FOR USE BY BANKS ONLY
May 1, 1995
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
Supplement to Prospectus Dated May 1, 1995
All mutual fund shares involve certain investment risks, including
the possible loss of principal.
577/s050195IST
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PROSPECTUS MAY 1, 1995
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
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DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND (THE "FUND") IS AN
OPEN-END, NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A
MUNICIPAL BOND FUND. ITS GOAL IS TO PROVIDE YOU WITH AS HIGH A LEVEL OF
CURRENT INCOME EXEMPT FROM FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME
TAXES AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE FUND INVESTS
PRIMARILY IN A PORTFOLIO OF NEW YORK MUNICIPAL OBLIGATIONS (AS DEFINED BELOW)
THAT ARE INSURED AS TO THE TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY RECOGNI
ZED INSURERS OF MUNICIPAL OBLIGATIONS.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY IMPOSED BY THE FUND.
THE FUND PROVIDES FREE REDEMPTION CHECKS, WHICH YOU CAN USE IN
AMOUNTS OF $500 OR MORE FOR CASH OR TO PAY BILLS. YOU CONTINUE TO EARN INCOME
ON THE AMOUNT OF THE CHECK UNTIL IT CLEARS. YOU CAN PURCHASE OR REDEEM SHARES
BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THE FUND BEARS CERTAIN COSTS OF ADVERTISING, ADMINISTRATION AND/OR
DISTRIBUTION PURSUANT TO A PLAN ADOPTED IN ACCORDANCE WITH RULE 12B-1 UNDER
THE INVESTMENT COMPANY ACT OF 1940.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1995, WHICH MAY
BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS
IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY, WRITE TO THE FUND AT
144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR CALL
1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. THE NET ASSET VALUE OF FUNDS OF THIS TYPE FLUCTUATE FROM TIME TO
TIME.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 3
CONDENSED FINANCIAL INFORMATION................... 4
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 14
HOW TO BUY FUND SHARES............................ 15
SHAREHOLDER SERVICES.............................. 17
HOW TO REDEEM FUND SHARES......................... 19
SERVICE PLAN...................................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 23
PERFORMANCE INFORMATION........................... 24
GENERAL INFORMATION............................... 25
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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This Page Intentionally Left Blank
Page 2
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<S> <C>
Management Fees ............................................................ .60%
12b-1 Fees (distribution and servicing)..................................... .26%
Other Expenses.............................................................. .13%
Total Fund Operating Expenses............................................... .99%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period: $10 $32 $55 $121
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY
AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. Long-term investors could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. The information in the
foregoing table does not reflect any fee waiver or expense reimbursement
arrangements that may be in effect. Certain Service Agents (as defined below)
may charge their clients direct fees for effecting transactions in Fund
shares; such fees are not reflected in the foregoing table. See "Management
of the Fund" and "Service Plan."
Page 3
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose report thereon appears in
the Statement of Additional Information. Further financial data and related
notes are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each year indicted. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1987(1) 1988 1989 1990 1991 1992 1993 1994
----- ------ ------ ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.... $12.50 $10.17 $10.56 $10.75 $10.64 $11.33 $11.60 $12.04
------ ------ ------ ------ ------ ------- ------ ------
INVESTMENT OPERATIONS:
Investment income_net............. .64 .73 .71 .72 .66 .63 .60 .60
Net realized and unrealized gain
(loss) on investments........... (2.33) .39 .19 (.11) .69 .31 .66 (1.39)
------ ------ ------ ------ ------ ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS.... (1.69) 1.12 .90 .61 1.35 .94 1.26 (.79)
------ ------ ------ ------ ------ ------- ------ ------
DISTRIBUTIONS:
Dividends from investment income_net... (.64) (.73) (.71) (.72) (.66) (.63) (.60) (.59)
Dividends from net realized
gain on investments............. -- -- -- -- -- (.04) (.22) --
Dividends in excess of net realized
gain on investments............ -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------- ------ ------
TOTAL DISTRIBUTIONS............. (.64) (.73) (.71) (.72) (.66) (.67) (.82) (.59)
------ ------ ------ ------ ------ ------- ------ ------
Net asset value, end of year...... $10.17 $10.56 $10.75 $10.64 $11.33 $11.60 $12.04 $10.66
====== ====== ====== ====== ====== ======= ======= =======
TOTAL INVESTMENT RETURN............... (15.62%)(2) 11.32% 8.76% 5.91% 13.06% 8.55% 11.08% (6.62%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets... -- .23% .50% .50% .88% .90% .96% .98%
Ratio of net investment income
to average net assets........... 7.12%(2) 7.00% 6.64% 6.74% 6.01% 5.49% 5.01% 5.31%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation (limited
to the expense limitation provision of the
management agreement)........... 1.50%(2) 1.27% .72% .61% .17% .11% .02% .01%
Portfolio Turnover Rate........... 48.74%(3) 32.10% 54.18% 63.12% 15.95% 16.12% 19.89% 12.79%
Net Assets, end of year (000's Omitted).. $25,768 $44,619 $66,384 $92,259 $147,527 $180,326 $198,257 $151,696
</TABLE>
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(1) From February 18, 1987 (commencement of operations) to December 31, 1987.
(2) Annualized.
(3) Not annualized.
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE _ The Fund's goal is to provide you with as high a
level of current income exempt from Federal, New York State and New York City
income taxes as is consistent with the preservation of capital. To accomplish
this goal, the Fund invests primarily in the debt securities of the State of
New York, its political subdivisions, authorities and corporations, the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal, New York State and New York City income taxes (collectively,
"New York Municipal Obligations") that are insured as to the timely
Page 4
payment of principal and interest by recognized insurers of Municipal
Obligations (as defined below). To the extent acceptable insured New York
Municipal Obligations are at any time unavailable for investment by the Fund,
the Fund will invest temporarily in New York Municipal Obligations that are
not subject to insurance, insured Municipal Obligations and/or other debt
securities the interest from which is, in the opinion of bond counsel to the
issuer, exempt from Federal income tax. The Fund's investment objective
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940) of the Fund's outstanding voting
shares. There can be no assurance that the Fund's investment objective will
be achieved.
MUNICIPAL OBLIGATIONS _ Debt securities the interest from which is, in the
opinion of bond counsel to the issuer, 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 and generally
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.
MANAGEMENT POLICIES _ It is a fundamental policy of the Fund that it will
invest at least 80% of the value of its net assets (except when maintaining a
temporary defensive position) in Municipal Obligations. Generally, at least
65% of the value of the Fund's net assets (except when maintaining a
temporary defensive position) will be invested in bonds, debentures and other
debt instruments that are insured New York Municipal Obligations. See
"Insurance Feature" and "Risk Factors _ Investing in New York Municipal
Obligations" below, and "Dividends, Distributions and Taxes."
The Municipal Obligations purchased by the Fund will be rated no
lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"). Municipal Obligations rated BBB by S&P or Fitch or Baa by Moody's
are considered investment grade obligations; those rated BBB by S&P and Fitch
are regarded as having an 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 as well. See "Appendix B" in the Statement of Additional
Information. The Fund also may invest in securities which, while not rated,
are determined by The Dreyfus Corporation to be of comparable quality to the
rated securities in which the Fund may invest. The Fund also may invest in
Taxable Investments of the quality described below.
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
Page 5
which is paid from revenues of similar types of projects. As a result, the
Fund may be subject to greater risk as compared to a fund that does not
follow this practice.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users. Interest on Municipal Obligations
(including certain industrial development bonds) which are specified private
activity bonds, as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), issued after August 7, 1986, while exempt from Federal income
tax, is a preference item for the purpose of the alternative minimum tax.
Where a regulated investment company receives such interest, a proportionate
share of any exempt-interest dividend paid by the investment company may be
treated as such a preference item to shareholders. The Fund will invest no
more than 20% of the value of its net assets in Municipal Obligations the
interest from which gives rise to a preference item for the purpose of the
alternative minimum tax and, except for temporary defensive purposes, in
other investments subject to Federal income tax. See "Risk Factors _ Other
Investment Considerations" below.
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. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Use of letters of credit or other credit support arrangements will not
adversely affect the tax exempt status of these obligations. 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. The Dreyfus Corporation, on behalf
of the Fund, will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations in the Fund's
portfolio.
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, or has been
given a rating below that which otherwise is permissible for purchase by the
Fund, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank that the Board of Trustees has determined meets
the prescribed quality standards for banks set forth below, 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.
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
Page 6
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.
If the interest rate on the first class exceeds the coupon rate of the
underlying Municipal Obligations, its interest rate will exceed the rate paid
on the second 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 multiclass offering, and the interest
rate on certain classes may be subject to a cap or floor.
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. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, and repurchase agreements providing for settlement in more than seven
days after notice. As to these securities, the Fund is subject to a risk that
should the Fund desire to sell them when a ready buyer is not available at a
price the Fund deems representative of their value, the value of the Fund's
net assets could be adversely affected.
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 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.
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 the 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,
Page 7
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 Dreyfus Corporation, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuer of the
underlying Municipal Obligations, 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 Obligations and
for other reasons.
From time to time, on a temporary basis other than for temporary
defensive purposes (but not to exceed 20% of the value of the Fund's net
assets) or for temporary defensive purposes, the Fund may invest in taxable
short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two
highest grades of Moody's, S&P or Fitch; obligations of the U.S. Government,
its agencies or instrumentalities; commercial paper not rated lower than P-1
by Moody's, A-l by S&P or F-l by Fitch; certificates of deposit of U.S.
domestic banks, including foreign branches of domestic banks, with net assets
of one billion dollars or more; time deposits; bankers' acceptances and other
short-term bank obligations; and repurchase agreements in respect of any of
the foregoing. Dividends paid by the Fund that are attributable to income
earned by the Fund from Taxable Investments will be taxable to investors. See
"Dividends, Distributions and Taxes." Except for temporary defensive
purposes, at no time will more than 20% of the value of the Fund's net assets
be invested in Taxable Investments and Municipal Obligations the interest
from which gives rise to a preference item for the purpose of the alternative
minimum tax. When the Fund has adopted a temporary defensive position,
including when acceptable New York Municipal Obligations are unavailable for
investment by the Fund, in excess of 35% of the Fund's net assets may be
invested in securities that are not exempt from New York State and New York
City income taxes. Under normal market conditions, the Fund anticipates that
not more than 5% of the value of its total assets will be invested in any one
category of Taxable Investments. Taxable Investments are more fully described
in the Statement of Additional Information, to which reference hereby is
made.
From time to time, the Fund may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. Such loans may not exceed 331/3%
of the value of the Fund's total assets. In connection with such loans, 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. The Fund can increase its income through the investment of such
collateral. The Fund continues to be entitled to payments in amounts equal to
the interest or other distributions payable on the loaned security and
receives interest on the amount of the loan. Such loans will be terminable 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.
As a fundamental policy, the Fund is permitted to borrow to the
extent permitted under the Investment Company Act of 1940. However, 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 the Fund's 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.
Page 8
CERTAIN FUNDAMENTAL POLICIES _ The Fund may: (i) borrow money to the extent
permitted under the Investment Company Act of 1940, which currently limits
borrowing to no more than 331/3% of the value of the Fund's total assets; and
(ii) invest up to 25% of its total assets in the securities of issuers in any
industry, provided that there is no such limitation on investments in
Municipal Obligations and, for temporary defensive purposes, in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. This paragraph describes fundamental policies that cannot
be changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting shares. See
"Investment Objective and Management Policies _ Investment Restrictions" in
the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES _ The Fund may (i) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (ii) invest up to 15% of the value of its net
assets in repurchase agreements providing for settlement in more than seven
days after notice and in other illiquid securities (which securities could
include participation interests (including municipal lease/purchase
agreements) that are not subject to the demand feature described above, and
floating and variable rate demand obligations as to which the Fund cannot
exercise the related demand feature described above and as to which there is
no secondary market). See "Investment Objective and Management Policies _
Investment Restrictions" in the Statement of Additional Information.
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 non-cancellable 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 of Trustees 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 "Risk Factors _ Special Investment Considerations"
below.
Mutual Fund Insurance and New Issue Insurance may be obtained from
Financial Guaranty Insurance Company ("Financial Guaranty"), MBIA Insurance
Corporation ("MBIA"), AMBAC Indemnity Corporation ("AMBAC Indemnity") and
Capital Guaranty Insurance Company ("Capital
Page 9
Guaranty"), 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. As of December 31, 1994, Financial Guaranty
reported total capital and surplus of approximately $893.7 million and
admitted assets of approximately $2.1 billion. The claims-paying ability of
Financial Guaranty is rated "AAA" by S&P, "Aaa" by Moody's and "AAA" by
Fitch.
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 Inc. is not obligated to pay the debts of
or claims against MBIA. 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 the Northern Mariana
Islands, the Virgin Islands of the United States and the Territory of Guam.
As of December 31, 1994, MBIA had admitted assets of $3.4 billion, total
liabilities of $2.3 billion and total capital and surplus of $1.1 billion,
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. The claims-paying ability of
MBIA is rated "AAA" by S&P and "Aaa" by Moody's.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance company,
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
and the Commonwealth of Puerto Rico. AMBAC Indemnity is a wholly-owned
subsidiary of AMBAC Inc., a publicly-held company. AMBAC Indemnity had
admitted assets of approximately $2.145 billion (unaudited) and statutory
capital of approximately $1.218 billion (unaudited) as of December 31, 1994.
Statutory capital consists of AMBAC Indemnity's statutory contingency reserve
and policyholders' surplus. The claims-paying ability of AMBAC Indemnity is
rated "AAA" by S&P and Fitch and "Aaa" by Moody's.
Capital Guaranty is an "Aaa/AAA" rated monoline stock insurance
company incorporated in the State of Maryland, and is a wholly-owned
subsidiary of Capital Guaranty Corporation, a publicly-owned Maryland
insurance holding company, the shares of which are traded on the New York
Stock Exchange. Capital Guaranty is authorized to provide insurance in 50
states, the District of Columbia and three U.S. territories. As of December
31, 1994, the total statutory policyholders' surplus and contingency reserve
of Capital Guaranty was $196.5 million and the total admitted assets were
$303.7 million.
Additional information concerning the insurance feature appears in
the Statement of Additional Information to which your attention is directed.
RISK FACTORS _ INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS _ You should
consider carefully the special risks inherent in the Fund's investment in New
York Municipal Obligations. These risks result from the financial condition
of New York State, certain of its public bodies and municipalities and New
York City. Beginning in early 1975, New York State, New York City and other
State entities faced serious financial difficulties which jeopardized the
credit standing and impaired the borrow-
Page 10
ing abilities of such entities and contributed to high interest rates on, and
lower market prices for, debt obligations issued by them. A recurrence of such
financial difficulties or a failure of certain financial recovery programs
could result in defaults or declines in the market values of various New York
Municipal Obligations in which the Fund may invest. If there should be a
default or other financial crisis relating to New York State, New York City,
a State or City agency, or a State municipality, the market value and
marketability of outstanding New York Municipal Obligations in the Fund's
portfolio and the interest income to the Fund could be adversely affected.
