Dreyfus Insured Municipal Bond Fund, Inc.
Investing for income that is exempt from federal income taxes
PROSPECTUS September 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
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2 Goal/Approach
3 Main Risks
4 Past Performance
5 Expenses
6 Management
7 Financial Highlights
YOUR INVESTMENT
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8 Account Policies
11 Distributions and Taxes
12 Services for Fund Investors
14 Instructions for Regular Accounts
FOR MORE INFORMATION
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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
Dreyfus Insured Municipal Bond Fund, Inc.
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Ticker Symbol: DTBDX
GOAL/APPROACH
The fund seeks as high a level of current income exempt from federal income tax
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 that provide income exempt from federal income tax. 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 insuring 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
dollar-weighted average maturity of the fund normally exceeds ten years, but the
fund is not subject to any maturity restrictions.
The portfolio manager buys and sells bonds based on several factors, including
credit quality, financial outlook and yield potential. Bonds with deteriorating
credit quality are potential sell candidates, while those of better quality
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
AVERAGE MATURITY: an average of the stated maturities of the bonds held in the
fund, based on their dollar-weighted proportions in the fund.
MUNICIPAL BONDS: debt securities that provide income free from federal income
tax. Municipal bonds are typically of two types:
* GENERAL OBLIGATION BONDS, which are secured by the full faith and credit
of the issuer and its taxing power
* REVENUE BONDS, which are payable from the revenues derived from a
specific revenue source, such as charges for water and sewer service or highway
tolls
<PAGE 2>
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and therefore in the fund's share price
as well. As a result, the value of your investment in the fund could go up and
down, which means that you could lose money.
Other risk factors could have an effect on the fund's performance:
* 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
* 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 income
tax, interest from some of its holdings may be subject to the federal
alternative minimum tax. In addition, the fund occasionally may invest in
taxable bonds.
Other potential risks
The fund, at times, may invest in certain derivatives, such as futures and
options, which may cause taxable income, and inverse floaters. Derivatives can
be illiquid and highly sensitive to changes in their underlying security,
interest rate or index. A small investment in certain derivatives could have a
potentially large impact on the fund's performance. The fund may use derivatives
to:
* increase yield
* hedge against a decline in principal value
* invest with greater efficiency and lower cost than is possible through
direct investment
* adjust the fund's duration
* provide daily liquidity
The Fund
<PAGE 3>
PAST PERFORMANCE
The tables below show some of the risks of investing in the fund. The first
table shows the changes in the fund's performance from year to year. The second
table compares the fund's performance over time to that of the Lehman Brothers
Municipal Bond Index, an unmanaged index of uninsured municipal bond
performance. Both tables assume reinvestment of dividends. Of course, past
performance is no guarantee of future results.
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Year-by-year total return AS OF 12/31 EACH YEAR (%)
[Exhibit A]
BEST QUARTER: Q1 '95 +6.44%
WORST QUARTER: Q1 '94 -7.07%
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.67%.
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<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
<S> <C> <C> <C>
1 Year 5 Years 10 Years
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FUND 5.81% 4.39% 6.89%
LEHMAN BROTHERS
MUNICIPAL BOND
INDEX 6.48% 6.22% 8.22%
</TABLE>
What this fund is -- and isn't
This fund is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE 4>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Shareholder transaction fees are paid
from your account. Annual fund operating expenses are paid out of fund assets,
so their effect is included in the share price. The fund has no sales charge
(load).
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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
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ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.60%
Rule 12b-1 fee 0.20%
Other expenses 0.15%
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TOTAL 0.95%
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Expense example
1 Year 3 Years 5 Years 10 Years
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$97 $303 $525 $1,166
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 Dreyfus for managing the fund's portfolio and
assisting in all aspects of the fund's operations. During the past fiscal year,
Dreyfus waived a portion of its fee so that the effective management fee paid by
the fund was 0.50%, reducing total expenses from 0.95% to 0.85%. This waiver was
voluntary.
