PROSPECTUS FEBRUARY 29, 1996
AS REVISED AUGUST 26,1996
DREYFUS BASIC NEW YORK MUNICIPAL MONEY MARKET FUND
THE DREYFUS BASIC NEW YORK MUNICIPAL MONEY MARKET FUND (FORMERLY, THE
DREYFUS/LAUREL NEW YORK TAX-FREE MONEY FUND) (THE "FUND") IS A SEPARATE,
NON-DIVERSIFIED PORTFOLIO OF THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
(FORMERLY, THE LAUREL TAX-FREE MUNICIPAL FUNDS AND PREVIOUSLY, THE BOSTON
COMPANY TAX-FREE MUNICIPAL FUNDS (THE "TRUST")), AN OPEN-END MANAGEMENT
INVESTMENT COMPANY KNOWN AS A MUTUAL FUND. THE FUND SEEKS TO PROVIDE A HIGH
LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES AND NEW YORK STATE
AND NEW YORK CITY PERSONAL INCOME TAXES TO THE EXTENT CONSISTENT WITH THE
PRESERVATION OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY BY INVESTING IN HIGH
QUALITY, SHORT-TERM MUNICIPAL SECURITIES.
SHARES OF THE FUNDS ARE SOLD WITHOUT A SALES LOAD.
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING THE DREYFUS
TELETRANSFER PRIVILEGE.
THE DREYFUS CORPORATION SERVES AS THE FUND'S INVESTMENT MANAGER. THE
DREYFUS CORPORATION IS REFERRED TO AS "DREYFUS."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ CAREFULLY BEFORE YOU
INVEST AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED FEBRUARY 29,
1996 (AS REVISED AUGUST 26, 1996), WHICH MAY BE REVISED FROM TIME TO TIME,
PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER
MATTERS WHICH MAY BE OF INTEREST TO SOME INVESTORS. IT HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") AND IS INCORPORATED HEREIN BY
REFERENCE. FOR A FREE COPY, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
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MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
ALL MONEY MARKET FUNDS INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THE FEES TO WHICH THE FUND IS SUBJECT ARE SUMMARIZED IN THE "EXPENSE
SUMMARY" SECTION OF THE FUND'S PROSPECTUS. THE FUND PAYS AN AFFILIATE OF
MELLON BANK, N.A. ("MELLON BANK") TO BE ITS INVESTMENT MANAGER. MELLON BANK
OR AN AFFILIATE MAY BE PAID FOR PERFORMING OTHER SERVICES FOR THE FUND, SUCH
AS CUSTODIAN, TRANSFER AGENT OR FUND ACCOUNTANT SERVICES. THE FUND IS
DISTRIBUTED BY PREMIER MUTUAL FUND SERVICES, INC.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
EXPENSE SUMMARY................................. 4
FINANCIAL HIGHLIGHTS............................ 5
DESCRIPTION OF THE FUND......................... 6
MANAGEMENT OF THE FUND.......................... 9
HOW TO BUY FUND SHARES.......................... 11
FUND EXCHANGES.................................. 12
HOW TO REDEEM FUND SHARES....................... 13
PERFORMANCE INFORMATION......................... 16
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES........ 16
GENERAL INFORMATION............................. 18
Page 2
[This Page Intentionally Left Blank]
Page 3
<TABLE>
EXPENSE SUMMARY
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Exchange Fee................................................... $5.00
Account Closeout Fee........................................... $5.00
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
Management Fee (after expense reimbursement)..................... .35%
Other Expenses (after expense reimbursement)..................... .00%
-----
Total Fund Operating Expenses(after expense reimbursement)....... .35%
</TABLE>
<TABLE>
EXAMPLE:
You would pay the following expenses
on a $1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
time period:
<S> <C> <C>
1 YEAR $ 9
3 YEARS $ 16
5 YEARS $ 25
10 YEARS $ 49
</TABLE>
- --------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses that investors will bear, directly or
indirectly, the payment of which will reduce investors' return on an annual
basis. Effective December 8, 1995, the Fund's "Investor" and "Class R"
designations were eliminated and the Fund became a single class fund. The
information in the foregoing table has been restated to reflect the
termination of the Fund's distribution plan (the "Distribution Plan") adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"), effective as of December 8, 1995, which was attributable
only to its then existing Investor shares. Effective December 8, 1995, the
Fund adopted a new Investment Management Agreement pursuant to which it pays
Dreyfus a fee at the annual rate of .45 of 1% of the value of the Fund's
average daily net assets. Dreyfus has agreed until December 7, 1996, to limit
its management fee, or to reimburse the Fund for its expenses, in order to
ensure that the Fund's total operating expenses do not exceed .35 of 1% of
the value of the Fund's average daily net assets. The expenses noted above,
without reimbursement, would be: Management Fees_.45%; Other Expenses_.00%;
and Total Fund Operating Expenses_.45%; and the amount of expenses that an
investor would pay, assuming redemption after one, three, five and ten years,
would be $10, $19, $30 and $62, respectively. In addition, unlike certain
other funds in the Dreyfus Family of Funds, the Fund will charge your account
$2.00 for each redemption check you write; you also will be charged $5.00 for
each wire redemption you make and a $5.00 account closeout fee. These charges
will be paid to the Fund's transfer agent. See "How to Buy Fund Shares" and
"How to Redeem Fund Shares."
Page 4
FINANCIAL HIGHLIGHTS
The following tables are based upon a single share outstanding
throughout each year or period and should be read in conjunction with the
financial statements and related notes that appear in the Fund's Annual
Report dated June 30, 1995, which is incorporated by reference into the SAI.
The financial statements and related notes, as well as the information in the
tables below insofar as it relates to the fiscal year or period ended June
30, 1994 and June 30, 1995, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears in the Fund's Annual
Report. The information in the tables below for the years or periods prior to
the fiscal period ended June 30, 1994, has been audited by other independent
auditors.
DREYFUS BASIC NEW YORK MUNICIPAL MONEY MARKET FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR OR PERIOD.*
<TABLE>
PERIOD YEAR
Ended Ended
YEAR OR PERIOD ENDED NOVEMBER 30, JUNE 30 JUNE 30,
---------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994# 1995##
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net Investment Income****.. 0.032 0.058 0.054 0.046 0.031 0.021 0.012 0.029
LESS DISTRIBUTIONS:
Dividends from net investment income (0.032) (0.058) (0.054) (0.046) (0.031) (0.021) (0.012) (0.029)
Dividends from net realized capital gains ._ ._ ._ ._ ._*** ._ ._ ._
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ======
Total Return............... 3.19% 5.90% 5.53% 4.65% 3.11% 2.15% 1.23% 2.95%
------ ------ ------ ------ ------ ------ ------ ------
RATIO TO AVERAGE NET ASSETS
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $8,929 $14,129 $16,870 $15,989 $11,183 $9,356 $8,011 $21,739
Ratio of expenses to average net as 0.65** 0.32% 0.32% 0.32% 0.32% 0.31% 0.44%** 0.60%
Ratio of net investment income
to average net assets...... 4.33%** 5.73% 5.38% 4.58% 3.08% 2.13% 2.12%** 2.97%
- ------------------------------------------------------------
* The Fund commenced operations on March 2, 1988. On February 1, 1993
existing shares of the Fund were designated the Retail Class and the Fund
began offering the Institutional Class and Investment Class of shares.
Effective April 4, 1994, the Retail and Institutional Classes were
reclassified as a single class of shares known as Investor shares and the
Investment Class shares were reclassified as the Trust shares. Effective
October 17, 1994, the Trust shares were redesignated Class R shares.
Effective December 8, 1995, the Fund's "Investor" and "Class R"
designations were eliminated and the Fund became a single class fund
without a class designation. The Financial Highlights for the year ended
June 30, 1995 are based upon an Investor share outstanding. The amounts
shown for the period ended June 30, 1994 were calculated using the
performance of a Retail share outstanding from December 1, 1993 to
April 3, 1994, and the performance of an Investor share outstanding from
April 4, 1994 to June 30, 1994. The Financial Highlights for the year
ended November 30, 1993 and prior periods are based upon a Retail share
outstanding. The Financial Highlights do not reflect the effect of the
termination of the Fund's Distribution Plan or the implementation of the
new Investment Management Agreement, both effective December 8, 1995.
See "Management of the Fund -- Investment Manager."
** Annualized
***Amount represents less than .001 per Investor share for the year
ended November 30, 1992.
****Net investment income per share before waiver of fees and reimbursement
of expenses by the investment manager and/or custodian and/or transfer
agent for the period ended June 30, 1994 and for the years ended November
30, 1993, 1992, 1991, 1990, 1989 and for the period ended November 30,
1988 were $0.009, $0.008, $0.024, $0.040, $0.047, $0.050 and $0.026,
respectively.
Annualized expense ratios before voluntary waiver of fees and
reimbursement of expenses by the investment manager and/or custodian
and/or transfer agent for the period ended June 30, 1994, and for the
years ended November 30, 1993, 1992, 1991, 1990, 1989, and for the period
ended November 30, 1988 were 0.97%, 1.29%, 1.03%, 0.93%, 1.03%, 1.10%,
and 1.42%, respectively.
Total return represents aggregate total return for the periods
indicated.
# The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30. Prior to April 4, 1994, The
Boston Company Advisors, Inc. served as the Fund's investment manager.
From April 4, 1994 through October 16, 1994, , Mellon Bank, N.A., served
as the Fund's investment manager.
## Effective October 17, 1994, The Dreyfus Corporation began serving as the
Fund's investment manager.
</TABLE>
Page 5
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide a high level of current income exempt from
Federal income taxes and New York State and New York City personal income
taxes to the extent consistent with the preservation of capital and the
maintenance of liquidity. The Fund seeks to achieve its objective by
investing in debt obligations issued by the State of New York, its political
subdivisions, municipalities and public authorities and in municipal
obligations issued by other governmental entities if, in the opinion of
counsel to the respective issuers, the interest from such obligations is
excluded from gross income for Federal, New York State and New York City
income tax purposes ("New York Municipal Obligations").
Under normal market conditions, the Fund attempts to invest 100%, and
will invest a minimum of 80%, of its total assets in New York Municipal
Obligations. When, in the opinion of Dreyfus, adverse market conditions exist
for New York Municipal Obligations, and a "defensive" investment posture is
warranted, the Fund may temporarily invest more than 20% of its total assets
in money market instruments having maturity and quality characteristics
comparable to those (discussed below) for New York Municipal Obligations, but
which produce income exempt from Federal but not New York State or New York
City personal income taxes for resident shareholders of New York, or more
than 20% of its total assets in taxable obligations (including obligations
the interest on which is included in the calculation of alternative minimum
tax for individuals). Periods when a defensive posture is warranted include
those periods when the Fund's monies available for investment exceed the New
York Municipal Obligations available for purchase to meet the Fund's rating,
maturity and other investment criteria. The Fund does not anticipate that it
will find it necessary to make any investments in securities the interest
from which is not exempt from Federal income and the New York State or New
York City personal income taxes. The Fund's policy of investing a minimum of
80% of its total assets in New York Municipal Obligations is a fundamental
policy of the Fund.
The Fund pursues its objective by investing in a varied portfolio of
high quality, short-term New York Municipal Obligations.
The New York Municipal Obligations purchased by the Fund consist of:
(1) municipal bonds; (2) municipal notes; and (3) municipal commercial paper.
The Fund will limit its portfolio investments to securities that, at the time
of acquisition, (i) are rated in the two highest categories by at least two
nationally recognized statistical rating organizations (or by one
organization if only one organization has rated the security), (ii) if not
rated, are obligations of an issuer whose other outstanding short-term debt
obligations are so rated, or (iii) if not rated, are of comparable quality,
as determined by Dreyfus in accordance with procedures established by the
Board of Trustees. The Fund will limit its investments to securities that
present minimal credit risk, as determined by Dreyfus under procedures
established by the Trust's Board of Trustees.
The Fund invests only in securities that have remaining maturities of
thirteen months or less at the date of purchase. Floating rate or variable
rate obligations (described below) which are payable on demand under
conditions established by the SEC may have a stated maturity in excess of
thirteen months; these securities will be deemed to have remaining maturities
of thirteen months or less. The Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less and seeks to maintain a constant net
asset value of $1.00 per share, although there is no assurance it can do so
on a continuing basis.
OTHER INVESTMENT POLICIES AND RISK FACTORS.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The Fund may purchase
floating rate and variable rate obligations. These obligations bear interest
at rates that are not fixed, but vary with changes in specified market rates
or indices. Some of these obligations may carry a demand feature that permits
the Fund to receive the par value upon demand prior to maturity. The Fund may
invest in floating rate and variable rate obligations carrying stated
maturities in excess of thirteen months at the date of purchase if these
Page 6
obligations carry demand features that comply with conditions established by
the SEC. The Fund will limit its purchases of floating rate and variable
rate. New York Municipal Obligations to those meeting the quality standards
applicable to the Fund. Frequently, such obligations are secured by letters
of credit or other credit support arrangements provided by banks. The quality
of the underlying creditor or the bank, as determined by Dreyfus under the
supervision of the Trustees, must also be equivalent to the quality standards
applicable to the Fund. In addition, Dreyfus monitors the earning power, cash
flow and other liquidity ratios of the issuers of such obligations, as well
as the creditworthiness of the institution responsible for paying the
principal amount of the obligations under the demand feature.
The Fund may invest in participation interests purchased from banks
in floating or variable rate New York Municipal Obligations owned by banks.
Participation interests carry a demand feature permitting the Fund to tender
them back to the bank. Each participation is backed by an irrevocable letter
of credit or guarantee of a bank which Dreyfus under the supervision of the
Trustees has determined meets the prescribed quality standards for the Fund.
Other types of tax-exempt instruments that may become available in
the future may be purchased by the Fund as long as Dreyfus believes the
quality of these instruments meets the Fund's quality standards.
OTHER INVESTMENT COMPANIES. The Fund may invest in securities issued
by other investment companies to the extent that such investments are
consistent with its investment objective and policies and permissible under
the 1940 Act. As a shareholder of another investment company, the Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would
be in addition to the advisory and other expenses that the Fund bears
directly in connection with its own operations.
TENDER OPTION BONDS. The Fund may invest up to 10% of the value of
its assets in 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.
Dreyfus, on behalf of the Fund, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying municipal obligation, of any
custodian and the third-party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable
in the event of a default in payment of principal or interest on the
underlying municipal obligation and for other reasons. The Fund will not
invest more than 10% of the value of the Fund's net assets in illiquid
securities, which would include tender option bonds for which the required
notice to exercise the tender feature is more than seven days if there is no
secondary market available for these obligations.