Moreover, the significant slowdown in the New York and regional economy in the
early 1990's added substantial uncertainty to estimates of the State's tax
revenues, which, in part, caused the State to overestimate its General Fund
tax receipts in the 1992 fiscal year by $575 million. The 1992 fiscal year was
the fourth consecutive year in which the State incurred a cash-basis operating
deficit in the General Fund and issued deficit notes. The State's 1993 and
1994 fiscal years, however, were characterized by national and regional
economies that performed better than projected. After reflecting a 1993
year-end deposit to the State's refund reserve account of $671 million,
reported 1992-93 General Fund receipts were $45 million higher than originally
projected in April 1992. The State completed the 1994 fiscal year with an
operating surplus in the General Fund of $914 million. In September 1994,
however, the State projected a General Fund operating deficit of $690 million
for the 1995 fiscal year. There can be no assurance that New York will not
face substantial potential budget gaps in future years. In January 1992,
Moody's lowered from A to Baal its ratings of certain appropriation-backed
debt of New York State and its agencies. The State's general obligation,
state-guaranteed and New York State Local Government Assistance Corporation
bonds continued to be rated A by Moody's. In January 1992, S&P lowered from
A to A- its ratings of New York State general obligation bonds and stated that
it continued to assess the ratings outlook as negative. S&P also lowered its
ratings of various agency debt, State moral obligations, contractual
obligations, lease purchase obligations and State guarantees. In February
1991, Moody's lowered its rating of New York City's general obligation bonds
from A to Baal. The rating changes reflected the rating agencies' concerns
about the financial condition of New York State and City, the heavy debt load
of the State and City and economic uncertainties in the region. You should
obtain and review a copy of the Statement of Additional Information which more
fully sets forth these and other risk factors.
SPECIAL INVESTMENT CONSIDERATIONS _ 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 Dreyfus Corporation
intends to retain any Municipal Obligations subject to such insurance which
are in default or, in the view of The Dreyfus Corporation, in significant
risk of default and to recommend to the Board of Trustees 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 that 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.
Page 11
Unlike certain Mutual Fund Insurance policies, New Issue Insurance
does not terminate with respect to a Municipal Obligation once it is sold by
the Fund. Therefore, the Fund expects that the market value, and thus the
marketability, of a defaulted security covered by New Issue Insurance
generally will be greater than the market value of an otherwise comparable
defaulted security covered by Mutual Fund Insurance with the termination
feature. The Fund, at its option, may purchase from Financial Guaranty seconda
ry 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-cancellable 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.
OTHER INVESTMENT CONSIDERATIONS _ Even though interest-bearing securities
are investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. Certain
securities that may be purchased by the Fund, such as those with interest
rates that fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in interest rates and
can subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuing
entities. Once the rating of a portfolio security has been changed, the Fund
will consider all circumstances deemed relevant in determining whether to
continue to hold the security. Certain securities purchased by the Fund, such
as those rated Baa by Moody's and BBB by S&P and Fitch, may be subject to
such risk with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income
securities. Obligations which are rated Baa are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are regarded as having adequate capacity to pay interest and repay
principal, and while such bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories. Bonds rated BBB by
Fitch are considered to be of satisfactory credit quality; while 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. See "Appendix B" in the Statement of Additional
Information. The Fund's net asset value generally will not be stable and
should fluctuate based upon changes in the value of the Fund's portfolio
securities.
New issues of Municipal Obligations usually are offered on a
when-issued basis, which means that delivery and payment for such Municipal
Obligations ordinarily take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that
will be received on the Municipal Obligations are fixed at the time the Fund
enters into the commitment. The Fund will make commitments to purchase such
Municipal Obligations only with the intention of actually acquiring the securi
ties, but the Fund may sell these securities before the settlement date if it
is deemed advisable, although any gain realized on such sale would be
taxable. The Fund will not accrue income in respect of a when-issued security
prior to its stated delivery date. No additional when-issued commitments will
be made if more than 20% of the value of the Fund's net assets would be so
committed.
Page 12
Municipal Obligations purchased on a when-issued basis and the
securities held in the Fund's portfolio are subject to changes in value (both
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. Municipal Obligations purchased
on a when-issued basis may expose the Fund to risk because they may experience
such fluctuations prior to their actual delivery. Purchasing Municipal
Obligations on a when-issued basis can involve the additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A segregated account of
the Fund consisting of cash, cash equivalents or U.S. Government securities
or other high quality liquid debt securities at least equal at all times to
the amount of the when-issued commitments will be established and maintained
at the Fund's custodian bank. Purchasing Municipal Obligations on a
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.
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 Dreyfus Corporation 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 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.
The Fund's classification as a "non-diversified" investment company
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified" investment company is required by the Investment
Company Act of 1940 generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Code which requires that,
at the end of each quarter of its taxable year, (i) at least 50% of the
market value of the Fund's total assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Fund's assets may be inv
ested in the obligations of a limited number of issuers, the Fund's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified
investment company.
Page 13
Investment decisions for the Fund are made independently from those
of other investment companies advised by The Dreyfus Corporation. However, if
such other investment companies are prepared to invest in, or desire to
dispose of, Municipal Obligations or Taxable Investments at the same time 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.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, was formed in 1947 and serves as the Fund's investment adviser.
The Dreyfus Corporation is a wholly-owned subsidiary of MellonBank, N.A.,
which is a wholly-owned subsidiary of MellonBank Corporation ("Mellon"). As
of March 31, 1995, The Dreyfus Corporation managed or administered
approximately $72 billion in assets for approximately 1.9 million investor
accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Board of Trustees in
accordance with Massachusetts law. The Fund's primary portfolio manager is L.
Lawrence Troutman. He has held that position since February 18, 1986 and has
been employed by The Dreyfus Corporation since 1985. The Fund's other
portfolio managers are identified in the Fund's Statement of Additional Inform
ation. The Dreyfus Corporation also provides research services for the Fund
as well as for other funds advised by The Dreyfus Corporation through a
professional staff of portfolio managers and securities analysts.
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. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$193 billion in assets as of December 31, 1994, including approximately $70
billion in mutual fund assets. As of December 31, 1994, various subsidiaries
of Mellon provided non-investment services, such as custodial or
administration services, for approximately $654 billion in assets, including
approximately $74 billion in mutual fund assets.
For the fiscal year ended December 31, 1994, the Fund paid The
Dreyfus Corporation a monthly management fee at the annual rate of .60 of 1%
of the value of the Fund's average daily net assets. From time to time, The
Dreyfus Corporation may waive receipt of its fees and or voluntarily assume
certain expenses of the Fund, which would have the effect of lowering the
Fund's overall expense ratio and increasing yield to investors at the time
such amounts are waived or assumed, as the case may be. The Fund will not pay
The Dreyfus Corporation at a later time for any amounts it may waive, nor
will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
The Fund bears certain costs of distributing Fund shares in
accordance with a plan (the "Service Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940. See "Annual Fund Operating
Expenses" and "Service Plan."
Page 14
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of FDIDistribution Services,
Inc., a provider of mutual fund administration services, which in turn is a
wholly-owned subsidiary of FDI Holdings, Inc., the parent company of which is
Boston Institutional Group, Inc.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 90 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
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. Share certificates
are issued only upon your written request. No certificates are issued for
fractional shares. It is not recommended that the Fund be used as a vehicle
for Keogh, IRA or other qualified plans. The Fund reserves the right to
reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which 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 Fund's Account
Application. For full-time or part-time employees of The Dreyfus Corporation
or any of its affiliates or subsidiaries, directors of The Dreyfus
Corporation, Board members of a fund advised by The Dreyfus Corporation,
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 Dreyfus Corporation or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited into
their Fund account, the minimum initial investment is $50. The Fund reserves
the right to vary further the initial and subsequent investment minimum
requirements at any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds." Payments to open new accounts which are mailed
should be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence,
Rhode Island 02940-9387, together with your Account Application. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. Neither initial nor subseq
uent investments should be made by third party check. Purchase orders may be
delivered in person only to a Dreyfus Financial Center. THESE ORDERS WILL BE
FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA#8900052198/Dreyfus New York
Insured Tax Exempt Bond Fund, for purchase of Fund shares in your name. The
wire must include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Page 15
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. Other purchase procedures may be in effect for
clients of certain Service Agents. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus, and, to the extent permitted by applicable regulatory
authorities, may charge their clients direct fees for Servicing (as defined
under "Service Plan"). These fees would be in addition to any amounts which
might be received under the Service Plan. Each Service Agent has agreed to
transmit to its clients a schedule of such fees. You should consult your
Service Agent in this regard.
Fund 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. 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. Net
asset value per share is computed by dividing the value of the Fund's net
assets (i.e., the value of its assets less liabilities) by the total number
of shares outstanding. The Fund's investments are valued each business day by
an independent pricing service approved by the Board of Trustees 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 Board
of Trustees. For further information regarding the methods employed in
valuing Fund investments, see "Determination of Net Asset Value" in the
Fund's Statement of Additional Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase Fund shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application
or have filed a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one of
these documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member
may be so designated. The Fund may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Page 16
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agent and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. You should consult your Service Agent in this
regard.
FUND EXCHANGES _ You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by The Dreyfus
Corporation, to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be of
interest to you. If you desire to use this service, you should consult your
Service Agent or call 1-800-645-6561 to determine if it is available and
whether any conditions are imposed on its use.
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. Before any exchange, you must obtain and should review a copy of
the current prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained by calling 1-800-645-6561. Except in the case of
Personal Retirement Plans, the shares being exchanged must have a current
value of at least $500; furthermore, when establishing a new account by
exchange, the shares being exchanged must have a value of at least the
minimum initial investment required for the fund into which the exchange is
being made. The ability to issue exchange instructions by telephone is given
to all Fund shareholders automatically, unless you to check the applicable
"NO" box on the Account Application, indicating that you specifically refuse
this Privilege. The Telephone Exchange Privilege may be established for an
existing account by written request, signed by all shareholders on the
account, or by a separate signed Shareholder Services Form, also available by
calling 1-800-645-6561. If you have established the Telephone Exchange
Privilege, you may telephone exchange instructions by calling 1-800-221-4060
or, if you are calling from overseas, call 1-401-455-3306. See "How to Redeem
Fund Shares_Procedures." Upon an exchange into a new account, the following
shareholder services and privileges, as applicable and where available, will
be automatically carried over to the fund into which the exchange is made:
Telephone Exchange Privilege, Check Redemption Privilege, Wire Redemption
Privilege, Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege,
and the dividend/capital gain distribution option (except for Dreyfus
Dividend Sweep) selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect
to the foregoing categories of shares. To qualify, at the time of an exchange
you must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. 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 fee in accordance with rules promulgated by the
Securities and Exchange Commission. The Fund reserves the right to reject any
exchange request in whole or in part. The availability of Fund Exchanges may
be modified or terminated at any time upon notice to shareholders.
The exchange of shares by one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE _ Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in
Page 17
shares of other funds in the Dreyfus Family of Funds of which you are
currently an investor. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at the
then-current net asset value; however, a sales load may be charged with
respect to exchanges into funds sold with a sales load. See "Shareholder
Services" in the Statement of Additional Information. The right to exercise
this Privilege may be modified or canceled by the Fund or the Transfer Agent.
You may modify or cancel your exercise of this Privilege at any time by
mailing written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. The Fund may charge a service fee for
the use of this Privilege. No such fee currently is contemplated. The exchange
of shares of one fund for shares of another is treated for Federal income tax
purposes as a sale of the shares given in exchange by the shareholder and,
therefore, an exchanging shareholder may realize a taxable gain or loss. For
more information concerning this Privilege and the funds in the Dreyfus Family
of Funds eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER Registration Mark _ 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.
At your option, the bank account designated by you will be debited in the
specified amount, and Fund shares will be purchased, once a month, on either
the first or fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated. To establish a Dreyfus-AUTOMATIC Asset
Builder account, you must file an authorization form with the Transfer Agent.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may cancel your participation in this Privilege or change the amount of
purchase at any time by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671, and the
notification will be effective three business days following receipt. The
Fund may modify or terminate this Privilege at any time or charge a service
fee. No such fee currently is contemplated.
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 Federal
government automatically deposited into your Fund account. You may deposit as
much of such payments as you elect. To enroll in Dreyfus Government Direct
Deposit, you must file with the Transfer Agent a completed Direct Deposit
Sign-Up Form for each type of payment that you desire to include in this
Privilege. The appropriate form may be obtained by calling 1-800-645-6561.
Death or legal incapacity will terminate your participation in this
Privilege. You may elect at any time to terminate your participation by
notifying in writing the appropriate Federal agency. Further, the Fund may
terminate your participation upon 30 days' notice to you.
DREYFUS DIVIDEND OPTIONS _ Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share price
s which do not include the sales load or which reflect a reduced sales load.
If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be subject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Page 18
Dividend ACH permits you to transfer electronically on the payment date
dividends or dividends and capital gain distributions, if any, from the Fund
to a designated bank account. Only an account maintained at a financial
institution which is an Automated Clearing House member may be so designated.
Banks may charge a fee for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments do not apply
to Dreyfus Dividend Sweep. The Fund may modify or terminate these privileges
at any time or charge a service fee. No such fee currently is contemplated.
DREYFUS PAYROLL SAVINGS PLAN _ Dreyfus Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus Payroll Savings Plan account, you must
file an authorization form with your employer's payroll department. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may change the amount of purchase or cancel the authorization only by
written notification to your employer. It is the sole responsibility of your
employer, not the Distributor, The Dreyfus Corporation, the Fund, the
Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
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. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended 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.
HOW TO REDEEM FUND SHARES
GENERAL _ You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
The Fund imposes no charges when shares are redeemed. Service Agents
may charge a nominal fee for effecting redemptions of Fund shares. Any
certificates representing Fund shares being redeemed must be submitted with
the redemption request. The value of the shares redeemed may be more or less
than their original cost, depending upon the Fund's then-current net asset
value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER
Page 19
THE CHECK REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES BY
WIRE OR TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE, FOR A
PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE
PURCHASE CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC
ASSET BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE
PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR
IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER
THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE,
DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED
TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES _ You may redeem Fund shares by using the regular redemption
procedure through the Transfer Agent, the Check Redemption Privilege, the
Wire Redemption Privilege, the Telephone Redemption Privilege, the Dreyfus
TELETRANSFER Privilege or, if you are a client of a Selected Dealer, through
the Selected Dealer. If you have given your Service Agent authority to
instruct the Transfer Agent to redeem shares and to credit the proceeds of
such redemptions to a designated account at your Service Agent, you may redeem
shares only in this manner and in accordance with the regular redemption
procedure described below. If you wish to use the other redemption methods
described below, you must arrange with your Service Agent for delivery of the
required application(s) to the Transfer Agent. Other redemption procedures
may be in effect for clients of certain Service Agents. The Fund makes
available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or telephone exchange privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. The Fund will require the Transfer Agent to employ
reasonable procedures, such as requiring a form of personal identification,
to confirm that instructions are genuine and, if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Fund nor the Transfer
Agent will be liable for following telephone instructions reasonably believed
to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information." Redemption requests
must be signed by each shareholder, including each owner of a joint account,
and each signature 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
Page 20
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.