RULE 12B-1 FEE: a fee paid to reimburse the fund's distributor for distributing
fund shares and servicing shareholder accounts, and to 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.
The Fund
<PAGE 5>
MANAGEMENT
The investment adviser for the fund is The Dreyfus Corporation, 200 Park Avenue,
New York, New York 10166. Founded in 1947, Dreyfus manages more than $120
billion in over 160 mutual fund portfolios. For the past fiscal year, the fund
paid Dreyfus a management fee at the annual rate of 0.50% of the fund's average
daily net assets. Dreyfus is the primary mutual fund business of Mellon Bank
Corporation, a broad-based financial services company with a bank at its core.
With more than $389 billion of assets under management and $1.9 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. Mellon is headquartered in Pittsburgh, Pennsylvania.
Joseph P. Darcy has managed the fund since August 1996 and has been employed by
Dreyfus since 1994.
Dreyfus has a personal securities trading policy (the "Policy") which restricts
the personal securities transactions of its employees. Its primary purpose is to
ensure that personal trading by Dreyfus employees does not disadvantage any
Dreyfus-managed fund. Dreyfus portfolio managers and other investment personnel
who comply with the Policy's preclearance and disclosure procedures may be
permitted to purchase, sell or hold certain types of securities which also may
be or are held in the fund(s) they advise.
Concepts to understand
YEAR 2000 ISSUES: the fund could be adversely affected if the computer systems
used by Dreyfus and the fund's other service providers do not properly process
and calculate date-related information from and after January 1, 2000.
Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
<PAGE 6>
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods indicated.
"Total return" shows how much your investment in the fund would have increased
(or decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been independently audited by Ernst & Young
LLP, whose report, along with the fund's financial statements, is included in
the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1999 1998 1997 1996 1995
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PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 17.88 17.31 17.13 17.25 17.46
Investment operations:
Investment income -- net .84 .85 .87 .91 .94
Net realized and unrealized gain
(loss) on investments .36 .57 .18 (.11) (.21)
Total from investment operations 1.20 1.42 1.05 .80 .73
Distributions:
Dividends from investment
income -- net (.84) (.85) (.87) (.92) (.94)
Net asset value, end of period 18.24 17.88 17.31 17.13 17.25
Total return (%) 6.80 8.31 6.24 4.58 4.36
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RATIOS/SUPPLEMENTAL DATA
Ratio of expenses
to average net assets (%) .85 .85 .80 .85 .94
Ratio of net investment income
to average net assets (%) 4.60 4.76 5.03 5.14 5.49
Decrease reflected in above
expense ratios due to
actions by Dreyfus (%) .10 .10 .17 .09 --
Portfolio turnover rate (%) 32.27 64.38 93.39 82.86 41.19
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 180,603 186,436 192,472 208,388 220,398
</TABLE>
The Fund
<PAGE 7>
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. Because the
fund seeks tax-exempt income, it is not recommended as a vehicle for an IRA or
other qualified retirement plan.
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Minimum investments
Initial Additional
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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 priced at fair value by an
independent pricing service approved by the fund's board. The pricing service's
procedures are reviewed under the general supervision of the board.
<PAGE 8>
Selling shares
YOU MAY SELL (REDEEM) 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:
* 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
* 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)
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Limitations on selling shares by phone
Proceeds
sent by Minimum Maximum
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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:
* amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
* requests to send the proceeds to a different payee or address
Written sell orders of $100,000 or more must also be signature guaranteed.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
Your Investment
<PAGE 9>
ACCOUNT POLICIES (CONTINUED)
General policies
IF YOUR ACCOUNT FALLS BELOW $500, the fund may ask you to increase your balance.
If it is still below $500 after 45 days, the fund may close your account and
send you the proceeds.
UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.
THE FUND RESERVES THE RIGHT TO:
* 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)
* refuse any purchase or exchange request in excess of
1% of the fund's total assets
* change or discontinue its exchange privilege, or
temporarily suspend this privilege during unusual market conditions
* change its minimum investment amounts
* 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,
financial advisers and financial supermarkets may charge transaction fees and
may set different minimum investments or limitations on buying or selling
shares. Consult a representative of your plan or financial institution if in
doubt.