WHEN-ISSUED SECURITIES. The Fund may purchase New York Municipal
Obligations on a "when-issued" basis (i.e., delivery of and payment for the
New York Municipal Obligations normally take place within 45 days after the
date of the purchase commitment). The payment obligation and the interest
rate on such securities are fixed at the time of the purchase commitment.
Although the Fund generally will purchase New York Municipal Obligations on a
when-issued basis with the intention of acquiring the securities, the Fund
may sell such securities before the settlement date. New York Municipal
Obligations purchased on a when-issued basis, like other investments made by
the Fund, may decline or appreciate in value prior to their actual delivery
to the Fund.
Page 7
CERTAIN RISK CONSIDERATIONS REGARDING THE STATE OF NEW YORK AND NEW
YORK CITY. You should consider carefully the special risks inherent in
investing in New York Municipal Obligations. These risks result from the
financial condition of New York State, certain of its public bodies and
municipalities, and New York City. Beginning in early 1975, New York State,
New York City and other State entities faced serious financial difficulties
which jeopardized the credit standing and impaired the borrowing abilities of
such entities and contributed to high interest rates on, and lower market
prices for, debt obligations issued by them. A recurrence of such financial
difficulties or a failure of certain financial recovery programs could result
in defaults or declines in the market values of various New York Municipal
Obligations in which the Fund may invest. If there should be a default or
other financial crisis relating to New York State, New York City, a State or
City agency, or a State municipality, the market value and marketability of
outstanding New York Municipal Obligations in the Fund's portfolio and the
interest income to the Fund could be adversely affected. Moreover, the
national recession and the significant slowdown in the New York and regional
economies in the early 1990s added substantial uncertainty to estimates of
the State's tax revenues, which, in part, caused the State to incur
cash-basis operating deficits in the General Fund and issue deficit notes
during the fiscal periods 1989 through 1992. The State's financial operations
have improved during recent fiscal years, although there can be no assurance
that new York will not face substantial budget gaps in future years. The bond
ratings of various state general obligation and agency debt, state moral
obligations, contractual obligations, lease purchase obligations and state
guarantees have been lowered in the past, reflecting the rating agencies'
concerns about the financial condition of New York State and City, the heavy
debt load of the State and City, and economic uncertainties in the region.
You should obtain and review a copy of the SAI which more fully sets forth
these and other risk factors. Other considerations relating to the Fund's
investments in New York Municipal Obligations are summarized in the SAI.
LIMITING INVESTMENT RISKS AND CERTAIN RISK CONSIDERATIONS. The Fund
is subject to a number of investment limitations. Certain limitations are
matters of fundamental policy and may not be changed without the affirmative
vote of the holders of a majority of the Fund's outstanding shares. The SAI
describes all of the Fund's fundamental and non-fundamental investment
restrictions.
The investment objective, policies, restrictions, practices and
procedures of the Fund, unless otherwise specified, may be changed without
shareholder approval. If the Fund's investment objective, policies,
restrictions, practices or procedures change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to permit the sale of the Fund's shares in certain states,
the Fund may make commitments more restrictive than the investment policies
and restrictions described in this Prospectus and the SAI. Should the Fund
determine that any such commitment is no longer in the best interests of the
Fund, it may consider terminating sales of its shares in the states involved.
The Fund is classified as a "non-diversified" investment company, as
defined under the 1940 Act, and therefore, the Fund could invest all of its
assets in the obligations of a single issuer or relatively few issuers.
However, the Fund intends to conduct its operations so that it will qualify
under the Internal Revenue Code of 1986 (the "Code") as a "regulated
investment company." To continue to qualify, among other requirements, the
Fund will be required to limit its investments so that, at the close of each
quarter of the taxable year, with respect to at least 50% of its total
assets, not more than 5% of such assets will be invested in the securities of
a single issuer. In addition, not more than 25% of the value of the Fund's
total assets may be invested in the securities of a single issuer at the
close of each quarter of the taxable year. The provisions of the Code place
limits on the extent to which the Fund's portfolio may be non-diversified.
The ability of the Fund to meet its investment objective is subject
to the ability of municipal issuers to meet their payment obligations. In
addition, Fund's portfolio will be affected by general changes in interest
Page 8
rates which may result in increases or decreases in the value of Fund
holdings. Investors should recognize that, in periods of declining interest
rates, the Fund's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates, the Fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the influx
of new money to the Fund will likely be invested in portfolio instruments
producing lower yields than the balance of the Fund's portfolio, thereby
reducing the Fund's current yield. In periods of rising interest rates, the
opposite can be expected to occur.
The Fund may invest without limit in New York Municipal Obligations
which are repayable out of revenue streams generated from economically
related projects or facilities or whose issuers are located in New York
State. Sizable investments in these obligations could increase risk to the
Fund should any of the related projects or facilities experience financial
difficulties. To the extent the Fund may invest in private activity bonds,
the Fund may invest only up to 5% of its total assets in bonds where payment
of principal and interest are the responsibility of a company with less than
three years operating history.
MASTER/FEEDER OPTION. The Trust may in the future seek to achieve the
Fund's investment objective by investing all of the Fund's assets in another
investment company having the same investment objectives and substantially
the same investment policies and restrictions as those applicable to the
Fund. Shareholders of the Fund will be given at least 30 days' prior notice
of any such investment. Such investment would be made only if the Trustees
determine it to be in the best interest of the Fund and its shareholders. In
making that determination, the Trustees will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although the Fund believes that the
Trustees will not approve an arrangement that is likely to result in higher
costs, no assurance is given that costs will be materially reduced if this
option is implemented.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER. Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was formed in 1947. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of January 31, 1996, Dreyfus managed or administered
approximately $82 billion in assets for more than 1.7 million investor
accounts nationwide.
Dreyfus serves as the Fund's investment manager pursuant to an
Investment Management Agreement with the Fund dated December 8, 1995 (the
"Investment Management Agreement"). Prior thereto, Dreyfus provided
investment advisory services to the Fund pursuant to a prior investment
management agreement (the "Prior Management Agreement"). Under the Investment
Management Agreement, Dreyfus, subject to the overall authority of the Board
of Trustees of The Trust in accordance with Massachusetts law, supervises and
assists in the overall management of the Fund's affairs. Pursuant to the
Investment Management Agreement, Dreyfus provides, or arranges for one or
more third parties to provide, investment advisory, administrative, custody,
fund accounting and transfer agency services to the Fund. As the Fund's
investment manager, Dreyfus manages the Fund by making investment decisions
based on the Fund's investment objective, policies and restrictions.
Under the terms of the Prior Management Agreement, which was
terminated on December 8, 1995, the Fund agreed to pay Dreyfus a fee,
computed daily and paid monthly, at the annual rate of .35% of the Fund's
average daily net assets. Under the Investment Management Agreement, the Fund
pays a fee, computed daily and paid monthly, at the annual rate of .45% of
the Fund's average daily net assets less certain expenses described below.
Dreyfus has agreed to limits its management fee, or to reimburse the Fund for
its expenses, in order to ensure that the Fund's total operating expenses do
not exceed .35% of the Fund's average daily net assets for the period from
December 8, 1995 through December 7, 1996. In addition, the Investment
Management Agreement provides that certain redemption, exchange and account
closeout charges are payable directly by the Fund's shareholders to the
Fund's transfer agent and that the fee payable by the Fund to Dreyfus is not
reduced by the amount of these charges payable to the transfer agent. Under
Page 9
the Investment Management Agreement, Dreyfus pays all of the expenses of the
Fund except brokerage fees, taxes, interest, Rule 12b-1 fees (if applicable)
and extraordinary expenses. From time to time, Dreyfus may waive (either
voluntarily or pursuant to applicable state limitations) additional
investment management fees payable by the Fund. From April 4, 1994 to October
17, 1994, the Fund was advised by Mellon Bank under the Prior Management
Agreement.
For the fiscal year ended June 30, 1995, the Fund paid Mellon Bank or
Dreyfus .35% of its average daily net assets in investment management fees,
less fees and expenses of the non-interested Trustees (including counsel
fees) pursuant to the Prior Management Agreement.
For the fiscal year ended June 30, 1995, total operating expenses
(excluding Rule 12b-1 fees) of the Fund were 0.35% of the Fund's average
daily net assets.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Bank Holding Company
Act of 1956, as amended. Mellon provides a comprehensive range of financial
products and services in domestic and selected international markets. Mellon
is among the twenty-five largest bank holding companies in the United States
based on total assets. Mellon's principal wholly-owned subsidiaries are
Mellon Bank, Mellon Bank (DE) National Association, Mellon Bank (MD), The
Boston Company, Inc., AFCO Credit Corporation and a number of companies known
as Mellon Financial Services Corporations. Through its subsidiaries,
including Dreyfus, Mellon managed approximately $233 billion in assets as of
December 31, 1995, including $81 billion in mutual fund assets. As of
December 31, 1995, Mellon, through various subsidiaries, provided
non-investment services, such as custodial or administration services, for
more than $786 billion in assets, including approximately $60 billion in
mutual fund assets.
In allocating brokerage transactions for the Fund, Dreyfus seeks to
obtain the best execution of orders at the most favorable net price. Subject
to this determination, Dreyfus may consider, among other things, the receipt
of research services and/or the sale of shares of the Fund or other funds
managed, advised or administered by Dreyfus as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund. See "Portfolio
Transactions" in the SAI.
Dreyfus may pay the distributor for shareholder services from
Dreyfus' 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 or others in respect of these services.
Dreyfus is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the
case of agency transactions, financial institutions that are affiliated with
Dreyfus or Mellon Bank or that have sold shares of the Fund, if Dreyfus
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From
time to time, to the extent consistent with its investment objective, policies
and restrictions, the Fund may invest in securities of companies with which
Mellon Bank has a lending relationship.
DISTRIBUTOR. The Fund's distributor is Premier Mutual Fund Services,
Inc. (the "Distributor"). The Distributor is located at One Exchange Place,
Boston, Massachusetts 02109. The Distributor is a wholly-owned subsidiary of
FDI Distribution Services, Inc., a provider of mutual fund administration
services, which in turn is a wholly-owned subsidiary of FDI Holding Inc., the
parent company of which is Boston Institutional Group, Inc.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, AND
SUB-ADMINISTRATOR. Mellon Bank (One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258) is the Funds' custodian. Dreyfus Transfer, Inc. (One
American Express Plaza, Providence, Rhode Island 02903), a wholly-owned
subsidiary of Dreyfus, serves as the Fund's Transfer and Dividend Disbursing
Agent (the "Transfer Agent"). The Transfer Agent will receive the $5.00
exchange fee, the $5.00 account closeout fee, the
Page 10
$5.00 wire and Dreyfus TELETRANSFER redemption fees and the $2.00 checkwriting
charge, described below. A sufficient number of your shares will be redeemed
automatically to pay these amounts. These payments will not reduce the
management fee payable by the Fund to Dreyfus. By purchasing Fund shares, you
are deemed to have consented to this procedure. Premier Mutual Fund Services,
Inc. is the Fund's sub-administrator and, pursuant to a Sub-Administration
Agreement with Dreyfus, provides various administrative and corporate
secretarial services to the Fund.
HOW TO BUY FUND SHARES
GENERAL. You can purchase Fund shares without a sales charge if you
purchase them directly from the Distributor; you may be charged a nominal fee
if you effect transactions in Fund shares through a securities dealer or
broker, bank or other financial institution (collectively, "Agents"). 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 $25,000. The Fund may waive its
minimum initial investment requirement for new Fund accounts opened through
an Agent whenever Dreyfus Institutional Services Division ("DISD") determines
for the initial account opened through such Agent which is below the Fund's
minimum initial investment requirement that the existing accounts in the Fund
opened through that Agent have an average account size, or the Agent has
adequate intent and access to funds to result in maintenance of accounts in
the Fund opened through that Agent with an average account size, in an amount
equal to or in excess of $25,000. DISD will periodically review the average
size of the accounts opened through each Agent and, if necessary, to
reevaluate the Agent's intent and access to funds. DISD will discontinue the
waiver as to new accounts to be opened through an Agent if DISD determines
that the average size of accounts opened through that Agent is less than
$25,000 and the Agent does not have the requisite intent and access to funds.
Subsequent investments must be at least $1,000 (or at least $100 in the case
of persons who have held Fund shares as of December 8, 1995). The initial
investment must be accompanied by the Fund's Account Application.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds." Payments to open new accounts which are mailed
should be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence,
Rhode Island 02940-9387, together with your Account Application. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. Neither initial nor
subsequent investments should be made by third party check. Purchase orders
may be delivered in person only to a Dreyfus Financial Center. THESE ORDERS
WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY.
For the location of the nearest Dreyfus Financial Center, please call the
telephone number listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to Boston Safe Deposit and Trust Company, DDA # 043419
Dreyfus BASIC New York Municipal Money Market Fund, for purchase of Fund
shares in your name. The wire must include your Fund account number (for new
accounts, your Taxpayer Identification Number ("TIN") should be included
instead), account registration and dealer number, if applicable. If your
initial purchase of Fund shares is by wire, you should call 1-800-645-6561
after completing your wire payment in order to obtain your Fund account
number. Please include your Fund account number on the Fund's Account
Application and promptly mail the Account Application to the Fund, as no
redemptions will be permitted until the Account Application is
Page 11
received. You
may obtain further information about remitting funds in this manner from your
bank. All payments should be made in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. A charge will be imposed if any
check used for investment in your account does not clear. The Fund makes
available to certain large institutions the ability to issue purchase
instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House ("ACH") member. You must
direct the institution to transmit immediately available funds through the
ACH System to Boston Safe Deposit and Trust Company with instructions to
credit your Fund account. The instructions must specify your Fund account
registration and Fund account number PRECEDED BY THE DIGITS "4780".
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Other Distributions and
Taxes" and the Fund's Account Application for further information concerning
this requirement. Failure to furnish a certified TIN to the Fund could
subject you to a $50 penalty imposed by the Internal Revenue Service (the
"IRS").
NET ASSET VALUE PER SHARE ("NAV"). An investment portfolio's NAV
refers to the worth of one share. The NAV for Fund shares, which are offered
on a continuous basis, is calculated on the basis of amortized cost, which
involves initially valuing a portfolio instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Fund intends to maintain a constant NAV of $1.00,
although there is no assurance that this can be done on a continuing basis.
The offering price of Fund shares is their NAV. Investments and
requests to exchange or redeem shares received by the Fund before 4 p.m.,
Eastern time, on each day that the New York Stock Exchange is open (a
"business day") are effective on, and will receive the price next determined,
that business day. The NAV of the Fund is calculated two times each business
day, at 12 noon and 4 p.m., Eastern time. Investment, exchange or redemption
requests received after 4 p.m., Eastern time are effective on, and receive
the first share price determined, the next business day.
