAC)
(Prerefunded 6/15/2002) (a)........ - 2,000,000 2,000,000 - 2,188,340 2,188,340
6%, 6/15/2025 (Prerefunded
6/15/2005) (a).................... 9,750,000 - 9,750,000 10,952,272 - 10,952,272
State of New York, GO 5.70%,
3/15/2013.......................... 2,000,000 - 2,000,000 2,147,420 - 2,147,420
New York State Dormitory Authority:
LR:
(Municipal Health Facilities
Improvement Program) 4.75%,
1/15/2029 (Insured;FSA)........... - 2,000,000 2,000,000 - 1,900,300 1,900,300
Revenue:
4201 School Program 6%,
7/1/2018........................ 2,000,000 - 2,000,000 1,971,820 - 1,971,820
(City University):
5.35%, 7/1/2009 (Insured; FGIC). - 5,000,000 5,000,000 - 5,444,300 5,444,300
6.30%, 7/1/2024 (Insured;
AMBAC)........................ 2,800,000 2,800,000 - 3,134,320 3,134,320
Consolidated City University Systems:
5.75%, 7/1/2013................. 10,005,000 - 10,005,000 11,145,270 - 11,145,270
5.625%, 7/1/2016................ 2,500,000 - 2,500,000 2,705,200 - 2,705,200
5.75%, 7/1/2018................. 2,500,000 - 2,500,000 2,746,675 - 2,746,675
Department of Health:
5.75%, 7/1/2017................. 5,240,000 - 5,240,000 5,552,618 - 5,552,618
(Roswell Park Cancer) 6.625%,
7/1/2024 (Prerefunded
7/1/2005) (a)................. 2,700,000 - 2,700,000 3,144,744 - 3,144,744
(Ithaca College) Refunding
6.25%, 7/1/2021 (Insured; MBIA)
(Prerefunded 7/1/2001) (a)...... - 2,000,000 2,000,000 - 2,164,480 2,164,480
(Mount Sinai School of Medicine):
5.15%, 7/1/2024 (Insured;
MBIA)....................... - 5,765,000 5,765,000 - 5,982,110 5,982,110
Refunding 6.75%, 7/1/2009
(Insured; MBIA)............... - 3,000,000 3,000,000 - 3,272,850 3,272,850
(New York and Presbyterian
Hospital) Refunding 4.75%,
8/1/2027 (Insured; AMBAC).... - 3,000,000 3,000,000 - 2,849,280 2,849,280
(St. John's University)
4.75%, 7/1/2028 (Insured;
MBIA)........................ - 5,250,000 5,250,000 - 5,005,875 5,005,875
Lease Revenue (Municipal Health
Facilities Improvement Program)....
4.75%, 1/15/2029................ 1,500,000 - 1,500,000 1,425,225 - 1,425,225
Refunding:
(Mental Health Services
Facility) 6%, 8/15/2021.......... 1,750,000 - 1,750,000 1,909,232 - 1,909,232
Secured Hospital (New York
Downtown Hospital) 5.30%,
2/15/2020....................... 5,000,000 - 5,000,000 5,057,950 - 5,057,950
State University Educational
Facilities:
5.50%, 5/15/2013................ 1,500,000 - 1,500,000 1,634,295 - 1,634,295
5.875%, 5/15/2017............... 2,060,000 - 2,060,000 2,298,939 - 2,298,939
6%, 5/15/2025 (Prerefunded
5/15/2005) (a)................ 3,825,000 - 3,825,000 4,326,534 - 4,326,534
4.75%, 5/15/2028................ 2,500,000 - 2,500,000 2,351,100 - 2,351,100
WK Nursing Home Corp. 6.05%,
2/1/2026 (Insured; FHA)........... 5,000,000 - 5,000,000 5,417,950 - 5,417,950
New York State Energy Research and
Development Authority, Revenue:
Electric Facilities Revenue (Long
Island Lighting) 7.15%, 9/1/2022.... 3,435,000 - 3,435,000 3,808,968 - 3,808,968
Facilities Revenue (Consolidated
Edison Co. of New York Inc. Project)
6.375%, 12/1/2027 (Insured; MBIA). - 5,000,000 5,000,000 - 5,343,250 5,343,250
7.125%, 12/1/2029................. 2,000,000 - 2,000,000 2,302,620 - 2,302,620
Gas Facilities Revenue (Brooklyn
Union Gas Co. Project) 6.368%,
4/1/2020........................... 5,000,000 - 5,000,000 5,765,550 - 5,765,550
Pollution Control, Refunding
(Niagara Mohawk Power Corp.)