<PAGE 10>
DISTRIBUTIONS AND TAXES
THE FUND USUALLY PAYS ITS SHAREHOLDERS DIVIDENDS from its net investment income
once a month, and distributes any net capital gains 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 income tax. You may, however, have to pay state and local taxes.
Also, any dividends paid from interest on taxable investments or short-term
capital gains will be taxed as ordinary income. Any distributions of long-term
capital gains will be taxable as such. 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:
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Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
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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 or exchanged up to 12 months after buying them. "Long-term
capital gains" applies to shares sold or exchanged after 12 months.
<PAGE 11>
SERVICES FOR FUND INVESTORS
Automatic services
BUYING OR SELLING SHARES AUTOMATICALLY is easy with the services described
below. With each service, you select a schedule and amount, subject to certain
restrictions. You can set up most of these services with your application or by
calling 1-800-645-6561.
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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 12>
Checkwriting privilege
YOU MAY WRITE REDEMPTION CHECKS against your account in amounts of $500 or more.
These checks are free; however, a fee will be charged if you request a stop
payment or if the transfer agent cannot honor a redemption check due to
insufficient funds or another valid reason. Please do not postdate your checks
or use them to close your account.
Exchange privilege
YOU CAN EXCHANGE SHARES WORTH $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.
24-hour automated account access
YOU CAN EASILY MANAGE YOUR DREYFUS ACCOUNTS, check your account balances,
transfer money between your Dreyfus funds, get price and yield information and
much more -- when it's convenient for you.
Your Investment
<PAGE 13>
INSTRUCTIONS FOR REGULAR ACCOUNTS
TO OPEN AN ACCOUNT
In Writing
Complete the application.
Mail your application and a check to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your account number on your check.
Mail the slip and the check to: The Dreyfus Family of Funds P.O. Box 105,
Newark, NJ 07101-0105
By Telephone
WIRE Have your bank send your
investment to The Bank of New York, with these instructions:
* ABA# 021000018
* DDA# 8900052031
* 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# 8900052031
* the fund name
* your account number
* name(s) of investor(s)
ELECTRONIC CHECK Same as wire, but insert "1111" before your account number.
TELETRANSFER Request TeleTransfer on your application. Call us to request your
transaction.
Automatically
WITH AN INITIAL INVESTMENT Indicate
on your application which automatic service(s) you want. Return your application
with your investment.
WITHOUT ANY INITIAL INVESTMENT Check the Dreyfus Step Program option on your
application. Return your application, then complete the additional materials
when they are sent to you.
ALL SERVICES Call us to request a form to add any automatic investing service
(see "Services for Fund Investors"). Complete and return the forms along with
any other required materials.
Via the Internet
COMPUTER Visit the Dreyfus Web site http://www.dreyfus.com and follow the
instructions to download an account application.
<PAGE 14>
TO SELL SHARES
Write a redemption check OR write a letter of instruction that includes:
* your name(s) and signature(s)
* your account number
* the fund name
* the dollar amount you want to sell
* how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see "Account
Policies -- Selling Shares").
Mail your request to: The Dreyfus Family of Funds P.O. Box 9671, Providence, RI
02940-9671
WIRE Be sure the fund has your bank account information on file. Call us to
request your transaction. Proceeds will be wired to your bank.
TELETRANSFER Be sure the fund has your bank account information on file. Call
us to request your transaction. Proceeds will be sent to your bank by electronic
check.
CHECK Call us to request your transaction. A check will be sent to the address
of record.
DREYFUS AUTOMATIC WITHDRAWAL PLAN Call us to request a form to add the plan.
Complete the form, specifying the amount and frequency of withdrawals you would
like.
Be sure to maintain an account balance of $5,000 or more.
To reach Dreyfus, call toll free in the U.S.
