DREYFUS NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus New Jersey Intermediate Municipal Bond Fund (the "Fund"), dated
August 1, 1999, as it may be revised from time to time. To obtain a copy of
the Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call one of the following
numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. -- Call 516-794-5452
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are
incorporated by reference into this Statement of Additional Information.
TABLE OF CONTENTS
Page
Description of the Fund 2
Management of the Fund 16
Management Arrangements 21
How to Buy Shares 24
Shareholder Services Plan 25
How to Redeem Shares 26
Shareholder Services 29
Determination of Net Asset Value 32
Dividends, Distributions and Taxes 32
Portfolio Transactions 35
Performance Information 35
Information about the Fund 37
Counsel and Independent Auditors 39
Appendix A 40
Appendix B 43
DESCRIPTION OF THE FUND
The Fund is a Massachusetts business trust that commenced operations on
May 27, 1992. The Fund is an open-end, management investment company, known
as a mutual fund.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
Certain Portfolio Securities
The following information supplements and should be read in conjunction
with the Fund's Prospectus.
Municipal Obligations. The Fund will invest primarily in debt
securities of the State of New Jersey, its political subdivisions,
authorities and corporations, and certain other specified securities, the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal and State of New Jersey personal income taxes (collectively,
"New Jersey Municipal Obligations"). To the extent acceptable New Jersey
Municipal Obligations are at any time unavailable for investment by the
Fund, the Fund will invest temporarily in other debt securities the interest
from which is, in the opinion of bond counsel to the issuer, exempt from
Federal, but not State of New Jersey, income tax. The Fund will invest at
least 80% of the value of its net assets (except when maintaining a
temporary defensive position) in Municipal Obligations. Municipal
Obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities, the interest from which, in the opinion of bond
counsel to the issuer, is exempt from Federal income tax. Municipal
Obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain industrial development bonds
issued by or on behalf of public authorities. Municipal Obligations are
classified as general obligation bonds, revenue bonds and notes. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax exempt
industrial development bonds, in most cases, are revenue bonds that do not
carry the pledge of the credit of the issuing municipality, but generally
are guaranteed by the corporate entity on whose behalf they are issued.
Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities.
Municipal Obligations bear fixed, floating or variable rates of interest,
which are determined in some instances by formulas under which the Municipal
Obligation's interest rate will change directly or inversely to changes in
interest rates or an index, or multiples thereof, in many cases subject to a
maximum and minimum. Certain Municipal Obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related Municipal Obligation and
purchased and sold separately.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation and rating of the issue.
Certain Tax Exempt Obligations. The Fund may purchase floating and
variable rate demand notes and bonds, which are tax exempt obligations
ordinarily having stated maturities in excess of one year, but which permit
the holder to demand payment of principal at any time, or at specified
intervals. Variable rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, at varying
rates of interest, pursuant to direct arrangements between the Fund, as
lender, and the borrower. These obligations permit daily changes in the
amount borrowed. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value, plus accrued interest. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by the Fund
will meet the quality criteria established for the purchase of Municipal
Obligations.
Tax Exempt Participation Interests. The Fund may purchase from
financial institutions participation interests in Municipal Obligations
(such as industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation.
These instruments may have fixed, floating or variable rates of interest.
If the participation interest is unrated, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the Fund's Board
has determined meets prescribed quality standards for banks, or the payment
obligation otherwise will be collateralized by U.S. Government securities.
For certain participation interests, the Fund will have the right to demand
payment, on not more than seven days' notice, for all or any part of the
Fund's participation interest in the Municipal Obligation, plus accrued
interest. As to these instruments, the Fund intends to exercise its right
to demand payment only upon a default under the terms of the Municipal
Obligation, as needed to provide liquidity to meet redemptions, or to
maintain or improve the quality of its investment portfolio.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event
of foreclosure might prove difficult. The staff of the Securities and
Exchange Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Fund's Board. Pursuant to
such guidelines, the Board has directed the Manager to monitor carefully the
Fund's investment in such securities with particular regard to (1) the
frequency of trades and quotes for the lease obligation; (2) the number of
dealers willing to purchase or sell the lease obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make
a market in the lease obligation; (4) the nature of the marketplace trades
including the time needed to dispose of the lease obligation, the method of
soliciting offers and the mechanics of transfer; and (5) such other factors
concerning the trading market for the lease obligation as the Manager may
deem relevant. In addition, in evaluating the liquidity and credit quality
of a lease obligation that is unrated, the Fund's Board has directed the
Manager to consider (a) whether the lease can be cancelled; (b) what
assurance there is that the assets represented by the lease can be sold; (c)
the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such
other factors concerning credit quality as the Manager may deem relevant.
Tender Option Bonds. The Fund may purchase tender option bonds. A
tender option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing
interest at a fixed rate substantially higher than prevailing short-term tax
exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to
which such institution grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the
face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between
the Municipal Obligation's fixed coupon rate and the rate, as determined by
a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at
the prevailing short-term tax exempt rate. The Manager, on behalf of the
Fund, will consider on an ongoing basis the creditworthiness of the issuer
of the underlying Municipal 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.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will
not have the effect of creating taxable income for the Fund. Based on the
tender option bond agreement, the Fund expects to be able to value the
tender option bond at par; however, the value of the instrument will be
monitored to assure that it is valued at fair value.
Custodial Receipts. The Fund may purchase custodial receipts
representing the right to receive certain future principal and interest
payments on Municipal Obligations which underlie the custodial receipts. A
number of different arrangements are possible. In a typical custodial
receipt arrangement, an issuer or a third party owner of Municipal
Obligations deposits such obligations with a custodian in exchange for two
classes of custodial receipts. The two classes have different
characteristics, but, in each case, payments on the two classes are based on
payments received on the underlying Municipal Obligations. One class has
the characteristics of a typical auction rate security, where at specified
intervals its interest rate is adjusted, and ownership changes, based on an
auction mechanism. This class's interest rate generally is expected to be
below the coupon rate of the underlying Municipal Obligations and generally
is at a level comparable to that of a Municipal Obligation of similar
quality and having a maturity equal to the period between interest rate
adjustments. The second class bears interest at a rate that exceeds the
interest rate typically borne by a security of comparable quality and
maturity; this rate also is adjusted, but in this case inversely to changes
in the rate of interest of the first class. In no event will the aggregate
interest paid with respect to the two classes exceed the interest paid by
the underlying Municipal Obligations. The Fund ordinarily would expect to
purchase only the second class. The value of the second class and similar
securities should be expected to fluctuate more than the value of a
Municipal Obligation of comparable quality and maturity and their purchase
by the Fund should increase the volatility of its net asset value and, thus,
its price per share. These custodial receipts are sold in private
placements. The Fund also may purchase directly from issuers, and not in a
private placement, Municipal Obligations having characteristics similar to
custodial receipts. These securities may be issued as part of a multi-class
offering and the interest rate on certain classes may be subject to a cap or
floor.
Stand-By Commitments. To the extent consistent with the requirements
for a "qualified investment fund" under the New Jersey gross income tax, the
Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, the Fund
obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make
payment on demand. The Fund will acquire stand-by commitments solely to
facilitate its portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. The Fund may pay for stand-by
commitments if such action is deemed necessary, thus increasing to a degree
the cost of the underlying Municipal Obligation and similarly decreasing
such security's yield to investors. The Fund also may acquire call options
on specific Municipal Obligations. The Fund generally would purchase these
call options to protect the Fund from the issuer of the related Municipal
Obligation redeeming, or other holder of the call option from calling away,
the Municipal Obligation before maturity. The sale by the Fund of a call
option that it owns on a specific Municipal Obligation could result in the
receipt of taxable income by the Fund.
Ratings of Municipal Obligations. The Fund will invest at least 80% of
the value of its net assets in Municipal Obligations which, in the case of
bonds, are rated no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch IBCA,
Inc. ("Fitch" and, together with Moody's and S&P, the "Rating Agencies").
The Fund may invest up to 20% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated lower than Baa by Moody's
and BBB by S&P and Fitch and as low as the lowest rating assigned by the
Rating Agencies, but it currently is the intention of the Fund that this
portion of the Fund's portfolio be invested primarily in Municipal
Obligations rated no lower than Baa by Moody's or BBB by S&P or Fitch. The
Fund also may invest in securities which, while not rated, are determined by
the Manager to be of comparable quality to the rated securities in which the
Fund may invest; for purposes of the 80% requirement described in this
paragraph, such unrated securities will be considered to have the rating so
determined.