6.625%, 10/1/2013 (Insured; FGIC).. - 4,500,000 4,500,000 - 4,885,965 4,885,965
New York State Environmental Facilities Corp.:
PCR (Pilgrim State Sewer Project)
6.30%, 3/15/2016................. 5,200,000 - 5,200,000 5,780,164 - 5,780,164
New York State Housing Finance Agency, Revenue:
(LooseStrife Fields Apartments
and Fairway Manor) 6.75%,
11/15/2036 (Insured; FHA)......... 5,910,000 - 5,910,000 6,449,169 - 6,449,169
Multi-Family Housing, Second
Mortgage 6.625%, 8/15/2012........ 2,500,000 - 2,500,000 2,664,200 - 2,664,200
Refunding:
Health Facilities 6%, 11/1/2007... 6,000,000 - 6,000,000 6,720,540 - 6,720,540
(Housing Mortgage Project)
6.10%, 11/1/2015 (Insured; FSA). 1,965,000 - 1,965,000 2,143,835 - 2,143,835
Service Contract Obligation:
6%, 9/15/2016................... 8,675,000 - 8,675,000 9,345,231 - 9,345,231
6%, 3/15/2026................... 6,645,000 - 6,645,000 7,169,025 - 7,169,025
Refunding:
5.25%, 3/15/2011................ 2,000,000 - 2,000,000 2,103,980 - 2,103,980
5.50%, 9/15/2018................ 6,000,000 - 6,000,000 6,189,480 - 6,189,480
New York State Local Government
Assistance Corp., Refunding
5.50%, 4/1/2017 (Insured; FSA)..... - 5,000,000 5,000,000 - 5,411,150 5,411,150
New York State Medical Care
Facilities Finance Agency,
Revenue:
(Aurelia Osborn Fox Memorial
Hospital) 6.50%, 11/1/2019
(Insured; FSA).................. - 1,000,000 1,000,000 - 1,082,270 1,082,270
Hospital & Nursing Home Insured Mortgage:
6.85%, 2/15/2012 (Prerefunded
2/15/2002)(Insured; FHA)(a).... 2,670,000 - 2,670,000 2,964,154 - 2,964,154
6.20%, 8/15/2013 (Insured; FHA). 3,000,000 - 3,000,000 3,214,470 - 3,214,470
6.125%, 2/15/2015............... 5,170,000 - 5,170,000 5,599,524 - 5,599,524
6.125%, 2/15/2015 (Insured;
MBIA)......................... 4,000,000 4,000,000 4,390,240 4,390,240
Improvement (Mental Health Services
Facilities) 6.50%, 2/15/2019..... 4,705,000 - 4,705,000 5,182,605 - 5,182,605
(Mental Health Service Facilities Improvement):
6.25%, 8/15/2018 (Insured;
AMBAC) (Prerefunded
2/15/2002)(a)................... - 4,340,000 4,340,000 - 4,746,094 4,746,094
6.25%, 8/15/2018 (Insured;
AMBAC)......................... - 345,000 345,000 - 373,362 373,362
(Sisters of Charity Hospital)
6.625%, 11/1/2018 (Insured; AMBAC). - 2,000,000 2,000,000 - 2,171,160 2,171,160
New York State Mortgage Agency, Revenue
(Homeownership Mortgage)
6%, 4/1/2017....................... 2,000,000 - 2,000,000 2,153,720 - 2,153,720
6.45%, 10/1/2017 (Insured; MBIA)... - 1,000,000 1,000,000 - 1,088,930 1,088,930
6.60%, 10/1/2019................... 3,500,000 - 3,500,000 3,810,730 - 3,810,730
6.05%, 4/1/2026.................... 5,610,000 - 5,610,000 6,032,545 - 6,032,545
6.40%, 4/1/2027.................... 3,980,000 - 3,980,000 4,355,951 - 4,355,951
New York State Thruway Authority,
Service Contract Revenue
(Local Highway and Bridge):
6%, 4/1/2012...................... 6,195,000 - 6,195,000 6,822,182 - 6,822,182
6.25%, 4/1/2014 (Prerefunded
4/1/2005)(a)..................... 2,000,000 - 2,000,000 2,272,980 - 2,272,980
5.75%, 4/1/2016................... 4,950,000 - 4,950,000 5,216,211 - 5,216,211