DREYFUS TELETRANSFER PRIVILEGE. You may purchase Fund shares (minimum
$1,000 and maximum $150,000 per day) without charge by telephone if you have
checked the appropriate box and supplied the necessary information on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your Fund account. Only a bank
account maintained in a domestic financial institution which is an ACH member
may be so designated. The Fund may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders. No fee is
contemplated for purchases of Fund shares pursuant to this Privilege.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-645-6561 or, if calling from overseas, 516-794-5452.
FUND EXCHANGES
You may purchase, in exchange for shares of the Fund, (a) shares
(however the same may be named), of other funds managed or administered by
Dreyfus which you would otherwise be eligible to purchase; (b) shares of
funds managed or administered by Dreyfus which do not have separate share
classes; and (c) shares of other funds specified from time to time, to the
extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, please call 1-800-645-6561 to determine if
it is available and whether any conditions are imposed on its use. YOU WILL
BE CHARGED A $5.00 FEE FOR EACH EXCHANGE YOU MAKE OUT OF THE FUND (UNLESS YOU
HAVE HELD FUND SHARES AS OF DECEMBER 8, 1995). This fee will be deducted from
your account and paid to the Transfer Agent.
Page 12
To request an exchange, you or your Agent acting on your behalf must
give exchange instructions to the Transfer Agent in writing or by telephone.
Before any exchange, you must obtain and should review a copy of the current
prospectus of the fund into which the exchange is being made. Prospectuses
may be obtained by calling 1-800-645-6561. The shares being exchanged must
have a current value of at least $500; furthermore, when establishing a new
account by exchange, the shares being exchanged must have a value of at least
the minimum initial investment required for the fund into which the exchange
is being made. The ability to issue exchange instructions by telephone is
given to all Fund shareholders automatically, unless you check the relevant
"No" box on the Account Application, indicating that you specifically refuse
this Privilege. The Telephone Exchange Privilege may be established for an
existing account by written request, signed by all shareholders on the
account, or by a separate Shareholder Services Form, also available by
calling 1-800-645-6561. If you previously have established the Telephone
Exchange Privilege, you may telephone exchange instructions by calling
1-800-645-6561 or, if calling from overseas, 516-794-5452. See "How to Redeem
Fund Shares_Procedures." Upon an exchange, the following shareholder services
and privileges, as applicable and where available, will be automatically
carried over to the fund into which the exchange is made: Telephone Exchange
Privilege, Check Redemption Privilege, Wire Redemption Privilege, Telephone
Redemption Privilege, Dreyfus TELETRANSFER Privilege and the dividends and
distributions payment option (except for Dividend Sweep) selected by the
investor.
Shares will be exchanged at the next determined NAV; however, a sales
load may be charged with respect to exchanges into funds sold with a sales
load. If you are exchanging into a fund that charges a sales load, you may
qualify for share prices which do not include the sales load or which reflect
a reduced sales load, if the shares of the fund from which you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous exchange
from shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or other distributions paid with respect to the foregoing
categories of shares. To qualify, at the time of the exchange you must notify
the Transfer Agent or your Agent must notify the Distributor. Any such
qualification is subject to confirmation of your holdings through a check of
appropriate records. See "Fund Exchanges" in the SAI. The Fund reserves the
right to reject any exchange request in whole or in part. The availability of
fund exchanges may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
HOW TO REDEEM FUND SHARES
GENERAL. You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined NAV as described below.
YOU WILL BE CHARGED $5.00 WHEN YOU REDEEM ALL SHARES IN YOUR ACCOUNT
OR YOUR ACCOUNT IS OTHERWISE CLOSED OUT (UNLESS YOU HAVE HELD FUND SHARES AS
OF DECEMBER 8, 1995). The fee will be deducted from your redemption proceeds
and paid to the Transfer Agent. The account closeout fee does not apply to
exchanges out of the Fund or to wire or Dreyfus TELETRANSFER redemptions, for
each of which a $5.00 fee applies. Agents may charge a nominal fee for
effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request. The
value of the shares redeemed may be more or less than their original cost,
depending upon the Fund's then current NAV.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the SEC. HOWEVER, IF YOU HAVE
PURCHASED FUND SHARES BY CHECK OR BY THE DREYFUS TELETRANSFER PRIVILEGE
Page 13
AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE DREYFUS TRANSFER
AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK
CLEARANCE OF YOUR PURCHASE CHECK OR DREYFUS TELETRANSFER PURCHASE ORDER,
WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL
NOT HONOR REDEMPTION CHECKS UNDER THE CHECK REDEMPTION PRIVILEGE, AND WILL
REJECT REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE
DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK OR THE DREYFUS
TELETRANSFER PURCHASE ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE
PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR
IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER
THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE,
DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED
TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if the net asset value of your account
is $10,000 or less ($500 or less in the case of Fund shareholders as of
December 8, 1995) and remains at or below such amount during the notice
period. The $5.00 account closeout fee would be charged in such case.
PROCEDURES. You may redeem Fund shares by using the regular
redemption procedure through the Transfer Agent, the Check Redemption
Privilege, the Wire Redemption Privilege, the Telephone Redemption Privilege
or through the Dreyfus TELETRANSFER Privilege. Other redemption procedures
may be in effect for clients of certain Agents and institutions. The Fund
makes available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or Telephone Exchange Privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Agent, and reasonably believed by the Transfer Agent
to be genuine. The Fund will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or an exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used.
REGULAR REDEMPTION. Under the regular redemption procedure, you may
redeem your shares by written request mailed to The Dreyfus Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671. Redemption requests may
be delivered in person only to a Dreyfus Financial Center. THESE REQUESTS
WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT
THEREBY. For the location of the nearest financial center, please call the
telephone number listed under "General Information." Redemption requests must
be signed by each shareholder, including each owner of a joint account, and
each signature must be guaranteed. The Transfer Agent has adopted standards
and procedures pursuant to which signature-guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit
unions, national 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
Page 14
Stock Exchanges Medallion Program. For more information with respect to
signature-guarantees, please call the telephone number listed under "General
Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE. You may request on the Account
Application, Shareholder Services Form or by later written request that the
Fund provide Redemption Checks drawn on the Fund's account. Redemption Checks
may be made payable to the order of any person in the amount of $500 or more.
Redemption Checks should not be used to close your account. Your account will
be charged $2.00 for each Redemption Check you write (unless you have held
Fund shares as of December 8, 1995). In addition, the Transfer Agent will
impose a fee for stopping payment of a Redemption Check upon your request or
if the Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. The Fund may return an unpaid Redemption Check
that would draw your account balance below $5.00 and you may be subject to
extra charges. You should date your Redemption Checks with the current date
when you write them. Please do not postdate your Redemption Checks. If you
do, the Transfer Agent will honor, upon presentment, even if presented before
the date of the check, all postdated Redemption Checks which are dated within
six months of presentment for payment, if they are otherwise in good order.
Shares for which certificates have been issued may not be redeemed by
Redemption Check. This Privilege may be modified or terminated at any time by
the Fund or the Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE. You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. You will be charged a $5.00 wire redemption fee for
each wire redemption (unless you have held Fund shares as of December 8,
1995), which will be deducted from your account and paid to the Transfer
Agent. To establish the Wire Redemption Privilege, you must check the
appropriate box and supply the necessary information on the Fund's Account
Application or file a Shareholder Services Form with the Transfer Agent. You
may direct that redemption proceeds be paid by check (maximum $150,000 per
day) made out to the owners of record and mailed to your address. Redemption
proceeds of less than $1,000 will be paid automatically by check. Holders of
jointly registered Fund or bank accounts may have redemption proceeds of only
up to $250,000 wired within any 30-day period. You may telephone redemption
requests by calling 1-800-645-6561 or, if calling from overseas,
516-794-5452. The Fund reserves the right to refuse any redemption request,
including requests made shortly after a change of address, and may limit the
amount involved or the number of such requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund. The
Fund's SAI sets forth instructions for transmitting redemption requests by
wire. Shares for which certificates have been issued are not eligible for
this Privilege.
TELEPHONE REDEMPTION PRIVILEGE. You may redeem Fund shares (maximum
$150,000 per day) by telephone if you checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if calling from overseas, 516-794-5452. The Fund reserves
the right to refuse any request made by telephone, including requests made
shortly after a change of address, and may limit the amount involved or the
number of such requests. This Privilege may be modified or terminated at any
time by the Transfer Agent or the Fund. Shares for which certificates have
been issued are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE. You may redeem Fund shares (minimum
$1,000 per day) by telephone if you have checked the appropriate box and
supplied the necessary information on the Fund's Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The
Page 15
proceeds will be transferred between your Fund account and the bank account
designated in one of these documents. Only such an account maintained in a
domestic financial institution which is an ACH member may be so designated.
Redemption proceeds will be on deposit in your account at an ACH member bank
ordinarily two days after receipt of the redemption request or, at your
request, paid by check (maximum $150,000 per day) and mailed to your address.
Holders of jointly registered Fund or bank accounts may redeem through the
Dreyfus TELETRANSFER Privilege for transfer to their bank account only up to
$250,000 within any 30-day period. The Fund reserves the right to refuse any
request made by telephone, including requests made shortly after a change of
address, and may limit the amount involved or the number of such requests. The
Fund may modify or terminate this Privilege at any time. Your account will be
charged $5.00 for each redemption effected pursuant to this Privilege (unless
you have held Fund shares as of December 8, 1995).
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-645-6561 or, if calling from overseas, 516-794-5452. Shares issued in
certificate form are not eligible for this Privilege.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its yield and
tax-equivalent yield. YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. It
can be expected that these yield figures will fluctuate substantially.
The Fund's "yield" refers to the income generated by an investment in
the Fund's over a seven-day period identified in the advertisement. This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly, but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The Fund's "yield" and "effective yield" may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time, or other
investment companies which may use a different method of computing yield. The
Fund's tax-equivalent yield shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield by the amount necessary to reflect the payment of
federal income tax (and state income tax, if applicable) at a stated tax
rate.
Any fees charged by an Agent directly to its customers' account in
connection with investments in the Fund will not be included in calculations
of yield.
The Fund may compare its performance with various industry standards
of performance including Lipper Analytical Services, Inc. ratings.
Performance rankings as reported in CHANGING TIMES, BUSINESS WEEK,
INSTITUTIONAL INVESTOR, THE WALL STREET JOURNAL, IBC/DONOGHUE'S MONEY FUND
REPORT, MUTUAL FUND FORECASTER, NO LOAD INVESTOR, MONEY MAGAZINE, MORNINGSTAR
MUTUAL FUND VALUES, U.S. NEWS AND WORLD REPORT, FORBES, FORTUNE, BARRON'S and
similar publications may also be used in comparing the Fund's performance.
Furthermore, the Fund may quote its yields in advertisements or in
shareholder reports.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Fund declares daily and pays monthly (on the first business day
of the following month) dividends from its net investment income, if any, and
distributes any net long-term capital gains on an annual basis. The Board of
Trustees may elect not to distribute capital gains in whole or in part to take
Page 16
advantage of capital loss carryovers.
Unless you choose to receive dividend and/or capital gains
distributions in cash, your distributions will be automatically reinvested in
additional Fund Shares at NAV. You may change the method of receiving
distributions at any time by writing to the Fund. Checks which are sent to
shareholders who have requested distributions to be paid in cash and which
are subsequently returned by the United States Postal Service as not
deliverable or which remain uncashed for six months or more will be
reinvested in additional Fund shares in the shareholder's account at the then
current NAV. Subsequent Fund distributions will be automatically reinvested
in additional Fund shares in the shareholder's account.
Shares purchased on a day on which the Fund calculates its NAV will
not begin to accrue dividends until the following business day. Except as
provided below, redemption orders effected on any particular day will receive
all dividends declared through the day of redemption. However, if immediately
available funds are received by the Transfer Agent prior to 12:00 noon,
Eastern time, you may receive the dividend declared on the day of purchase.
You will not receive the dividends declared on the day of redemption if the
redemption order is placed prior to 12:00 noon, Eastern time.
It is expected that the Fund will qualify for treatment as a
regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that is distributed to its shareholders. In
addition, the Fund intends to continue to qualify to pay "exempt-interest"
dividends, which requires, among other things, that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
must consist of municipal securities.
Dividends from the Fund's investment company taxable income are
taxable to you as ordinary income, to the extent of the Fund's earnings and
profits. Distributions by the Fund that are designated by it as
"exempt-interest dividends" generally may be excluded by you from your gross
income. Distributions by the Fund of net capital gain, when designated as
such, are taxable to you as long-term capital gains, regardless of the length
of time you have owned your shares.
Interest on indebtedness incurred or continued to purchase or carry
shares of the Fund will not be deductible for Federal income tax purposes to
the extent that the Fund's distributions (other than capital gains
distributions) consist of exempt-interest dividends. The Fund may invest in
"private activity bonds," the interest on which is treated as a tax
preference item for shareholders in determining their liability for the
alternative minimum tax. Proposals may be introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal securities. If such a proposal were enacted, the
availability of such securities for investment by the Fund and the value of
its portfolio would be affected. In such event, the Fund would reevaluate its
investment objective and policies.
Dividends and other distributions, to the extent taxable, are taxable
to you regardless of whether they are received in cash or reinvested in
additional Fund shares, even if the value of your shares is below your cost.
If you purchase shares shortly before a taxable distribution (i.e., any
distribution other than an exempt-interest dividend paid by the Fund), you
must pay income taxes on the distribution, even though the value of your
investment (plus cash received, if any) remains the same. In addition, the
share price at the time you purchase shares may include unrealized gains in
the securities held in the Fund. If these portfolio securities are
subsequently sold and the gains are realized, they will, to the extent not
offset by capital losses, be paid to you as a capital gain distribution and
will be taxable to you.
In January of each year, the Fund will send you a Form 1099-DIV
notifying you of the status for Federal income tax purposes of your
distributions for the preceding year. The Fund also will advise shareholders
of the percentage, if any, of the dividends paid by the Fund that are exempt
from Federal
Page 17
income tax and the portion, if any, of those dividends that is a tax
preference item for purposes of the alternative minimum tax.
You must furnish the Fund with your taxpayer identification number
("TIN") and state whether you are subject to withholding for prior
under-reporting, certified under penalties of perjury as prescribed by the
Code and the regulations thereunder. Unless previously furnished, investments
received without such a certification will be returned. The Fund is required
to withhold a portion of all dividends, capital gains distributions and
redemption proceeds payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct TIN; withholding from
dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
In addition, in order to avoid the application of a 4% nondeductible
excise tax on certain undistributed amounts of ordinary income and capital
gains, the Fund may make an additional distribution shortly before December
31 in each year of any undistributed ordinary (taxable) income or capital
gains and expects to pay any other dividends and distributions necessary to
avoid the application of this tax.
The foregoing is only a summary of some of the important tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a further discussion. There may be other federal, state or local tax
considerations applicable to a particular investor; for example, the Fund's
dividends may be wholly or partly taxable under state and/or local laws. You
therefore are urged to consult your own tax adviser.