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended March 31,
1999, computed on a monthly basis, was as follows:
Percentage of
Fitch or Moody's or S&P Value
AAA Aaa AAA 57.0%
AA Aa AA 17.3%
A A A 12.8%
BBB Baa BBB 7.2%
BB Ba BB 0.4%
B B B 0.4%
F-1+/F-1 MIG 1/VMIG 1, SP-1+/SP-1, 0.4%
P-1 A-1
Not Rated Not Rated Not Rated 4.5%*
100.0%
Subsequent to its purchase by the Fund, an issue of rated Municipal
Obligations may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event will require the
sale of such Municipal Obligations by the Fund, but the Manager will
consider such event in determining whether the Fund should continue to hold
the Municipal Obligations. To the extent that the ratings given by the
Rating Agencies for Municipal Obligations may change as a result of changes
in such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with the
investment policies contained in the Fund's Prospectus and this Statement of
Additional Information. The ratings of the Rating Agencies represent their
opinions as to the quality of the Municipal Obligations which they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. Although these
ratings may be an initial criterion for selection of portfolio investments,
the Manager also will evaluate these securities and the creditworthiness of
the issuers of such securities.
_______________________________
* Included in the "Not Rated" category are securities comprising 4.5% of
the Fund's market value which, while not rated, have been determined by
the Manager to be of comparable quality to securities in the following
rating categories: Aaa/AAA (1.2%), A/A (1.2%), Baa/BBB (2.0%) and Ba/BB
(.1%).
Taxable Investments. From time to time, on a temporary basis other than
for temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest
in taxable short-term investments ("Taxable Investments") consisting of:
notes of issuers having, at the time of purchase, a quality rating within
the two highest grades of the Rating Agencies; obligations of the U.S.
Government, its agencies or instrumentalities; commercial paper rated not
lower than P-1 by Moody's, A-1 by S&P or F-1 by Fitch; certificates of
deposit of U.S. domestic banks, including foreign branches of domestic
banks, with assets of one billion dollars or more; time deposits; bankers'
acceptances and other short-term bank obligations; and repurchase agreements
in respect of any of the foregoing. Dividends paid by the Fund that are
attributable to income earned by the Fund from Taxable Investments will be
taxable to investors. See "Dividends, Distributions and Taxes." Except for
temporary defensive purposes, at no time will more than 20% of the value of
the Fund's net assets be invested in Taxable Investments. When the Fund has
adopted a temporary defensive position, including when acceptable New Jersey
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 Jersey income taxes. Under normal market conditions, the
Fund anticipates that not more than 5% of the value of its total assets will
be invested in any one category of Taxable Investments.
Zero Coupon Securities. The Fund may invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount
of the discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may
take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero
coupon securities having similar maturities and credit qualities.
Illiquid Securities. The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. These securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, and repurchase agreements providing for
settlement in more than seven days after notice. As to these securities,
the Fund is subject to a risk that should the Fund desire to sell them when
a ready buyer is not available at a price the Fund deems representative of
their value, the value of the Fund's net assets could be adversely affected.
Investment Techniques
The following information supplements and should be read in conjunction
with the Fund's Prospectus. The Fund's use of certain of the investment
techniques described below may give rise to taxable income.
Borrowing Money. The Fund is permitted to borrow to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940
Act"), which permits an investment company to borrow in an amount up to 33-
1/3% of the value of its total assets. The Fund currently intends to borrow
money only for temporary or emergency (not leveraging) purposes, in an
amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
Lending Portfolio Securities. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to
be entitled to payments in amounts equal to the interest or other
distributions payable on the loaned securities which affords the Fund an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 33-
1/3% of the value of the Fund's total assets, and the Fund will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. Such
loans are terminable by the Fund at any time upon specified notice. The
Fund might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Fund. In connection with its securities lending transactions, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund,
and which is acting as a "placing broker," a part of the interest earned
from the investment of collateral received for securities loaned.
Short-Selling. In these transactions, the Fund sells a security it
does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund, which would result in a loss or
gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Fund's net assets. The Fund may not make a short
sale which results in the Fund having sold short in the aggregate more than
5% of the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns. At no time will more than
15% of the value of the Fund's net assets be in deposits on short sales
against the box.
Until the Fund closes its short position or replaces the borrowed
security, it will: (a) segregate permissible liquid assets in an amount
that, together with the amount deposited with the broker as collateral,
always equals the current value of the security sold short; or (b) otherwise
cover its short position.
Derivatives. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities. However,
derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its
derivatives were poorly correlated with its other investments, or if the
Fund were unable to liquidate its position because of an illiquid secondary
market. The market for many derivatives is, or suddenly can become,
illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for derivatives.
Although the Fund will not be a commodity pool, certain derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such derivatives.
The Fund may invest in futures contracts and options with respect thereto
for hedging purposes without limit. However, the Fund may not invest in
such contracts and options for other purposes if the sum of the amount of
initial margin deposits and premiums paid for unexpired options with respect
to such contracts, other than for bona fide hedging purposes, exceeds 5% of
the liquidation value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
derivatives. Exchange-traded derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter derivatives. Therefore, each party to an over-
the-counter derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter derivatives are less liquid than exchange-traded
derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the derivative to be interested in
bidding for it.
Futures Transactions--In General. The Fund may enter into futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade. Engaging in
these transactions involves risk of loss to the Fund which could adversely
affect the value of the Fund's net assets. Although the Fund intends to
purchase or sell futures contracts only if there is an active market for
such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during
the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the securities
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets to cover its obligations relating to its transactions in
derivatives. To maintain this required cover, the Fund may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position at a reasonable price. In
addition, the segregation of such assets will have the effect of limiting
the Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell interest rate
futures contracts. An interest rate future obligates the Fund to purchase or
sell an amount of a specific debt security at a future date at a specific
price.
Options--In General. The Fund may invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options.
The Fund may write (i.e., sell) covered call and put option contracts to the
extent of 20% of the value of its net assets at the time such option
contracts are written. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying security or
securities at the exercise price at any time during the option period, or at
a specific date. Conversely, a put option gives the purchaser of the option
the right to sell, and obligates the writer to buy, the underlying security
or securities at the exercise price at any time during the option period, or
at a specific date.
A covered call option written by the Fund is a call option with respect
to which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written
by the Fund is covered when, among other things, the Fund segregates cash or
liquid securities having a value equal to or greater than the exercise price
of the option to fulfill the obligation undertaken. The principal reason
for writing covered call and put options is to realize, through the receipt
of premiums, a greater return than would be realized on the underlying
securities alone. The Fund receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen events,
at times have rendered certain of the clearing facilities inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible
to effect closing transactions in particular options. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other derivatives which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund. Before entering into such
transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Forward Commitments. The Fund may purchase or sell Municipal
Obligations and other securities on a forward commitment, when-issued or
delayed delivery basis, which means that delivery and payment take place a
number of days after the date of the commitment to purchase. The payment
obligation and the interest rate receivable on a forward commitment or when-
issued security are fixed when the Fund enters into the commitment, but the
Fund does not make payment until it receives delivery from the counterparty.
The Fund will commit to purchase such securities only with the intention of
actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Fund will
segregate permissible liquid assets at least equal at all times to the
amount of the Fund's purchase commitments.
Municipal Obligations and other securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e. appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of
the creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. Securities purchased on a forward commitment or
when-issued basis may expose the Fund to risks because they may experience
such fluctuations prior to their actual delivery. Purchasing securities on
a forward commitment or when-issued basis can involve the additional risk
that the yield available in the market when the delivery takes place
actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when the
Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of the Fund's net assets and its net asset value
per share.
Investment Considerations and Risks
Investing in Municipal Obligations. The Fund may invest more than 25%
of the value of its total assets in Municipal Obligations which are related
in such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for
example, securities the interest upon which is paid from revenues of similar
types of projects. As a result, the Fund may be subject to greater risk as
compared to a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, the Manager will consider, on an
ongoing basis, a number of factors including the likelihood that the issuing
municipality will discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), relating to the issuance of Municipal Obligations may reduce
the volume of Municipal Obligations qualifying for Federal tax exemption.