New York State Urban Development
Corp., Revenue
(Correctional Facilities):
5.375%, 1/1/2015................... 3,000,000 - 3,000,000 3,101,610 - 3,101,610
4.75%, 1/1/2018 (Insured; AMBAC)... 2,000,000 2,000,000 1,945,100 1,945,100
4.75%, 1/1/2028 (Insured; AMBAC)... 3,000,000 3,000,000 2,857,170 2,857,170
Refunding:
5.50%, 1/1/2014.................. 3,000,000 - 3,000,000 3,241,110 - 3,241,110
5.50%, 1/1/2014 (Insured; FSA)... - 3,000,000 3,000,000 - 3,285,120 3,285,120
Niagara Frontier Transportation
Authority, Airport Revenue
(Greater Buffalo International
Airport) 6.125%, 4/1/2014 (Insured;
AMBAC).............................. 2,700,000 - 2,700,000 2,926,206 - 2,926,206
Onondaga County Industrial Development
Agency, Sewer Facilities Revenue
(Bristol Meyers Squibb Co. Project)
5.75%, 3/1/2024................... 4,000,000 - 4,000,000 4,422,280 - 4,422,280
Orange County Industrial Development
Agency, Life Care Community Revenue
(Glenn Arden Inc. Project)
5.625%, 1/1/2018.................. 1,000,000 - 1,000,000 995,380 - 995,380
Port Authority of New York and New Jersey:
5.80%, 11/1/2010 (Insured;
FGIC)............................. - 7,160,000 7,160,000 - 7,777,980 7,777,980
6.25%, 1/15/2027 (Insured; AMBAC).. - 2,000,000 2,000,000 - 2,131,360 2,131,360
Special Obligation Revenue (JFK
International Air Terminal Project):
6.25%, 12/1/2013 (Insured; MBIA). - 5,000,000 5,000,000 - 5,857,050 5,857,050
(Special Project-JFK
International Terminal) 5.75%,
12/1/2025 (Insured; MBIA)......... 4,500,000 - 4,500,000 4,755,105 - 4,755,105
Rensselaer County Industrial Development
Agency, IDR (Albany International Corp.)
7.55%, 6/1/2007.................... 4,000,000 - 4,000,000 4,856,440 - 4,856,440
Scotia Housing Authority, Housing
Revenue (Coburg Village Inc. Project)
6.15%, 7/1/2028.................... 3,000,000 - 3,000,000 3,046,950 - 3,046,950
Triborough Bridge and Tunnel Authority:
General Purpose Revenues:
6.125%, 1/1/2021 (Insured; CMAC).. - 2,000,000 2,000,000 - 2,335,080 2,335,080
Refunding 6.125%, 1/1/2021......... 3,000,000 - 3,000,000 3,502,620 - 3,502,620
Special Obligation Refunding:
6%, 1/1/2015 (Insured; AMBAC)
(Prerefunded 1/1/2002)(a)......... - 3,260,000 3,260,000 - 3,524,060 3,524,060
6%, 1/1/2015 (Insured; AMBAC)..... - 740,000 740,000 - 791,201 791,201
4.75%, 1/1/2024 (Insured; MBIA)... - 3,000,000 3,000,000 - 2,870,940 2,870,940
Yonkers 5.125%, 8/1/2009 (Insured;
AMBAC)............................. - 3,125,000 3,125,000 - 3,322,281 3,322,281
Yonkers Industrial Development
Agency, Civic Facilities Revenue
(St. Joseph Hospital ) 5.90%,
3/1/2008......................... 3,900,000 - 3,900,000 3,937,479 - 3,937,479
U.S. RELATED - 3.9%
Puerto Rico Commonwealth, Refunding
(Public Improvement)
6%, 7/1/2026 (Prerefunded
7/1/2007) (a)..................... 5,000,000 - 5,000,000 5,758,400 - 5,758,400
Puerto Rico Electic Power Authority,
Power Revenue
5.40%, 7/1/2013 (Insured; MBIA).... - 3,700,000 3,700,000 - 3,986,898 3,986,898
5.929%, 7/1/2023 (Prerefunded
7/1/2002) (a)..................... 2,000,000 - 2,000,000 2,163,520 - 2,163,520
Virgin Islands Public Finance