1-800-645-6561
Outside the U.S. 516-794-5452
Make checks payable to:
THE DREYFUS FAMILY OF FUNDS
You also can deliver requests to any Dreyfus Financial Center. Because
processing time may vary, please ask the representative when your account will
be credited or debited.
Concepts to understand
WIRE TRANSFER: for transferring money from one financial institution to another.
Wiring is the fastest way to move money, although your bank may charge a fee to
send or receive wire transfers. Wire redemptions from the fund are subject to a
$1,000 minimum.
ELECTRONIC CHECK: for transferring money out of a bank account. Your transaction
is entered electronically, but may take up to eight business days to clear.
Electronic checks usually are available without a fee at all Automated Clearing
House (ACH) banks.
Your Investment
<PAGE 15>
NOTES
<PAGE>
<PAGE>
For More Information
Dreyfus Insured Municipal Bond Fund, Inc.
-----------------------------
SEC file number: 811-4237
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 306P0999
<PAGE>
DREYFUS INSURED MUNICIPAL BOND FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 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 Insured Municipal Bond Fund, Inc. (the "Fund"), dated September 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-17
Management Arrangements B-22
How to Buy Shares B-25
Service Plan B-27
How to Redeem Shares B-28
Shareholder Services B-32
Determination of Net Asset Value B-35
Portfolio Transactions B-36
Dividends, Distributions and Taxes B-36
Performance Information B-39
Information About the Fund B-40
Counsel and Independent Auditors B-41
Appendix B-43
DESCRIPTION OF THE FUND
The Fund is a Maryland corporation that commenced operations on June
25, 1975. The Fund is an open-end management investment company, known as a
municipal bond fund. The Fund is a diversified fund, which means that, with
respect to 75% of its total assets, the Fund will not invest more than 5% of
its assets in the securities of any single issuer.
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 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 lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such
other factors concerning credit quality as the Manager may deem relevant.
The Fund will not invest more than 15% of the value of its net assets in
lease obligations that are illiquid and in other illiquid securities. See
"Investment Restriction No. 13" 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.
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.
Ratings of Municipal Obligations. The Fund will purchase Municipal
Obligations only if rated investment grade. Municipal Obligations are
considered investment grade if rated at least Baa by Moody's Investors
Service, Inc. ("Moody's") or at least 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"). Municipal Obligations rated BBB by S&P and Fitch are
regarded as having adequate capacity to pay principal and interest; while
those rated Baa by Moody's are considered medium grade obligations which
lack outstanding investment characteristics and have speculative
characteristics. 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 by ratings for the fiscal year ended April 30, 1999, calculated
on a monthly basis, was as follows:
Percentage
Fitch or Moody's or S&P of Value
AAA Aaa AAA 98.4100.0%
F-1 VMIG 1 SP-1+ 1.6100.0%
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.
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 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 $1 billion 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. 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 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 variation margin system
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 securities
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 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 segregates 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.
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 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, or securities whose issuers are located in the same
state. 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 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.
Zero Coupon Securities. The Fund may invest in zero coupon securities
and pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds). 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.
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. The Fund has adopted
investment restrictions numbered 1 through 9 as fundamental policies.
Investment restrictions numbered 10 through 14 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 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of the Fund's total assets may be
invested, and securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities may be purchased, without regard to any such
limitations.
2. Purchase more than 10% of the voting securities of any issuer
(this restriction applies only with respect to 75% of the Fund's assets).
3. Invest more than 25% of its total assets in the 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, securities issued by banks and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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 Restrictions numbered 4, 5 and 12 may be deemed to give rise
to a senior security.
9. Sell securities short or purchase securities on margin, but the
Fund may make margin deposits in connection with transactions in options,
forward contracts, futures contacts, including those relating to indices,
and options on futures contracts or indices.
10. 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.
11. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.
12. Pledge, mortgage, hypothecate, 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.
13. 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.