One effect of these provisions could be to increase the cost of the
Municipal Obligations available for purchase by the Fund and thus reduce the
available yield. Shareholders should consult their tax advisers concerning
the effect of these provisions on an investment in the Fund. Proposals that
may restrict or eliminate the income tax exemption for interest on Municipal
Obligations may be introduced in the future. If any such proposal were
enacted that would reduce the availability of Municipal Obligations for
investment by the Fund so as to adversely affect Fund shareholders, the Fund
would reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Municipal Obligation as
taxable, the Fund would treat such security as a permissible Taxable
Investment within the applicable limits set forth herein.
Investing in New Jersey Municipal Obligations. You should consider
carefully the special risks inherent in the Fund's investment in New Jersey
Municipal Obligations. Although New Jersey enjoyed a period of economic
growth with unemployment levels below the national average during the mid-
1980s, its economy slowed down well before the onset of the national
recession in July 1990. Reflecting the economic downturn, the State's
unemployment rate rose from a low of 3.6% in the first quarter of 1989 to a
recessionary peak of 8.4% during 1992. Since then, New Jersey's
unemployment rate fell to an average of 6.2% during 1996. For the eight
quarters following mid-1996, employment growth in New Jersey has ranged
between 1.7% and 2.4%. As a result of New Jersey's fiscal weakness, in July
1991, S&P lowered its rating of the State's general obligation debt from AAA
to AA+. As of June 30, 1997, S&P Moody's and Fitch rated the State's long-
term general obligations AA+, Aa1 and AA+, respectively. You should review
"Appendix A" which sets forth these and other risk factors.
Lower Rated Bonds. The Fund may invest up to 20% of the value of its
net assets in higher yielding (and, therefore, higher risk) debt securities
such as those rated below investment grade by the Rating Agencies (commonly
known as junk bonds). They may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated Municipal Obligations. See "Appendix B" for a
general description of the Rating Agencies' ratings of Municipal
Obligations. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk
of these bonds. The Fund will rely on the Manager's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
You should be aware that the market values of many of these bonds tend
to be more sensitive to economic conditions than are higher rated securities
and will fluctuate over time. These bonds generally are considered by the
Rating Agencies to be, on balance, predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities
in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market price
and yield and the Fund's ability to dispose of particular issues when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Fund to obtain accurate market quotations
for purposes of valuing the Fund's portfolio and calculating its net asset
value. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of these
securities. In such cases, judgment may play a greater role in valuation
because less reliable objective data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession would disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities and could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon which would increase
the incidence of default for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any person concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon bonds and pay-in-kind bonds, in which the Fund
may invest up to 5% of its net assets. Zero coupon bonds and pay-in-kind
carry an additional risk in that, unlike bonds which pay interest throughout
the period to maturity, the Fund will realize no cash until the cash payment
date unless a portion of such securities are sold and, if the issuer
defaults, the Fund may obtain no return at all on its investment. See
"Dividends, Distributions and Taxes."
Simultaneous Investments. Investment decisions for the Fund are made
independently from those of other investment companies advised by the
Manager. If, however, such other investment companies desire to invest in,
or dispose of, the same securities as the Fund, available investments or
opportunities for sales will be allocated equitably to each investment
company. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or
received by the Fund.
Investment Restrictions
The Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the
1940 Act) of the Fund's outstanding voting shares. In addition, the Fund
has adopted investment restrictions numbered 1 through 6 as fundamental
policies. Investment restrictions numbered 7 through 12 are not fundamental
policies and may be changed by vote of a majority of the Fund's Board
members at any time. The Fund may not:
1. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowings to no more than 33-1/3% of the Fund's
total assets). For purposes of this investment restriction, the entry into
options, forward contracts, including those relating to indices, and options
on futures contracts or indices shall not constitute borrowing.
2. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests,
but this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein, or prevent the Fund from
purchasing and selling futures contracts, including those relating to
indices, and options on futures contracts or indices.
3. 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.
4. 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.
5. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
6. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent that the activities permitted in
Investment Restriction Nos. 1, 2, 8 and 10 may be deemed to give rise to a
senior security.
7. 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.
8. Purchase securities on margin, but the Fund may make margin deposits
in connection with transactions in futures, including those relating to
indices, and options on futures contracts or indices.
9. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
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 arrangements with respect to futures contracts, including those
related to indices, and options on futures contracts or indices, and
collateral arrangements with respect to initial or variation margin for
futures contracts, including those relating to indices, and options on
futures contracts or indices.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid
(which securities could include participation interests (including municipal
lease/purchase agreements) that are not subject to the demand feature
described in the Fund's Prospectus or the Statement of Additional
Information, and floating and variable rate demand obligations as to which
the Fund cannot exercise the demand feature described in the Fund's
Prospectus or the Statement of Additional Information on less than seven
days' notice and as to which there is no secondary market) if, in the
aggregate, more than 15% of its net assets would be so invested.
12. Invest in companies for the purpose of exercising control.
For purposes of Investment Restriction No. 5, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry."
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values
or assets will not constitute a violation of such restriction.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of
the Fund. The Board approves all significant agreements between the Fund
and those companies that furnish services to the Fund. These companies are
as follows:
The Dreyfus Corporation Investment Adviser
Premier Mutual Fund Services, Inc. Distributor
Dreyfus Transfer, Inc. Transfer Agent
The Bank of New York Custodian
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below.
Board Members of the Fund
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. He also is
a director of The Noel Group, Inc., a venture capital company (for
which, from February 1995 until November 1997, he was Chairman of the
Board), The Muscular Dystrophy Association, HealthPlan Services
Corporation, a provider of marketing, administrative and risk
management services to health and other benefit programs, Carlyle
Industries, Inc. (formerly, Belding Heminway, Inc.), a button packager
and distributor, Career Blazers, Inc. (formerly, Staffing Resources,
Inc.), a temporary placement agency, and Century Business Services,
Inc. (fomerly, International Alliance Services, Inc.), a provider of
various outsourcing functions for small and medium sized companies.
For more than five years prior to January 1995, he was President, a
director and, until August 1994, Chief Operating Officer of the Manager
and Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until August
24, 1994, the Fund's distributor. From August 1994 until December 31,
1994, he was a director of Mellon Bank Corporation. He is 55 years old
and his address is 200 Park Avenue, New York, New York 10166.
DAVID W. BURKE, Board Member. Board member of various funds in the Dreyfus
Family of Funds. Chairman of the Broadcasting Board of Governors, an
independent board within the United States Information Agency, from
August 1994 to November 1998. From August 1994 to December 31, 1994,
Mr. Burke was a Consultant to the Manager and, from October 1990 to
August 1994, he was Vice President and Chief Administrative Officer of
the Manager. From 1977 to 1990, Mr. Burke was involved in the
management of national television news, as Vice President and Executive
Vice President of ABC News, and subsequently as President of CBS News.
He is 63 years old and his address is 197 Eighth Street, Charleston,
Massachusetts 02642.
DIANE DUNST, Board Member. Since January 1992, President of Diane Dunst
Promotion, Inc., a full service promotion agency. From January 1989 to
January 1992, Director of Promotion Services, Lear's Magazine. From
1985 to January 1989, she was Sales Promotion Manager of ELLE Magazine.
She is 59 years old and her address is 1172 Park Avenue, New York, New
York 10128.
ROSALIND GERSTEN JACOBS, Board Member. Merchandise and Marketing
Consultant. From 1977 to 1998, director of Merchandise and Marketing
for Corporate Property Investors, a real estate investment company.
From 1974 to 1976, she was owner and manager of a merchandise and
marketing consulting firm. Prior to 1974, she was a Vice President of
Macy's, New York. She is 73 years old and her address is c/o Corporate
Property Investors, 305 East 47th Street, New York, New York 10017.
JAY I. MELTZER, Board Member. Physician engaged in private practice
specializing in internal medicine. He is a Clinical Professor of
Medicine at Columbia University, College of Physicians and Surgeons, an
Adjunct Clinical Professor at Cornell Medical College, a Consultant in
Medicine at Memorial Sloan-Kettering Hospital. He teaches in Section
on Society and Medicine and supervises a group of Fellows. He also
writes a monthly commentary on medical affairs for the Medical Herald.
He is 70 years old and his address is 903 Park Avenue, New York, New
York 10021.
DANIEL ROSE, Board Member. Vice Chairman 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 makes equity investments and loans and provides technical
business assistance to new business concerns in the Baltic states. He
also is Chairman of the Housing Committee of The Real Estate Board of
New York, Inc. He is 69 years old and his address is c/o Rose
Associates, Inc., 200 Madison Avenue, New York, New York 10016.