Authority, Revenue, Refunding 5.50%,
10/1/2014........................... 4,000,000 - 4,000,000 4,139,760 - 4,139,760
--------- ---------- ---------
TOTAL LONG-TERM INVESTMENTS
(cost $267,323,020 and $112,840,743,
respectively)..................... $291,005,899 $119,951,608 $410,957,507
============ ============ ============
SHORT-TERM MUNICIPAL INVESTMENTS--.3%
- -------------------------------------
New York City, VRDN:
5% (LOC; Chase Manhattan Bank)(b).. $900,000 $ $900,000 $900,000 $ $900,000
5.1% (SBPA; Morgan Guaranty
Trust)(b)........................ 400,000 - 400,000 400,000 - 400,000
--------- ---------- ---------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,300,000).................. $1,300,000 - $1,300,000
========== ========== ==========
TOTAL INVESTMENTS--100.0% (cost
$268,623,020 and $112,840,743,
respectively)...................... $292,305,899 $119,951,608 $412,257,507
============ ============ ============
</TABLE>
<PAGE>
SUMMARY OF ABBREVIATIONS
<TABLE>
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
CMAC Capital Market Assurance Corporation LR Lease Revenue
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company Insurance Corporation
FHA Federal Housing Administration PCR Pollution Control Revenue
FSA Financial Security Assurance RRR Resources Recovery Revenue
GO General Obligation SBPA Standby Bond Purchase Agreement
IDR Industrial Development Revenue SWDR Solid Waste Disposal Revenue
VRDN Variable Rate Demand Notes
</TABLE>
<PAGE>
SUMMARY OF COMBINED RATINGS
<TABLE>
<CAPTION>
PERCENTAGE OF VALUE
GENERAL NEW YORK DREYFUS NEW YORK
MUNICIPAL BOND INSURED TAX EXEMPT
FITCH or MOODY'S or STANDARD & POOR'S FUND, INC, BOND FUND
- ------ ------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
AAA Aaa AAA 26.8% 100.0%
AA Aa AA 9.5 -
A A A 29.1 -
BBB Baa BBB 25.9 -
BB Ba BB .5 -
F1 MIG1 SP1 .4 -
Not Rated (c) Not Rated (c) Not Rated (c) 7.8 -
----------------- -------------
100.0% 100.0%
================= =============
NOTES TO STATEMENT OF INVESTMENTS:
(a) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(b) Securities payable on demand. Variable interest rate - subject to periodic
change.
(c) Securities which, while not rated by Fitch, Moody's and Standard & Poor's,
have been determined by Dreyfus to be of comparable quality to those rated
securities in which the Fund may invest.
</TABLE>
See notes to pro forma financial statements.
<PAGE>
GENERAL NEW YORK MUNICIPAL BOND FUND, INC.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
The response to this item is incorporated by reference to Item 25 of Part C
of Post-Effective Amendment No. 24 to the Registrant's Registration Statement on
Form N-1A, filed on December 30, 1998.
ITEM 16. Exhibits - All references are to Post-Effective Amendment No. 24
to the Registrant's Registration Statement on Form N-1A, filed on
December 30, 1998 (File No. 2-92285) (the "Registration Statement")
unless otherwise noted.
(1) Registrant's Articles of Incorporation and Articles of Amendment
are incorporated by reference to Exhibit (1) of Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A filed
on February 26, 1996.