If you have any questions with respect to signature-guarantees, please call
one of the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE _ You may request on the Account Application,
Shareholder Services Form or by later written request that the Fund provide
Redemption Checks drawn on the Fund's account. Redemption Checks may be made
payable to the order of any person in the amount of $500 or more. Potential
fluctuations in the net asset value of Fund shares should be considered in
determining the amount of the check. Redemption Checks should not be used to
close your account. Redemption Checks are free, but the Transfer Agent will
impose a fee for stopping payment of a Redemption Check upon your request or
if the Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. You should date your Redemption Checks with the
current date when you write them. Please do not postdate your Redemption
Checks. If you do, the Transfer Agent will honor, upon presentment, even if
presented before the date of the check, all postdated Redemption Checks which
are dated within six months of presentment for payment, if they are otherwise
in good order. Shares for which certificates have been issued may not be
redeemed by Redemption Check. This Privilege may be modified or terminated at
any time by the Fund or the Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE _ You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
Account Application or file a Shareholder Services Form with the Transfer
Agent. You may direct that redemption proceeds be paid by check (maximum
$150,000 per day) made out to the owners of record and mailed to your
address. Redemption proceeds of less than $1,000 will be paid automatically
by check. Holders of jointly registered Fund or bank accounts may have
redemption proceeds of not more than $250,000 wired within any 30-day period.
You may telephone redemption requests by calling 1-800-221-4060 or, if you
are calling from overseas, call 1-401-455-3306. The Fund reserves the right
to refuse any redemption request, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. This Privilege may be modified or terminated at any time by the
Transfer Agent or the Fund. The Fund's Statement of Additional Information
sets forth instructions for transmitting redemption requests by wire. Shares
for which certificates have been issued are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE _ You may redeem Fund shares (maximum
$150,000 per day) by telephone if you have checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares for which certificates have been issued are not eligible for this
Privilege.
DREYFUS TELETRANSFER PRIVILEGE _ You may redeem Fund shares (minimum $500
per day) by telephone if you have checked the appropriate box and supplied
the necessary information on the
Page 21
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between your Fund account and
the bank account designated in one of these documents. Only such an account
maintained in a domestic financial institution which is an Automated Clearing
House member may be so designated. Redemption proceeds will be on deposit in
your account at an Automated Clearing House member bank ordinarily two days
after receipt of the redemption request or, at your request, paid by check
(maximum $150,000 per day) and mailed to your address. 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. The Fund reserves the right to refuse any request made by
telephone, including requests made shortly after a change of address, and may
limit the amount involved or the number of such requests. The Fund may modify
or terminate this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares issued in certificate form are not eligible for this 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 (currently 4:00 p.m., New York time), the redemption request will be
effective on that day. If a redemption request is received by the Transfer
Agent after the close of trading on the floor of the New York Stock Exchange,
the redemption request will be effective on the next business day. It is the
responsibility of the Selected Dealer to transmit a request so that it is
received in a timely manner. The proceeds of the redemption are credited to
your account with the Selected Dealer. See "How to Buy Fund Shares" for a
discussion of additional conditions or fees that may be imposed upon
redemption.
SERVICE PLAN
Under the Service Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund (a) reimburses the Distributor for
payments to certain Service Agents for distributing the Fund's shares and
servicing shareholder accounts ("Servicing") and (b) pays The Dreyfus
Corporation, Dreyfus Service Corporation, a wholly-owned subsidiary of The
Dreyfus Corporation, and any affiliate of either of them (collectively,
"Dreyfus") for advertising and marketing relating to the Fund and for
Servicing, at an aggregate annual rate of .25 of 1% of the value of the Fund's
average daily net assets. Each of the Distributor and Dreyfus may pay one or
more Service Agents a fee in respect of the Fund's shares owned by
shareholders with whom the Service Agent has a Servicing relationship or for
whom the Service Agent is the dealer or holder of record. Each of the
Distributor and Dreyfus determine the amounts, if any, to be paid to Service
Agents under the Service Plan and the basis on which such payments are made.
The fees payable under the Service Plan are payable without regard to actual
expenses incurred.
The Fund also bears the costs of preparing and printing prospectuses
and statements of additional information used for regulatory purposes and for
distribution to existing shareholders. Under the Service Plan, the Fund bears
(a) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes, and (b) the
costs associated with implementing and operating the Service Plan (such as
costs of printing and mailing service agreements), the aggregate of such
amounts not to exceed in any fiscal year of the Fund the greater of $100,000
or .005 of 1% of the value of the Fund's average daily net assets for such
fiscal year. Each item for which a payment may be made under the Service Plan
may constitute an expense of distributing Fund shares as the Securities and
Exchange Commission construes such term under Rule 12b-1.
Page 22
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends from net investment income on
each day the New York Stock Exchange is open for business. Dividends usually
are paid on the last business day of each month, and are automatically
reinvested in additional Fund shares at net asset value or, at your option,
paid in cash. The Fund's earnings for Saturdays, Sundays and holidays are
declared as dividends on the next business day. If you redeem all shares in
your account at any time during the month, all dividends to which you are
entitled will be paid to you along with the proceeds of the redemption.
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 Investment
Company Act of 1940. The Fund will not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized
or have expired. You may choose whether to receive distributions in cash or
to invest in additional Fund shares at net asset value. All expenses are
accrued daily and deducted before declaration of dividends to investors.
Except for dividends from Taxable Investments, the Fund anticipates
that substantially all dividends from net investment income paid by the Fund
will not be subject to Federal, New York State or New York City income taxes.
To the extent you are obligated to pay state or local taxes outside of the
State of New York, dividends earned by an investment in the Fund may
represent taxable income. Dividends derived from Taxable Investments,
together with distributions from any net realized short-term securities gains
and all or a portion of any gains realized from the sale or other disposition
of certain market discount bonds, paid by the Fund are subject to Federal
income tax as ordinary income whether or not reinvested. No dividend paid by
the Fund will qualify for the dividends received deduction allowable to
certain U.S. corporations. Distributions from net realized long-term
securities gains of the Fund generally are subject to Federal income tax as
long-term capital gains if you are a citizen or resident of the United
States. The Code provides that the net capital gain of an individual
generally will not be subject to Federal income tax at a rate in excess of
28%. Under the Code, interest on indebtedness incurred or continued to
purchase or carry Fund shares which is deemed to relate to exempt-interest
dividends is not deductible.
Although all or a substantial portion of the dividends paid by the
Fund may be excluded by shareholders of the Fund from their gross income for
Federal income tax purposes, the Fund may purchase specified private activity
bonds, the interest from which may be (i) a preference item for purposes of
the alternative minimum tax, (ii) a component of the "adjusted current
earnings" preference item for purposes of the corporate alternative minimum
tax as well as a component in computing the corporate environmental tax or
(iii) a factor in determining the extent to which a shareholder's Social
Security benefits are taxable. If the Fund purchases such securities, the
portion of the Fund's dividends related thereto will not necessarily be tax
exempt to an investor who is subject to the alternative minimum tax and/or
tax on Social Security benefits and may cause an investor to be subject to
such taxes.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year. These statements set forth
the dollar amount of income exempt from Federal tax and the dollar amount, if
any, subject to Federal tax. These dollar amounts will vary depending on the
size and length of time of your investment in the Fund. If the Fund pays
dividends derived from taxable income, it intends to designate as taxable the
same percentage of the day's dividend as the actual taxable income earned on
that day bears to total income earned on that day. Thus, the percentage of
the dividend designated as taxable, if any, may vary from day to day.
Page 23
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of taxable dividends,
distributions from net realized securities gains and the proceeds of any
redemption, regardless of the extent to which gain or loss may be realized,
paid to a shareholder if such shareholder fails to certify either that the
TIN furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employee identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended December 31, 1994 as a "regulated investment company" under
the Code. The Fund intends to continue to so qualify if such qualification is
in the best interests of its shareholders. Such qualification relieves the
Fund of any liability for Federal income taxes to the extent its earnings are
distributed in accordance with applicable provisions of the Code. In
addition, the Fund is subject to a non-deductible 4% excise tax, measured
with respect to certain undistributed amounts of taxable investment income
and capital gain.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, tax equivalent yield, average annual total
return and/or total return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of the Fund's
current yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to a stated
current yield calculated as described above.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter time periods depending
upon the length of time during which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining
Page 24
the income and principal changes for a specified period and dividing by the
net asset value per share at the beginning of the period. Advertisements may
include the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating 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.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated September 19, 1986, and
commenced operations on February 18, 1987. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Fund in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund. As described under "Management of the Fund" in the
Statement of Additional Information, the Fund ordinarily will not hold
shareholder meetings; however, shareholders under certain circumstances may
have the right to call a meeting of shareholders for the purpose of voting to
remove Trustees.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; outside the U.S. and
Canada, call 516-794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 25
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Page 27
DREYFUS
New York Insured
Tax Exempt
Bond Fund
Prospectus
(Lion Logo)
Registration Mark
Copy Rights 1995 Dreyfus Service Corporation
577p10050195
__________________________________________________________________________
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MAY 1, 1995
__________________________________________________________________________
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus New York Insured Tax Exempt Bond Fund (the "Fund"), dated May
1, 1995, as it may be revised from time to time. To obtain a copy of the
Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. and Canada -- Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . . . .B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . .B-9
Management Agreement. . . . . . . . . . . . . . . . . . . . . . .B-13
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . .B-15
Service Plan. . . . . . . . . . . . . . . . . . . . . . . . . . .B-15
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . .B-17
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . .B-19
Determination of Net Asset Value. . . . . . . . . . . . . . . . .B-21
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . .B-22
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . .B-23
Performance Information . . . . . . . . . . . . . . . . . . . . .B-23
Information About the Fund. . . . . . . . . . . . . . . . . . . .B-25
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . .B-25
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . .B-26
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . .B-39
Financial Statements. . . . . . . . . . . . . . . . . . . . . . .B-45
Report of Independent Auditors. . . . . . . . . . . . . . . . . .B-55
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Description of the Fund."
The average distribution of investments (at value) in Municipal
Obligations by
ratings for the fiscal year ended December 31, 1994, computed on a monthly
basis, was as follows:
<TABLE>
<CAPTION>
Fitch Investors Moody's Investors Standard & Poor's Percentage
Service, Inc. ("Fitch") or Services, Inc. ("Moody's") or Corporation ("S&P") of Value
_______________________ __________________________ ___________________ __________
<S> <C> <C> <C>
AAA Aaa AAA 99.0%
F-1 MIG 1 SP-1 1.0%
------
100.0%
======
</TABLE>
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses
and lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show
facilities, airport, mass transit, industrial, port or parking facilities,
air or water pollution control facilities and certain local facilities for
water supply, gas, electricity, or sewage or solid waste disposal; the
interest paid on such obligations may be exempt from Federal income tax,
although current tax laws place substantial limitations on the size of
such issues. Such obligations are considered to be Municipal Obligations
if the interest paid thereon qualifies as exempt from Federal income tax
in the opinion of bond counsel to the issuer. There are, of course,
variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
Floating and variable rate demand obligations are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time
such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, including fees paid under the Service Plan, will have the effect
of reducing the yield to investors.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease
obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. The staff of
the Securities and Exchange Commission currently considers certain lease
obligations to be illiquid. Determination as to the liquidity of such
securities is made in accordance with guidelines established by the Fund's
Board. Pursuant to such guidelines, the Board has directed the Manager to
monitor carefully the Fund's investment in such securities with particular
regard to (1) the frequency of trades and quotes for the lease obligation;
(2) the number of dealers willing to purchase or sell the lease obligation
and the number of other potential buyers; (3) the willingness of dealers
to undertake to make a market in the lease obligation; (4) the nature of
the marketplace trades including the time needed to dispose of the lease
obligation, the method of soliciting offers and the mechanics of transfer;
and (5) such other factors concerning the trading market for the lease
obligation as the Manager may deem relevant. In addition, in evaluating
the liquidity and credit quality of a lease obligation that is unrated,
the Fund's Board has directed the Manager to consider; (a) whether the
lease can be cancelled; (b) what assurance there is that the assets
represented by the lease can be sold; (c) the strength of the leasee's
general credit (e.g., its debt, administrative, economic, and financial
characteristics); (d) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such
other factors concerning credit quality as the Manager may deem relevant.
The Fund will not invest more than 15% of the value of its net assets in
lease obligations that are illiquid and in other illiquid securities. See
"Investment Restriction No. 11" below.
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.
Insurance Feature. 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 port-
folio. 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.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the extent
that the ratings given by Moody's, S&P or Fitch for Municipal Obligations
may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in
the Fund's Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings may be
an initial criterion for selection of portfolio investments, the Manager
also will evaluate these securities and the creditworthiness of the
issuers of such securities based upon financial and other available
information. See "Appendix B."
Lending Portfolio Securities. To a limited extent, the Fund may lend
its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its portfolio securities, the Fund
can increase its income through the investment of the cash collateral.
For purposes of this policy, the Fund considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by
banks whose securities meet the standards for investment by the Fund to be
the equivalent of cash. Such loans may not exceed 33-1/3% of the value of
the Fund's total assets. From time to time, 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.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value
of the securities rises above the level of such collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in
connection with the loan. These conditions may be subject to future
modification.
Illiquid Securities. If a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities
Act of 1933, as amended, for certain restricted securities held by the
Fund, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board of Trustees.
Because it is not possible to predict with assurance how the market for
restricted securities pursuant to Rule 144A will develop, the Fund's Board
of Trustees has directed the Manager to monitor carefully the Fund's
investments in such securities with particular regard to trading activity,
availability of stable price information and other relevant information.
To the extent that for a period of time qualified institutional buyers
cease purchasing restricted securities pursuant to Rule 144A, the Fund's
investing in such securities may have the effect of increasing the level
of illiquidity in the Fund's portfolio during such period.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home
Loan Banks, by the right of the issuer to borrow from the U.S. Treasury;
others, such as those issued by the Federal National Mortgage Association,
by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, since it is not so obligated by law. The Fund will
invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of one billion dollars.
Time deposits which may be held by the Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term obligations may
include uninsured, direct obligations bearing fixed, floating or variable
interest rates.
Repurchase agreements involve the acquisition by the Fund of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Fund to resell, the instrument at a fixed price,
usually not more than one week after its purchase. The Fund's custodian
or sub-custodian will have custody of, and will hold in a segregated
account, securities acquired by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Fund. In an attempt to reduce the
risk of incurring a loss on a repurchase agreement, the Fund will enter
into repurchase agreements only with domestic banks with total assets in
excess of one billion dollars or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Fund may invest, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. The Manager will monitor on
an ongoing basis the value of the collateral to assure that it always
equals or exceeds the repurchase price. Certain costs may be incurred by
the Fund in connection with the sale of the securities if the seller does
not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the
seller of the securities, realization on the securities by the Fund may be
delayed or limited. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
Risk Factors--Investing in New York Municipal Obligations. Each
investor should consider carefully the special risks inherent in the
Fund's investment in New York Municipal Obligations. These risks result
from the financial condition of New York State and certain of its public
bodies and municipalities, including New York City. Beginning in early
1975, New York State, New York City and other State entities faced serious
financial difficulties which jeopardized the credit standing and impaired
the borrowing abilities of such entities and contributed to high interest
rates on, and lower market prices for, debt obligations issued by them. A
recurrence of such financial difficulties or a failure of certain
financial recovery programs could result in defaults or declines in the
market values of various New York Municipal Obligations in which the Fund
may invest. If there should be a default or other financial crisis
relating to New York State, New York City, a State or City agency, or a
State municipality, the market value and marketability of outstanding New
York Municipal Obligations in the Fund's portfolio and the interest income
to the Fund could be adversely affected. Moreover, the significant
slowdown in the New York and regional economy in the early 1990's added
substantial uncertainty to estimates of the State's tax revenues, which,
in part, caused the State to overestimate its General Fund tax receipts in
the 1992 fiscal year. For the 1992 fiscal year, the State incurred a
cash-basis operating deficit in the General Fund of $575 million. The
1992 fiscal year was the fourth consecutive year in which the State
incurred a cash-basis operating deficit in the General Fund and issued
deficit notes. The State's 1993 and 1994 fiscal years, however, were
characterized by national and regional economies that performed better
than projected. After reflecting a 1993 year-end deposit to the State's
refund reserve account of $671 million, reported 1992-93 General Fund
receipts were $45 million higher than originally projected in April 1992.