WARREN B. RUDMAN, Board Member. Since January 1993, Partner in the law firm
of Paul, Weiss, Rifkind, Wharton & Garrison and since May 1995, a
director of Collins & Aikman Corporation. Also, since January 1993, Mr.
Rudman has served as a director of Chubb Corporation and of the
Raytheon Company, and as a member of the President's Foreign
Intelligence Advisory Board (Vice Chairman, through February 1998 and,
currently, Chairman). From January 1981 to January 1993, Mr. Rudman
served as a United States Senator from the State of New Hampshire.
From January 1993 to December 1994, Mr. Rudman served as Chairman of
the Federal Reserve Bank of Boston. Since 1988, Mr. Rudman has served
as a trustee of Boston College and since 1986 as a member of the Senior
Advisory Board of the Institute of Politics of the Kennedy School of
Government at Harvard University. He is 69 years old and his address
is c/o Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, N.W.,
Washington, D.C. 20036.
SANDER VANOCUR, Board Member. Since January 1992, President of Old Owl
Communications, a full-service communications firm. From May 1995 to
June 1996, he was a Professional in Residence at the Freedom Forum in
Arlington, VA; from January 1994 to May 1995, he served as Visiting
Professional Scholar at the Freedom Forum Amendment Center at
Vanderbilt University; and from November 1989 to November 1995, he was
a director of the Damon Runyon-Walter Winchell Cancer Research Fund.
From June 1977 to December 1991, he was a Senior Correspondent of ABC
News and, from October 1986 to December 1991, he was Anchor of the ABC
News program "Business World," a weekly business program on the ABC
television network. He is 71 years old and his address is 2626
Sycamore Canyon, Santa Barbara, California 93108.
For so long as the Fund's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members of the Fund
who are not "interested persons" of the Fund, as defined in the 1940 Act,
will be selected and nominated by the Board members who are not "interested
persons" of the Fund.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund for the fiscal year ended
March 31, 1999, and by all other funds in the Dreyfus Family of Funds for
which such person is a Board member (the number of which is set forth in
parenthesis next to each Board member's total compensation)* for the year
ended December 31, 1998, were as follows:
Total
Compensation From
Aggregate Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund** Board Member
-------------- ----------------- ------------------
Joseph S. DiMartino $5,625 $619,660 (187)
David W. Burke $4,500 $233,500 (62)
Diane Dunst $4,500 $37,750 (16)
Rosalind Gersten Jacobs $4,000 $84,000 (44)
Jay I. Meltzer $4,000 $34,000 (16)
Daniel Rose $4,500 $76,250 (30)
Warren B. Rudman $4,000 $82,000 (25)
Sander Vanocur $4,500 $76,250 (30)
_____________________
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Fund, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $958 for all Board members as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor and
Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 41 years old.
MARGARET W. CHAMBERS, Vice President and Secretary. Senior Vice President
and General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
August 1996 to March 1998, she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July
1996, she was an associate with the law firm of Ropes & Gray. She is
39 years old.
FREDERICK C. DEY, Vice President, Assistant Treasurer, and Assistant
Secretary. Vice President of New Business Development for Funds
Distributor, Inc. since September 1994, and an officer of other
investment companies advised or administered by the Manager. He is 37
years old.
STEPHANIE D. PIERCE, Vice President, Assistant Secretary and Assistant
Treasurer. Vice President of the Distributor and Funds Distributor,
Inc., and an officer of other investment companies advised or
administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August
1995 to April 1997, she was an Assistant Vice President with Hudson
Valley Bank, and from September 1990 to August 1995, she was Second
Vice President with Chase Manhattan Bank. She is 30 years old.
JOHN P. COVINO, Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of
Funds Distributor, Inc. since December 1998. From December 1995 to
November 1998, he was employed by Fidelity Investments where he held
several positions in its Institutional Brokerage Group. Prior to
joining Fidelity, he was employed by SunGard Brokerage Systems where he
was responsible for the technology and development of the accounting
product group. He is 35 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of
the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. She is 34
years old.
GEORGE A. RIO, Vice President and Assistant Treasurer. Executive Vice
President and Client Service Director of Funds Distributor, Inc., and
an officer of other investment companies advised or administered by the
Manager. From June 1995 to March 1998, he was Senior Vice President
and Senior Key Account Manager for Putnam Mutual Funds. From May 1994
to June 1995, he was Director of Business Development for First Data
Corporation. He is 44 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 37 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. He is 30 years old.
KAREN JACOPPO-WOOD, Vice President and Assistant Secretary. Vice President
and Senior Counsel of Funds Distributor, Inc. since February 1997, and
an officer of other investment companies advised or administered by the
Manager. From June 1994 to January 1996, she was Manager of SEC
Registration at Scudder, Stevens & Clark, Inc. She is 32 years old.
CHRISTOPHER J. KELLEY, Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of Funds Distributor,
Inc., and an officer of other investment companies advised or
administered by the Manager. From April 1994 to July 1996, he was
Assistant Counsel at Forum Financial Group. From October 1992 to March
1994, he was employed by Putnam Investments in legal and compliance
capacities. He is 34 years old.
KATHLEEN K. MORRISEY, Vice President and Assistant Secretary. Manager of
Treasury Services Administration of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From July 1994 to November 1995, she was a Fund Accountant
for Investors Bank & Trust Company. She is 26 years old.
ELBA VASQUEZ, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
March 1990 to May 1996, she was employed by U.S. Trust Company of New
York where she held various sales and marketing positions. She is 37
years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's shares outstanding on July 12, 1999.
As of July 12, 1999, the following shareholders were known by the Fund
to own 5% or more of the outstanding voting securities of the Fund: Charles
Schwab & Company, Inc., Reinvest Account, 101 Montgomery Street, San
Francisco, California 94101, 5.3244%.
MANAGEMENT ARRANGEMENTS
Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company
incorporated under Pennsylvania law in 1971 and registered under the Federal
Bank Holding Company Act of 1956, as amended. Mellon provides a
comprehensive range of financial products and services in domestic and
selected international markets. Mellon is among the twenty-five largest
bank holding companies in the United States based on total assets.
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders of the Fund on August 3, 1994, and
was last approved by the Fund's Board, including a majority of the Board
members who are not "interested persons" of any party to the Agreement, at a
meeting held on May 5, 1999. The Agreement is terminable without penalty,
on 60 days' notice, by the Fund's Board or by vote of the holders of a
majority of the Fund's shares, or, upon not less than 90 days' notice, by
the Manager. The Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a director; Lawrence S. Kash, Vice Chairman and a director; J.
David Officer, Vice Chairman and a director; Thomas F. Eggers, Vice Chairman-
- -Institutional and a director; Ronald P. O'Hanley III, Vice Chairman;
William T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Diane P. Durnin, Vice President--
Product Development; Patrice M. Kozlowski, Vice President--Corporate
Communications; Mary Beth Leibig, Vice President--Human Resources; Andrew S.
Wasser, Vice President--Information Systems; Theodore A. Schachar, Vice
President; Wendy Strutt, Vice President; Richard Terres, Vice President;
William H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven
F. Newman, Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt,
Steven G. Elliot, Martin C. McGuinn, Richard W. Sabo and Richard F. Syron,
directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions, and provides
the Fund with portfolio managers who are authorized by the Fund's Board to
execute purchases and sales of securities. The Fund's portfolio managers
are Richard J. Moynihan, Joseph A. Darcy, A. Paul Disdier, Douglas Gaylor,
Karen M. Hand, Stephen C. Kris, Michael Petty, Jill C. Shaffro, Samuel J.
Weinstock, and Monica S. Wieboldt. The Manager also maintains a research
department with a professional staff of portfolio managers and securities
analysts who provide research services for the Fund and for other funds
advised by the Manager.
All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: taxes, interest, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager, Securities and Exchange Commission fees, state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining
the Fund's existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of shareholders' reports and meetings, costs
of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not
including the management fee paid by the Fund. The Distributor may use part
or all of such payments to pay securities dealers, banks or other financial
institutions in respect of these services. The Manager also may make such
advertising and promotional expenditures, using its own resources, as it
from time to time deems appropriate.