(2) Registrant's Bylaws, as amended, are incorporated by reference to
Exhibit (2) of Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on December 30, 1998.
(3) Not Applicable.
*(4) Form of Agreement and Plan of Reorganization.
(5) Not Applicable.
(6) Management Agreement is incorporated by reference to Exhibit (5)
of Post-Effective Amendment No. 17 to the Registration Statement
on Form N-1A, filed on December 30, 1994.
(7)(a) Distribution Agreement is incorporated by reference to Exhibit
(6)(a) of Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A, filed on December 30, 1994.
(7)(b) Forms of Service Agreements are incorporated by reference to
Exhibit (6)(b) of Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A, filed on December 30, 1994.
(8) Not Applicable.
(9)(a) Amended and Restated Custody Agreement is incorporated by
reference to Exhibit (8)(a) of Post-Effective Amendment No. 16 to
the Registration Statement on Form N-1A, filed on January 18,
1994.
(9)(b) Sub-Custodian Agreements are incorporated by reference to Exhibit
(8)(b) of Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A, filed on January 18, 1994.
(10) Service Plan is incorporated by reference to Exhibit (15) of
Post-Effective Amendment No. 17 to the Registration Statement on
Form N-1A, filed on December 30, 1994.
(11) Opinion and consent of Registrant's counsel is incorporated by
reference to Exhibit (10) of Post-Effective Amendment No. 17 to
the Registration Statement on Form N-1A, filed on December 30,
1994.
(12) Opinion and consent of Stroock & Stroock & Lavan LLP regarding
tax matters.
(13) Not Applicable.
(14) Consent of Independent Auditors.
(15) Not Applicable.
**(16) Powers of Attorney.
***(17)(a) Form of Proxy.
(17)(b) Registrant's Prospectus dated March 1, 1999.
(17)(c) Dreyfus New York Insured Tax Exempt Bond Fund's Prospectus dated
May 1, 1999.
- --------
* Filed herewith as part of the Prospectus/Proxy Statement.
** Incorporated by reference to the signature page hereto.
*** Filed herewith as part of the Prospectus/Proxy Statement.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of New York, State of New
York, on the 4th day of May, 1999.
GENERAL NEW YORK MUNICIPAL
BOND FUND, INC.
(Registrant)
By: /s/ MARIE E. CONNOLLY
----------------------------
Marie E. Connolly, President
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Margaret W. Chambers, Marie E. Connolly,
Christopher J. Kelley, Kathleen K. Morrisey, Stephanie Pierce and Elba Vasquez,
and each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments to this Registration
Statement (including post-effective amendments and amendments thereto), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/S/MARIE E. CONNOLLY President and May 4, 1999
- ------------------------ Treasurer (Principal
Marie E. Connolly Executive and Financial
Officer)
/S/JOHN F. TOWER, III Vice President May 4, 1999
- ------------------------ Assistant Treasurer
John F. Tower, III (Principal Accounting
Officer)
/S/JOSEPH S. DIMARTINO Chairman of the Board May 4, 1999
- ------------------------ of Directors
Joseph S. DiMartino
/S/CLIFFORD L. ALEXANDER Board Member May 4, 1999
- ------------------------
Clifford L. Alexander
/S/PEGGY C. DAVIS Board Member May 4, 1999
- ------------------------
Peggy C. Davis
/S/ERNEST KAFKA Board Member May 4, 1999
- ------------------------
Ernest Kafka
/S/SAUL B. KLAMAN Board Member May 4, 1999
- ------------------------
Saul B. Klaman
/S/NATHAN LEVENTHAL Board Member May 4, 1999
- ------------------------
Nathan Leventhal
<PAGE>
INDEX OF EXHIBITS
(12) Opinion and consent of Stroock & Stroock & Lavan LLP regarding tax
matters
(14) Consent of independent auditors
(17)(b) Registrant's Prospectus dated March 1, 1999
(17)(c) Dreyfus New York Insured Tax Exempt Bond Fund's Prospectus dated May
1,1999
Exhibit (12)
April __, 1999
General New York Municipal Bond Fund, Inc.