14. Invest in companies for the purpose of exercising control.
For the purposes of Investment Restriction No. 3, 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 change 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 Company, Inc.), a button
packager and distributor, Career Blazers, Inc. (formerly, Staffing
Resources, Inc.), a temporary placement agency, and Century Business
Services, Inc. (formerly, International Alliance 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.
DAVID W. BURKE, Board Member. Board member of various funds in the Dreyfus
Family of Funds. Chairman of the Broadcasting Board of Governors, an
independent board within the United States Information Agency, from
August 1994 to November 1998. From August 1994 to December 1994, Mr.
Burke was a Consultant to the Manager, and from October 1990 to August
1994, he was Vice President and Chief Administrative Officer of the
Manager. From 1977 to 1990, Mr. Burke was involved in the management
of national television news, as Vice President and Executive Vice
President of ABC News, and subsequently as President of CBS News. He
is 63 years old and his address is Box 654, Eastham, Massachusetts
02642.
HODDING CARTER, III, Board Member President and Chief Executive Officer of
the John S. and James L. Knight Foundation. From 1985 to 1998, he was
President and Chairman of MainStreet TV. From 1995 to 1998, he was
Knight Professor in Journalism at the University of Maryland. From
1980 to 1991, he was "Op Ed" columnist for The Wall Street Journal.
From 1985 to 1986, he was anchor and Chief Correspondent of "Capital
Journal," a weekly Public Broadcasting System ("PBS") series on
Congress. From 1981 to 1984, he was anchorman and chief correspondent
for PBS' "Inside Story", a regularly scheduled half-hour critique of
press performance. From 1977 to July 1, 1980, Mr. Carter served as
Assistant Secretary of State for Public Affairs and as Department of
State spokesman. He is 64 years old and his address is c/o Knight
Foundation, 2 South Biscayne Boulevard, Suite 3800, Miami, FL 33131.
EHUD HOUMINER, Board Member. Professor and Executive-in-Residence at the
Columbia Business School, Columbia University. Since January 1996,
Principal of Lear, Yavitz and Associates, a management consultant firm.
He also is a Director of Avnet Inc. and Super-Sol Limited. He is 57
years old and his address is c/o Columbia Business School, Columbia
University, Uris Hall, Room 526, New York, New York 10027.
RICHARD C. LEONE, Board Member. President of The Century Foundation
(formerly, The Twentieth Century Fund, Inc.), a tax-exempt research
foundation engaged in the study of economic, foreign policy and
domestic issues. From April 1990 to March 1994, he was Chairman of,
and from April 1988 to March 1994, he was a Commissioner of, The Port
Authority of New York and New Jersey. From 1985 to 1986, he was a
member of, and from January 1986 to January 1989, he was a Managing
Director of, Dillon, Read & Co., Inc. Mr. Leone also is a director of
Dynex, Inc. He is 59 years old and his address is 41 East 70th Street,
New York, New York 10021.
HANS C. MAUTNER, Board Member. Vice Chairman and a Director of Simon
Property, Inc., a real estate investment company, and a Trustee of
Cornerstone Properties. From 1997 to 1998, he was Chairman, Chief
Executive Officer and a Trustee of Corporate Property Investors, which
merged into Simon Property Group in September 1998. Since January
1986, he has been a Director of Julius Baer Investment Management,
Inc., a wholly-owned subsidiary of Julius Baer Securities, Inc. He is
61 years old and his address is 305 East 47th Street, New York, New
York 10017.
ROBIN A. PRINGLE, Board Member. Vice President of The National Mentoring
Partnership and President of The Boisi Family Foundation, a private
family foundation devoted to youths and higher education located in New
York City. Since 1993, she has been Vice President, and, from March
1992 to October 1993, she was Executive Director of One to One
Partnership, Inc., a national non-profit organization that seeks to
promote mentoring and economic empowerment for at-risk youths. From
June 1986 to February 1992, she was an investment banker with Goldman,
Sachs & Co. She is 35 years old and her address is 621 South Plymouth
Court, Chicago, Illinois 60605.