The State completed the 1994 fiscal year with an operating surplus in the
General Fund of $914 million. In September 1994, however, the State
projected a General Fund operating deficit of $690 million for the 1995
fiscal year. There can be no assurance that New York will not face
substantial potential budget gaps in future years. In January 1992,
Moody's lowered from A to Baa1 its ratings of certain appropriation-backed
debt of New York State and its agencies. The State's general obligation,
State-guaranteed and New York State Local Government Assistance
Corporation bonds continued to be rated A by Moody's. In January 1992,
S&P lowered from A to A- ratings of New York State general obligation
bonds and stated that it continued to assess the ratings outlook as
negative. S&P also lowered its ratings of various agency debts, State
moral obligations, contractual obligations, lease purchase obligations and
State guarantees. In February 1991, Moody's lowered its rating of New
York City's general obligation bonds from A to Baa1. The rating changes
reflected the rating agencies' concerns about the financial condition of
New York State and City, the heavy debt load of the State and City, and
economic uncertainties in the region. Investors should review Appendix A
which more fully sets forth these and other risk factors.
Investment Restrictions. The Fund has adopted investment
restrictions numbered 1 through 7 below as fundamental policies. These
restrictions cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended
(the "Act")) of the Fund's outstanding voting shares. Investment
restrictions numbered 8 through 11 are not fundamental policies and may be
changed by vote of a majority of Trustees at any time. The Fund may not:
1. Invest more than 25% of its total assets in securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2 Borrow money, except to the extent permitted under the Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Fund's total assets). For purposes of this investment restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
3. Purchase or sell real estate, commodities or commodity
contracts, or oil and gas interests, but this shall not prevent the Fund
from investing in Municipal Obligations secured by real estate or interest
therein, or prevent the Fund from purchasing and selling options, forward
contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices.
4. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take
advantage of the lower purchase price available, and except to the extent
the Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements; however, the Fund
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board of Trustees.
6. Issue any senior security (as such term is defined in Section
18(f) of the Act), except to the extent that the activities permitted in
Investment Restriction Nos. 2, 3 and 10 may be deemed to give rise to a
senior security.
7. Sell securities short or purchase securities on margin, but the
Fund may make margin deposits in connection with transactions in options,
forward contracts, futures contracts, including those relating to indices,
and options on futures contracts or indices.
8. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and options
or as otherwise provided in the Fund's Prospectus.
9. Invest in securities of other investment companies, except to
the extent permitted under the Act.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings and to the
extent related to the deposit of assets in escrow in connection with the
purchase of securities on a when-issued or delayed-delivery basis and
collateral and initial or variation margin arrangements with respect to
options, forward contracts, futures contracts, including those related to
indices, and options on futures contracts or indices.
11. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are
illiquid (which securities could include participation interests
(including municipal lease/purchase agreements) that are not subject to
the demand feature described in the Fund's Prospectus and floating and
variable rate demand obligations as to which the Fund cannot exercise the
demand feature described in the Fund's Prospectus on less than seven days
notice and as to which there is no secondary market) if, in the aggregate,
more than 15% of the value of its net assets would be so invested.
For purposes of Investment Restriction No. 1, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry." If a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. Each Trustee who is deemed to be an "interested person"
of the Fund, as defined in the Act, is indicated by an asterisk.
Trustees of the Fund
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Mr.
DiMartino has served as Chairman of the Board for various funds in
the Dreyfus Family of Funds. For more than five years prior thereto,
he was President, a director and, until August 1994, Chief Operating
Officer of Dreyfus and Executive Vice President and a director of
Dreyfus Service Corporation, a wholly-owned subsidiary of Dreyfus and
until August 24, 1994, the Fund's distributor. From August 1994 to
December 31, 1994, he was a director of Mellon Bank Corporation. Mr.
DiMartino is a director and former Treasurer of the Muscular
Dystrophy Association; a trustee of Bucknell University; Chairman of
the Board of Directors of the Noel Group, Inc.; a director of
HealthPlan Corporation; a director of Belding Heminway Company, Inc.;
and a director of Curtis Industries, Inc. Mr. DiMartino is also a
Board member of 93 other funds in the Dreyfus Family of Funds. He is
51 years old and his address is 200 Park Avenue, New York, New York
10166.
GORDON J. DAVIS, Director. Since October 1994, Mr. Davis has been a
senior partner with the law firm of LeBoeuf, Lamb, Greene & MacRae.
From 1983 to September 1994, he was a senior partner with the law
firm of Lord Day & Lord, Barrett Smith. Mr. Davis was Commissioner
of Parks and Recreation for the City of New York from 1978 to 1983.
He is also a Director of Consolidated Edison, a utility company, and
Phoenix Home Life Insurance Company and a member of various other
corporate and not-for-profit boards. He is also a Board member of 11
other funds in the Dreyfus Family of Funds. Mr. Davis is 53 years
old and his address is 241 Central Park West, New York, New York
10024.
*DAVID P. FELDMAN, Director. Corporate Vice President-Investment
Management of AT&T. He is also a trustee of Corporate Property
Investors, a real estate investment company. He is also a Board
member of 27 other funds in the Dreyfus Family of Funds. Mr. Feldman
is 55 years old and his address is One Oak Way, Berkeley Heights, New
Jersey 07922.
LYNN MARTIN, Director. Holder of the Davee Chair at the J.L. Kellogg
Graduate School of Management, Northwestern University. During the
Spring Semester 1993, she was a Visiting Fellow at the Institute of
Policy, Kennedy School of Government, Harvard University. Ms. Martin
also is a consultant to the international accounting firm of
Deloitte & Touche, and chairwoman of its Council on the Advancement
of Women. From January 1991 through January 1993, Ms. Martin served
as Secretary of the United States Department of Labor. From 1981 to
1991, she was United States Congresswoman for the State of Illinois.
She also is a Director of Harcout General Corporation, a publishing,
insurance and retailing company, Ameritech Corporation, a
telecommunications and information company, and Ryder Systems
Incorporated, a transportation company. She is also a Board member
of 11 other funds in the Dreyfus Family of Funds. Ms. Martin is 53
years old and her address is 3750 Lake Shore Drive, Chicago, Illinois
60613.
EUGENE McCARTHY, Director. Writer and columnist; former Senator from
Minnesota from 1958-1970. He is also a Board member of 11 other
funds in the Dreyfus Family of Funds. Mr. McCarthy is 78 years old
and his address is P.O. Box 22, Woodville, Virginia 22749.
DANIEL ROSE, Director. President and Chief Executive Officer of Rose
Associates, Inc., a New York based real estate development and
management firm. In July 1994, Mr. Rose received a Presidential
appointment to serve as a Director of the Baltic American Enterprise
Fund, which will make equity investments and loans and provide
technical business assistance to new business concerns in the Baltic
States. He is also Chairman of the Housing Committee of The Real
Estate Board of New York, Inc., and a Trustee of Corporate Property
Investors, a real estate investment company. He is also a Board
member of 21 other funds in the Dreyfus Family of Funds. Mr. Rose is
65 years old and his address is c/o Rose Associates, Inc.,
380 Madison Avenue, New York, New York 10017.
SANDER VANOCUR, Director. Since January 1992, Mr. Vanocur has been the
President of Old Owl Communications, a full-service communications
firm, and since November 1989, he has served as a Director of the
Damon Runyon-Walter Winchell Cancer Research Fund. From June 1986 to
December 1991, he was a Senior Correspondent of ABC News and, from
October 1986 to December 1991, he was Anchor of the ABC News program
"Business World," a weekly business program on the ABC television
network. He is also a Board member of 21 other funds in the Dreyfus
Family of Funds. Mr. Vanocur is 67 years old and his address is 2928
P Street, N.W., Washington, D.C. 20007.
ANNE WEXLER, Director. Chairman of the Wexler Group, consultants
specializing in government relations and public affairs. She is also
a Director of American Cyanamid Company, Alumax, The Continental
Corporation, Comcast Corporation, The New England Electric System,
NOVA and a member of the Board of the Carter Center of Emory
University, the Council of Foreign Relations, the National Park
Foundation; the Visiting Committee of the John F. Kennedy School of
Government at Harvard University and the Board of Visitors of the
University of Maryland School of Public Affairs. She is also a Board
member of 16 other funds in the Dreyfus Family of Funds. Ms. Wexler
is 65 years old and her address is 1317 F Street, N.W., Washington,
D.C. 20004.
REX WILDER, Director. Financial Consultant. He is also a Board member of
11 other funds in the Dreyfus Family of Funds. Mr. Wilder is 74
years old and his address is 290 Riverside Drive, New York, New York
10025.
For so long as the Fund's plan described in the section captioned
"Service Plan" remains in effect, the Trustees of the Fund who are not
"interested persons" of the Fund, as defined in the Act, will be selected
and nominated by the Trustees who are not "interested persons" of the
Fund.
No meetings of shareholders will be held for the purpose of electing
Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Under the Act, shareholders of record of not less
than two-thirds of the outstanding shares of the Fund may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at
a meeting called for that purpose. The Trustees are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any such Trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
The Fund typically pays its Directors an annual retainer and a per
meeting fee end reimbursed them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. For the fiscal
year ended December 31, 1994, the aggregate amount of compensation paid to
each Director by the Fund and by all other funds in the Dreyfus Family of
Funds for which such person is a Board member were as follows:
<TABLE>
<CAPTION>
(5)
(3) Total
(2) Pension or (4) Compensation From
(1) Aggregate Retirement Benefits Estimated Annual Fund and Fund
Name of Board Compensation from Accrued as Part of Benefits Upon Complex Paid to
Member Fund* Fund's Expenses Retirement Board Members
- ----------------- ------------------ ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Gordon J. Davis $3,500 none none $ 29,602
Joseph S. DiMartino** $4,375 none none $445,000
Lynn Martin $3,000 none none $ 26,852
David P. Feldman $3,500 none none $ 85,631
Eugene McCarthy $3,500 none none $ 29,403
Daniel Rose $3,500 none none $ 62,006
Sander Vanocur $3,500 none none $ 62,006
Rex Wilder $3,500 none none $ 29,403
Anne Wexler $1,182 none none $ 26,329
</TABLE>
______________________________
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $402 for all Trustees as a group.
** Estimated amounts for the current fiscal year ending December 31,
1995.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc. She is 37 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President
and General Counsel of the Distributor and an officer of other
investment companies advised or administered by the Manager. From
February 1992 to July 1994, he served as Counsel for The Boston
Company Advisors, Inc. From August 1990 to February 1992, he was
employed as an Associate at Ropes & Gray, and prior to August 1990,
he was employed as an Associate at Sidley & Austin. He is 30 years
old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered the Manager. From September 1992
to August 1994, he was an attorney with the Board of Governors of the
Federal Reserve System. He is 30 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to
August 1994, he was Manager of the High Performance Fabric Division
of Springs Industries Inc. He is 33 years old.
JOSEPH F. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The
Boston Company, Inc. where he held various management positions in
the Corporate Finance and Treasury areas. He is 59 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1984 to July 1994, he was
Assistant Vice President in the Mutual Fund Accounting Department of
the Manager. He is 59 years old.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From January 1992 to July 1994, he was
a Senior Legal Product Manager and, from January 1990 to January
1992, a mutual fund accountant, for The Boston Company Advisors, Inc.
He is 28 years old.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts. She is 50 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Trustees and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of beneficial interest outstanding on February 17, 1995.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board of Trustees or (ii)
vote of a majority (as defined in the Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance also
is approved by a majority of the Trustees who are not "interested persons"
(as defined in the Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders on August 3, 1994 and was last
approved by the Fund's Board of Trustees, including a majority of the
Trustees who are not "interested persons" of any party to the Agreement,
at a meeting held on November 7, 1994. The Agreement is terminable
without penalty, on 60 days' notice, by the Fund's Board of Trustees or by
vote of the holders of a majority of the Fund's outstanding voting shares,
or, upon not less than 90 days' notice, by the Manager. The Agreement
will terminate automatically in the event of its assignment (as defined in
the Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Robert E. Riley, President, Chief Operating
Officer and a director; Philip L. Toia, Vice Chairman-Operations and
Administration; Paul H. Snyder, Vice President-Finance and Chief Financial
Officer; Barbara E. Casey, Vice President-Dreyfus Retirement Services;
Diane M. Coffey, Vice President-Corporate Communications; Elie M. Genadry,
Vice President-Institutional Sales; Henry D. Gottmann, Vice President-
Retail Sales and Service; Daniel C. Maclean, Vice President and General
Counsel; Mark N. Jacobs, Vice President-Legal and Secretary; Elvira
Oslapas, Assistant Secretary; Jeffrey N. Nachman, Vice President-Mutual
Fund Accounting; Katherine C. Wickham, Vice President-Human Resources;
William F. Glavin, Jr., Vice President-Product Management; Andrew S.
Wasser, Vice President-Information Services; Maurice Bendrihem,
Controller; and Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman,
Lawrence M. Greene, Julian M. Smerling and David B. Truman, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the
Fund's Board of Trustees. The Manager is responsible for investment
decisions, and provides the Fund with portfolio managers who are
authorized by the Board of Trustees to execute purchases and sales of
securities. The Fund's portfolio managers are Richard J. Moynihan, A.
Paul Disdier, Karen M. Hand, Stephen C. Kris, Jill C. Shaffro, L. Lawrence
Troutman, Samuel J. Weinstock and Monica S. Wieboldt. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the
Fund as well as for other funds advised by the Manager. All purchases and
sales are reported for the Trustees' review at the meeting subsequent to
such transactions.
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 Trustees who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of the Manager, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
maintaining the Fund's existence, costs of independent pricing services,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of shareholders' reports and
meetings and any extraordinary expenses. Pursuant to the Fund's Service
Plan, the Fund bears expenses for advertising, marketing and distributing
the Fund's shares and servicing shareholder accounts, and also bears the
cost of preparing and printing prospectuses and statements of additional
information and costs associated with implementing and operating such
plan. See "Service Plan."
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for the Manager's services, the Fund has agreed to
pay the Manager a monthly management fee at the annual rate of .60 of 1%
of the value of the Fund's average daily net assets. The management fees
payable for the fiscal years ended December 31, 1992, 1993 and 1994
amounted to $963,013, $1,178,284 and $1,034,322, respectively. Such fees
were reduced in fiscal 1992 and 1993 by $171,331 and $38,503,
respectively, pursuant to undertakings in effect; resulting in net fees
paid by the Fund to the Manager of $791,682 in fiscal 1992 and $1,139,781
in fiscal 1993.