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60% of the value
of the Fund's average daily net assets. All fees and expenses are accrued
daily and deducted before the declaration of dividends to shareholders. For
the fiscal years ended March 31, 1997, 1998 and 1999, the management fees
payable by the Fund amounted to $1,339,565, $1,290,972 and $1,297,660,
respectively, which amounts were reduced by $10,161, $64,873 and $92,317,
respectively, pursuant to undertakings by the Manager then in effect,
resulting in net fees paid to the Manager of $1,329,404 in fiscal 1997,
$1,226,099 in fiscal 1998 and $1,205,343 in fiscal 1999.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings
and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee,
exceed the expense limitation of any state having jurisdiction over the
Fund, the Fund may deduct from the payment to be made to the Manager under
the Agreement, or the Manager will bear, such excess expense to the extent
required by state law. Such deduction or payment, if any, will be estimated
daily, and reconciled and effected or paid, as the case may be, on a monthly
basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
Distributor. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the Fund's distributor on a best efforts
basis pursuant to an agreement which is renewable annually.
Transfer and Dividend Disbursing Agent and Custodian. Dreyfus
Transfer, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the
Manager, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Fund's
transfer and dividend disbursing agent. Under a transfer agency agreement
with the Fund, the Transfer Agent arranges for the maintenance of
shareholder account records for the Fund, the handling of certain
communications between shareholders and the Fund and the payment of
dividends and distributions payable by the Fund. For these services, the
Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Fund during the month, and is
reimbursed for certain out-of-pocket expenses.
The Bank of New York (the "Custodian"), 90 Washington Street, New York,
New York 10286, is the Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to
be purchased or sold by the Fund. Under a custody agreement with the Fund,
the Custodian holds the Fund's securities and keeps all necessary accounts
and records. For its custody services, the Custodian receives a monthly fee
based on the market value of the Fund's assets held in custody and receives
certain securities transactions charges.
HOW TO BUY SHARES
General. Fund shares are sold without a sales charge. You may be
charged a fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution. 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 securities dealer, bank or other financial institution which maintains
an omnibus account in the Fund and has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at
least $100. The initial investment must be accompanied by the Account
Application. For full-time or part-time employees of the Manager or any of
its affiliates or subsidiaries, directors of the Manager, Board members of a
fund advised by the Manager, including members of the Fund's Board, or the
spouse or minor child of any of the foregoing, the minimum initial
investment is $1,000. For full-time or part-time employees of the Manager
or any of its affiliates or subsidiaries who elect to have a portion of
their pay directly deposited into their Fund accounts, the minimum initial
investment is $50. The Fund reserves the right to vary the initial and
subsequent investment minimum requirements at any time.
Fund shares also are offered without regard to the minimum initial
investment requirements through Dreyfus-Automatic Asset Builderr, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant
to the Dreyfus Step Program described under "Shareholder Services." These
services enable you to make regularly scheduled investments and may provide
you with a convenient way to invest for long-term financial goals. You
should be aware, however, that periodic investment plans do not guarantee a
profit and will not protect an investor against loss in a declining market.
Shares are sold on a continuous basis at the net asset value per share
next determined after an order in proper form is received by the Transfer
Agent or other entity authorized to receive orders on behalf of the Fund.
Net asset value per share is determined as of the close of trading on the
floor of the New York Stock Exchange (currently 4:00 p.m., New York time) on
each day the New York Stock Exchange is open for business. For purposes of
computing net asset value per share, options and futures contracts will be
valued 15 minutes after the close of trading on the floor of the New York
Stock Exchange. Net asset value per share is computed by dividing the value
of the Fund's net assets (i.e., the value of its assets less liabilities) by
the total number of shares outstanding. The Fund's investments are valued
by an independent pricing service approved by the Fund's Board and are
valued at fair value as determined by the pricing service. The pricing
service's procedures are reviewed under the general supervision of the
Fund's Board. For further information regarding the methods employed in
valuing the Fund's investments, see "Determination of Net Asset Value."
Dreyfus TeleTransfer Privilege. You may purchase shares by telephone
if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. The proceeds will be transferred between the
bank account designated in one of these documents and your Fund account.
Only a bank account maintained in a domestic financial institution which is
an Automated Clearing House ("ACH") member may be so designated.
Dreyfus TeleTransfer purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day that the Transfer
Agent and the New York Stock Exchange are open for business will be credited
to the shareholder's Fund account on the next bank business day following
such purchase order. Purchase orders made after 4:00 p.m., New York time,
on any day the Transfer Agent and the New York Stock Exchange are open for
business, or orders made on Saturday, Sunday or any Federal holiday (e.g.,
when the New York Stock Exchange is not open for business), will be credited
to the shareholder's Fund account on the second bank business day following
such purchase order. To qualify to use the Dreyfus TeleTransfer Privilege,
the initial payment for purchase of Fund shares must be drawn on, and
redemption proceeds paid to, the same bank and account as are designated in
the Account Application or Shareholder Services Form on file. If the
proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"How to Redeem Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. You may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation an amount not to
exceed an annual rate of .25% of the value of the Fund's average daily net
assets for certain allocated expenses of providing personal services and/or
maintaining shareholder accounts. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder
accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Fund's Board for its review. In addition, the Plan provides that material
amendments of the Plan must be approved by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund and have no
direct or indirect interest in the operation of the Plan by vote cast in
person at a meeting called for the purpose of considering such amendments.
The Plan is subject to annual approval by such vote of the Board members
cast in person at a meeting called for the purpose of voting on the Plan.
The Plan is terminable at any time by vote of a majority of the Board
members who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Plan.
For the fiscal year ended March 31, 1999, $256,812 was chargeable to
the Fund under the Plan.
HOW TO REDEEM SHARES
Redemption Fee. The Fund will deduct a redemption fee equal to 1% of
the net asset value of Fund shares redeemed (including redemptions through
the use of the Fund Exchanges service) less than 15 days following the
issuance of such shares. The redemption fee will be deducted from the
redemption proceeds and retained by the Fund. For the fiscal year ended
March 31, 1999, there were no redemption fees.
No redemption fee will be charged on the redemption or exchange of
shares (1) through the Fund's Check Redemption Privilege, Automatic
Withdrawal Plan or Dreyfus Auto-Exchange Privilege, (2) through accounts
that are reflected on the records of the Transfer Agent as omnibus accounts
approved by Dreyfus Service Corporation, (3) through accounts established by
securities dealers, banks or other financial institutions approved by
Dreyfus Service Corporation that utilize the National Securities Clearing
Corporation's networking system, or (4) acquired through the reinvestment of
dividends or distributions. The redemption fee may be waived, modified or
terminated at any time.
Check Redemption Privilege. The Fund provides Redemption Checks
("Checks") automatically upon opening an account, unless you specifically
refuse the Check Redemption Privilege by checking the applicable "No" box on
the Account Application. The Check Redemption Privilege may be established
for an existing account by a separate signed Shareholder Services Form.
Checks will be sent only to the registered owner(s) of the account and only
to the address of record. The Account Application or Shareholder Services
Form must be manually signed by the registered owner(s). Checks may be made
payable to the order of any person in an amount of $500 or more. When a
Check is presented to the Transfer Agent for payment, the Transfer Agent, as
your agent, will cause the Fund to redeem a sufficient number of shares in
your account to cover the amount of the Check. Dividends are earned until
the Check clears. After clearance, a copy of the Check will be returned to
you. You generally will be subject to the same rules and regulations that
apply to checking accounts, although the election of this Privilege creates
only a shareholder-transfer agent relationship with the Transfer Agent.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will
honor, upon presentment, even if presented before the date of the Check, all
postdated Checks which are dated within six months of presentment for
payment, if they are otherwise in good order.
Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the shares in your account, the Check
will be returned marked insufficient funds. Checks should not be used to
close an account.
This Privilege will be terminated immediately, without notice, with
respect to any account which is, or becomes, subject to backup withholding
on redemptions. Any Redemption Check written on an account which has become
subject to backup withholding on redemptions will not be honored by the
Transfer Agent.
Wire Redemption Privilege. By using this Privilege, you authorize the
Transfer Agent to act on wire, telephone or letter redemption instructions
from any person representing himself or herself to be you and reasonably
believed by the Transfer Agent to be genuine. Ordinarily, the Fund will
initiate payment for shares redeemed pursuant to this Privilege on the next
business day after receipt by the Transfer Agent of a redemption request in
proper form. Redemption proceeds ($1,000 minimum) will be transferred by
Federal Reserve wire only to the commercial bank account specified by you on
the Account Application or Shareholder Services Form, or to a correspondent
bank if your bank is not a member of the Federal Reserve System. Fees
ordinarily are imposed by such bank and borne by the investor. Immediate
notification by the correspondent bank to your bank is necessary to avoid a
delay in crediting the funds to your bank account.