GENERAL INFORMATION
The Trust offers shares of beneficial interest of separate investment
portfolios without par value (each a "fund"). The Trust was organized as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts on March 28, 1983 under the name The Boston Company Tax-Free
Municipal Funds, changed its name to The Laurel Tax-Free Municipal Funds on
March 31, 1994, and changed its name again to The Dreyfus/Laurel Tax-Free
Municipal Funds on October 17, 1994. The Trust is registered with the SEC as
an open-end management investment company, commonly known as a mutual fund.
On December 6, 1995, Fund shareholders approved the Investment
Management Agreement which replaced the Prior Management Agreement, effective
December 8, 1995. The Investment Management Agreement provides that certain
transaction charges be imposed directly on Fund shareholders. See "How to Buy
Fund Shares," "Fund Exchanges" and "How to Redeem Fund Shares." Also
effective December 8, 1995, the Fund's "Investor" and "Class R" designations
were eliminated and the Fund became a single class fund and the Fund's name
changed from Dreyfus/Laurel New York Tax-Free Money Fund to Dreyfus BASIC New
York Municipal Money Market Fund.
Each share (regardless of class) has one vote. All shares of all
funds (and classes thereof) vote together as a single class, except as to any
matter for which a separate vote of any fund or class is required by the 1940
Act, and except as to any matter which affects the interests of one or more
particular funds or classes, in which case only the shareholders of the
affected funds or classes are entitled to vote, each as a separate class.
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 Trustees or the
appointment of auditors. However, pursuant to the Trust's By-Laws, the
holders of at least 10% of the shares outstanding and entitled to vote may
require the Trust to hold a special meeting of shareholders for purposes of
removing a Trustee from office and for any other purpose. Trust shareholders
may remove a Trustee by the affirmative vote of two-thirds of the Trust's
outstanding voting shares. In
Page 18
addition, the Board of Trustees will call a meeting of shareholders for the
purpose of electing Trustees if, at any time, less than a majority of the
Trustees then holding office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and will send
you confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 19
BASIC New York Municipal Money Market Fund
Prospectus
Copy Rights 1996 Dreyfus Service Corporation
316/716p082696
Registration Mark
Page 20
PROSPECTUS FEBRUARY 29, 1996
AS REVISED AUGUST 26,1996
DREYFUS BASIC CALIFORNIA MUNICIPAL MONEY MARKET FUND
THE DREYFUS BASIC CALIFORNIA MUNICIPAL MONEY MARKET FUND (FORMERLY,
THE DREYFUS/LAUREL CALIFORNIA TAX-FREE MONEY FUND) (THE "FUND") IS A
SEPARATE, NON-DIVERSIFIED PORTFOLIO OF THE DREYFUS/LAUREL TAX-FREE MUNICIPAL
FUNDS (FORMERLY, THE LAUREL TAX-FREE MUNICIPAL FUNDS AND PREVIOUSLY, THE
BOSTON COMPANY TAX-FREE MUNICIPAL FUNDS) (THE "TRUST"), AN OPEN-END
MANAGEMENT INVESTMENT COMPANY KNOWN AS A MUTUAL FUND. THE FUND SEEKS TO
PROVIDE A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL AND STATE OF
CALIFORNIA PERSONAL INCOME TAXES TO THE EXTENT CONSISTENT WITH THE
PRESERVATION OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY BY INVESTING IN HIGH
QUALITY, SHORT-TERM MUNICIPAL SECURITIES.
SHARES OF THE FUND ARE SOLD WITHOUT A SALES LOAD.
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING THE DREYFUS
TELETRANSFER PRIVILEGE.
THE DREYFUS CORPORATION SERVES AS THE FUND'S INVESTMENT MANAGER. THE
DREYFUS CORPORATION IS REFERRED TO AS "DREYFUS."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
-------------------------
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ CAREFULLY BEFORE YOU
INVEST AND RETAINED FOR FUTURE REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED FEBRUARY 29,
1996 (AS REVISED AUGUST 26, 1996), WHICH MAY BE REVISED FROM TIME TO TIME,
PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER
MATTERS WHICH MAY BE OF INTEREST TO SOME INVESTORS. IT HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") AND IS INCORPORATED HEREIN BY
REFERENCE. FOR A FREE COPY, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
-------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
ALL MONEY MARKET FUNDS INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THE FEES TO WHICH THE FUND IS SUBJECT ARE SUMMARIZED IN THE "EXPENSE
SUMMARY" SECTION OF THE FUND'S PROSPECTUS. THE FUND PAYS AN AFFILIATE OF
MELLON BANK, N.A. ("MELLON BANK") TO BE ITS INVESTMENT MANAGER. MELLON BANK
OR AN AFFILIATE MAY BE PAID FOR PERFORMING OTHER SERVICES FOR THE FUND, SUCH
AS CUSTODIAN, TRANSFER AGENT OR FUND ACCOUNTANT SERVICES. THE FUND IS
DISTRIBUTED BY PREMIER MUTUAL FUND SERVICES, INC.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
EXPENSE SUMMARY................................. 4
FINANCIAL HIGHLIGHTS............................ 5
DESCRIPTION OF THE FUND......................... 6
MANAGEMENT OF THE FUND.......................... 9
HOW TO BUY FUND SHARES.......................... 11
FUND EXCHANGES.................................. 12
HOW TO REDEEM FUND SHARES....................... 13
PERFORMANCE INFORMATION......................... 16
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES........ 17
GENERAL INFORMATION............................. 18
Page 2
[This Page Intentionally Left Blank]
Page 3
EXPENSE SUMMARY
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C>
Exchange Fee................................................... $5.00
Account Closeout Fee........................................... $5.00
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
Management Fee (after expense reimbursement)................... .35%
Other Expenses (after expense reimbursement)................... .00%
Total Fund Operating Expenses (after expense reimbursement).... .35%
</TABLE>
<TABLE>
EXAMPLE:
You would pay the following expenses
on a $1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
time period:
<S> <C> <C>
1 YEAR $ 9
3 YEARS $ 16
5 YEARS $ 25
10 YEARS $ 49
</TABLE>
- ------------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE
FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER
OR LESS THAN 5%.
- ------------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding
the various costs and expenses that investors will bear, directly or
indirectly, the payment of which will reduce investors' return on an annual
basis. Effective November 20, 1995, the Fund's "Investor" and "Class R"
designations were eliminated and the Fund became a single class fund. The
information in the foregoing table has been restated to reflect the
termination of the Fund's distribution plan (the "Distribution Plan") adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"), effective as of November 20, 1995, which was attributable
only to its then existing Investor shares. Effective November 20, 1995, the
Fund adopted a new Investment Management Agreement pursuant to which it pays
Dreyfus a fee at the annual rate of .45 of 1% of the value of the Fund's
average daily net assets. Dreyfus has agreed until November 19, 1996, to
limit its fee, or to reimburse the Fund for its expenses, in order to ensure
that the Fund's total fund operating expenses do not exceed .35 of 1% of the
value of the Fund's average daily net assets. The expenses noted above,
without reimbursement, would be: Management Fees_.45%; Other Expenses_.00%;
and Total Fund Operating Expenses_.45%; and the amount of expenses that an
investor would pay, assuming redemption after one, three, five and ten years,
would be $10, $19, $30 and $62, respectively. In addition, unlike certain
other funds in the Dreyfus Family of Funds, the Fund will charge your account
$2.00 for each redemption check you write; you also will be charged $5.00 for
each wire redemption you make and a $5.00 account closeout fee. These charges
will be paid to the Fund's transfer agent. See "How to Buy Fund Shares" and
"How to Redeem Fund Shares."
Page 4
FINANCIAL HIGHLIGHTS
The following tables are based upon a single share outstanding
throughout each year or period and should be read in conjunction with the
financial statements and related notes that appear in the Fund's Annual
Report dated June 30, 1995, which is incorporated by reference into the SAI.
The financial statements and related notes, as well as the information in the
tables below insofar as it relates to the fiscal
period or year ended June 30, 1994 and June 30, 1995, have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in
the Fund's Annual Report. The information in the tables below for the years
or periods prior to the fiscal period ended June 30, 1994, has been audited
by other independent auditors.
DREYFUS BASIC CALIFORNIA MUNICIPAL MONEY MARKET FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR OR PERIOD.*
<TABLE>
PERIOD Ended YEAR Ended
YEAR OR PERIOD ENDED NOVEMBER 30, JUNE 30 JUNE 30,
--------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994# 1995##
------ ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.033 0.060 0.056 0.046 0.031 0.023 0.012 0.031
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.033) (0.06) (0.05) (0.046) (0.031) (0.023) (0.012) (0.031)
------ ------ ------ ------ ------ ------ ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ======= =======
TOTAL RETURN............. 3.39% 6.18% 5.75% 4.65% 3.10% 2.41% 1.25% 3.10%
====== ====== ====== ====== ====== ====== ======= =======
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's)....... $9,112 $15,745 $27,493 $27,831 $26,987 $15,490 $17,170 $15,538
Ratio of expenses to
average net assets 0.67%** 0.32% 0.32% 0.32% 0.32% 0.32% 0.47%** 0.60%
Ratio of net investment income to
average net assets 4.55%** 6.02% 5.58% 4.57% 3.03% 2.40% 2.11%** 3.07%
- ----------------------------------
* The Fund commenced operations on March 2, 1988. On February 1, 1993,
existing shares of the Fund were designated the Retail Class and the Fund
began offering the Institutional Class and Investment Class of shares.
Effective April 4, 1994, the Retail and Institutional Classes of Shares
were reclassified as a single class known as the Investor shares and the
Investment Class shares were reclassified as the Trust shares. Effective
October 17, 1994, the Trust shares were redesignated Class R shares.
Effective November 20, 1995, the Fund's "Investor" and "Class R"
designations were eliminated and the Fund became a single class fund
without a class designation. The Financial Highlights for the year ended
June 30, 1995 are based upon an Investor share outstanding. The amounts
shown for the period ended June 30, 1994 were calculated using the
performance of a Retail share outstanding from December 1, 1993 to
April 3, 1994, and the performance of an Investor share outstanding
from April 4, 1994 to June 30, 1994. The Financial Highlights for the
year ended November 30, 1993, and prior periods are based upon a Retail
share outstanding. The Financial Highlights do not reflect the effect of
the termination of the Fund's Distribution Plan or the implementation of
the new Investment Management Agreement, both effective November 20,
1995. See "Management of the Fund -- Investment Manager."
** Annualized.
*** Net investment income per share before waiver of fees and/or reimbursement
of expenses by the investment manager and/or custodian and/or transfer
agent for the period ended June 30, 1994, for the years ended November 30,
1993, 1992, 1991, 1990, 1989, and for the period ended November 30, 1988,
were $0.010, $0.016, $0.026, $0.041, $0.050, $0.053, and $0.028,
respectively.
# The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for this
period since use of the undistributed net investment income method did not
accord with results of operations.
## The Fund changed its fiscal year end to June 30. Prior to this, the Fund's
fiscal year end was November 30. Prior to April 4, 1994, The Boston
Company Advisors, Inc. served as the Fund's investment manager. From
April 4, 1994 through October 16, 1994, Mellon Bank, N.A., served as the
Fund's investment manager.
### Effective October 17, 1994, The Dreyfus Corporation began serving as the
Fund's investment manager.
Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by the investment manager and/or custodian
and/or transfer agent for the period ended June 30, 1994, for the years
ended November 30, 1993, 1992, 1991, 1990, 1989, and for the period ended
November 30, 1988 were 0.85%, 1.08%, 0.83%, 0.78%, 0.93%, 1.01%, and 1.41%,
respectively.
Total return represents aggregate total return for the periods indicated.
</TABLE>
Page 5
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide a high level of current income exempt from
Federal income taxes and State of California personal income taxes to the
extent consistent with the preservation of capital and the maintenance of
liquidity. The Fund seeks to achieve its objective by investing in debt
obligations issued by the State of California, its political subdivisions,
municipalities and public authorities and in municipal obligations issued by
other governmental entities if, in the opinion of counsel to the respective
issuers, the interest from such obligations is excluded from gross income for
Federal and State of California income tax purposes ("California Municipal
Obligations").
Under normal market conditions, the Fund attempts to invest 100%, and
will invest a minimum of 80%, of its total assets in California Municipal
Obligations. When, in the opinion of Dreyfus, adverse market conditions exist
for California Municipal Obligations, and a "defensive" investment posture is
warranted, the Fund may temporarily invest more than 20% of its total assets
in money market instruments having maturity and quality characteristics
comparable to those (discussed below) for California Municipal Obligations,
but which produce income exempt from Federal but not State of California
personal income taxes for resident shareholders of California, or more than
20% of its total assets in taxable obligations (including obligations the
interest on which is included in the calculation of alternative minimum tax
for individuals). Periods when a defensive posture is warranted include those
periods when the Fund's monies available for investment exceed the California
Municipal Obligations available for purchase to meet the Fund's rating,
maturity and other investment criteria. The Fund does not anticipate that it
will find it necessary to make any investments in securities the interest
from which is not exempt from Federal income and the State of California
personal income taxes. The Fund's policy of investing a minimum of 80% of its
total assets in California Municipal Obligations is a fundamental policy of
the Fund.
The Fund pursues its objective by investing in a varied portfolio of
high quality, short-term California Municipal Obligations.
The California Municipal Obligations purchased by the Fund consist
of: (1) municipal bonds; (2) municipal notes; and (3) municipal commercial
paper. The Fund will limit its portfolio investments to securities that, at
the time of acquisition, (i) are rated in the two highest categories by at
least two nationally recognized statistical rating organizations (or by one
organization if only one organization has rated the security), (ii) if not
rated, are obligations of an issuer whose other outstanding short-term debt
obligations are so rated, or (iii) if not rated, are of comparable quality,
as determined by Dreyfus in accordance with procedures established by the
Board of Trustees. The Fund will limit its investments to securities that
present minimal credit risk, as determined by Dreyfus under procedures
established by the Trust's Board of Trustees.
The Fund invests only in securities that have remaining maturities of
thirteen months or less at the date of purchase. Floating rate or variable
rate obligations (described below) which are payable on demand under
conditions established by the SEC may have a stated maturity in excess of
thirteen months; these securities will be deemed to have remaining maturities
of thirteen months or less. The Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less and seeks to maintain a constant net
asset value of $1.00 per share, although there is no assurance it can do so
on a continuing basis.