200 Park Avenue
New York, New York 10166
Dreyfus New York Insured Tax Exempt Bond Fund
200 Park Avenue
New York, New York 10166
Re: Registration Statement on Form N-14
(REGISTRATION NO. 333- )
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences of
the reorganization contemplated by the Agreement and Plan of Reorganization,
substantially in the form included as Exhibit A to the Registration Statement on
Form N-14 of General New York Municipal Bond Fund, Inc. (Reg. No. 333-_____)
(the "Registration Statement"), between Dreyfus New York Insured Tax Exempt Bond
Fund, a Massachusetts business trust (the "Acquired Fund"), and General New York
Municipal Bond Fund, Inc., a Maryland corporation (the "Acquiring Fund"). You
have advised us that each Fund has qualified and will qualify as a "regulated
investment company" within the meaning of Subchapter M of Chapter 1 of the
Internal Revenue Code of 1986, as amended (the "Code"), for each of its taxable
years ending on or before or including the Closing Date.
In rendering this opinion, we have examined the Agreement and Plan of
Reorganization, the Registration Statement, the Acquiring Fund's Articles of
Incorporation, as amended from time to time (the "Charter"), the Acquired Fund's
Agreement and Declaration of Trust, as amended from time to time (the "Trust
Agreement"), the Prospectus and Statement of Additional Information of each
Fund, incorporated by reference in the Registration Statement, and such other
documents as we have deemed necessary or relevant for the purpose of this
opinion. In issuing our opinion, we have relied upon the representation of the
Acquired Fund that its Trust Agreement is the document pursuant to which it has
operated to date and that it has operated in accordance with all laws applicable
to such entity and the statements and representations made herein and in the
Registration Statement. We also have relied upon the representation of the
Acquiring Fund that its Charter is the document pursuant to which it has
operated to date and will operate following the reorganization and that it has
operated and will operate following the reorganization in accordance with all
laws applicable to such entity and the statements and representations made
herein and in the Registration Statement. As to various questions of fact
material to this opinion, where relevant facts were not independently
established by us, we have relied upon statements of, and written information
provided by, representatives of each Fund. We also have examined such matters of
law as we have deemed necessary or appropriate for the purpose of this opinion.
We note that our opinion is based on our examination of such law, our review of
the documents described above, the statements and representations referred to
above and in the Registration Statement and the Agreement and Plan of
Reorganization, the provisions of the Code, the regulations, published rulings
and announcements thereunder, and the judicial interpretations thereof currently
in effect. Any change in applicable law or any of the facts and circumstances
described in the Registration Statement, or inaccuracy of any statements or
representations on which we have relied, may affect the continuing validity of
our opinion.
Capitalized terms not defined herein have the respective meanings given such
terms in the Agreement and Plan of Reorganization.
Based on the foregoing, it is our opinion that for federal income tax purposes:
a) The transfer of all of the Acquired Fund's assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
identified liabilities of the Acquired Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Code;
b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of certain identified
liabilities of the Acquired Fund;
c) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
identified liabilities of the Acquired Fund or upon the distribution of the
Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares
of the Acquired Fund;
d) No gain or loss will be recognized by Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund Shares;
e) The aggregate tax basis for the Acquiring Fund Shares received by an
Acquired Fund Shareholder pursuant to the reorganization will be the same as the
aggregate tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the reorganization, and the holding period of the Acquiring
Fund Shares to be received by the Acquired Fund Shareholder will include the
period during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital assets
on the date of the reorganization); and
f) The tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the reorganization, and the holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus/Proxy
Statement included in the Registration Statement, and to the filing of this
opinion as an exhibit to the Registration Statement, and to the filing of this
opinion as an exhibit to any application made by or on behalf of the Acquiring
Fund or any distributor or dealer in connection with the registration and
qualification of the Acquiring Fund or the Acquiring Fund Shares under the
securities laws of any state or jurisdiction. In giving such permission, we do
not admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
Exhibit (14)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial
Statements and Experts" and to the use of our reports dated December 4, 1998
with respect to General New York Municipal Bond Fund, Inc. and February 1,
1999 with respect to Dreyfus New York Insured Tax Exempt Bond Fund, which are
incorporated by reference, in this Registration Statement on Form N-14 of
General New York Municipal Bond Fund, Inc.