If you have access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
If you do not have direct access to telegraphic equipment, you may have
the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
toll free. You should advise the operator that the above transmittal code
must be used and should also inform the operator of the Transfer Agent's
answer back sign.
To change the commercial bank or account designated to receive wire
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. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Holders of jointly registered
Fund or bank accounts may redeem through the Dreyfus TeleTransfer Privilege
for transfer to their bank account not more than $250,000 within any 30-day
period. You should be aware that if you have selected the Dreyfus
TeleTransfer Privilege, any request for a wire redemption will be effected
as a Dreyfus TeleTransfer transaction through the ACH system unless more
prompt transmittal specifically is requested. Redemption proceeds will be
on deposit in the your account at an ACH member bank ordinarily two business
days after receipt of the redemption request. See "How to Buy Shares--
Dreyfus TeleTransfer Privilege."
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 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% or the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission and is a
fundamental policy of the Fund which may not be changed without shareholder
approval. In the case of requests for redemption in excess of such amount, the
Fund's Board reserves the right to make payments in whole or in part in
securities or other assets of the Fund in case of an emergency or any time a
cash distribution would impair the liquidity of the Fund to the detriment of
the existing shareholders. In such event, the securities would be valued in
the same manner as the Fund's portfolio is valued. If the recipient sells such
securities, brokerage charges might be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or when
an emergency exists as determined by the Securities and Exchange Commission so
that disposal of the Fund's investments or determination of its net asset value
is not reasonably practicable, or (c) for such other periods as the Securities
and Exchange Commission by order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
Fund Exchanges. You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by the Manager, to the
extent such shares are offered for sale in your state of residence. The
Fund will deduct a redemption fee equal to 1% of the net asset value of Fund
shares exchanged where the exchange is made less than 15 days after the
issuance of such shares. Shares of other funds purchased by exchange will
be purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds offered without a sales load
will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales load, and
the applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment of
dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), but if the sales load applicable to the
Offered Shares exceeds the maximum sales load that could have
been imposed in connection with the Purchased Shares (at the
time the Purchased Shares were acquired), without giving
effect to any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, you must notify the
Transfer Agent of your prior ownership of fund shares and your account
number.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless you check the applicable "No" box on the Account Application,
indicating that you specifically refuse this Privilege. By using the
Telephone Exchange Privilege, you authorize the Transfer Agent to act on
telephonic instructions (including over The Dreyfus Touch automated
telephone system) from any person representing himself or herself to be you
and reasonably believed by the Transfer Agent to be genuine. Telephone
exchanges may be subject to limitations as to the amount involved or the
number of telephone exchanges permitted. Shares issued in certificate form
are not eligible for telephone exchange. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules
promulgated by the Securities and Exchange Commission.
To establish a personal retirement plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for shares of the Fund, shares of
another fund in the Dreyfus Family of Funds of which you are a shareholder.
This Privilege is available only for existing accounts. Shares will be
exchanged on the basis of relative net asset value as described above under
"Fund Exchanges." Enrollment in or modification or cancellation of this
Privilege is effective three business days following notification by the
investor. You will be notified if your account falls below the amount
designated to be exchanged under this Privilege. In this case, your account
will fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-782-6620. The Fund reserves the right to reject
any exchange request in whole or in part. Shares may be exchanged only
between accounts having identical names and other identifying designations.
The Fund Exchanges service or the Dreyfus Auto-Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
Dreyfus-Automatic Asset Builder(r). Dreyfus-Automatic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000
per transaction) at regular intervals selected by you. Fund shares are
purchased by transferring funds from the bank account designated by you.
Dreyfus Government Direct Deposit Privilege. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the U.S.
Government automatically deposited into your Fund account. You may deposit
as much of such payments as you elect.
Dreyfus Payroll Savings Plan. Dreyfus Payroll Savings Plan permits you
to purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you
may have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the ACH system at each pay period. To
establish a Dreyfus Payroll Savings Plan account, you must file an
authorization form with your employer's payroll department. It is the sole
responsibility of your employer to arrange for transactions under the
Dreyfus Payroll Savings Plan.
Dreyfus Step Program. The Dreyfus Step Program enables you to purchase
Fund shares without regard to the Fund's minimum initial investment
requirements through Dreyfus-Automatic Asset Builderr, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a
Dreyfus Step Program account, you must supply the necessary information on
the Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-645-6561.
You may terminate your participation in this Program at any time by
discontinuing your participation in Dreyfus-Automatic Asset Builder, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time.
Dreyfus Dividend Options. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from the Fund in shares of another fund in the Dreyfus Family of Funds
of which you are a shareholder. Shares of other funds purchased pursuant to
this privilege will be purchased on the basis of relative net asset value
per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds
offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other funds
sold with a sales load, and the applicable sales load will be
deducted.
C. Dividends and distributions paid by a fund that charges a
sales load may be invested in shares of other funds sold with a
sales load (referred to herein as "Offered Shares"), but, if the
sales load applicable to the Offered Shares exceeds the maximum
sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
Dreyfus Dividend ACH permits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an ACH member may be so designated. Banks may charge a
fee for this service.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits you
to request withdrawal of a specified dollar amount (minimum of $50) on
either a monthly or quarterly basis if you have a $5,000 minimum account.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends and
distributions, your shares will be reduced and eventually may be depleted.
Automatic Withdrawal may be terminated at any time by you, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
DETERMINATION OF NET ASSET VALUE
Valuation of Portfolio Securities. The Fund's investments are valued
each business day by an independent pricing service (the "Service") approved
by the Fund's Board. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the
bid side of the market, these investments are valued at the mean between the
quoted bid prices (as obtained by the Service from dealers in such
securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other investments (which
constitute a majority of the portfolio securities) are carried at fair value
as determined by the Service, based on methods which include consideration
of: yields or prices of municipal bonds of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. The Service's procedures
are reviewed by the Fund's officers under the general supervision of the
Fund's Board. Expenses and fees, including the management fee (reduced by
the expense limitation, if any), are accrued daily and are taken into
account for the purpose of determining the net asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that the Fund has qualified for the fiscal year
ended March 31, 1999 as a "regulated investment company" under the Code.
The Fund intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Such qualification relieves the Fund of
any liability for Federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. If the
Fund did not qualify as a regulated investment company, it would be treated
for tax purposes as an ordinary corporation subject to Federal income tax.
The Fund ordinarily declares dividends from its net investment income
on each day the New York Stock Exchange is open for business. Fund shares
begin earning income dividends on the day following the date of purchase.
The Fund's earnings for Saturdays, Sundays and holidays are declared as
dividends on the next business day. Dividends usually are paid on the last
business day of each month and are automatically reinvested in additional
Fund shares at net asset value or, at your option, paid in cash. If you
redeem all shares in your account at any time during the month, all
dividends to which you are entitled will be paid to you along with the
proceeds of the redemption. If you are an omnibus accountholder and
indicate in a partial redemption request that a portion of any accrued
dividends to which such account is entitled belongs to an underlying
accountholder who has redeemed all shares in his or her account, such
portion of the accrued dividends will be paid to you along with the proceeds
of the redemption.
If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest
such dividend or distribution and all future dividends and distributions
payable to you in additional Fund shares at net asset value. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
The Fund is a "qualified investment fund" within the meaning of the New
Jersey gross income tax. The primary criteria for constituting a "qualified
investment fund" are that (i) the Fund is an investment company registered
with the Securities and Exchange Commission which, for the calendar year in
which the dividends and distributions (if any) are paid, has no investments
other than interest-bearing obligations, obligations issued at a discount,
and cash and cash items, including receivables, and financial options,
futures and forward contracts, or other similar financial instruments
relating to interest-bearing obligations, obligations issued at a discount
or bond indices related thereto and (ii) at the close of each quarter of the
taxable year, the Fund has not less than 80% of the aggregate principal
amount of all of its investments excluding financial options, futures and
forward contracts, or other similar financial instruments related to
interest-bearing obligations, obligations issued at a discount or bond
indices related thereto, cash and cash items, which cash items shall include
receivables, in New Jersey Municipal Obligations, including obligations of
Puerto Rico, the Virgin Islands and other territories and possessions of the
United States and certain other specified securities exempt from New Jersey
income taxes. Additionally, a qualified investment fund must comply with
certain continuing reporting requirements.