OTHER INVESTMENT POLICIES AND RISK FACTORS.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The Fund may purchase
floating rate and variable rate obligations. These obligations bear interest
at rates that are not fixed, but vary with changes in specified market rates
or indices. Some of these obligations may carry a demand feature that permits
the Fund to receive the par value upon demand prior to maturity. The Fund may
invest in floating rate and variable rate obligations carrying stated
maturities in excess of thirteen months at the date of purchase if these
Page 6
obligations carry demand features that comply with conditions established by
the SEC. The Fund will limit its purchases of floating rate and variable rate
California Municipal Obligations to those meeting the quality standards
applicable to the Fund. Frequently, such obligations are secured by letters
of credit or other credit support arrangements provided by banks. The quality
of the underlying creditor or the bank, as determined by Dreyfus under the
supervision of the Trustees, must also be equivalent to the quality standards
applicable to the Fund. In addition, Dreyfus monitors the earning power, cash
flow and other liquidity ratios of the issuers of such obligations, as well
as the creditworthiness of the institution responsible for paying the
principal amount of the obligations under the demand feature.
The Fund may invest in participation interests purchased from banks
in floating or variable rate California Municipal Obligations owned by banks.
Participation interests carry a demand feature permitting the Fund to tender
them back to the bank. Each participation is backed by an irrevocable letter
of credit or guarantee of a bank which Dreyfus under the supervision of the
Trustees has determined meets the prescribed quality standards for the Fund.
Other types of tax-exempt instruments that may become available in
the future may be purchased by the Fund as long as Dreyfus believes the
quality of these instruments meets the Fund's quality standards.
OTHER INVESTMENT COMPANIES. The Fund may invest in securities issued
by other investment companies to the extent that such investments are
consistent with its investment objective and policies and permissible under
the 1940 Act. As a shareholder of another investment company, the Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would
be in addition to the advisory and other expenses that the Fund bears
directly in connection with its own operations.
TENDER OPTION BONDS. The Fund may invest up to 10% of the value of
its assets in 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.
Dreyfus, on behalf of the Fund, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying municipal obligation, of any
custodian and the third-party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable
in the event of a default in payment of principal or interest on the
underlying municipal obligation and for other reasons. The Fund will not
invest more than 10% of the value of the Fund's net assets in illiquid
securities, which would include tender option bonds for which the required
notice to exercise the tender feature is more than seven days if there is no
secondary market available for these obligations.
WHEN-ISSUED SECURITIES. The Fund may purchase California Municipal
Obligations on a "when-issued" basis (i.e., delivery of and payment for the
California Municipal Obligations normally take place within 45 days after the
date of the purchase commitment). The payment obligation and the interest
rate on such securities are fixed at the time of the purchase commitment.
Although the Fund generally will purchase California Municipal Obligations on
a when-issued basis with the intention of acquiring the securities, the Fund
may sell such securities before the settlement date. California Municipal
Obligations purchased on a when-issued basis, like other investments made by
the Fund, may decline or appreciate in value prior to their actual delivery
to the Fund.
Page 7
CERTAIN RISK CONSIDERATIONS REGARDING THE STATE OF CALIFORNIA. You
should consider carefully the special risks inherent in the Fund's investment
in California Municipal Obligations. These risks result from certain
amendments to the California Constitution and other statutes that limit the
taxing and spending authority of California governmental entities, as well as
from the general financial condition of the State of California. From
mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. As a result, the
State experienced recurring budget deficits for four of its five fiscal years
ended June 30, 1992. Although subsequent fiscal years have produced, or are
budgeted to produce, operating surpluses, there can be no assurance that
California will not face substantial deficits in the current or future fiscal
years. The rating on the State's general obligation bonds has been reduced in
the past. These and other factors may have the effect of impairing the
ability of the issuers of California Municipal Obligations to pay interest
on, or repay principal of, such Municipal Obligations. You should obtain and
review a copy of the SAI which more fully sets forth these and other risk
factors. Other considerations relating to the Fund's investments in California
Municipal Obligations are summarized in the SAI.
LIMITING INVESTMENT RISKS AND CERTAIN RISK CONSIDERATIONS. The Fund
is subject to a number of investment limitations. Certain limitations are
matters of fundamental policy and may not be changed without the affirmative
vote of the holders of a majority of the Fund's outstanding shares. The SAI
describes all of the Fund's fundamental and non-fundamental investment
restrictions.
The investment objective, policies, restrictions, practices and
procedures of the Fund, unless otherwise specified, may be changed without
shareholder approval. If the Fund's investment objective, policies,
restrictions, practices or procedures change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to permit the sale of the Fund's shares in certain states,
the Funds may make commitments more restrictive than the investment policies
and restrictions described in this Prospectus and the SAI. Should the Fund
determine that any such commitment is no longer in the best interests of the
Fund, it may consider terminating sales of its shares in the states involved.
The Fund is classified as a "non-diversified" investment company, as
defined under the 1940 Act, and therefore, the Fund could invest all of its
assets in the obligations of a single issuer or relatively few issuers.
However, the Fund intends to conduct its operations so that it will qualify
under the Internal Revenue Code of 1986 (the "Code") as a "regulated
investment company." To continue to qualify, among other requirements, the
Fund will be required to limit its investments so that, at the close of each
quarter of the taxable year, with respect to at least 50% of its total
assets, not more than 5% of such assets will be invested in the securities of
a single issuer. In addition, not more than 25% of the value of the Fund's
total assets may be invested in the securities of a single issuer at the
close of each quarter of the taxable year. The provisions of the Code place
limits on the extent to which the Fund's portfolio may be non-diversified.
The ability of the Fund to meet its investment objective is subject
to the ability of municipal issuers to meet their payment obligations. In
addition, the Fund's portfolio will be affected by general changes in
interest rates which may result in increases or decreases in the value of
Fund holdings. Investors should recognize that, in periods of declining
interest rates, the Fund's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates, the Fund's
yield will tend to be somewhat lower. Also, when interest rates are falling,
the influx of new money to the Fund will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the Fund's current yield. In periods of rising interest
rates, the opposite can be expected to occur.
The Fund may invest without limit in California Municipal Obligations
which are repayable out of revenue streams generated from economically
related projects or facilities or whose issuers are located in the State of
California. Sizable investments in these obligations could increase risk to
the Fund should any of the related projects or facilities experience
financial difficulties. To the extent the Fund may
Page 8
invest in private activity bonds, the Fund may invest only up to 5% of its
total assets in bonds where payment of principal and interest are the
responsibility of a company with less than three years operating history.
MASTER/FEEDER OPTION. The Trust may in the future seek to achieve the
Fund's investment objective by investing all of the Fund's assets in another
investment company having the same investment objectives and substantially
the same investment policies and restrictions as those applicable to the
Fund. Shareholders of the Fund will be given at least 30 days' prior notice
of any such investment. Such investment would be made only if the Trustees
determine it to be in the best interest of the Fund and its shareholders. In
making that determination, the Trustees will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although the Fund believes that the
Trustees will not approve an arrangement that is likely to result in higher
costs, no assurance is given that costs will be materially reduced if this
option is implemented.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER. Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was formed in 1947. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of January 31, 1996, Dreyfus managed or administered
approximately $82 billion in assets for more than 1.7 million investor
accounts nationwide.
Dreyfus serves as the Fund's investment manager pursuant to an
Investment Management Agreement with the Fund dated November 20, 1995, (the
"Investment Management Agreement"). Prior thereto, Dreyfus provided
investment advisory services to the Fund pursuant to a prior investment
management agreement (the "Prior Management Agreement"). Under the Investment
Management Agreement, Dreyfus subject to the overall authority of the Board
of Trustees of the Trust in accordance with Massachusetts law, supervises and
assists in the overall management of the Fund's affairs. Pursuant to the
Investment Management Agreement, Dreyfus provides, or arranges for one or
more third parties to provide, investment advisory, administrative, custody,
fund accounting and transfer agency services to the Fund. As the Fund's
investment manager, Dreyfus manages the Fund by making investment decisions
based on the Fund's investment objective, policies and restrictions.
Under the terms of the Prior Management Agreement, which was
terminated on November 20, 1995, the Fund agreed to pay Dreyfus a fee,
computed daily and paid monthly, at the annual rate of .35% of the Fund's
average daily net assets. Under the Investment Management Agreement, the Fund
pays a fee, computed daily and paid monthly, at the annual rate of .45% of
the Fund's average daily net assets less certain expenses described below.
Dreyfus has agreed to limit its management fee, or to reimburse the Fund for
its expenses, in order to ensure that the Fund's total operating expenses do
not exceed .35% of the Fund's average daily net assets for the period from
November 20, 1995 through November 19, 1996. In addition, the Investment
Management Agreement provides that certain redemption, exchange and account
closeout charges are payable directly by the Fund's shareholders to the
Fund's transfer agent and that the fee payable by the Fund to Dreyfus is not
reduced by the amount of these charges payable to the transfer agent. Under
the Investment Management Agreement, Dreyfus pays all of the expenses of the
Fund except brokerage fees, taxes, interest, Rule 12b-1 fees (if applicable)
and extraordinary expenses. From time to time, Dreyfus may waive (either
voluntarily or pursuant to applicable state limitations) additional
investment management fees payable by the Fund. From April 4, 1994 to October
17, 1994, the Fund was advised by Mellon Bank under the Prior Management
Agreement.
Page 9
For the fiscal year ended June 30, 1995, the Fund paid Mellon Bank or
Dreyfus .35% of its average daily net assets in investment management fees,
less fees and expenses of the non-interested Trustees (including counsel
fees) pursuant to the Prior Management Agreement.
For the fiscal year ended June 30, 1995, total operating expenses
(excluding Rule 12b-1 fees) of the Fund were 0.35% of the Fund's average
daily net assets.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Bank Holding Company
Act of 1956, as amended. Mellon provides a comprehensive range of financial
products and services in domestic and selected international markets. Mellon
is among the twenty-five largest bank holding companies in the United States
based on total assets. Mellon's principal wholly-owned subsidiaries are
Mellon Bank, Mellon Bank (DE) National Association, Mellon Bank (MD), The
Boston Company, Inc., AFCO Credit Corporation and a number of companies known
as Mellon Financial Services Corporations. Through its subsidiaries,
including Dreyfus, Mellon managed approximately $233 billion in assets as of
December 31, 1995, including $81 billion in mutual fund assets. As of
December 31, 1995, Mellon, through various subsidiaries, provided
non-investment services, such as custodial or administration services, for
more than $786 billion in assets, including approximately $60 billion in
mutual fund assets.
In allocating brokerage transactions for the Fund, Dreyfus seeks to
obtain the best execution of orders at the most favorable net price. Subject
to this determination, Dreyfus may consider, among other things, the receipt
of research services and/or the sale of shares of the Fund or other funds
managed, advised or administered by Dreyfus as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund. See "Portfolio
Transactions" in the SAI.
Dreyfus may pay the distributor for shareholder services from
Dreyfus' 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 or others in respect of these services.
Dreyfus is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the
case of agency transactions, financial institutions that are affiliated with
Dreyfus or Mellon Bank or that have sold shares of the Fund, if Dreyfus
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From
time to time, to the extent consistent with its investment objective,
policies and restrictions, the Fund may invest in securities of companies
with which Mellon Bank has a lending relationship.
DISTRIBUTOR. The Fund's distributor is Premier Mutual Fund Services,
Inc. (the "Distributor"). The Distributor is located at One Exchange Place,
Boston, Massachusetts 02109. The Distributor is a wholly-owned subsidiary of
FDI Distribution Services, Inc., a provider of mutual fund administration
services, which in turn is a wholly-owned subsidiary of FDI Holding Inc., the
parent company of which is Boston Institutional Group, Inc.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, AND
SUB-ADMINISTRATOR. Mellon Bank (One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258) is the Fund's custodian. Dreyfus Transfer, Inc., ( One
American Express Plaza, Providence, Rhode Island 02903), a wholly-owned
subsidiary of Dreyfus, serves as the Fund's transfer and dividend disbursing
agent (the "Transfer Agent"). The Transfer Agent will receive the $5.00
exchange fee, the $5.00 account closeout fee, the $5.00 wire redemption and
Dreyfus TeleTransfer fees and the $2.00 checkwriting charge, described below.
A sufficient number of your shares will be redeemed automatically to pay
these amounts. These payments will not reduce the management fee payable by
the Fund to Dreyfus. By purchasing Fund shares, you are deemed to have
consented to this procedure. Premier Mutual Fund Services, Inc. is the Fund's
sub-administrator and, pursuant to a Sub-Administration Agreement with
Dreyfus, provides various administrative and corporate secretarial services
to the Fund.
Page 10
HOW TO BUY FUND SHARES
GENERAL. You can purchase Fund shares without a sales charge if you purchase
them directly from the Distributor; you may be charged a nominal fee if you
effect transactions in Fund shares through a securities dealer or broker,
bank or other financial institution (collectively, "Agents"). 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 $25,000. The Fund may waive its
minimum initial investment requirement for new Fund accounts opened through
an Agent whenever Dreyfus Institutional Services Division ("DISD") determines
for the initial account opened through such Agent which is below the Fund's
minimum initial investment requirement that the existing accounts in the Fund
opened through that Agent have an average account size, or the Agent has
adequate intent and access to funds to result in maintenance of accounts in
the Fund opened through that Agent with an average account size, in an amount
equal to or in excess of $25,000. DISD will periodically review the average
size of the accounts opened through each Agent and, if necessary, to
reevaluate the Agent's intent and access to funds. DISD will discontinue the
waiver as to new accounts to be opened through an Agent if DISD determines
that the average size of accounts opened through that Agent is less than
$25,000 and the Agent does not have the requisite intent and access to funds.
Subsequent investments must be at least $1,000 (or at least $100 in the case
of persons who have held Fund shares as of November 20, 1995). The initial
investment must be accompanied by the Fund's Account Application.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds." Payments to open new accounts which are mailed
should be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence,
Rhode Island 02940-9387, together with your Account Application. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. Neither initial nor
subsequent investments should be made by third party check. Purchase orders
may be delivered in person only to a Dreyfus Financial Center. THESE ORDERS
WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY.
For the location of the nearest Dreyfus Financial Center, please call the
telephone number listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to Boston Safe Deposit and Trust Company, DDA# 043818
Dreyfus BASIC California Municipal Money Market Fund, for purchase of Fund
shares in your name. The wire must include your Fund account number (for new
accounts, your Taxpayer Identification Number ("TIN") should be included
instead), account registration and dealer number, if applicable. If your
initial purchase of Fund shares is by wire, you should call 1-800-645-6561
after completing your wire payment in order to obtain your Fund account
number. Please include your Fund account number on the Fund's Account
Application and promptly mail the Account Application to the Fund, as no
redemptions will be permitted until the Account Application is received. You
may obtain further information about remitting funds in this manner from your
bank. All payments should be made in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. A charge will be imposed if any
check used for investment in your account does not clear. The Fund makes
available to certain large institutions the ability to issue purchase
instructions through compatible computer facilities.