ERNST & YOUNG LLP
New York, New York
April 30, 1999
Exhibit (17)(b)
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:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit
of the issuer and its taxing power
o 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
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:
o 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
o New York's economy and revenues underlying municipal bonds may decline
o investing primarily in a single state may make the
fund's portfolio securities more sensitive to risks specific to the
state
o 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
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%
--------------------------------------------------------
Average annual total return AS OF 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------
FUND 6.35% 5.38% 7.80%
LEHMAN BROTHERS
MUNICIPAL
BOND INDEX 6.48% 6.22% 8.22%
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.
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%
- --------------------------------------------------------------------------------
Expense example
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
$92 $287 $498 $1,108
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
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.
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
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.
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:
o 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
o 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:
o amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
o 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
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:
o 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)
o refuse any purchase or exchange request in excess of
1% of the fund's total assets
o change or discontinue its exchange privilege, or
temporarily suspend this privilege during unusual market conditions
o change its minimum investment amounts
o 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.
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
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.
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
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.
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
NOTES
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
Exhibit (17)(c)
Dreyfus New York Insured Tax Exempt Bond Fund
Investing for income exempt from federal, New York state and New York city
income taxes
PROSPECTUS May 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
- ----------------------------------------------------
What every investor
should know about 2 Goal/Approach
the fund
3 Main Risks
4 Past Performance
5 Expenses
6 Management
7 Financial Highlights
YOUR INVESTMENT
- --------------------------------------------------------------------
Information
for managing your 8 Account Policies
fund account
11 Distributions and Taxes
12 Services for Fund Investors
14 Instructions for Regular Accounts
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Where to learn more
about this and other Back Cover
Dreyfus funds
<PAGE>
The Fund
Dreyfus New York Insured Tax Exempt Bond Fund
- ---------------------------------------------
Ticker Symbol: DNYBX
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 investment grade municipal bonds the interest from which is exempt
from federal, New York state and New York city personal income taxes. These
bonds will be insured as to the timely payment of principal and interest by
recognized insurers of municipal bonds, such as Ambac Assurance Corporation,
Financial Guaranty Insurance Company, Financial Security Assurance, Inc. and
MBIA Insurance Corporation.
Either the issuer or underwriter of a particular municipal bond or the fund
itself will obtain an insurance policy from an insurer that insures the timely
payment of principal and interest on the bond in the event of a default. The
insurance policy does not insure the market value of the bond or the fund's
share price.
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:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit
of the issuer and its taxing power
o 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
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:
o 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
o New York's economy and revenues underlying municipal bonds may decline
o investing primarily in a single state may make the fund's portfolio
securities more sensitive to risks specific to the state
o municipal bond insurance is intended to reduce financial risk, but the
cost of the insurance will reduce the yield on the bond and the fund's
returns
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/or municipal bonds that are exempt
only from federal personal income tax.
Other potential risks
The fund, at times, may invest in certain derivatives. Derivatives range from
the conventional, such as futures and options, to the more exotic, such as
inverse floaters. 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 a group of issuers.
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 10-Year 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 (%)
BEST QUARTER: Q2 '89 +6.87%
WORST QUARTER: Q1 '94 -5.55%
--------------------------------------------------------
Average annual total return AS OF 12/31/98
1 Year 5 Years 10 Years
-------------------------------------------------------
FUND 5.38% 4.49% 6.94%
LEHMAN BROTHERS
10-YEAR MUNICIPAL
BOND INDEX 6.48% 6.22% 8.22%
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>
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. The fund has no sales charge
(load).
--------------------------------------------------------
Fee table
SHAREHOLDER TRANSACTION FEES
% OF TRANSACTION AMOUNT
Maximum redemption fee 1.00%
CHARGED ONLY WHEN SELLING SHARES YOU
HAVE OWNED FOR LESS THAN 15 DAYS
--------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees xx%
12b-1 fee xx%
Other expenses xx%
--------------------------------------------------------
TOTAL XX%
--------------------------------------------------------
Expense example
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
$XXX $XXX $XXX $XXX
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 Dreyfus Corporation for managing the fund.