JOHN E. ZUCCOTTI, Board Member. Since November 1996, Chairman of Brookfield
Financial Properties, Inc. From 1990 to November 1996, he was the
President and Chief Executive Officer of Olympia & York Companies
(U.S.A.) and a member of its Board of Directors since the inception of
the company's Board in November 1996. From 1978 to 1986, he was a
partner in the law firm of Tufo & Zuccotti. He was First Deputy Mayor
of the City of New York from December 1975 to June 1977, and Chairman
of the City Planning Commission for the City of New York from 1973 to
1975. Mr. Zuccotti has been a director or trustee of many corporate
and not-for-profit boards. He has recently been named Vice-Chairman of
Brookfield Properties Corporation headquartered in Toronto, Canada
(parent company of Brookfield Financial Properties). Mr. Zuccotti also
serves as a director of Applied Graphics Technologies, Inc. He is 62
years old and his address is 1 Liberty Plaza, 6th Floor, New York, New
York 10006.
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 for the fiscal year ended
April 30, 1999, and by all 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:
Name of Board Compensation from Complex Paid to
Member Fund** Board Members
Joseph S. DiMartino $ 5,313 $ 619,660 (187)
David W. Burke $ 4,250 $ 233,500 (62)
Hodding Carter, III $ 3,750 $ 32,500 (7)
Ehud Houminer $ 4,250 $ 62,250 (21)
Richard C. Leone $ 4,000 $ 35,500 (7)
Hans C. Mautner $ 3,500 $ 29,500 (7)
Robin A. Pringle $ 4,250 $ 38,500 (7)
John E. Zuccotti $3,750 $ 32,500 (7)
_____________________
* 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 $ 1,344 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.
*FREDERICK C. DEY, Vice President and Assistant Treasurer and Assistant
Secretary. Vice President, New Business Development of Funds
Distributor, Inc., since September 1994, and an officer of other
investment companies advised or administered by the Manager. From 1988
to August 1994, he was Manager of High Performance Fabrics Division of
Springs Industries, Inc., where he was responsible for sales and
marketing. He is 37 years old.
STEPHANIE D. PIERCE, Vice President, Assistant Secretary 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 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.
*JOHN P. COVINO, Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of
Funds Distributor, Inc., since December 1998. From December 1995 to
November 1998, he was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to
joining Fidelity, he was employed by SunGard Brokerage systems where he
was responsible for the technology and development of the accounting
product group. He is 35 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. 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. 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.
*KAREN JACOPPO-WOOD, Vice President and Assistant Secretary. Vice President
and Senior Counsel of Funds Distributor, Inc., since February 1997, and
an officer of other investment companies advised or administered by the
Manager. From June 1994 to January 1996, she was Manager of SEC
Registration at Scudder, Stevens & Clark, Inc. Prior to June 1994, she
was a senior paralegal at The Boston Company Advisors, Inc. She is 32
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, except those officers indicated by an (*), whose address is
60 State Street, Boston, Massachusetts 02109.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's voting securities outstanding on June 21, 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 at a meeting held on August 4, 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 April 26, 1999. The Agreement is terminable without
penalty, on not more than 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, 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; 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 has a personal securities trading policy (the "Policy")
which restricts the personal securities transactions of its employees. Its
primary purpose is to ensure that personal trading by the Manager's
employees does not disadvantage any fund managed by the Manager. Under the
Policy, the Manager's employees must preclear personal transactions in
securities not exempt under the Policy. In addition, the Manager's
employees must report their personal securities transactions and holdings,
which are reviewed for compliance with the Policy. In that regard, the
Manager's portfolio managers and other investment personnel also are subject
to the oversight of Mellon's Investment Ethics Committee. Portfolio
managers and other investment personnel of the Manager who comply with the
Policy's preclearance and disclosure procedures and the requirements of the
Committee may be permitted to purchase, sell or hold securities which also
may be or are held in fund(s) they manage or for which they otherwise
provide investment advice.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions, and provides
the Fund with portfolio managers who are authorized by the Board to execute
purchases and sales of securities. The Fund's portfolio managers are A.