Page 11
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House ("ACH") member. You must
direct the institution to transmit immediately available funds through the
ACH System to Boston Safe Deposit and Trust Company with instructions to
credit your Fund account. The instructions must specify your Fund account
registration and Fund account number PRECEDED BY THE DIGITS "4540."
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Other Distributions and
Taxes" and the Fund's Account Application for further information concerning
this requirement. Failure to furnish a certified TIN to the Fund could
subject you to a $50 penalty imposed by the Internal Revenue Service (the
"IRS").
NET ASSET VALUE PER SHARE ("NAV"). An investment portfolio's NAV
refers to the worth of one share. The NAV for Fund shares, which are offered
on a continuous basis, is calculated on the basis of amortized cost, which
involves initially valuing a portfolio instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Fund intends to maintain a constant NAV of $1.00,
although there is no assurance that this can be done on a continuing basis.
The offering price of Fund shares is their NAV. Investments and
requests to exchange or redeem shares received by the Fund before 4 p.m.,
Eastern time, on each day that the New York Stock Exchange is open (a
"business day") are effective on, and will receive the price next determined,
that business day. The NAV of the Fund is calculated two times each business
day, at 12 noon and 4 p.m., Eastern time. Investment, exchange or redemption
requests received after 4 p.m., Eastern time are effective on, and receive
the first share price determined, the next business day.
DREYFUS TELETRANSFER PRIVILEGE. You may purchase Fund shares (minimum
$1,000 and maximum $150,000 per day) without charge by telephone if you have
checked the appropriate box and supplied the necessary information on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your Fund account. Only a bank
account maintained in a domestic financial institution which is an ACH member
may be so designated. The Fund may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders. No fee is
contemplated for purchases of Fund shares pursuant to this Privilege.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-645-6561 or, if calling from overseas, 516-794-5452.
FUND EXCHANGES
You may purchase, in exchange for shares of the Fund, (a) shares
(however the same may be named) of other funds managed or administered by
Dreyfus which you would otherwise be eligible to purchase;
(b) shares of funds managed or administered by Dreyfus which do not have
separate share classes; and (c) shares of other funds specified from time to
time, to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be of
interest to you. If you desire to use this service, please call 1-800-645-6561
to determine if it is available and whether any conditions are imposed on its
use. YOU WILL BE CHARGED A $5.00 FEE FOR EACH EXCHANGE YOU MAKE OUT OF THE
FUND (UNLESS YOU HAVE HELD FUND SHARES AS OF NOVEMBER 20, 1995). This fee will
be deducted from your account and paid to the Transfer Agent.
To request an exchange, you or your Agent acting on your behalf must
give exchange instructions to the Transfer Agent in writing or by telephone.
Before any exchange, you must obtain and should review a copy of the current
prospectus of the fund into which the exchange is being made.
Page 12
Prospectuses may be obtained by calling 1-800-645-6561. The shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have a
value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you check
the relevant "No" box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request, signed by all
shareholders on the account, or by a separate Shareholder Services Form, also
available by calling 1-800-645-6561. If you previously have established the
Telephone Exchange Privilege, you may telephone exchange instructions by
calling 1-800-645-6561 or, if calling from overseas, 516-794-5452. See "How to
Redeem Fund Shares_Procedures." Upon an exchange, the following shareholder
services and privileges, as applicable and where available, will be
automatically carried over to the fund into which the exchange is made:
Telephone Exchange Privilege, Check Redemption Privilege, Wire Redemption
Privilege, Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege and
the dividends and distributions payment option (except for Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined NAV; however, a sales
load may be charged with respect to exchanges into funds sold with a sales
load. If you are exchanging into a fund that charges a sales load, you may
qualify for share prices which do not include the sales load or which reflect
a reduced sales load, if the shares of the fund from which you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous exchange
from shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or other distributions paid with respect to the foregoing
categories of shares. To qualify, at the time of the exchange you must notify
the Transfer Agent or your Agent must notify the Distributor. Any such
qualification is subject to confirmation of your holdings through a check of
appropriate records. See "Fund Exchanges" in the SAI. The Fund reserves the
right to reject any exchange request in whole or in part. The availability of
fund exchanges may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
HOW TO REDEEM FUND SHARES
GENERAL. You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined NAV as described below.
YOU WILL BE CHARGED $5.00 WHEN YOU REDEEM ALL SHARES IN YOUR ACCOUNT
OR YOUR ACCOUNT IS OTHERWISE CLOSED OUT (UNLESS YOU HAVE HELD FUND SHARES AS
OF NOVEMBER 20, 1995). The fee will be deducted from your redemption proceeds
and paid to the Transfer Agent. The account closeout fee does not apply to
exchanges out of the Fund or to wire or Dreyfus TELETRANSFER redemptions, for
each of which a $5.00 fee applies. Agents may charge a nominal fee for
effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request. The
value of the shares redeemed may be more or less than their original cost,
depending upon the Fund's then current NAV.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the SEC. HOWEVER, IF YOU HAVE
PURCHASED FUND SHARES BY CHECK OR BY THE DREYFUS TELETRANSFER PRIVILEGE AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PUR-
Page 13
CHASE CHECK OR DREYFUS TELETRANSFER PURCHASE ORDER, WHICH MAY TAKE
UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL NOT HONOR
REDEMPTION CHECKS UNDER THE CHECK REDEMPTION PRIVILEGE, AND WILL REJECT
REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE DREYFUS
TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT BY
THE TRANSFER AGENT OF THE PURCHASE CHECK OR THE DREYFUS TELETRANSFER PURCHASE
ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT
APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE
A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION
REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH
SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL
OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until
the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if the net asset value of your account
is $10,000 or less ($500 or less in the case of Fund shareholders as of
November 20, 1995) and remains at or below such amount during the notice
period. The $5.00 account closeout fee would be charged in such case.
PROCEDURES. You may redeem Fund shares by using the regular
redemption procedure through the Transfer Agent, the Check Redemption
Privilege, the Wire Redemption Privilege, the Telephone Redemption Privilege
or through the Dreyfus TELETRANSFER Privilege. Other redemption procedures
may be in effect for clients of certain Agents and institutions. The Fund
makes available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or Telephone Exchange Privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Agent, and reasonably believed by the Transfer Agent
to be genuine. The Fund will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or an exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used.
REGULAR REDEMPTION. Under the regular redemption procedure, you may
redeem your shares by written request mailed to The Dreyfus Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671. Redemption requests may
be delivered in person only to a Dreyfus Financial Center. THESE REQUESTS
WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT
THEREBY. For the location of the nearest financial center, please call the
telephone number listed under "General Information." Redemption requests must
be signed by each shareholder, including each owner of a joint account, and
each signature must be guaranteed. The Transfer Agent has adopted standards
and procedures pursuant to which signature-guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit
unions, national 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. For
Page 14
more information with respect to signature-guarantees, please call the
telephone number listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE. You may request on the Account
Application, Shareholder Services Form or by later written request that the
Fund provide Redemption Checks drawn on the Fund's account. Redemption Checks
may be made payable to the order of any person in the amount of $500 or more.
Redemption Checks should not be used to close your account. Your account will
be charged $2.00 for each Redemption Check you write (unless you have held
Fund shares as of November 20, 1995). In addition, the Transfer Agent will
impose a fee for stopping payment of a Redemption Check upon your request or
if the Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. The Fund may return an unpaid Redemption Check
that would draw your account balance below $5.00 and you may be subject to
extra charges. You should date your Redemption Checks with the current date
when you write them. Please do not postdate your Redemption Checks. If you
do, the Transfer Agent will honor, upon presentment, even if presented before
the date of the check, all postdated Redemption Checks which are dated within
six months of presentment for payment, if they are otherwise in good order.
Shares for which certificates have been issued may not be redeemed by
Redemption Check. This Privilege may be modified or terminated at any time by
the Fund or the Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE. You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. You will be charged a $5.00 wire redemption fee for
each wire redemption (unless you have held Fund shares as of November 20,
1995), which will be deducted from your account and paid to the Transfer
Agent. To establish the Wire Redemption Privilege, you must check the
appropriate box and supply the necessary information on the Fund's Account
Application or file a Shareholder Services Form with the Transfer Agent. You
may direct that redemption proceeds be paid by check (maximum $150,000 per
day) made out to the owners of record and mailed to your address. Redemption
proceeds of less than $1,000 will be paid automatically by check. Holders of
jointly registered Fund or bank accounts may have redemption proceeds of only
up to $250,000 wired within any 30-day period. You may telephone redemption
requests by calling 1-800-645-6561 or, if calling from overseas,
516-794-5452. The Fund reserves the right to refuse any redemption request,
including requests made shortly after a change of address, and may limit the
amount involved or the number of such requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund. The
Fund's SAI sets forth instructions for transmitting redemption requests by
wire. Shares for which certificates have been issued are not eligible for
this Privilege.
TELEPHONE REDEMPTION PRIVILEGE. You may redeem Fund shares (maximum
$150,000 per day) by telephone if you checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if calling from overseas, 516-794-5452. The Fund reserves
the right to refuse any request made by telephone, including requests made
shortly after a change of address, and may limit the amount involved or the
number of such requests. This Privilege may be modified or terminated at any
time by the Transfer Agent or the Fund. Shares for which certificates have
been issued are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE. You may redeem Fund shares (minimum
$1,000 per day) by telephone if you have checked the appropriate box and
supplied the necessary information on the Fund's Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between your Fund account and the bank account designated in
one of
Page 15
these documents. Only such an account maintained in a domestic financial
institution which is an ACH member may be so designated. Redemption proceeds
will be on deposit in your account at an ACH member bank ordinarily two days
after receipt of the redemption request or, at your request, paid by check
(maximum $150,000 per day) and mailed to your address. Holders of jointly
registered Fund or bank accounts may redeem through the Dreyfus TELETRANSFER
Privilege for transfer to their bank account only up to $250,000 within any
30-day period. The Fund reserves the right to refuse any request made by
telephone, including requests made shortly after a change of address, and may
limit the amount involved or the number of such requests. The Fund may modify
or terminate this Privilege at any time. Your account will be charged $5.00
for each redemption effected pursuant to this Privilege (unless you have held
Fund shares as of November 20, 1995).
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-645-6561 or, if calling from overseas, 516-794-5452. Shares issued in
certificate form are not eligible for this Privilege.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its yield and
tax-equivalent yield. YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. It
can be expected that these yield figures will fluctuate substantially.
The Fund's "yield" refers to the income generated by an investment in
the Fund over a seven-day period identified in the advertisement. This income
is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly, but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The Fund's "yield" and "effective yield" may
reflect absorbed expenses pursuant to any undertaking that may be in effect.
See "Management of the Fund." Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time, or other
investment companies which may use a different method of computing yield. The
Fund's tax-equivalent yield shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield by the amount necessary to reflect the payment of
federal income tax (and state income tax, if applicable) at a stated tax
rate.
Any fees charged by an Agent directly to its customers' account in
connection with investments in the Fund will not be included in calculations
of yield.
The Fund may compare its performance with various industry standards
of performance including Lipper Analytical Services, Inc. ratings.
Performance rankings as reported in CHANGING TIMES, BUSINESS WEEK,
INSTITUTIONAL INVESTOR, THE WALL STREET JOURNAL, IBC/DONOGHUE'S MONEY FUND
REPORT, MUTUAL FUND FORECASTER, NO LOAD INVESTOR, MONEY MAGAZINE, MORNINGSTAR
MUTUAL FUND VALUES, U.S. NEWS AND WORLD REPORT, FORBES, FORTUNE, BARRON'S and
similar publications may also be used in comparing the Fund's performance.
Furthermore, the Fund may quote its yields in advertisements or in
shareholder reports.
Page 16
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Fund declares daily and pays monthly (on the first business day
of the following month) dividends from its net investment income, if any, and
distributes any net long-term capital gains on an annual basis. The Board of
Trustees may elect not to distribute capital gains in whole or in part to
take advantage of capital loss carryovers.
Unless you choose to receive dividend and/or capital gains
distributions in cash, your distributions will be automatically reinvested in
additional shares at NAV. You may change the method of receiving
distributions at any time by writing to the Fund. Checks which are sent to
shareholders who have requested distributions to be paid in cash and which
are subsequently returned by the United States Postal Service as not
deliverable or which remain uncashed for six months or more will be
reinvested in additional Fund shares in the shareholder's account at the then
current NAV. Subsequent Fund distributions will be automatically reinvested
in additional Fund shares in the shareholder's account.
Shares purchased on a day on which the Fund calculates its NAV will
not begin to accrue dividends until the following business day. Except as
provided below, redemption orders effected on any particular day will receive
all dividends declared through the day of redemption. However, if immediately
available funds are received by the Transfer Agent prior to 12:00 noon,
Eastern time, you may receive the dividend declared on the day of purchase.
You will not receive the dividends declared on the day of redemption if the
redemption order is placed prior to 12:00 noon, Eastern time.
It is expected that the Fund will qualify for treatment as a
regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that is distributed to its shareholders. In
addition, the Fund intends to continue to qualify to pay "exempt-interest"
dividends, which requires, among other things, that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
must consist of municipal securities.
Dividends from the Fund's investment company taxable income are
taxable to you as ordinary income, to the extent of the Fund's earnings and
profits. Distributions by the Fund that are designated by it as
"exempt-interest dividends" generally may be excluded by you from your gross
income. Distributions by the Fund of net capital gain, when designated as
such, are taxable to you as long-term capital gains, regardless of the length
of time you have owned your shares.
Interest on indebtedness incurred or continued to purchase or carry
shares of the Fund will not be deductible for Federal income tax purposes to
the extent that the Fund's distributions (other than capital gains
distributions) consist of exempt-interest dividends. The Fund may invest in
"private activity bonds," the interest on which is treated as a tax
preference item for shareholders in determining their liability for the
alternative minimum tax. Proposals may be introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal securities. If such a proposal were enacted, the
availability of such securities for investment by the Fund and the value of
its portfolio would be affected. In such event, the Fund would reevaluate its
investment objective and policies.
Dividends and other distributions, to the extent taxable, are taxable
to you regardless of whether they are received in cash or reinvested in
additional Fund shares, even if the value of your shares is below your cost.
If you purchase shares shortly before a taxable distribution (i.e., any
distribution other than an exempt-interest dividend paid by the Fund), you
must pay income taxes on the distribution, even though the value of your
investment (plus cash received, if any) remains the same. In addition, the
share price at the time you purchase shares may include unrealized gains in
the securities held in the Fund. If these portfolio securities are
subsequently sold and the gains are realized,
Page 17
they will, to the extent not offset by capital losses, be paid to you as a
capital gain distribution and will be taxable to you.