If the Fund continues to qualify as a qualified investment fund and the
Fund complies with its reporting obligations, (a) dividends and
distributions by the Fund to a New Jersey resident individual shareholder
will not be subject to New Jersey gross income tax to the extent that the
dividends and distributions are attributable to income earned by the Fund as
interest on or gain from New Jersey Municipal Obligations, and (b) gain from
the sale of Fund shares by a New Jersey resident individual shareholder will
not be subject to the New Jersey gross income tax. Shares of the Fund are
not subject to property taxation by New Jersey or its political
subdivisions. To the extent that you are subject to state and local taxes
outside of New Jersey, dividends and distributions earned by an investment
in the Fund may represent taxable income.
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 should be a return on the
investment in an economic sense although taxable as stated in "Distributions
and Taxes" in the Prospectus. In addition, the Code provides that if a
shareholder has not held his Fund shares for more than six months (or such
shorter period as the Internal Revenue Service may prescribe by regulation)
and has received an exempt-interest dividend with respect to such shares,
any loss incurred on the sale of such shares shall be disallowed to the
extent of the exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code. In
addition, all or a portion of the gain realized from engaging in "conversion
transactions" may be treated as ordinary income under Section 1258 of the
Code. "Conversion transactions" are defined to include certain forward,
futures, option and "straddle" transactions, transactions marketed or sold
to produce capital gains, or transactions described in Treasury regulations
to be issued in the future.
Under Section 1256 of the Code, gain or loss realized by the Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss will arise upon exercise or lapse of such futures and options
as well as from closing transactions. In addition, any such futures or
options remaining unexercised at the end of the Fund's taxable year will be
treated as sold for their then fair market value, resulting in additional
gain or loss to the Fund characterized as described above.
Offsetting positions held by the Fund involving certain financial
futures contracts or options transactions may be considered, for tax
purposes, to constitute "straddles". "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988 of the Code. As such, all or a portion of any short
or long-term capital gain from certain "straddle" and/or conversion
transactions may be recharacterized as ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in financial futures contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the futures or
options comprising a part of such "straddles" were governed by Section 1256
of the Code. The Fund may make one or more elections with respect to "mixed
straddles". Depending on which election is made, if any, the results to the
Fund may differ. If no election is made, to the extent the straddle and
conversion transaction rules apply to positions established by the Fund,
losses realized by the Fund will be deferred to the extent of unrealized
gain in the offsetting position. Moreover, as a result of the straddle and
conversion transaction rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital
gains on straddle positions may be recharacterized as short-term capital
gains or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short
sale, futures, forward, or offsetting notional principal contract
(collectively, a "Contract") respecting the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract
and then acquires property that is the same as, or substantially identical
to the underlying property. In each instance, with certain exceptions, the
Fund generally will be taxed as if the appreciated financial position were
sold at its fair market value on the date the Fund enters into the financial
position or acquires the property, respectively. Transactions that are
identified as hedging or straddle transactions under other provisions of the
Code can be subject to the constructive sale provisions.
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such
portion in order to maintain its qualification as a regulated investment
company. In such case, the Fund may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases
and sales usually are placed with those dealers from which it appears that
the best price or execution will be obtained. Usually no brokerage
commissions, as such, are paid by the Fund for such purchases and sales,
although the price paid usually includes an undisclosed compensation to the
dealer acting as agent. The prices paid to underwriters of newly-issued
securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms and may be
selected based upon their sales of shares of the Fund or other funds advised
by the Manager or its affiliates.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses of
its research department.
PERFORMANCE INFORMATION
The Fund's current yield for the 30-day period ended March 31, 1999 was
3.47%. During the period, the Manager waived receipt of a portion of the
management fee, without which the Fund's 30-day yield as of March 31, 1999
would have been 3.43%. Current yield is computed pursuant to a formula
which operates as follows: the amount of the Fund's expenses accrued for
the 30-day period (net of reimbursements) is subtracted from the amount of
the dividends and interest earned (computed in accordance with regulatory
requirements) by the Fund during the period. That result is then divided by
the product of: (a) the average daily number of shares outstanding during
the period that were entitled to receive dividends and distributions, and
(b) the net asset value per share on the last day of the period less any
undistributed earned income per share reasonably expected to be declared as
a dividend shortly thereafter. The quotient is then added to 1, and that
sum is raised to the 6th power, after which 1 is subtracted. The current
yield is then arrived at by multiplying the result by 2.
Based upon a combined 1999 Federal and New Jersey income tax rate of
43.45%, the Fund's tax equivalent yield for the 30-day period ended March
31, 1999 was 6.14%. Absent the expense absorption and/or fee waiver in
effect, the Fund's tax equivalent yield for such period would have been
6.07%. Tax equivalent yield is computed by dividing that portion of the
current yield (calculated as described above) which is tax exempt by 1 minus
a stated tax rate and adding the quotient to that portion, if any, of the
yield of the Fund that is not tax exempt.
The tax equivalent yield quoted above represents the application of the
highest Federal and State of New Jersey marginal personal income tax rates
presently in effect. For Federal personal income tax purposes, a 39.60% tax
rate has been used. For New Jersey personal income tax purposes, a 6.37%
tax rate has been used. The tax equivalent figure, however, does not
include the potential effect of any local (including, but not limited to,
county, district or city) taxes, including applicable surcharges. In
addition, there may be pending legislation which could affect such stated
tax rates or yield. Each investor should consult its tax adviser, and
consider its own factual circumstances and applicable tax laws, in order to
ascertain the relevant tax equivalent yield.
For the one and five-year periods ended March 31, 1999 and for the
period June 26, 1992 (commencement of operations) through March 31, 1999,
the Fund's average annual total returns were 5.04%, 5.91% and 6.21%,
respectively. Without the fee waivers in effect, returns would have been
lower. Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
For the period June 26, 1992 (commencement of operations) through March
31, 1999, the Fund's total return was 50.27%. Without the fee waivers in
effect, total return would have been lower. Total return is calculated by
subtracting the amount of the Fund's net asset value per share at the
beginning of a stated period from the net asset value per share at the end
of the period (after giving effect to the reinvestment of dividends and
distributions during the periods), 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 tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and are not indicative of the Fund's
past or future performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from CDA
Investment Technologies, Inc., Lipper Analytical Services, Inc., Moody's
Bond Survey Bond Index, Lehman Brothers Municipal Bond Index, Morningstar,
Inc. and other industry publications. From time to time, advertising
materials for the Fund may refer to or discuss then-current or past economic
conditions, developments and/or events, actual or proposed tax legislation,
or to statistical or other information concerning trends relating to
investment companies, as compiled by industry associations such as the
Investment Company Institute. From time to time, advertising materials for
the Fund also may refer to Morningstar ratings and related analyses
supporting such ratings. From time to time, advertising materials may refer
to studies performed by The Dreyfus Corporation or its affiliates, such as
"The Dreyfus Tax Informed Investing Study" of The Dreyfus Gender Investment
Comparison Study (1996 & 1997) or other such studies.
From time to time, the Fund may advertise that it is (or was) the first
no load New Jersey intermediate-term tax free mutual fund available to
investors and, for so long as such statement remains true, that it is the
only no load New Jersey intermediate-term tax free mutual fund available to
investors.
INFORMATION ABOUT THE FUND
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Fund shares are of one class and have equal rights as to dividends and in
liquidation. Shares have no preemptive, subscription or conversion rights
and are freely transferable.
The Fund is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts. Under Massachusetts law,
shareholders could, under certain circumstances, be held personally liable
for the obligations of the Fund. However, the Fund's Agreement and
Declaration of Trust ("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 Board Member. 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 a
shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations, a possibility which management
believes is remote. Upon payment of any liability incurred by the Fund, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The Fund intends to conduct its operations in a
way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a
result, Fund shareholders may not consider each year the election of Board
members or the appointment of auditors. However, the holders of at least
10% of the shares outstanding and entitled to vote may require the Fund to
hold a special meeting of shareholders for purposes of removing a Board
member from office. Fund shareholders may remove a Board member by the
affirmative vote of two-thirds of the Fund's outstanding voting shares. In
addition, the Board will call a meeting of shareholders for the purpose of
electing Board members if, at any time, less than a majority of the Board
members then holding office have been elected by shareholders.