Paul Disdier, Joseph P. Darcy, Douglas J. Gaylor, 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.
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.
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
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
corporate 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."
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 declaration of dividends to investors. For the
fiscal years ended April 30, 1997, 1998 and 1999, the management fees
payable by the Fund amounted to $1,240,710, $1,173,576 and $1,119,293,
respectively, which amounts in 1997, 1998 and 1999 were reduced by $349,146,
$203,521 and $178,837, respectively, pursuant to undertakings by the
Manager, resulting in net fees paid by the Fund to the Manager of $891,564
in fiscal 1997, $970,055 in fiscal 1998 and $940,456 in fiscal 1999.
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. It is not
recommended that the Fund be used as a vehicle for Keogh, IRA or other
qualified plans. 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 Builderr, 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 contracts 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 ("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 day 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
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 certain Service Agents for
distributing Fund 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 at the 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 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 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 determines
the amounts, 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
bears (i) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes, and (ii) 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 the value of the Fund's average daily net assets for such fiscal
year.
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 and have no direct or indirect
financial interest in the operations 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 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 approved by shareholders on August 4,
1994, and was last approved by the Fund's Board at a meeting held on April
26, 1999. The Plan is terminable at any time by vote of a majority of the
Directors 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.
Any service agreement is terminable without penalty, at any time, by such
vote of the Board members, upon not more than 60 days' written notice to the
Service Agent, by vote of the holders of a majority of the Fund's shares or
upon 15 days' written notice by the Distributor. Each service agreement
will terminate automatically in the event of its assignment (as defined in
the 1940 Act).
Under the Service Plan, for the fiscal year ended April 30, 1999, the
total amount payable by the Fund was $379,306, of which (a) $27,637 was
payable to the Distributor for payments made to Service Agents for
distributing Fund shares and Servicing, (b) $345,461 was payable to Dreyfus
for advertising and marketing Fund shares and Servicing and (c) $6,208 was
payable for printing the Fund's prospectus and statement 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
April 30, 1999, the Fund retained $16,356 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 capital gain
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 are drawn
on your Fund account and 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 the 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 by the close of trading on the floor of the
New York Stock Exchange on a given day, 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.
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 .10% of the net asset value of
Fund shares exchanged out of the Fund 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 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 automated telephone system)
from any person representing himself or herself to be you, or a represen
tative 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 reserves 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 and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
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 Builderr. 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 ACH 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 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 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 fees (reduced by
the expense limitation, if any) and fees pursuant to the Service Plan, are
accrued daily and are taken into account for the purpose of determining the
net asset value of Fund shares.
Subject to guidelines established by the Fund's Board, the Manager
intends to retain in the Fund's portfolio Municipal Obligations which are
insured under the Mutual Fund Insurance policy and which are in default or
in significant risk of default in the payment of principal or interest until
the default has been cured or the principal and interest are paid by the
issuer or the insurer. In establishing fair value for these securities, the
Fund's Board will give recognition to the value of the insurance feature as
well as the market value of the securities. Absent any unusual or
unforeseen circumstances, the Manager will recommend valuing these
securities at the same price as similar securities of a minimum investment
grade (i.e., rated Baa by Moody's or BBB by S&P or Fitch.)
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.
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 is 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 sale 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 overall expenses of
its research department.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that the Fund qualified for the fiscal year ended
April 30, 1999 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. As a regulated investment company, the Fund
will pay no Federal income tax on net investment income and net realized
capital gains to the extent that such income and gains are distributed to
shareholders in accordance with applicable provisions of the Code. To
qualify as a regulated investment company, the Fund must pay out to its
shareholders at least 90% of its net income (consisting of net investment
income from tax exempt obligations and taxable obligations, if any, and net
short-term capital gains), and must meet certain asset diversification and
other requirements. 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 term "regulated investment company" does
not imply the supervision of management or investment practices or policies
by any government agency.
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.
The Fund's earnings for Saturdays, Sundays and holidays are declared as
dividends on the following business day. 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.