In January of each year, the Fund will send you a Form 1099-DIV
notifying you of the status for Federal income tax purposes of your
distributions for the preceding year. The Fund also will advise shareholders
of the percentage, if any, of the dividends paid by the Fund that are exempt
from Federal income tax and the portion, if any, of those dividends that is a
tax preference item for purposes of the alternative minimum tax.
You must furnish the Fund with your taxpayer identification number
("TIN") and state whether you are subject to withholding for prior
under-reporting, certified under penalties of perjury as prescribed by the
Code and the regulations thereunder. Unless previously furnished, investments
received without such a certification will be returned. The Fund is required
to withhold a portion of all dividends, capital gains distributions and
redemption proceeds payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct TIN; withholding
from dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
In addition, in order to avoid the application of a 4% nondeductible
excise tax on certain undistributed amounts of ordinary income and capital
gains, the Fund may make an additional distribution shortly before December
31 in each year of any undistributed ordinary (taxable) income or capital
gains and expects to pay any other dividends and distributions necessary to
avoid the application of this tax.
The foregoing is only a summary of some of the important tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a further discussion. There may be other federal, state or local tax
considerations applicable to a particular investor; for example, the Fund's
dividends may be wholly or partly taxable under state and/or local laws. You
therefore are urged to consult your own tax adviser.
GENERAL INFORMATION
The Trust offers shares of beneficial interest of separate investment
portfolios without par value (each a "fund"). The Trust was organized as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts on March 28, 1983 under the name The Boston Company Tax-Free
Municipal Funds, changed its name to The Laurel Tax-Free Municipal Funds on
March 31, 1994, and changed its name again to The Dreyfus/Laurel Tax-Free
Municipal Funds on October 17, 1994. The Trust is registered with the SEC as
an open-end management investment company, commonly known as a mutual fund.
On November 15, 1995, Fund shareholders approved the Investment
Management Agreement which replaced the Prior Management Agreement, effective
November 20, 1995. The Investment Management Agreement provides that certain
transaction charges be imposed directly on Fund shareholders. See "How to Buy
Fund Shares," "Fund Exchanges" and "How to Redeem Fund Shares." Also
effective November 20, 1995, the Fund's "Investor" and "Class R" designations
were eliminated and the Fund became a single class fund and the Fund's name
changed from Dreyfus/Laurel California Tax-Free Money Fund to Dreyfus BASIC
California Municipal Money Market Fund.
Each share (regardless of class) has one vote. All shares of all
funds (and classes thereof) vote together as a single class, except as to any
matter for which a separate vote of any fund or class is required by the 1940
Act, and except as to any matter which affects the interests of one or more
particular funds or classes, in which case only the shareholders of the
affected funds or classes are entitled to vote, each as a separate class.
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 Trustees or the
appointment of auditors. However, pursuant to the Trust's By-Laws, the
holders of at
Page 18
least 10% of the shares outstanding and entitled to vote may require the Trust
to hold a special meeting of shareholders for purposes of removing a Trustee
from office and for any other purpose. Trust shareholders may remove a Trustee
by the affirmative vote of two-thirds of the Trust's outstanding voting
shares. In addition, the Board of Trustees will call a meeting of shareholders
for the purpose of electing Trustees if, at any time, less than a majority of
the Trustees then holding office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and will send
you confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 19
BASIC California Municipal Money Market Fund
Prospectus
Registration Mark
Copy Rights 1996 Dreyfus Service Corporation
307/707p082696
Page 20
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
FEBRUARY 29, 1996
AS REVISED AUGUST 26, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus of The
Dreyfus/Laurel Tax-Free Municipal Funds (the "Trust") dated February 29, 1996
(As Revised August 26, 1996) (referred to herein as the "Prospectus")
describing the Dreyfus BASIC New York Municipal Money Market Fund (formerly,
the Dreyfus/Laurel New York Tax-Free Money Fund) (the "Fund"). To obtain a
copy of the 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. and Canada -- Call 516-794-5452
The Dreyfus Corporation ("Dreyfus") serves as the Fund's investment
manager.
Premier Mutual Fund Services, Inc. ("Premier") is the distributor of the
Fund's shares.
TABLE OF CONTENTS
Page
Management of the Trust B-2
Purchase of Fund Shares B-9
(see also in the Prospectus "How to Buy Fund Shares")
Investment Policies B-10
(see also in the Prospectus "Investment Objective and Policies")
Redemption of Fund Shares B-23
(see also in the Prospectus "How to Redeem Fund Shares")
Fund Exchanges B-25
Valuation of Shares B-26
Performance Data B-27
Taxes B-29
(see also in the Prospectus "Dividends, Other
Distributions and Taxes")
Description of the Trust B-30
(see also in the Prospectus "Investment Objective and Policies")
Principal Shareholders B-31
Custodian and Transfer Agent B-31
Counsel and Independent Auditors B-32
Financial Statements B-32
Appendix A Risk Factors - Investing in
New York Municipal Obligations B-33
Appendix B - Information about Securities Ratings B-47
MANAGEMENT OF THE TRUST
The organizations that provide services to the Trust are as follows:
Dreyfus as investment manager ("Investment Manager"), Mellon Bank, N.A.
("Mellon Bank") as custodian, Premier as the distributor ("Distributor") and
sub-administrator ("Sub-Administrator"), and Dreyfus Transfer, Inc. ("Dreyfus
Transfer"), a wholly-owned subsidiary of Dreyfus, as transfer agent
("Transfer Agent"). The functions they perform for the Trust are discussed
in the Prospectus and in this Statement of Additional Information.
On October 17, 1994, the name of the Trust was changed from "The Laurel
Tax-Free Municipal Funds" to "The Dreyfus/Laurel Tax-Free Municipal Funds"
and the name of the Fund was changed from Laurel New York Tax-Free Money
Fund to Dreyfus/Laurel New York Tax-Free Money Fund. On November 20, 1995,
the Fund's name changed from Dreyfus/Laurel New York Tax-Free Money Fund to
Dreyfus BASIC New York Municipal Money Market Fund.
Trustees and Officers
The Trust has a Board composed of twelve Trustees which supervises the
Trust's investment activities and reviews contractual arrangements with
companies that provide the Fund with services. The following lists the
Trustees and officers and their positions with the Trust and their present
and principal occupations during the past five years. Each Trustee who is an
"interested person" of the Trust (as defined in the Investment Company Act of
1940, as amended (the "Act")) is indicated by an asterisk. Each of the
Trustees also serves as a Director of The Dreyfus/Laurel Funds, Inc., and as
a Trustee of The Dreyfus/Laurel Funds Trust (collectively, with the Trust,
the "Dreyfus/Laurel Funds").
o+RUTH MARIE ADAMS. Trustee of the Trust; Professor of English and Vice
President Emeritus, Dartmouth College; Senator, United Chapters of Phi
Beta Kappa; Trustee, Woods Hole Oceanographic Institution. Age: 80
years old. Address: 1026 Kendal Lyme Road, Hanover, New Hampshire
03755.
o+FRANCIS P. BRENNAN. Chairman of the Board of Trustees and Assistant
Treasurer of the Trust; Director and Chairman, Massachusetts Business
Development Corp.; Director, Boston Mutual Insurance Company; Director
and Vice Chairman of the Board, Home Owners Federal Savings and Loan
(prior to May 1990). Age: 78 years old. Address: Massachusetts
Business Development Corp., One Liberty Square, Boston, Massachusetts
02109.
o*JOSEPH S. DiMARTINO. Trustee of the Trust since February 1995. Since
January 1995, Mr. DiMartino has served as Chairman of the Board for
various funds in the Dreyfus Family of Funds. For more than five years
prior thereto, he was President and a director of Dreyfus and Executive
Vice President and a director of Dreyfus Service Corporation, a wholly-
owned subsidiary of Dreyfus. From August 1994 to December 31, 1994, he
was a director of Mellon Bank Corporation. He is Chairman of the Board
of Noel Group, Inc., a venture capital company; a trustee of Bucknell
University; and a director of the Muscular Dystrophy Association,
HealthPlan Services Corporation, Belding Heminway, Inc., Curtis
Industries, Inc., Simmons Outdoor Corporation and Staffing Resources,
Inc. Mr. DiMartino is also a Board member of 93 other funds in the
Dreyfus Family of Funds. Age: 52 years old. Address: 200 Park Avenue,
New York, New York 10166.
o+JAMES M. FITZGIBBONS. Trustee of the Trust; Chairman, Howes Leather
Company, Inc.; Director, Fiduciary Trust Company; Chairman, CEO and
Director, Fieldcrest-Cannon Inc.; Director, Lumber Mutual Insurance
Company; Director, Barrett Resources, Inc. Age: 60 years old. Address:
40 Norfolk Road, Brookline, Massachusetts 02167.
o*J. TOMLINSON FORT. Trustee of the Trust; Since 1990, Partner, Reed, Smith,
Shaw & McClay (law firm). Age: 65 years old. Address: 204 Woodcock
Drive, Pittsburgh, Pennsylvania 15215.
o+ARTHUR L. GOESCHEL. Trustee of the Trust; Director, Chairman of the Board
and Director, Rexene Corporation; Director, Calgon Carbon Corporation;
Director, Cerex Corporation; Director, National Picture Frame
Corporation; Chairman of the Board and Director, Tetra Corporation 1991-
1993; Director, Medalist Corporation 1992-1993; From 1988-1989 Director,
Rexene Corporation. Since May 1991, Mr. Goeschel has served as a
Trustee of Sewickley Valley Hospital. Age: 73 years old. Address: Way
Hollow Road and Woodland Road, Sewickley, Pennsylvania 15143.
o+KENNETH A. HIMMEL. Trustee of the Trust; Director, The Boston Company,
Inc. ("TBC") and Boston Safe Deposit and Trust Company; President and
Chief Executive Officer, Himmel & Co., Inc.; Vice Chairman, Sutton Place
Gourmet, Inc. Managing Partner, Franklin Federal Partners. Age: 49
years old. Address: Himmel and Company, Inc., 101 Federal Street, 22nd
Floor, Boston, Massachusetts 02110.
o*ARCH S. JEFFERY. Trustee of the Trust; Financial Consultant. Age: 76
years old. Address: 1817 Foxcroft Lane, Unit 306, Allison Park,
Pennsylvania 15101.
o+STEPHEN J. LOCKWOOD. Trustee of the Trust; President and CEO, LDG
Management Company Inc.; CEO, LDG Reinsurance Underwriters, SRRF
Management Inc. and Medical Reinsurance Underwriters Inc. Age: 48 years
old. Address: 401 Edgewater Place, Wakefield, Massachusetts 01880.
o+ROBERT D. MCBRIDE. Trustee of the Trust; Director, Chairman, McLouth
Steel; Director, Salem Corporation. Director, SMS/Concast, Inc. (1983-
1991). Age: 67 years old. Address: 15 Waverly Lane, Grosse Pointe
Farms, Michigan 48236.
o+JOHN J. SCIULLO. Trustee of the Trust; Dean Emeritus and Professor of Law,
Duquesne University Law School; Director, Urban Redevelopment Authority
of Pittsburgh. Age: 63 years old. Address: 321 Gross Street,
Pittsburgh, Pennsylvania 15224.
o+ROSLYN M. WATSON. Trustee of the Trust; Principal, Watson Ventures, Inc.;
Director, American Express Centurion Bank; Director, Harvard Community
Health Plan, Inc.; Director, Massachusetts Electric Company; Director,
The Hymans Foundations, Inc., prior to February, 1993; Real Estate
Development Project Manager and Vice President, The Gunwyn Company. Age:
45 years old. Address: 25 Braddock Park, Boston, Massachusetts 02116-
5816.
# ELIZABETH BACHMAN. Vice President and Assistant Secretary of the Trust,
The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Funds, Inc. (since
January 1996); Counsel, Premier Mutual Fund Services, Inc. Prior to
September 1995, she was enrolled at the Fordham University School of Law
and received her J.D. in May 1995. Prior to September 1992, she was an
Assistant at the National Association for Public Interest Law. Age: 26
years old. Address: 200 Park Avenue, New York, New York 10166.
#MARIE E. CONNOLLY. President and Treasurer of the Trust, The Dreyfus/Laurel
Funds and The Dreyfus/Laurel Funds, Inc. (since September 1994); Vice
President of the Trust, The Dreyfus/Laurel Funds Trust and The
Dreyfus/Laurel Funds, Inc. (March 1994 to September 1994); President,
Funds Distributor, Inc. (since 1992); Treasurer, Funds Distributor, Inc.
(July 1993 to April 1994); COO, Funds Distributor, Inc. (since April
1994); Director, Funds Distributor, Inc. (since July 1992); President,
COO and Director, Premier Mutual Fund Services, Inc. (since April 1994);
Senior Vice President and Director of Financial Administration, The
Boston Company Advisors, Inc. (December 1988 to May 1993). Age: 37 years
old. Address: One Exchange Place, Boston, Massachusetts 02109.
#FREDERICK C. DEY. Vice President of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since September 1994); Senior
Vice President, Premier Mutual Fund Services, Inc. (since August 1994);
Vice President, Funds Distributor, Inc. (since August 1994); Fundraising
Manager, Swim Across America (October 1993 to August 1994); General
Manager, Spring Industries (August 1988 to October 1993). Age: 33 years
old. Address: One Exchange Place, Boston, Massachusetts 02109.
#ERIC B. FISCHMAN. Vice President and Assistant Secretary (since January
1996) of the Trust, The Dreyfus/Laurel Funds Trust and The
Dreyfus/Laurel Funds, Inc.; Vice President and Associate General
Counsel, Premier Mutual Fund Services, Inc. (Since August 1994); Vice
President and Associate General Counsel, Funds Distributor, Inc. (since
August 1994); Staff Attorney, Federal Reserve Board (September 1992 to
June 1994); Summer Associate, Venture Economics (May 1991 to September
1991). Age: 31 years old. Address: 200 Park Avenue, New York, New York
10166.
RICHARD W. HEALEY. Vice President of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since March 1994); Senior Vice
President, Funds Distributor, Inc. (since March 1993); Vice President,
The Boston Company, Inc., (March 1993 to May 1993); Vice President of
Marketing, Calvert Group (1989 to March 1993). Age: 41 years old.
Address: One Exchange Place, Boston, Massachusetts 02109.
# MARGARET PARDO. Assistant Secretary of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since January 1996);
Paralegal, Premier Mutual Fund Services, Inc. Prior to April 1995, she
was a Medical Coordination Officer at ORBIS International. Prior to
June 1992, she worked as a Program Coordinator at Physicians World
Communications Group. Age: 27 years old. Address: 200 Park Avenue, New
York, New York 10166.
#JOHN E. PELLETIER. Vice President and Secretary of the Trust, The
Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Funds, Inc. (since
September 1994); Senior Vice President, General Counsel and Secretary,
Funds Distributor, Inc. (since April 1994); Senior Vice President,
General Counsel and Secretary, Premier Mutual Fund Services, Inc. (since
August 1994); Counsel, The Boston Company Advisors, Inc. (February 1992
to March 1994); Associate, Ropes & Gray (August 1990 to February 1992).