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.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement dated August 24, 1994. The Distributor also acts
as distributor for the other funds in the Dreyfus Family of Funds and for
certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made between the hours of 8:00 a.m. and 4:00 p.m., New York time,
on any business day that The Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), and the New
York Stock Exchange are open. Such purchases will be credited to the
shareholder's Fund account on the next bank business day. To qualify to
use the Dreyfus TeleTransfer Privilege, the initial payment for purchase
of Fund shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or
Shareholder Services Form on file. If the proceeds of a particular
redemption are to be wired to an account at any other bank, the request
must be in writing and signature-guaranteed. See "Redemption of Fund
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
SERVICE PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Service
Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange
Commission under the 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 of Trustees
has adopted such a plan (the "Plan"), pursuant to which the Fund (a)
reimburses the Distributor for payments to certain financial institutions
(which may include banks), securities dealers and other financial industry
professionals (collectively, "Service Agents") for distributing the Fund's
shares and for servicing shareholder accounts ("Servicing") and (b) pays
the Manager and Dreyfus Service Corporation and any affiliate of either of
them (collectively, "Dreyfus") for advertising and marketing relating to
the Fund and Servicing. The Fund's Board of Trustees believes that there
is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. In some states, banks or other financial institutions
effecting transactions in Fund shares may be required to register as
dealers pursuant to state law.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Board of Trustees for its review. In addition, the Plan provides that it
may not be amended to increase materially the costs which the Fund may
bear for distribution pursuant to the Plan without shareholder approval
and that other material amendments of the Plan must be approved by the
Board of Trustees, and by the Trustees who are not "interested persons"
(as defined in the Act) of the Fund or the Manager and have no direct or
indirect financial interest in the operation of the Plan or in the related
service agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Plans and the related service
agreements are subject to annual approval by such vote of the Trustees
cast in person at a meeting called for the purpose of voting on the Plan.
The Plan was so approved at a meeting held on November 7, 1994. The Plan
is terminable at any time by vote of a majority of the Trustees who are
not "interested persons" and have no direct or indirect financial interest
in the operation of the Plan or in any of the related service agreements
or by vote of a majority of the Fund's shares. Any service agreement is
terminable without penalty, at any time, by such vote of the Trustees or,
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' no-
tice, by the Distributor. Each service agreement will terminate
automatically in the event of its assignment (as defined in the Act).
Under the Plan, for the period August 24, 1994 through December 31,
1994, the total amount payable by the Fund was $145,904, of which (a)
$3,197 was payable to the Distributor for payments made to Service Agents
for distributing Fund shares and Servicing, (b) $138,742 was payable to
Dreyfus for advertising and marketing Fund shares and Servicing and (c)
$3,965 was payable for printing the Fund's prospectuses and statement of
additional information, as well as implementing and operating the Plan.
Pursuant to undertakings in effect, the amount chargeable to the Fund
pursuant to the Plan was reduced by $3,965, resulting in a net fee of
$141,939.
Prior Service Plan
For the period from January 1, 1994 through August 23, 1994, the
total amount payable by the Fund was $296,195, of which (a) $4,993 was
payable to Dreyfus Service Corporation, as the Funds' Distributor during
such period, for payments made to Service Agents for distributing Fund
shares and Servicing, (b) $284,035 was payable to Dreyfus for advertising
and marketing Fund shares and Servicing and (c) $7,167 was payable for
printing the Fund's prospectuses and statement of additional information,
as well as implementing and operating the Plan. Pursuant to undertakings
in effect, the amount chargeable to the Fund pursuant to the Plan was
reduced by $7,167, resulting in a net fee of $289,028.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only
to the registered owner(s) of the account and only to the address of
record. The Account Application or later written request must be manually
signed by the registered owner(s). Checks may be made payable to the or-
der of any person in an amount of $500 or more. When a Check is presented
to the Transfer Agent for payment, the Transfer Agent, as the investor's
agent, will cause the Fund to redeem a sufficient number of full or
fractional shares in the investor's account to cover the amount of the
Check. Dividends are earned until the Check clears. After clearance, a
copy of the Check will be returned to the investor. Investors generally
will be subject to the same rules and regulations that apply to checking
accounts, although election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient
funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt by the Transfer Agent of a
redemption request in proper form. Redemption proceeds will be
transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder
Services Form. Redemption proceeds, if wired, must be in the amount of
$1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees
ordinarily are imposed by such bank and usually are borne by the investor.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmission:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at
1-800-654-7171, toll free. Investors should advise the operator that the
above transmittal code must be used and should also inform the operator of
the Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Fund Shares--Dreyfus TeleTransfer Privilege."
Share 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 Signature Program ("STAMP") and the Stock Exchanges
Medallion Program. Guarantees must be signed by an authorized signatory
of the guarantor and "Signature-Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, executors, administrators, trustees or guardians and may
accept other suitable verification arrangements from foreign investors,
such as consular verification. For more information with respect to
signature-guarantees, please call one of the telephone numbers listed on
the cover.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Board of Trustees reserves the right to make payments in whole
or part in securities or other assets of the Fund in case of an emergency
or any time a cash distribution would impair the liquidity of the Fund to
the detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Fund's portfolio is valued. If
the recipient sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Fund's investments or
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
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a
sales load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales load,
and the applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load, and additional shares acquired through
reinvestment of dividends or distributions of any such funds
(collectively referred to herein as "Purchased Shares") may
be exchanged for shares of other funds sold with a sales load
(referred to herein as "Offered Shares"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load that could have been imposed in connection
with the Purchased Shares (at the time the Purchased Shares
were acquired), without giving effect to any reduced loads,
the difference will be deducted.
To accomplish an exchange under item D above, shareholders must
notify the Transfer Agent of their prior ownership of fund shares and
their account number.
To request an exchange, an investor, or the investor's Service Agent
acting on the investor's behalf, must give exchange instructions to the
Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically
unless the investor checks the applicable "NO" box on the Account
Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor or a
representative of the investor's Service Agent, and reasonably believed by
the Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares in certificate form are not eligible for telephone
exchange.
To establish a Personal Retirement Plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in Corporate Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in
Personal Retirement Plans, the shares exchanged must have a current value
of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund,
shares of another fund in the Dreyfus Family of Funds. This Privilege is
available only for existing accounts. Shares will be exchanged on the
basis of relative net asset value described above under "Fund Exchange."
Enrollment in or modification or cancellation of this Privilege is
effective three business days following notification by the investor. An
investor will be notified if his account falls below the amount designated
to be exchanged under this Privilege. In this case, an investor's account
will fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares
held under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts exchanges may be made only
among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available
to shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-654-6561. The Fund reserves the right to reject
any exchange request in whole or in part. Fund Exchanges or the Dreyfus
Auto-Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from the sale of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. There is a service charge of $.50 for each
withdrawal check. Automatic Withdrawal may be terminated at any time by
the investor, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the
basis of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds
that are offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other funds
sold with a sales load, and the applicable sales load will be
deducted.
C. Dividends and distributions paid by a fund which charges a
sales load may be invested in shares of other funds sold with
a sales load (referred to herein as "Offered Shares"),
provided that, if the sales load applicable to the Offered
Shares exceeds the maximum sales load charged by the fund
from which dividends or distributions are being swept,
without giving effect to any reduced loads, the difference
will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be
imposed upon redemption of such shares.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. The Fund's investments are valued
by an independent pricing service (the "Service") approved by the Board of
Trustees. 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 Board of Trustees. 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 of Trustees,
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 Board of Trustees 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, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly-issued securities
ordinarily are purchased directly from the issuer or from an underwriter;
other purchases and sales usually are placed with those dealers from which
it appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases
and sales, although the price paid usually includes an undisclosed
compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid
by the issuer to the underwriter, and purchases of after-market securities
from dealers ordinarily are executed at a price between the bid and asked
price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to
that primary consideration, dealers may be selected for research,
statistical or other services to enable the Manager to supplement its own
research and analysis with the views and information of other securities
firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the expenses of its
research department.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
The Internal Revenue Code of 1986, as amended, (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. In
addition, 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 stated in
"Dividends, Distributions and Taxes" in the Prospectus.
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 or other disposition of certain market
discount bonds will be treated as ordinary income under Section 1276 of
the Code. In addition, all or a portion of the gain realized from
engaging in "conversion transactions" may be treated as ordinary income
under Section 1258. "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.
Investment by the Fund in securities at a discount or providing for
deferred interest or payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could
be required to take into account annually a portion of the discount (or
deemed discount) at which such securities were issued and to distribute
such portion in order to maintain its qualification as a regulated
investment company. In such case, the Fund may have to dispose of
securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Performance Information."
The Fund's current yield for the 30-day period ended December 31,
1994 was 5.59%. Current yield is computed pursuant to a formula which
operates as follows: The amount of the Fund's expenses accrued for the
30-day period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned (computed in accordance with regulatory
requirements) by the Fund during the period. That result is then divided
by the product of: (a) the average daily number of shares outstanding
during the period that were entitled to receive dividends, and (b) the net
asset value per share on the last day of the period less any undistributed
earned income per share reasonably expected to be declared as a dividend
shortly thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The current yield
is then arrived at by multiplying the result by 2.
Based upon a combined 1995 Federal, New York State and New York City
personal income tax rate of 47.05%, the Fund's tax equivalent yield for
the 30-day period ended December 31, 1994 was 10.56%. Tax equivalent
yield is computed by dividing that portion of the current yield
(calculated as described above) which is tax exempt by 1 minus a stated
tax rate and adding the quotient to that portion, if any, of the yield of
the Fund that is not tax exempt.
The tax equivalent yield noted above represents the application of
the highest Federal, New York State and New York City marginal personal
income tax rates currently in effect. For Federal income tax purposes, a
39.60% tax rate has been used. For New York State and New York City
personal income tax purposes, tax rates of 7.875% and 4.46%, respectively,
have been used. The tax equivalent figure, however, does not reflect the
potential effect of any other local (including, but not limited to,
county, district or city, other than New York City) taxes, including
applicable surcharges. In addition, there may be pending legislation
which could affect such stated tax rates or yields. Each investor should
consult its tax adviser, and consider its own factual circumstances and
applicable tax laws, in order to ascertain the relevant tax equivalent
yield.
The Fund's average annual total return for the 1, 5 and 7.868 year
periods ended December 31, 1994 was -6.62%, 6.16% and 4.47%, respectively.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
The Fund's total return for the period February 18, 1987 to December
31, 1994 was 41.07%. Total return is calculated by subtracting the amount
of the Fund's net asset value per share at the beginning of a stated
period from the net asset value per share at the end of the period (after
giving effect to the reinvestment of dividends and distributions during
the period) and dividing the result by the net asset value per share at
the beginning of the period.
From time to time, the Fund may use hypothetical equivalent yields or
charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and not as representative of the
Fund's past or future performance. Advertising materials for the Fund
also may refer to or discuss then-current or past economic conditions,
developments and/or events, and actual or proposed tax legislation. From
time to time, advertising materials for the Fund also may refer to
statistical or other information concerning trends relating to investment
companies, as compiled by industry associations such as the Investment
Company Institute and may refer to Morningstar ratings and related
analyses supporting the rating.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Fund shares are of one class and have equal rights as to
dividends and in liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
On August 3, 1994, the Fund's shareholders voted to (a) approve (i) a
new Management Agreement with the Manager and (ii) a new Service Plan,
both of which became effective upon consummation of the merger between the
Manager and a subsidiary of Mellon Bank, N.A., and (b) change certain of
the Fund's investment restrictions to permit the Fund to (i) borrow money
to the extent permitted under the Act and (ii) pledge its assets to the
extent necessary to secure permitted borrowings.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286,
is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
portfolio securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares of beneficial interest being sold pursuant to the Fund's
Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
The financial condition of New York State (the "State") and certain
of its public bodies (the "Agencies") and municipalities, particularly New
York City (the "City"), could affect the market values and marketability
of New York Municipal Obligations which may be held by the Fund. The
following information constitutes only a brief summary, does not purport
to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State, the
City and the Municipal Assistance Corporation for the City of New York
("MAC") available as of the date of this Statement of Additional
Information. While the Fund has not independently verified such
information, it has no reason to believe that such information is not
correct in all material respects.
A national recession commenced in mid-1990. The downturn continued
through the remainder of the 1990-91 fiscal year, and was followed by a
period of weak economic growth during the remainder of the 1991 calendar
year. For the calendar year 1992, the national economy continued to
recover, although at a rate below all post-war recoveries. The recession
was more severe in the State than in other parts of the nation, owing to a
significant retrenchment in the financial services industry, cutbacks in
defense spending, and an overbuilt real estate market. The State economy
remained in recession until 1993, when employment growth resumed. Since
early 1993, the State has gained approximately 100,000 jobs. The State's
economic forecast calls for employment to increase in 1994 and 1995.
Employment growth will moderate in 1995 when the pace of national economic
growth is projected to slacken and entire industries adjust to changing
markets and the State's economy absorbs the full impact of these
developments. Personal income is estimated to increase by 5.3% in 1994,
and a more moderate rate in 1995.
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for 1994-95 fiscal year was
formulated on June 16, 1994 and is based on the State's budget as enacted
by the Legislature and signed into law by the Governor.
The State Financial Plan is based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to
predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the
national and State economies, including consumer attitudes toward
spending, Federal financial and monetary policies, the availability of
credit and the condition of the world economy, which could have an adverse
effect on the State. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1994-95 fiscal
year, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The State issued its first update to the GAAP-basis Financial Plan
for the State's 1994-95 fiscal year on September 1, 1994. In the
September GAAP-basis update, the Division of the Budget projected a
General Fund Operating deficit of $690 million. The prior projection of
the 1994-95 GAAP-basis State Financial Plan, issued in February 1994 as
part of the 1994-95 Executive Budget (the "February 1994 Projection"),
projected an operating surplus in the General Fund of $7 million.
In the February 1994 projection, General Fund operating results over
the 1993-94 and 1994-95 fiscal year projection period were anticipated to
reduce the accumulated deficit by $256 million. The impact of the
reported results for the State's 1993-94 fiscal year and the revised
projection on the accumulated deficit is substantially the same.
Combining the $914 million operating surplus for the State's 1993-94
fiscal year with the projected $690 million operating deficit for the
1994-95 fiscal year results in an anticipated $224 million reduction in
the accumulated deficit.
Total revenues in the General Fund are projected at $32.825 billion,
consisting of $30.783 billion in tax revenues and $2.042 billion in
miscellaneous revenue. Personal income tax revenue is projected to reach
$17.712 billion, or nearly 58% of total tax revenue. User taxes and fees
are projected to total $6.561 billion, or nearly 21% of total taxes.
Business taxes are projected at $5.442 billion, or 18%, while revenue from
other taxes is projected at $1.068 billion or 3% of total tax revenue.
Total expenditures in the General Fund are projected at $33.633 billion,
including $23.778 billion for grants to local governments, $8.033 billion
for State operations, $1.807 billion for general State charges, and $15
million for debt service. Compared to the projections made in February,
expenditures for grants to local governments are substantially increased,
while expenditures for state operations are reduced.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts
base and the spending required to maintain State programs at current
levels. To address any potential budgetary imbalance, the State may need
to take significant actions to align recurring receipts and disbursements
in future fiscal years.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and
January 13, 1992, S&P changed its ratings on all of the State's
outstanding general obligation bonds from AA- to A and from A to A-,
respectively. Ratings reflect only the respective views of such
organizations, and their concerns about the financial condition of New
York State and City, the debt load of the State and City and any economic
uncertainties about the region. There is no assurance that a particular
rating will continue for any given period of time or that any such rating
will not be revised downward or withdrawn entirely if, in the judgment of
the agency originally establishing the rating, circumstances so warrant.