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. Distributions from net realized securities gains, if
any, generally are declared and paid once a year, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act.
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. All expenses are accrued daily and deducted before declaration of
dividends to investors.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of his shares below the
cost of his investment. Such a distribution would be a return on investment
in an economic sense although taxable as described under "Distributions and
Taxes" in the Prospectus. In addition, the Code provides that if a
shareholder has not held his Fund shares for more than six months (or such
shorter period as the Internal Revenue Service may prescribe by regulation)
and has received an exempt-interest dividend with respect to such shares,
any loss incurred on the sale of such shares will be disallowed to the
extent of the exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gains
realized from the sale of 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, 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 as 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
Sections 1256 and 988 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." Depending on which election is made, if any, the results to the
Fund may differ. 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 offsetting position. Moreover, as a result of the straddle and
conversion transaction rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital
gains on straddled positions may be recharacterized as short-term capital
gains 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 to
generate cash to satisfy these distribution requirements.
PERFORMANCE INFORMATION
The Fund's current yield for the 30-day period ended April 30, 1999 was
3.79%, which reflects the waiver of a portion of the management fee. Had a
portion of the management fee not been waived, the Fund's current yield for
the same period would have been 3.69%. 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 1999 Federal personal income tax rate of 39.60%, the
Fund's tax equivalent yield for the 30-day period ended April 30, 1999 was
6.27%, which reflects the waiver of a portion of the management fee. Had a
portion of the management fee not been waived, the Fund's tax equivalent
yield for the same period would have been 6.11%. Tax equivalent yield is
computed by dividing that portion of the current yield (calculated as
described above) which is tax exempt by 1 minus a stated tax rate and adding
the quotient to that portion, if any, of the yield of the Fund that is not
tax exempt.
The tax equivalent yield noted above represents the application of the
highest Federal marginal personal income tax rate presently in effect. The
tax equivalent yield figure, however, does not include the potential effect
of any state or local (including, but not limited to, county, district or
city) taxes, including applicable surcharges. In addition, there may be
pending legislation which could affect such stated rate or yield. 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 April 30, 1999 was 6.80%, 6.04% and 6.68%, respectively. Had a
portion of the management fee not been waived, the Fund's return would have
been lower. 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 June 25, 1985 (commencement of
operations) to April 30, 1999 was 164.89%. Had a portion of the management
fee not been waived, the Fund's return would have been lower. 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.
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 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, including those relating to or
arising from actual or proposed tax legislation, statistical or other
information relating to investment companies, as compiled by industry
associations such as the Investment Company Institute, and Morningstar
ratings and related analysis supporting such rating.
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.
From time to time, advertising materials may refer to studies performed by
The Dreyfus Corporation or its affiliates, such as "The Dreyfus Tax Informed
Investing Study" or "The Dreyfus Gender Investment Comparison Study (1996 &
1997)" or other such studies.
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 nonassessable.
Fund shares are of one class and have equal rights as to dividends and in
liquidation. Fund shares have no preemptive, subscription or conversion
rights and are freely transferable.
On August 2, 1990, the Fund's name was changed from Dreyfus Insured Tax
Exempt Bond Fund, Inc. to Dreyfus Insured Municipal Bond Fund, Inc.
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
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 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 the category are regarded
as safe. This rating describes the third strongest capacity for payment of
debt service. If 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
decreased 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 an 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 sign to show relative standing within the
major rating 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 (+) sign 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 (+) sign
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.
For bond issues in the health care, higher education and other not-for-
profit sectors, Moody's provides numerical modifiers 1, 2 and 3 to the
generic categories Aa through B; 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 rating category;
and the modifier 3 indicates that the issue is in the low end of the generic
category. For all other municipal bonds, Moody's provides either a generic
rating or a rating with the numerical modifier 1 for the rating categories
Aa through B, with the letter indicating that the issue ranks in the higher
end of the rating 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 difference 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 issuer, 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 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 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 ratings
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity 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 satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