Unlike the arrangements between most investment advisers and their funds,
Dreyfus pays all fund expenses except for brokerage fees, taxes, interest, fees
and expenses of the independent directors, Rule 12b-1 fees and extraordinary
expenses.
12B-1 FEE: the fee paid to Dreyfus Service Corporation, an affiliate of The
Dreyfus Corporation, for shareholder service and to the fund's distributor for
shareholder service and promotional expenses. For Investor shares, the fee is
paid out of the fund's assets on an ongoing basis; over time this will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
<PAGE>
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.
Richard J. Moynihan is the fund's primary portfolio manager, a position he has
held since October 1996. Mr. Moynihan joined Dreyfus in 1973 where, since August
1994, he has served as Director of Municipal Portfolio Management.
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>
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 DECEMBER 31,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 11.37 11.19 11.68 10.66 12.04
Investment operations:
Investment income -- net .49 .50 .54 .59 .60
Net realized and unrealized gain
(loss) on investments .11 .30 (.31) 1.02 (1.39)
Total from investment operations .60 .80 .23 1.61 (.79)
Distributions:
Dividends from investment
income -- net (.49) (.50) (.54) (.59) (.59)
Dividends from net realized gain
on investments (.16) (.12) (.18) -- --
Total distributions (.65) (.62) (.72) (.59) (.59)
Net asset value, end of period 11.32 11.37 11.19 11.68 10.66
Total return (%) 5.38 7.41 2.12 15.38 (6.62)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to
average net assets (%) 1.02 .99 1.02 .99 .98
Ratio of net investment income
to average net assets (%) 4.28 4.47 4.78 5.20 5.31
Decrease reflected in above expense ratios
due to undertakings by manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 44.69 116.40 84.24 31.13 12.79
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 122,124 135,822 142,837 157,317 151,696
</TABLE>
<PAGE>
Your Investment
ACCOUNT POLICIES
Buying shares
YOU PAY NO SALES CHARGES to invest in this fund. 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 authorized entity. When
calculating its NAV, the fund's investments are valued by an independent pricing
service approved and supervised by the fund's board. 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.
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.
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
authorized entity. 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:
o 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
o if you are selling or exchanging shares you have owned for less than 15
days, the fund may deduct a 1% 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:
o amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
o 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.
ACCOUNT POLICIES (CONTINUED)
General policies
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:
o 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)
o refuse any purchase or exchange request in excess of 1% of the fund's
total assets
o change or discontinue its exchange privilege, or temporarily suspend
this privilege during unusual market conditions
o change its minimum investment amounts
o 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).
Small account policies
To offset the relatively higher costs of servicing smaller accounts, the fund
charges regular accounts with balances below $2,000 an annual fee of $12. The
fee will be imposed during the fourth quarter of each calendar year.
The fee will be waived for: any investor whose aggregate Dreyfus mutual fund
investments total at least $25,000; IRA accounts; accounts participating in
automatic investment programs; accounts opened through a financial institution.
If your account falls below $500, the fund may ask you to increase your balance.
If it is still below $500 after 30 days, the fund may close your account and
send you the proceeds.
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
federally 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
Except in tax-advantaged accounts, 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.
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.
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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).
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For exchanging shares
DREYFUS AUTO- For making regular exchanges
EXCHANGE PRIVILEGE from one Dreyfus fund into
another.
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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>
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.
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
By Telephone
WIRE Have your bank send your investment to The Bank of New York, with these
instructions:
* ABA# 021000018
* DDA# 8900052198
* 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.
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.
Via the Internet
COMPUTER Visit the Dreyfus Web site http://www.dreyfus.com and follow the
instructions to download an account application.
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
WIRE Have your bank send your investment to The Bank of New York, with these
instructions:
* ABA# 021000018
* DDA# 8900052198
* 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.
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.
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.
NOTES
<PAGE>
For More Information
Dreyfus New York Insured Tax Exempt Bond Fund
------------------------------
SEC file number: 811-4884
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 577P0599