(1) The State, Agencies and Other Municipalities. During the mid-
1970s, some of the Agencies and municipalities (in particular, the City)
faced extraordinary financial difficulties, which affected the State's own
financial condition. These events, including a default on short-term
notes issued by the New York State Urban Development Corporation ("UDC")
in February 1975, which default was cured shortly thereafter, and a
continuation of the financial difficulties of the City, created
substantial investor resistance to securities issued by the State and by
some of its municipalities and Agencies. For a time, in late 1975 and
early 1976, these difficulties resulted in a virtual closing of public
credit markets for State and many State related securities.
In response to the financial problems confronting it, the State
developed and implemented programs for its 1977 fiscal year that included
the adoption of a balanced budget on a cash basis (a deficit of $92
million that actually resulted was financed by issuing notes that were
paid during the first quarter of the State's 1978 fiscal year). In
addition, legislation was enacted limiting the occurrence of additional
so-called "moral obligation" and certain other Agency debt, which
legislation does not, however, apply to MAC debt.
State Financial Results. New York State's financial operations have
improved during recent fiscal years. During the period 1989-90 through
1991-92, the State incurred General Fund operating deficits that were
closed with receipts from the issuance of tax and revenue anticipation
notes ("TRANs"). First, the national recession, and then the lingering
economic slowdown in the New York and regional economy, resulted in
repeated shortfalls in receipts and three budget deficits. For its 1992-
93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
On July 29, 1994, the Office of the State Comptroller issued the
General Purpose Financial Statements of the State of New York for the
1993-94 fiscal year. The Statements were prepared on GAAP-basis and were
independently audited in accordance with generally accepted auditing
standards. The State's Combined Balance Sheet as of March 31, 1994 showed
an accumulated surplus in its combined governmental funds of $370 million,
reflecting liabilities of $13.219 billion and assets of $13.589 billion.
This accumulated Governmental Funds surplus includes a $1.637 billion
accumulated deficit in the General Fund, as well as accumulated surpluses
in the Special Revenue and Debt Service fund types and a $622 million
accumulated deficit in the Capital Projects Fund type.
The State completed its 1993-94 fiscal year with a combined
Governmental Funds operating surplus of $1.051 billion, which included an
operating surplus in the General Fund of $914 million, in the Special
Revenue Funds of $149 million and in the Debt Service Funds of $23
million, and an operating deficit in the Capital Projects Funds of $35
million. The following table updates Table 6 of the Annual Information
Statement.
The State reported a General Fund operating surplus of $914 million
for the 1993-94 fiscal year, as compared to an operating surplus of $2.065
billion for the prior fiscal year. The 1993-94 fiscal year surplus
reflects several major factors, including the cash basis surplus recorded
in 1993-94, the use of $671 million of the 1992-93 surplus to fund
operating expenses in 1993-94, net proceeds of $575 million in bonds
issued by the Local Government Assistance Corporation, and the
accumulation of $265 million balance in the Contingency Reserve Fund.
Revenues increased $543 million (1.7%) over prior fiscal year revenues
with the largest increase occurring in personal income taxes.
Expenditures increased $1.659 billion (5.6%) over the prior fiscal year,
with the largest increase occurring in State aid for social services
programs.
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund and $134 million in its tax stabilization reserve fund.
These fund balances were primarily the result of an improving national
economy, State employment growth, tax collections that exceeded earlier
projections and disbursements that were below expectations. Deposits to
the personal income tax refund reserve have the effect of reducing
reported personal income tax receipts in the fiscal year when made and
withdrawals from such reserve increase receipts in the fiscal year when
made. The balance in the tax reserve account will be used to pay taxpayer
refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-
95 fiscal year. The remaining $114 million will be redeposited in the tax
refund reserve account at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as part of the
New York Local Government Assistance Corporation ("LGAC") program. The
balance in the contingency reserve fund will be used to meet the cost of
litigation facing the State. The tax stabilization reserve fund may be
used only in the event of an unanticipated General Fund cash-basis deficit
during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve
account, General Fund receipts in 1993-94 exceeded those originally
projected when the State Financial Plan for the year was formulated on
April 16, 1993 by $1.002 billion. Greater-than-expected receipts in the
personal income tax, the bank tax, the corporation franchise tax and the
estate tax accounted for most of this variance, and more than offset
weaker-than-projected collections from the sales and use tax and
miscellaneous receipts. Collections from individual taxes were affected
by various factors including changes in Federal business laws, sustained
profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first
quarter of the State's 1993-94 year, and although this lagged the national
economic recovery, the growth in New York began earlier than forecasted.
The New York economy exhibited signs of strength in the service sector, in
construction, and in trade. Long Island, and the Mid-Hudson Valley
continued to lag the rest of the State in economic growth. Approximately
100,000 jobs are believed to have been added during the 1993-94 fiscal
year.
Disbursements and transfer from the General Fund were $303 million
below the level projected in April 1993, an amount that would have been
$423 million had the State not accelerated the payment of Medicaid
billings, which in the April 1993 State Financial Plan were planned to be
deferred into the 1994-95 fiscal year. Compared to the estimates included
in the State Financial Plan formulated in April 1993, disbursements were
lower for Medicaid, capital projects, and debt service (due to
refundings). In addition, $114 million of school and payments were funded
from the proceeds of LGAC bonds. Disbursements were higher-than-expected
for general support for public schools. The State also made the first of
six required payments to the State of Delaware related to the settlement
of Delaware's litigation against the State regarding the disposition of
abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded
a Contingency Reserve Fund ("CRF") as a way to assist the State in
financing the cost of litigation affecting the State. The CRF was
initially funded with a transfer of $100 million attributable to the
positive margin recorded in the 1992-93 fiscal year. In addition, the
State augmented this initial deposit with $132 million on debt service
savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to
the CRF, which, after a disbursement for authorized fund purposes, brought
the CRF balance at the end of 1993-94 to $265 million. This amount was
$165 million higher than the amount originally targeted for this reserve
fund.
For its 1992-93 fiscal year the State had a balanced budget on a cash
basis with a positive margin of $671 million in the General Fund that was
deposited in the refund reserve account.
After reflecting a 1992-93 year-end deposit to the refund reserve
account of $671 million, reported 1992-93 General Fund receipts were $45
million higher than originally projected in April 1992. If not for that
year-end transaction, which had the effect of reducing 1992-93 receipts by
$671 million and making those receipts available in 1993-94, General Fund
receipts would have been $716 million higher than originally projected.
The favorable performance was primarily attributable to personal
income tax collections that were more than $700 million higher than
originally projected (before reflecting the refund reserve transaction).
The withholding and estimated payment components of the personal income
tax exceeded original estimates by more than $800 million combined,
reflecting both stronger economic activity, particularly at year's end,
and the tax-induced one-time acceleration of income into 1992. Modest
shortfalls were experienced in other components of the income tax.
There were large, but largely offsetting, variances in other
categories. Significantly higher-than-projected business tax collections
and the receipt of unbudgeted payments from the Medical Malpractice
Insurance Association and the New York Racing Association approximately
offset the loss of an anticipated $200 million Federal reimbursement, the
loss of certain budgeted hospital differential revenue as a result of
unfavorable court decisions, and shortfalls in certain miscellaneous
revenue sources.
Disbursements and transfers to other funds totaled $30.829 billion,
an increase of $45 million above projections in April 1992. After
adjusting for the impact of a $150 million payment from the Medical
Malpractice Insurance Association to health insurers made pursuant to
legislation passed in January 1993, actual disbursements were $105 million
lower than projected. This reduction primarily reflected higher-than-
anticipated costs for educational programs, as offset by lower costs in
virtually all other categories of spending, including Medicaid, local
health programs, agency operations, fringe benefits, capital projects and
debt service.
During its 1989-90, 1990-91 and 1991-92 fiscal years, the State
incurred cash-basis operating deficits in the General Fund of $775
million, $1.081 billion and $575 million, respectively, prior to the
issuance of short-term tax and revenue anticipation notes ("TRANs"), owing
to lower-than-projected receipts.
Governmental Funds. The principal operating fund of the State is the
General Fund. It receives all State income that is not required by law to
be deposited in another fund. General Fund receipts, including transfers
from other funds, totalled $32.229 billion in the State's 1993-94 fiscal
year. General Fund receipts in the State's 1994-95 fiscal year are
estimated in the State Financial Plan at $34.321 billion. Including
transfers to other funds, total General Fund disbursements in the 1993-94
fiscal year were $31.897 billion, and are estimated to total $34.248
billion in the State's 1994-95 fiscal year.
The Special Revenue Funds account for State receipts from specific
sources that are legally restricted in use to specified purposes and
include all moneys received from the Federal government. Total receipts
in Special Revenue Funds are projected at $24.598 billion in the State's
1994-95 fiscal year. Federal grants are projected to account for 75% of
the total projected receipts in Special Revenue Funds in the State's 1994-
95 fiscal year.
Disbursements from Special Revenue Funds are projected to be $24.982
billion for the State's 1994-95 fiscal year. Grants to local governments
disbursed from this fund type are projected to account for 75% of
disbursements from this fund for the 1994-95 fiscal year.
The Capital Projects Funds are used to finance the acquisition and
construction of major capital facilities and to aid local government units
and Agencies in financing capital constructions. Federal grants for
capital projects, largely highway-related, are projected to account for
33% of the $3.233 billion in total projected receipts in Capital Projects
Funds in the State's 1994-95 fiscal year. Total disbursements for capital
projects are projected to be $3.730 billion during the State's 1994-95
fiscal year. Of total disbursements from Capital Projects Funds,
approximately 54% is for various transportation purposes, including
highways and mass transportation facilities; 4% is for programs of the
Department of Correctional Services and other public protection
activities; 16% is for health and mental hygiene facilities; 13% is for
environmental and recreational programs; 5% is for educational programs;
and 5% is for housing and economic development programs. The balance is
for the maintenance of State office facilities and various other capital
programs.
The Debt Service Funds serve to fulfill State debt service on long-
term general obligation State debt and other State lease/purchase and
contractual obligation financing commitments. Total receipts in Debt
Service Funds are projected to reach $2.318 billion in the State's 1994-95
fiscal year. Total disbursements from Debt Service Funds for debt
service, lease/purchase and contractual obligation financing commitments
are projected to be $2.246 billion for the 1994-95 fiscal year.
State Borrowing Plan. The State issued $850 million in TRANs on May
4, 1993 to fund its day-to-day operations and certain local assistance
payments to its municipalities and school districts. All of these TRANs
matured on December 31, 1993.
The State anticipates that its 1994-95 borrowings for capital
purposes will consist of approximately $374 million in general obligation
bonds (including $140 million for the purpose of redeeming outstanding
bond anticipation notes) and $140 million in new commercial paper
issuances. The Legislature has authorized the issuance of up to $69
million in certificates of participation for real property and equipment
acquisitions during the State's 1994-95 fiscal year. The projections of
the State regarding its borrowings for the 1994-95 fiscal year may change
if actual receipts fall short of State projections or if other
circumstances require.
In addition, the LGAC is authorized to provide net proceeds of $315
million during the 1994-95 fiscal year to make payments to local
governmental units, otherwise made by the State, reduces the State's
future liabilities.
State Agencies. The fiscal stability of the State is related, at
least in part, to the fiscal stability of its localities and various of
its Agencies. Various Agencies have issued bonds secured, in part, by
non-binding statutory provisions for State appropriations to maintain
various debt service reserve funds established for such bonds (commonly
referred to as "moral obligation" provisions).
At September 30, 1993, there were 18 Agencies that had outstanding
debt of $100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 18 Agencies was $63.5 billion as of September
30, 1993. As of March 31, 1994, aggregate Agency debt outstanding as
State-supported debt was $21.1 billion and as State-related was $29.4
billion. Debt service on the outstanding Agency obligations normally is
paid out of revenues generated by the Agencies' projects or programs, but
in recent years the State has provided special financial assistance, in
some cases on a recurring basis, to certain Agencies for operating and
other expenses and for debt service pursuant to moral obligation
indebtedness provisions or otherwise. Additional assistance is expected
to continue to be required in future years.
Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. Failure of the State to appropriate
necessary amounts or to take other action to permit certain Agencies to
meet their obligations could result in a default by one or more of such
Agencies. If a default were to occur, it would likely have a significant
effect on the marketability of obligations of the State and the Agencies.
These Agencies are discussed below.
The New York State Housing Finance Agency ("HFA") provides financing
for multifamily housing, State University construction, hospital and
nursing home development, and other programs. In general, HFA depends
upon mortgagors in the housing programs it finances to generate sufficient
funds from rental income, subsidies and other payments to meet their
respective mortgage repayment obligations to HFA, which provide the
principal source of funds for the payment of debt service on HFA bonds, as
well as to meet operating and maintenance costs of the projects financed.
From January 1, 1976 through March 31, 1987, the State was called upon to
appropriate a total of $162.8 million to make up deficiencies in the debt
service reserve funds of HFA pursuant to moral obligation provisions. The
State has not been called upon to make such payments since the 1986-87
fiscal year and no payments are anticipated during the 1993-94 fiscal
year.
UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975,
because a substantial number of these housing program mortgagors are
unable to make full payments on their mortgage loans. Through a
subsidiary, UDC is currently attempting to increase its rate of collection
by accelerating its program of foreclosures and by entering into
settlement agreements. UDC has been, and will remain, dependent upon the
State for appropriations to meet its operating expenses. The State also
has appropriated money to assist in the curing of a default by UDC on
notes which did not contain the State's moral obligation provision.
The Metropolitan Transportation Authority (the "MTA") oversees New
York City's subway and bus lines by its affiliates, the New York City
Transit Authority and the Manhattan and Bronx Surface Transit Operating
Authority (collectively, the "TA"). Through MTA's subsidiaries, the Long
Island Rail Road Company, the Metro-North Commuter Railroad Company and
the Metropolitan Suburban Bus Authority, the MTA operates certain commuter
rail and bus lines in the New York metropolitan area. In addition, the
Staten Island Rapid Transit Authority, an MTA subsidiary, operates a rapid
transit line on Staten Island. Through its affiliated agency, the
Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates
certain toll bridges and tunnels. Because fare revenues are not
sufficient to finance the mass transit portion of these operations, the
MTA has depended and will continue to depend for operating support upon a
system of State, local government and TBTA support and, to the extent
available, Federal operating assistance, including loans, grants and
operating subsidies.
The TA and the commuter railroads, which are on a calendar fiscal
year, ended 1993 with their budgets balanced on a cash basis. The TA had
a closing cash balance of approximately $39 million.
Over the past several years the State has enacted several
taxes--including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in the
12-county region (the "Metropolitan Transportation Region") served by the
MTA and a special .25% regional sales and use tax--that provide additional
revenues for mass transit purposes, including assistance to the MTA. The
surcharge, which expires in November 1995, yielded $533 million in
calendar year 1993, of which the MTA was entitled to receive approximately
90%, or approximately $480 million.
For 1994, the TA projects that it will end the year with $77.6
million cash surplus. For the 1994-95 State fiscal year, total State
assistance to the MTA is estimated at $1.3 billion.
A subway fire on December 28, 1990 and a subway derailment on August
28, 1991, each of which caused fatalities and many injuries, have given
rise to substantial claims for damages against both the TA and the City.
In 1981, the State Legislature authorized procedures for the
adoption, approval and amendment of a five-year plan for the capital
program designed to upgrade the performance of the MTA's transportation
systems and to supplement, replace and rehabilitate facilities and
equipment, and also granted certain additional bonding authorization
therefor.
On April 5, 1993, the Legislature approved, and the Governor
subsequently signed into law, legislation authorizing a five-year $9.56
billion capital plan for the MTA for 1992-1996. The MTA has submitted a
1992-1996 Capital Program based on this legislation for the approval of
the MTA Capital Program Review Board (the "CPRB"), as State law requires.