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Fund's performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is following a market-
timing strategy or is otherwise engaging in excessive trading, the Fund,
with or without prior notice, may temporarily or permanently terminate the
availability of Fund Exchanges, or reject in whole or part any purchase or
exchange request, with respect to such investor's account. Such investors
also may be barred from purchasing other funds in the Dreyfus Family of
Funds. Generally, an investor who makes more than four exchanges out of the
Fund during any calendar year or who makes exchanges that appear to coincide
with a market-timing strategy may be deemed to be engaged in excessive
trading. Accounts under common ownership or control will be considered as
one account for purposes of determining a pattern of excessive trading. In
addition, the Fund may refuse or restrict purchase or exchange requests by
any person or group if, in the judgment of the Fund's management, the Fund
would be unable to invest the money effectively in accordance with its
investment objective and policies or could otherwise be adversely affected
or if the Fund receives or anticipates receiving simultaneous orders that
may significantly affect the Fund (e.g., amounts equal to 1% or more of the
Fund's total assets). If an exchange request is refused, the Fund will take
no other action with respect to the shares until it receives further
instructions from the investor. The Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would
be disruptive to efficient portfolio management or would adversely affect
the Fund. The Fund's policy on excessive trading applies to investors who
invest in the Fund directly or through financial intermediaries, but does
not apply to the Dreyfus Auto-Exchange Privilege, to any automatic
investment or withdrawal privilege described herein, or to participants in
employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange
requests based on their separate components -- redemption orders with a
simultaneous request to purchase the other fund's shares. In such a case,
the redemption request would be processed at the Fund's next determined net
asset value but the purchase order would be effective only at the net asset
value next determined after the fund being purchased receives the proceeds
of the redemption, which may result in the purchase being delayed.
To offset the relatively higher costs of servicing smaller accounts,
the Fund will charge regular accounts with balances below $2,000 an annual
fee of $12. The valuation of accounts and the deductions are expected to
take place during the last four months of each year. The fee will be waived
for any investor whose aggregate Dreyfus mutual fund investments total at
least $25,000, and will not apply to IRA accounts or to accounts
participating in automatic investment programs or opened through a
securities dealer, bank or other financial institution, or to other
fiduciary accounts.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, has been selected as independent auditors of the Fund.
APPENDIX A
RISK FACTORS -- INVESTING IN NEW JERSEY MUNICIPAL OBLIGATIONS.
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 of New
Jersey and various local agencies available as of the date of this Statement
of Additional Information. While the Fund has not independently verified
this information, it has no reason to believe that such information is not
correct in all material respects.
New Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural
areas with selective commercial agriculture. New Jersey's principal
manufacturing industries produce chemicals, pharmaceuticals, electrical
equipment and instruments, printing machinery, business and health and
retail trade, food products, and printing. Other economic activities
include services, wholesale and retail trade, insurance, tourism, petroleum
refining and truck farming.
In its seventh year of expansion, New Jersey has benefited and will
continue to benefit from national growth. While the latest national
indicators show that economic growth strongly accelerated in the first
quarter of 1998, the inflation rate remained low. After a very robust
economic growth of 5.5% in the first quarter for 1998, inflation-adjusted
gross domestic product slowed to 1.4% in the second quarter. This second
quarter pace is slower, but is positive and more sustainable.
Business investment expenditures and consumer spending have increased
substantially in the nation as well as in the State. Capital and consumer
spending may continue to rise due to the sustained character of economic
growth and the interest-sensitive home-building industry may continue to
provide stimulus both nationally and in New Jersey. It is expected that the
employment and income growth that has and is taking place will lead to
further growth in consumer outlays. Reasons for continued optimism in New
Jersey include increasing employment levels and higher-than-national level
of per capita personal income. Also, several expansions of existing hotel-
casinos and plans for several new casinos in Atlantic City will mean
additional job creation.
While growth is likely to be slower than in the nation, the advantages
afforded by its geographic location that have served New Jersey well for
many years will still be there. Structural changes that have been occurring
for years can be expected to continue, with job creation concentrated most
heavily in the service industries.
In July 1991, S&P lowered New Jersey's general obligation bond rating
from AAA to AA+. As of June 30, 1997, S&P, Moody's and Fitch rate New
Jersey's long-term general obligations AA+, Aa1 and AA+, respectively.
In 1998, New Jersey's employment growth of 2% drove employment to a
level of 3.82 million, more than 116,000 jobs above the 1989 pre-recession
high. Person income grew 5.5%, better than the 5.3% growth in 1997. Real
Gross State Product increased 3.5% in 1998, the highest growth in 10 years.
Employment growth during 1997-1998 ranged between 1.7 and 2.4%.
Construction jobs grew 4.6% in 1998 continuing the 5% growth seen in 1997.
Manufacturing jobs declined by 0.45 in 1998. In 1998, aggregate growth in
the service sector remained at 3% for the second straight year.
The revised estimate as shown in the Governor's Fiscal Year 2000 Budget
forecasts Sales and Use Tax collections for Fiscal Year 1995 as $5.01
billion. The Fiscal Year 2000 estimate of $5.3 billion, is a 4.8% increase
from the Fiscal Year 1999 estimate.
The revised estimate as shown in the Governor's Fiscal Year 1999 Budget
forecasts Gross Income Tax collections for Fiscal Year 1999 of $6.1 billion.
The estimate for fiscal year 2000 as shown in the Governor's Fiscal Year
2000 Budget of $6.5 billion, is a 6.8% increase from the Fiscal Year 1999
estimate.
The revised estimate as shown in the Governor's Fiscal Year 2000 Budget
forecasts Corporation Business Tax collections for Fiscal Year 1999 of $1.5
billion. Included in the Corporation Business Tax forecast is a reduction
in the Corporation Business Tax rate from 9.375% to 9.0% of net New Jersey
income as well as two policy changes enacted into law in 1995 which (i)
effective June 30, 1997, allow corporations with multi-state operations to
allocate income to New Jersey using a formula which double weights the sales
receipts factor to give a tax preference to corporations that have a higher
concentration of payroll and facilities in New Jersey and (ii) provide a
7.5% rather than a 9% tax rate for corporations that have net income up to
$100,000. The Fiscal Year 2000 forecast as shown in the Governor's Fiscal
2000 Budget of $1.6 billion, represents a 5.3% increase from the Fiscal Year
1999 estimate.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which
the Governor may ensure that the State is operated efficiently and does not
incur a deficit. No supplemental appropriation may be enacted after
adoption of an appropriations act except where there are sufficient revenues
on hand or anticipated, as certified by the Governor, to meet such
appropriation. In the past when actual revenues have been less than the
amount anticipated in the budget, the Governor has exercised her plenary
powers leading to, among other actions, implementation of a hiring freeze
for all State departments and the discontinuation of programs for which
appropriations were budgeted but not yet spent.
The State appropriated approximately $17.158 billion and $18.363
billion for Fiscal 1998 and 1999, respectively. Of the $18.363 billion
appropriated in Fiscal Year 1999 from the General Fund, the Property Tax
Relief Fund, the Casino Control Fund, the Casino Revenue Fund and
Gubernatorial Elections Fund, $7.515 billion was appropriated for State aid
to local governments, $5.014 billion was appropriated for grants-in-aid
(payments to individuals or public or private agencies for benefits to which
a recipient is entitled by law or for the provision of service on behalf of
the State), $4.667 billion for Direct State services, $501.1 million for
debt service on State general obligation bonds and $667.1 million for
capital construction.
Should tax revenues be less than the amount anticipated in the Budget
for a fiscal year, the Governor may, pursuant to statutory authority,
prevent any expenditure under any appropriation. The appropriations for
Fiscal Year 1998 and for Fiscal year 1999 reflect the amounts contained in
the Governor's Fiscal Year 1999 Budget.
The State has made appropriations for principal and interest payments
for general obligation bonds for fiscal years 1996 through 1999 in the
amounts of $446.3 million, $446.9 million, $483.7 million and $501.1
million, respectively. The Governor's Fiscal Year 2000 Budget for Fiscal
Year 2000 includes an appropriation in the amount of $518.7 million for
principal and interest payments for general obligations bonds.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A
Principal and interest payments on bonds in this category are regarded
as safe. This rating describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" rating is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among the
factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to
pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the
major ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus sign (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.
A
Issues assigned this rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for bonds in each of the generic rating categories
Aa, A, Baa, Ba and B. Moody's also provides numerical modifiers of 2 and 3
in each of these categories for bond issues in the health care, higher
education and other not-for-profit sectors; the modifier 1 indicates that
the issue ranks in the higher end of its generic rating category; the
modifier 2 indicates that the issue is in the mid-range of the generic
category; and the modifier 3 indicates that the issue is in the low end of
the generic category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings recognize
the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over
the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature
is not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics
as payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to
the fact that the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is
not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and will normally 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.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have 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.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should
be valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36 months
or the DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