On July 1, 1993, the CPRB indicated that it was withholding approval
pending the resolution of certain related issues. If approved, the 1992-
1996 Capital Program would succeed two previous five-year capital programs
of the periods covering 1982-1986 and 1987-1991. The 1987-1991 Capital
Program totalled approximately $8.0 billion, including $6.2 billion for TA
capital projects.
The 1992-1996 Capital Program would supersede a one-year program
adopted in 1992. State budget legislation for the 1992-93 fiscal year had
required the MTA to submit a one-year capital program for 1992 instead of
a five-year program. The one-year program, which contained $1.635 billion
of projects for transit and commuter facilities combined, was approved by
the CPRB in May 1992, but the five-year program for 1992-1996, required to
be submitted subsequently by the MTA as an amendment to the one-year plan,
was disapproved without prejudice by the CPRB in December 1992.
There can be no assurance that such governmental actions will be
taken, that sources currently identified will not be decreased or
eliminated, or that the 1992-1996 Capital Program will not be delayed or
reduced. If the MTA capital program is delayed or reduced because of
funding shortfalls or other factors, ridership and fare revenues may
decline, which could, among other things, impair the MTA's ability to meet
its operating expenses without additional State assistance.
The cities, towns, villages and school districts of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad
powers and responsibilities with respect to the government, finances and
welfare of these political subdivisions, especially in education and
social services. In recent years the State has been called upon to
provide added financial assistance to certain localities.
Other Localities. Certain localities in addition to the City could
have financial problems leading to requests for additional State
assistance during the State's 1994-95 fiscal year and thereafter. The
potential impact on the State of such actions by localities is not
included in the projections of the State receipts and disbursements in the
State's 1994-95 fiscal year.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1992, the total indebtedness of
all localities in the State, other than the City, was approximately $15.7
billion. A small portion (approximately $71.6 million) of this
indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to enabling State legislation. State law requires the
Comptroller to review and make recommendations concerning the budgets of
those local government units other than the City authorized by State law
to issue debt to finance deficits during the period that such deficit
financing is outstanding. Seventeen localities had outstanding
indebtedness for deficit financing at the close of their fiscal year
ending in 1992.
Certain proposed Federal expenditure reductions would reduce, or in
some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those
expenditures. If the State, the City or any of the Agencies were to
suffer serious financial difficulties jeopardizing their respective access
to the public credit markets, the marketability of notes and bonds issued
by localities within the State could be adversely affected. Localities
also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions and long-range economic trends.
The longer-range, potential problems of declining city population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing State assistance in the future.
Because of significant fiscal difficulties experienced from time to
time by the City of Yonkers, a Financial Control Board was created by the
State in 1984 to oversee Yonkers' fiscal affairs. Future actions taken by
the Governor or the State Legislature to assist Yonkers in this crisis
could result in the allocation of State resources in amounts that cannot
yet be determined.
Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these litigations are those that
involve: (i) the validity and fairness of agreements and treaties by which
various Indian tribes transferred title to the State of approximately six
million acres of land in central New York; (ii) certain aspects of the
State's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services; (iii) contamination
in the Love Canal area of Niagara Falls; (iv) a challenge to the State's
practice of reimbursing certain Office of Mental Health patient-care
expenses with clients' Social Security benefits; (v) a challenge to the
methods by which the State reimburses localities for the administrative
costs of food stamp programs; (vi) a challenge to the State's possession
of certain funds taken pursuant to the State's Abandoned Property law;
(vii) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (viii) an action, in which the
State is a third party defendant, for injunctive or other appropriate
relief, concerning liability for the maintenance of stone groins
constructed along certain areas of Long Island's shoreline; (ix) actions
challenging the constitutionality of legislation enacted during the 1990
legislative session which changed the actuarial funding methods for
determining contributions to State employee retirement systems; (x) an
action against State and City officials alleging that the present level of
shelter allowance for public assistance recipients is inadequate under
statutory standards to maintain proper housing; (xi) an action challenging
legislation enacted in 1990 which had the effect of deferring certain
employer contributions to the State Teachers' Retirement System and
reducing State aid to school districts by a like amount; (xii) a challenge
to the constitutionality of financing programs of the Thruway Authority
authorized by Chapters 166 and 410 of the Laws of 1991 (described below in
this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway
Authority authorized by Chapter 56 of the Laws of 1993 (described below in
this Part); (xiv) challenges to the delay by the State Department of
Social Services in making two one-week Medicaid payments to the service
providers; (xv) challenges by commercial insurers, employee welfare
benefit plans, and health maintenance organizations to provisions of
Section 2807-c of the Public Health Law which impose 13%, 11% and 9%
surcharges on inpatient hospital bills and a bad debt and charity care
allowance on all hospital bills paid by such entities; (xvi) challenges to
the promulgation of the State's proposed procedure to determine the
eligibility for and nature of home care services for Medicaid recipients;
(xvii) a challenge to State implementation of a program which reduces
Medicaid benefits to certain home-relief recipients; and (xviii)
challenges to the rationality and retroactive application of State
regulations recalibrating nursing home Medicaid rates.
Adverse developments or decisions in such cases could affect the
ability of the State to maintain a balanced 1994-95 State Financial Plan.
(2) New York City. In the mid-1970s, the City had large accumulated
past deficits and until recently was not able to generate sufficient tax
and other ongoing revenues to cover expenses in each fiscal year.
However, the City's operating results for the fiscal year ending June 30,
1993 were balanced in accordance with GAAP, the eleventh consecutive year
in which the City achieved balanced operating results in accordance with
GAAP. The City's ability to maintain balanced operating results in future
years is subject to numerous contingencies and future developments.
The City's economy, whose rate of growth slowed substantially over
the past three years, is currently in recession. During the 1990 and 1991
fiscal years, as a result of the slowing economy, the City has experienced
significant shortfalls in almost all of its major tax sources and
increases in social services costs, and has been required to take actions
to close substantial budget gaps in order to maintain balanced budgets in
accordance with the Financial Plan.
In 1975, the City became unable to market its securities and entered
a period of extraordinary financial difficulties. In response to this
crisis, the State created MAC to provide financing assistance to the City
and also enacted the New York State Financial Emergency Act for the City
of New York (the "Emergency Act") which, among other things, created the
Financial Control Board (the "Control Board") to oversee the City's
financial affairs and facilitate its return to the public credit markets.
The State also established the Office of the State Deputy Comptroller
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the Control Board's powers of
approval over the City Financial Plan were suspended pursuant to the
Emergency Act. However, the Control Board, MAC and OSDC continue to
exercise various monitoring functions relating to the City's financial
condition. The City prepares and operates under a four-year financial
plan which is submitted annually to the Control Board for review and which
the City periodically updates.
The City's independently audited operating results for each of its
fiscal years from 1981 through 1993 show a General Fund surplus reported
in accordance with GAAP. The City has eliminated the cumulative deficit
in its net General Fund position. In addition, the City's financial
statements for the 1993 fiscal year received an unqualified opinion from
the City's independent auditors, the eleventh consecutive year the City
has received such an opinion.
In August 1993, the City adopted and submitted to the Control Board
for its review a four-year Financial Plan covering fiscal years 1994
through 1997 (the "Financial Plan"). The Financial Plan was based on the
City's fiscal year 1994 expense budget adopted June 14, 1993 as well as
certain changes incorporated subsequent to the budget adoption process.
On November 23, 1993, the City adopted and submitted to the Control Board
for its review a first quarter modification to the Financial Plan (the
"November Modification") incorporating various re-estimates of revenues
and expenditures. For fiscal year 1994, the November Modification
includes additional resources stemming primarily from the City
Comptroller's fiscal year 1993 annual audit, savings from a reduction in
prior years' accrued expenditures, and higher State and Federal aid
resulting from claims by the City for reimbursement of various social
services costs. These resources were used to fund new needs in the
November Modification including higher costs in the uniformed agencies, at
the Board of Education (the "BoE") and for certain social services, the
unlikelihood of the sale of the Off-Track Betting Corporation (the "OTB"),
and lower estimates of miscellaneous and other revenues. After taking
these adjustments into account, the November Modification projects a
balanced budget for fiscal year 1994, based upon revenues of $31,585
billion. For fiscal years 1995, 1996 and 1997, the November Modification
projects budget gaps of $1.730 billion, $2.513 billion and $2.699 billion,
respectively. These gaps are higher by about $450 million in fiscal year
1995 and by about $700 million in each of fiscal years 1996 and 1997 than
in the Financial Plan, primarily on account of the nonrecurring value of
the fiscal year 1994 revenue adjustments, the loss of certain one-time
resources funding BoE fiscal year 1994 spending needs, and the
reclassification of anticipated State aid from the baseline revenue
estimates to the gap-closing program. To offset these larger gaps, the
November Modification relies on additional City, State and other actions.
On December 1, 1993, a three-member panel appointed by the Mayor to
address City structural budget imbalance released a report setting forth
its findings and recommendations. In its report, the panel noted that
budget imbalance is likely to be greater than the City now projects by
$255 million in fiscal year 1995, rising to nearly $1.5 billion in fiscal
year 1997. The report provided a number of options that the City should
consider in addressing the structural balance issue such as severe cuts in
City-funded personnel levels, increases in residential property taxes and
the sales tax, and the imposition of bridge tolls and solid waste
collection fees. The report also noted that additional State actions will
be required in many instances to allow the City to cut its budget without
grave damage to basic services.
On December 21, 1993, OSDC issued a report reviewing the November
Modification. The report noted that while the outlook for fiscal year
1994 has improved since August, it will be necessary for the City to
manage its budget aggressively in order to stay on course for budget
balance this year. For fiscal years 1995 through 1997, the report
expressed concern that the gaps identified by the City in the November
Modification are the largest as a percentage of City-fund revenues that
the City has faced at this point in the fiscal year since budget balance
in accordance with GAAP was first achieved in fiscal year 1981.
On December 21, 1993, the staff of the Control Board issued its
report on the November Modification. The report states that the plan is
now more realistic in terms of the gaps it portrays and the solutions it
offers. However, the solutions are mostly limited to fiscal year 1994
while the gap for fiscal year 1995 has been increased by $450 million.
Beginning in fiscal year 1995, budget gaps average over $1 billion
annually. Therefore, the staff recommends that prompt action to replace
many current-year one-shots with recurring savings is critical.
On February 2, 1994, the Mayor presented to the City Council and the
Control Board a mid-year modification to the Financial Plan (the "February
Modification"). The February Modification projects a balanced budget for
fiscal year 1994, based upon revenues of $31.735 billion, including a
general reserve of $81 million. For fiscal years 1995, 1996 and 1997, the
February Modification projects gaps of $2.261 billion, $3.167 billion and
$3.253 billion, respectively, and assumes no wage and salary increases
beyond the expiration of current labor agreements which expire in fiscal
years 1995 and 1996. These gaps have grown since November by about $530
million in fiscal year 1995, and $650 million and $550 million in fiscal
years 1996 and 1997, respectively, owing in large part to lower estimates
of real property tax revenues. To close the budget gap projected for
fiscal year 1995, the February Modification includes a gap-closing program
that consists of the following major elements: (i) an agency program of
$1.048 billion; (ii) fringe benefit and pension savings of $400 million;
(iii) an intergovernmental aid package of $400 million; (iv) a workforce
reduction program of $144 million; and (v) the assumption of a $234
million surplus roll from fiscal year 1994. Implementation of many of the
gap-closing initiatives requires the cooperation of the municipal labor
unions, the City Council and the State and Federal governments. The
February Modification also includes a tax reduction program, with most of
the financial impact affecting the later years of the Plan period.
The City requires certain amounts of financing for seasonal and
capital spending purposes. The City has issued $1.75 billion of notes for
seasonal financing purposes during the 1994 fiscal year. The City's
capital financing program projects long-term financing requirements of
approximately $17 billion for the City's fiscal years 1995 through 1998
for the construction and rehabilitation of the City's infrastructure and
other fixed assets. The major capital requirement include expenditures
for the City's water supply system, and waste disposal systems, roads,
bridges, mass transit, schools and housing. In addition, the City and the
Municipal Water Finance Authority have issued about $1.8 billion in
refunding bonds in the 1994 fiscal year.
State Economic Trends. The City accounts for approximately 41% of
the State's population and personal income, and the City's financial
health affects the State in numerous ways. The State has long been one of
the wealthiest states in the nation. For decades, however, the State
economy has grown more slowly than that of the nation as a whole,
resulting in the gradual erosion of its relative economic affluence. The
causes of this relative decline are varied and complex, in many cases
involving national and international developments beyond the State's
control. In recent years, the State's economic position has improved in a
manner consistent with that of the Northeast as a whole.
Part of the reason for the long-term relative decline in the State's
economy has been attributed to the combined State and local tax burden,
which is among the highest in the United States. The burdens of State and
local taxation, in combination with many other causes of regional economic
dislocation, may have contributed to the decision of businesses and
individuals to relocate outside, or not locate within, the State. In
1987, the State enacted a major personal income tax reduction and reform
program and also reduced the tax rate on corporation income. In addition,
the State has provided various tax incentives to encourage business
relocation and expansion. The State, however, in its 1989-90, 1990-91 and
1991-92 fiscal years substantially increased taxes and fees to help close
projected budget gaps in those years, and in 1990-91, 1991-92 and 1992-93
delayed and restructured the remainder of the personal income tax
reduction program originally enacted in 1987. Under legislation proposed
with the 1993-94 budget, the rules for calculating tax liability for the
1993 tax year will be the same as those for the 1992 tax year (deferring
for a fourth year a previously scheduled tax reduction), and the tax
reduction program will be frozen at current rates. Also, in July 1991
State legislation was enacted to phase out the benefit of graduated income
tax tables for taxpayers with adjusted gross income above $100,000.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will
include: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature and provisions of
the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA
Debt rated AAA is the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small
degree.
A
Principal and interest payments on bonds in this category are
regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management
performance appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" rating is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the
pledged revenues could show substantial variations, with the revenue flow
possibly being subject to erosion over time. Basic security provisions
are no more than adequate. Management performance could be stronger.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by
the addition of a plus or minus designation to show relative standing
within the major ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+)
designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days. Issues assigned an A rating are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2
Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what generally
are known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements
may be of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings
recognize the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower and short-term
cyclical elements are critical in short-term ratings, while other factors
of major importance in bond risk, long-term secular trends for example,
may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand
feature is not rated, as NR.
Short-term ratings on issues with demand features are differentiated
by the use of the VMIG symbol to reflect such characteristics as payment
upon periodic demand rather than fixed maturity dates and payment relying
on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is
not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when
Moody's assigns a MIG or VMIG rating, all categories define an investment
grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins
in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets
and assured sources of alternate liquidity.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category covering
12-36 months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not
as great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF INVESTMENTS DECEMBER 31, 1994
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS--100.0% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
Briarcliff Manor (Water Improvement) 6%, 9/1/2013 (Insured; FGIC)........... $ 175,000 $ 167,233
Broome County, COP, Public Safety Facility
5.25%, 4/1/2022 (Insured; MBIA)......................................... 3,875,000 3,138,130
East Rockaway Union Free School District 6.10%, 9/1/2012 (Insured; FGIC).... 100,000 97,098
Havestraw-Stony Point Central School District:
6.10%, 6/15/2001 (Insured; MBIA)........................................ 15,000 15,360
6.10%, 6/15/2002 (Insured; MBIA)........................................ 15,000 15,342
Metropolitan Transportation Authority:
Commuter Facility, Refunding (Service Contract)
7.50%, 7/1/2017 (Insured; AMBAC)...................................... 1,000,000 1,044,700
Transit Facility Revenue:
7%, 7/1/2009 (Insured; AMBAC)......................................... 5,400,000 5,750,622
6%, 7/1/2016 (Insured; AMBAC)......................................... 3,250,000 3,024,125
5%, 7/1/2017 (Insured; BIGI).......................................... 60,000 48,349
6.50%, 7/1/2018 (Insured; FGIC)....................................... 4,000,000 3,952,520
New York City:
7%, 8/1/2006 (Insured; MBIA)............................................ 660,000 695,389
7%, 8/1/2006 (Insured; MBIA)............................................ 340,000 352,716
7.25%, 3/15/2018 (Insured; FSA)......................................... 1,000,000 1,031,470
6%, 8/1/2018 (Insured; FSA)............................................. 4,900,000 4,501,287
New York City Housing Development Corp., General Housing
5.80%, 5/1/2002 (Insured; AMBAC)........................................ 400,000 397,608
New York City Municipal Water Finance Authority, Water and Sewer System
Revenue:
6.50%, 6/15/1997 (Insured; AMBAC) (Prerefunded 6/15/1997) (a)........... 260,000 270,707
7.625%, 6/15/2017 (Insured; FGIC) (Prerefunded 6/15/1998) (a)........... 1,500,000 1,625,130
6%, 6/15/2019 (Insured; FSA)............................................ 2,300,000 2,126,994
6.20%, 6/15/2021 (Insured; AMBAC)....................................... 2,000,000 1,890,920
6.50%, 6/15/2021 (Insured; AMBAC)....................................... 2,240,000 2,184,717
5.50%, 6/15/2023 (Insured; MBIA)........................................ 5,000,000 4,241,550
New York City Transit Authority, Transit Facility Revenue
(Livingston Plaza Project) 6%, 1/1/2021 (Insured; FSA).................. 5,300,000 4,839,960
New York State 7.10%, 3/1/2020 (Insured; AMBAC)............................. 1,650,000 1,690,640
New York State Dormitory Authority, Revenue:
(City University) 6.30%, 7/1/2024 (Insured; AMBAC)...................... 2,800,000 2,667,084
(Colgate University) 6.50%, 7/1/2021 (Insured; MBIA).................... 4,000,000 3,950,200
(International House) 7.60%, 7/1/2009 (Insured; FGIC)................... 2,000,000 2,145,040
(New York University) 6%, 7/1/2015 (Insured; FGIC)...................... 1,750,000 1,638,508
(Refunding - Ithaca College) 6.25%, 7/1/2021 (Insured; MBIA)............ 2,000,000 1,920,140
(Refunding - Mount Sinai School of Medicine):
6.75%, 7/1/2009 (Insured; MBIA)....................................... 3,000,000 3,087,810
5%, 7/1/2021 (Insured; MBIA).......................................... 1,000,000 787,410
(State University Educational) 7.25%, 5/15/2015 (Insured; FGIC)
(Prerefunded 5/15/2000) (a)........................................... 1,000,000 1,093,860
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1994
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- --------------
New York State Energy Research and Development Authority, Revenue:
Facilities
(Con Edison Co. of New York Inc. Project):
Refunding 5.25%, 8/15/2020 (Insured; MBIA)........................ $ 4,800,000 $ 3,882,912
6.375%, 12/1/2027 (Insured; MBIA)................................. 5,000,000 4,721,700
6%, 3/15/2028 (Insured; MBIA)..................................... 4,000,000 3,580,000
Pollution Control:
(Central Hudson Gas and Electric)
7.375%, 10/1/2014 (Insured; FGIC)................................. 1,700,000 1,788,417
(Refunding - Niagara Mohawk Power Corp.)
6.625%, 10/1/2013 (Insured; FGIC)................................. 4,500,000 4,518,630
(Refunding - Rochester Gas and Electric Project)
6.50%, 5/15/2032 (Insured; MBIA).................................. 9,800,000 9,389,380
New York State Environmental Facility Corp., Water Facilities Revenue
(Jamaica Water Supply Province) 7.625%, 4/1/2029 (Insured; AMBAC)....... 4,000,000 4,188,720
New York State Housing Finance Agency, Multi-Family Housing Revenue
7.45%, 11/1/2028 (Insured; AMBAC)....................................... 2,000,000 2,047,940
New York State Medical Care Facilities Finance Agency,
Revenue:
(Aurelia Osborn Fox Memorial Hospital) 6.50%, 11/1/2019 (Insured; FSA) 3,000,000 2,941,710
(Buffalo General Hospital) 7.70%, 2/15/2022 (Insured; MBIA)........... 1,000,000 1,059,270
(Hospital and Nursing Home) 7.60%, 2/15/2029 (Insured; MBIA).......... 2,000,000 2,100,220
(Mental Health Service Facilities Improvement):
7.625%, 2/15/1998 (Insured; MBIA) (Prerefunded 2/15/1998) (a)..... 1,055,000 1,137,849
7.625%, 2/15/2008 (Insured; MBIA)................................. 945,000 1,001,284
6.25%, 8/15/2018 (Insured; AMBAC)................................. 4,820,000 4,605,173
7.375%, 8/15/2019 (Insured; MBIA)................................. 1,345,000 1,398,235
7.375%, 8/15/2019 (Insured; MBIA) (Prerefunded 8/15/1999) (a)..... 785,000 854,849
(North Shore University Hospital Mortgage Project)
7.20%, 11/1/2020 (Insured; MBIA).................................. 5,750,000 5,911,747
(Saint Francis Hospital Project) 7.625%, 11/1/2021 (Insured; FGIC).... 1,785,000 1,879,908
(Sisters of Charity Hospital) 6.625%, 11/1/2018 (Insured; AMBAC)...... 2,000,000 1,996,180
New York State Mortgage Agency, Revenue (Homeownership Mortgage):
7.50%, 4/1/2016 (Insured; MBIA)......................................... 2,785,000 2,873,062
7.50%, 10/1/2017 (Insured; MBIA)........................................ 1,500,000 1,551,765
New York State Power Authority 7.875%, 1/1/2013 (Insured; MBIA)............. 1,850,000 1,968,178
New York State Urban Development Corp., Revenue (Correctional Facilities):
7.50%, 1/1/2012 (Insured; AMBAC) (Prerefunded 1/1/1998) (a)............. 2,000,000 2,151,960
7.75%, Series C, 1/1/2013 (Insured; AMBAC) (Prerefunded 1/1/1998) (a)... 1,000,000 1,082,830
7.75%, Series D, 1/1/2013 (Insured; AMBAC) (Prerefunded 1/1/1998) (a)... 1,250,000 1,349,550
Port Authority of New York and New Jersey:
5.875%, 7/15/2018 (Insured; MBIA)....................................... 3,600,000 3,246,588
6.25%, 1/15/2027 (Insured; AMBAC)....................................... 2,000,000 1,881,840
Triborough Bridge and Tunnel Authority, Special Obligation Refunding:
6%, 1/1/2015 (Insured; AMBAC)........................................... 4,000,000 3,756,640
6.875%, 1/1/2015 (Insured; FGIC)........................................ 3,000,000 3,059,970
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1994
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- --------------
Triborough Bridge and Tunnel Authority, Special Obligation Refunding
(continued):
6%, 1/1/2019 (Insured; MBIA)............................................ $ 3,000,000 $ 2,784,630
Yonkers 7.80%, 8/1/2009 (Insured; FGIC)..................................... 2,900,000 3,174,543
--------------
TOTAL INVESTMENTS
(cost $148,929,705)..................................................... $148,278,299
==============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation FGIC Financial Guaranty Insurance Company
BIGI Bond Investors Guaranty Insurance FSA Financial Security Assurance
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (B) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(b) Fitch currently provides creditworthiness information for a limited
number of investments.
(c) At December 31, 1994, 27.7% of the Fund's net assets are insured by
AMBAC and 43.3% are insured by MBIA.
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $148,929,705)-see statement..................................... $148,278,299
Interest receivable..................................................... 3,300,683
Receivable for shares of Beneficial Interest subscribed................. 440,000
Prepaid expenses........................................................ 6,620
--------------
152,025,602
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 77,202
Due to Custodian........................................................ 110,096
Due to Distributor...................................................... 32,500
Payable for shares of Beneficial Interest redeemed...................... 23,027
Accrued expenses........................................................ 86,869 329,694
---------- --------------
NET ASSETS ................................................................ $151,695,908
==============
REPRESENTED BY:
Paid-in capital......................................................... $153,624,538
Accumulated undistributed investment income_net......................... 23,283
Accumulated net realized (loss) on investments.......................... (1,300,507)
Accumulated net unrealized (depreciation) on investments_Note 3......... (651,406)
--------------
NET ASSETS at value applicable to 14,233,013 shares outstanding
(unlimited number of $.001 par value shares of Beneficial
Interest authorized).................................................... $151,695,908
==============
NET ASSET VALUE, offering and redemption price per share
($151,695,908 / 14,233,013 shares)...................................... $10.66
=======
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 10,844,143
EXPENSES:
Management fee_Note 2(a).............................................. $ 1,034,322
Shareholder servicing costs_Note 2(b)................................. 529,247
Professional fees..................................................... 45,703
Trustees' fees and expenses_Note 2(c)................................. 26,137
Prospectus and shareholders' reports_Note 2(b)........................ 21,479
Custodian fees........................................................ 17,446
Registration fees..................................................... 6,288
Miscellaneous......................................................... 18,444
--------------
1,699,066
Less-reimbursement of prospectus costs-Note 2(b)...................... 11,132
--------------
TOTAL EXPENSES.................................................. 1,687,934
--------------
INVESTMENT INCOME--NET.......................................... 9,156,209
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments_Note 3............................... $ (1,233,401)
Net unrealized (depreciation) on investments............................ (20,566,482)
--------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (21,799,883)
--------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $(12,643,674)
==============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994
-------------- --------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 9,829,107 $ 9,156,209
Net realized gain (loss) on investments................................. 2,913,561 (1,233,401)
Net unrealized appreciation (depreciation) on investments for the year.. 7,896,383 (20,566,482)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....... 20,639,051 (12,643,674)
-------------- --------------
DIVIDENDS TO SHAREHOLDERS:
From investment income--net............................................. (9,829,107) (9,132,926)
From net realized gain on investments................................... (3,513,228) ___
In excess of net realized gain on investments........................... (67,106) ___
-------------- --------------
TOTAL DIVIDENDS....................................................... (13,409,441) (9,132,926)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 92,107,533 38,170,749
Dividends reinvested.................................................... 9,955,907 6,467,485
Cost of shares redeemed................................................. (91,361,631) (69,423,052)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 10,701,809 (24,784,818)
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................... 17,931,419 (46,561,418)
NET ASSETS:
Beginning of year....................................................... 180,325,907 198,257,326
-------------- --------------
End of year (including undistributed investment income--net; $23,283 in 1994) $198,257,326 $151,695,908
============== ==============
SHARES SHARES
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 7,690,615 3,391,665
Shares issued for dividends reinvested.................................. 826,830 579,744
Shares redeemed......................................................... (7,602,611) (6,202,246)
-------------- --------------
TOTAL INCREASE (DECREASE) IN SHARES OUTSTANDING....................... 914,834 (2,230,837)
============== ==============
</TABLE>
See notes to financial statements.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
Reference is made to page 4 of the Fund's Prospectus dated May 1, 1995.
See notes to financial statements.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Dreyfus Service
Corporation, until August 24, 1994, acted as the distributor of the Fund's
shares, which are sold to the public without a sales load. Dreyfus Service
Corporation is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager"). Effective August 24, 1994, the Manager became a direct
subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of Institutional Administration Services, Inc., a provider of
mutual fund administration services, the parent company of which is Boston
Institutional Group, Inc.
(A) PORTFOLIO VALUATION: The Fund's investments are valued each business
day by an independent pricing service ("Service") approved by the Board of
Trustees. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of municipal securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund has an unused capital loss carryover of approximately of
$1,300,000 available for Federal income tax purposes to be applied against
future net securities profit, if any, realized subsequent to December 31,
1994. If not applied, the carryover expires in fiscal 2002.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, interest on borrowings, brokerage and
extraordinary expenses, exceed 1 1/2% of the average daily value of the
Fund's net assets for any full year. There was no expense reimbursement for
the year ended December 31, 1994.
(B) On August 3, 1994, Fund shareholders approved a revised Service Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Pursuant to the Plan,
effective August 24, 1994, the Fund (a) reimburses the Distributor for
payments to certain Service Agents for distributing the Fund's shares and
servicing shareholder accounts and (b) pays the Manager, Dreyfus Service
Corporation or any affiliate (collectively "Dreyfus") for advertising and
marketing relating to the Fund and servicing shareholder accounts, at an aggre
gate annual rate of .25 of 1% of the value of the Fund's average daily net
assets. Each of the Distributor and Dreyfus may pay Service Agents (a
securities dealer, financial institution or other industry professional) a
fee in respect of the Fund's shares owned by shareholders with whom the
Service Agent has a servicing relationship or for whom the Service Agent is
the dealer or holder of record. Each of the Distributor and Dreyfus determine
the amounts to be paid to Service Agents to which it will make payments and
the basis on which such payments are made. The Plan also separately provides
for the Fund to bear the costs of preparing, printing and distributing
certain of the Fund's prospectuses and statements of additional information
and costs associated with implementing and operating the Plan, not to exceed
the greater of $100,000 or .005 of 1% of the Fund's average daily net assets
for any full year.
Prior to August 24, 1994, the Fund's Service Plan ("prior Service Plan")
provided that the Fund pay Dreyfus Service Corporation at an annual rate of
.25 of 1% of the value of the Fund's average daily net assets, for costs and
expenses in connection with advertising, marketing and distributing the
Fund's shares and for servicing shareholder accounts. Dreyfus Service
Corporation made payments to one or more Service Agents based on the value of
the Fund's shares owned by clients of the Service Agent. The prior Service
Plan also separately provided for the Fund to bear the costs of preparing,
printing and distributing certain of the Fund's prospectuses and statements
of additional information and costs associated with implementing and
operating the prior Service Plan, not to exceed the greater of $100,000 or
.005 of 1% of the Fund's average daily net assets for any full year.
During the year ended December 31, 1994, $145,904 was charged to the Fund
pursuant to the Plan, of which $3,965 was waived by the Manager and $296,195
was charged to the Fund pursuant to the prior Service Plan, of which $7,167
was waived by the Manager.
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives an annual fee of $2,500 and an attendance fee of $250 per meeting.
NOTE 3--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $44,425,370 and $64,512,440, respectively, for the year ended
December 31, 1994, and consisted entirely of long-term and short-term
municipal investments.
At December 31, 1994, accumulated net unrealized depreciation on
investments was $651,406, consisting of $3,836,711 gross unrealized
appreciation and $4,488,117 gross unrealized depreciation.
At December 31, 1994, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS NEW YORK INSURED TAX EXEMPT BOND FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus New York Insured Tax Exempt Bond Fund, including the statement of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and financial highlights for each of
the years indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus New York Insured Tax Exempt Bond Fund at December 31,
1994, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
(Ernst & Young LLP Signature Logo)
New York, New York
February 3, 1995