Age: 30 years old. Address: One Exchange Place, Boston, Massachusetts
02109.
# JOHN J. PYBURN. Assistant Treasurer of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since January 1996); Vice
President of Premier Mutual Fund Services, Inc. and an officer of other
investment companies advised or administered by Dreyfus. From 1984 to
July 1994, he was Assistant Vice President in the Mutual Fund Accounting
Department of Dreyfus. Age: 61 years old. Address: 200 Park Avenue,
New York, New York 10166.
JOSEPH F. TOWER, III. Assistant Treasurer of the Trust, The Dreyfus/Laurel
Funds Trust and The Dreyfus/Laurel Funds, Inc. (since January 1996);
Senior Vice President, Treasurer and Chief Financial Officer of Premier
Mutual Fund Services, Inc. and an officer of other investment companies
advised or administered by Dreyfus. 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. Age:
33 years old. Address: 200 Park Avenue, New York, New York 10166.
_____________________________________
* "Interested person" of the Trust, as defined in the 1940 Act.
o Member of the Audit Committee.
+ Member of the Nominating Committee.
# Officer also serves as an officer for other investment companies advised
by The Dreyfus Corporation.
No officer or employee of Premier (or of any parent, subsidiary or
affiliate thereof) receives any compensation from the Trust for serving as an
officer or Trustee of the Trust. No officer or employee of Dreyfus (or of
any parent, subsidiary, or affiliate thereof) serves as an officer or Trustee
of the Trust. The Dreyfus/Laurel Funds pay each Director/Trustee who is not
an "interested person" (as defined in the Act), $27,000 per annum (and an
additional $75,000 for the Chairman of the Board of Directors/Trustees of the
Dreyfus/Laurel Funds), $1,000 per joint Dreyfus/Laurel Funds Board meeting
attended and $750 per joint Dreyfus/Laurel Funds Audit Committee meeting
attended, and reimburse each Director/Trustee for travel and out-of-pocket
expenses.
The officers and Trustees of the Trust as a group owned beneficially
less than 1% of the total shares of the Fund outstanding as of January 31,
1996.
For the fiscal year ended June 30, 1995, the aggregate amount of fees
and expenses received by each current Trustee from the Trust and all other
funds in the Dreyfus Family of Funds for which such person is a Board member
were as follows:
<TABLE>
Total
Pension or Compensation from
Aggregate Retirement Benefits Estimated Annual the Trust and Fund
Name of Board Compensation from Accrued as Part of Benefits Upon Complex Paid to
Member the Trust # Fund's Expenses Retirement Board Member
- --------------- ------------------- --------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Ruth Marie Adams $ 2,093 none none $ 34,750
Francis P. Brennan@ 6,642 none none 110,750
Joseph S. DiMartino** none none none 448,618*
James M. Fitzgibbons 2,031 none none 33,750
J. Tomlinson Fort** none none none none
Arthur L. Goeschel 2,093 none none 34,750
Kenneth A. Himmel 1,996 none none 33,000
Arch S. Jeffery** none none none none
Stephen J. Lockwood 1,934 none none 32,000
Robert D. McBride 2,156 none none 35,750
John J. Sciullo 2,093 none none 34,750
Roslyn M. Watson 2,156 none none 35,750
_______________________
# Amounts required to be paid by the Trust directly to the non-interested Trustees that would be applied to offset a portion of
the management fee payable to Dreyfus, are in part paid directly by Dreyfus to the non-interested Trustees.
Amount does not include reimbursed expenses for attending Board meetings, which amounted to $1,192 for the Dreyfus/Laurel Funds.
* Estimated amount for fiscal year ended June 30, 1995.
** Joseph S. DiMartino, J. Tomlinson Fort and Arch Jeffery are paid directly by Dreyfus for serving as Board members of the
Trust and the funds in the Dreyfus/Laurel Funds. For the fiscal year ended June 30, 1995, the aggregate
amount of fees and expenses received by Joseph S. DiMartino, J. Tomlinson Fort and Arch Jeffery from Dreyfus for serving as a
Board member of the Trust were $1,792, $2,156 and $2,156, respectively and for serving as a Board member of all funds in
the Dreyfus/Laurel Funds (including the Trust) were $14,000, $35,750 and $35,750, respectively. In addition, Dreyfus reimbursed
Messrs. DiMartino, Fort and Jeffery a total of $136 for expenses attributable to the Trust's Board meetings ($136 is
not included in $1,192 above).
@ The compensation of Francis P. Brennan includes $75,000 by Dreyfus to be the Chairman of the Board.
</TABLE>
Management Arrangements
Dreyfus serves as the investment manager for the Fund pursuant to an
Investment Management Agreement (the "Management Agreement") with the Trust
dated December 8, 1995. Dreyfus is a wholly-owned subsidiary of Mellon Bank.
Pursuant to the Management Agreement, Dreyfus provides, or arranges for one
or more third parties to provide, investment advisory, administrative,
custody, fund accounting and transfer agency services to the Fund. As
investment manager, Dreyfus manages the Fund by making investment decisions
based on the Fund's investment objective, policies and restrictions.
Prior to December 8, 1995, Dreyfus served as investment manager to the Fund
pursuant to the prior investment management agreement (the "Prior Management
Agreement") with the Trust dated April 4, 1994 and transferred from Mellon
Bank to Dreyfus on October 17, 1994.
Prior to May 21, 1993, The Boston Company Advisors, Inc. ("TBC Advisors")
served as investment adviser to the Fund pursuant to a written agreement,
which was last approved by the Trustees, including a majority of the Trustees
who are not "interested persons" of the Trust, on July 22, 1992. From May 21,
1993 through April 3, 1994, Boston Advisors served as investment adviser to
the Fund pursuant to a written agreement ("TBC Advisors Agreement"), which
was last approved by the Trustees, including a majority of the Trustees who
are not "interested persons" of the Trust, on July 21, 1993 and approved by
the shareholders of the Fund on December 31, 1992. The TBC Advisors
Agreement became effective on May 21, 1993, upon the consummation of the sale
of Boston Group Holdings, Inc., the parent company of The Boston Company,
Inc. ("TBC"), to Mellon Bank Corporation. Mellon Bank later served as
investment manager to the Fund pursuant to the Prior Management Agreement,
which was last approved by the Trustees, including a majority of the Trustees
who are not "interested persons" of the Trust or Mellon Bank, on November 22,
1993, (subject to shareholder approval) and approved by the shareholders of
the Fund on March 29, 1994. The Prior Management Agreement became effective
on April 4, 1994. TBC Advisors is a wholly-owned subsidiary of TBC, a
financial services holding company. TBC is in turn a wholly-owned subsidiary
of Mellon Bank Corporation. As stated above, Dreyfus, a wholly-owned
subsidiary of Mellon Bank, is the current Investment Manager pursuant to the
Management Agreement, which was last approved by the Trustees on July 26,
1995.
The current Management Agreement with Dreyfus provides for a "unitary fee."
Under the unitary fee structure, Dreyfus pays all expenses of the Fund
except: (i) brokerage commissions, (ii) taxes, interest and extraordinary
expenses (which are expected to be minimal), and (iii) Rule 12b-1 fees, as
applicable. Under the unitary fee, Dreyfus provides, or arranges for one or
more third parties to provide, investment advisory, administrative, custody,
fund accounting and transfer agency services to the Fund. For the provision
of such services directly, or through one or more third parties, Dreyfus
receives as full compensation for all services and facilities provided by it,
a fee computed daily and paid monthly at the annual rate of .45 of 1% of the
Fund's average daily net assets, less the accrued fees and expenses
(including counsel fees) of the non-interested Trustees of the Trust. The
Management Agreement provides that certain redemption, exchange and account
closeout charges are payable directly by the Fund's shareholders to the
Fund's Transfer Agent and the fee payable by the Fund to Dreyfus is not
reduced by the amount of charges payable to the Transfer Agent. Under the
prior agreement with TBC Advisors, the payments to the investment manager
covered merely the provision of investment advisory services (and payment for
sub-advisory services) and certain specified administrative services. Under
this previous arrangement, the Fund also paid for additional non-investment
advisory expenses, such as custody and transfer agency services, that were
not paid by the investment adviser.
The Management Agreement will remain in effect through December 7, 1997 and
will continue thereafter from year to year provided that a majority of the
Trustees who are not interested persons of the Fund and either a majority of
all Trustees or a majority of the shareholders of the Fund approve its
continuance. The Fund may terminate the Management Agreement, without prior
notice to Dreyfus, upon the vote of a majority of the Board of Trustees or
upon the vote of a majority of the outstanding voting securities of the Fund
on 60 days' written notice to Dreyfus. Dreyfus may terminate the Management
Agreement upon 60 days' written notice to the Fund. The Management Agreement
will terminate immediately and automatically upon its assignment.
The following persons are officers and/or directors of Dreyfus: Howard
Stein, Chairman of the Board and Chief Executive Officer; W. Keith Smith,
Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director, Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration and a director; Barbara E. Casey, Vice President-Dreyfus
President-Dreyfus Retirement Services; Diane M. Coffey, Vice President-
Corporate Communications; Elie M. Genadry, Vice President-Institutional
Sales; William T. Sandalls, Jr., Senior Vice President, Chief Financial
Officer and a director; William F. Glavin, Jr., Vice President-Corporate
Development; Andrew S. Wasser, Vice President-Information Services; Mark N.
Jacobs, Vice President-Fund Legal and Compliance and Secretary; Jeffrey N.
Nachman, Vice President-Mutual Fund Accounting; Maurice Bendrihem,
Controller; Elvira Oslapas; Assistant Secretary; Mandell L. Berman, Frank V.
Cahouet, Alvin E. Friedman, Lawrence M. Greene and Julian M. Smerling
directors.
As compensation for Dreyfus' services, the Fund pays a fee, based on its
total average daily net assets, that is computed daily and paid monthly at
the annual rate of .45 of 1%. Dreyfus has agreed to limit its fee, or to
reimburse the Fund for expenses, to ensure that the Fund's total operating
expenses do not exceed .35 of 1% for the period from December 8, 1995 through
December 7, 1996. In addition, Dreyfus may waive all or a portion of its
fees payable by the Fund from time to time.
The following table shows the fees paid by the Fund to TBC Advisors or Mellon
Bank (as the prior investment advisors) and to Dreyfus (the current
investment manager), including any fee waivers or expense reimbursements by
TBC Advisors, Mellon Bank or Dreyfus, pursuant to the Fund's prior investment
advisory agreements, during the Fund's 1993, 1994 and 1995 fiscal years:
<TABLE>
1995 * 1994 * (1) 1993 **
- ------ ---------- -------
Fees Fees Fees Fees Fees Fees
Paid (2) Waived (3) Paid (4) Waived (5) Paid Waived (5)
- -------- ---------- -------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C>
$48,800 $12,400 $27,444 $46,447 (6) $73,485 $118,669 (7)
_______________________________
* For the fiscal year ended June 30. The Fund changed its fiscal year end
from November 30 to June 30.
** For the fiscal years ended November 30.
(1) Effective April 4, 1994, Mellon Bank served as the Fund's investment
manager.
(2) For the fiscal year ended June 30, 1995, there were no fee waivers or
expense reimbursements.
(3) Fees paid to Mellon Bank for investment management services for the
period from April 4, 1994 to the fiscal year ended June 30, 1994.
(4) Fees paid to TBC Advisors for investment advisory services for the
period from December 1, 1993 to April 3, 1993.
(5) TBC Advisors waived all or a portion of its fees and/or reimbursed
expenses of the Fund from time to time in order to increase the Fund's
net income available for distribution to shareholders.
(6) Includes $22,044 reimbursement by TBC Advisors.
(7) Included $45,183 reimbursement by TBC Advisors.
</TABLE>
Dreyfus has agreed that if in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to the Management Agreement, but excluding
interest, brokerage expenses, taxes and extraordinary items) exceed the
expense limitation of any state, it will reduce its management fees by the
amount of such excess expense. Such a fee reduction, if any, will be
reconciled on a monthly basis. The most restrictive state expense limitation
applicable to the Fund requires a reduction of fees in any year that such
expenses exceed 2.5% of the first $30 million of average net assets, 2.0% of
the next $70 million of average net assets and 1.5% of the remaining average
net assets. A number of factors, including the size of the Fund, will
determine which of these restrictions will be applicable to the Fund at any
given time. No reimbursement pursuant to state expense limitations was
required for the Fund for the fiscal year ended June 30, 1995.
In addition, under a distribution plan adopted by the Fund pursuant to
Rule 12b-1 under the Act which was terminated effective December 8, 1995, the
Fund paid Dreyfus Service Corporation, a subsidiary of Dreyfus, for
shareholder servicing, and the Distributor for shareholder servicing and
expenses previously intended to result in the sale of Investor shares, at the
annual rate of .25% attributable to its Investor shares. For the year ended
June 30, 1995, the Fund paid $20,798 in distribution fees attributable to its
Investor shares.
PURCHASE OF FUND SHARES
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and
for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 P.M., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange ("NYSE") are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 P.M., New York time, on any business day the
Transfer Agent and the NYSE are open for business, or orders made on
Saturday, Sunday or any Fund holiday (e.g. when the NYSE is not open for
business), will be credited to the shareholders's Fund account on the second
bank business day following such purchase order.
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
In-Kind Purchases. If the following conditions are satisfied, the Fund
may at its discretion, permit the purchase of shares through an "in-kind"
exchange of securities. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus
any cash, must be at least equal to $25,000. Shares purchased in exchange
for securities generally cannot be redeemed for fifteen days following the
exchange in order to allow time for the transfer to settle.
The basis of the exchange will depend upon the relative NAV of the
Shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Fund and
prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities. For further
information about "in-kind" purchases, call 1-800-645-6561.
Federal Law Affecting Mellon Bank
The Glass-Steagall Act of 1933 prohibits national banks from engaging in
the business of underwriting, selling or distributing securities and
prohibits a member bank of the Federal Reserve System from having certain
affiliations with an entity engaged principally in that business. The
activities of Mellon Bank in informing its customers of, and performing,
investment and redemption services in connection with the Fund, and in
providing services to the Fund as custodian, as well as investment advisory
activities of Dreyfus, may raise issues under these provisions. Mellon Bank
has been advised by counsel that its activities contemplated under this
arrangement are consistent with its statutory and regulatory obligations.
Changes in either federal or state statutes and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as further judicial or administrative decisions or interpretations of
such future statutes and regulations could prevent Mellon Bank or Dreyfus
from continuing to perform all or a part of the above services for its
customers and/or the Fund. If Mellon Bank or Dreyfus were prohibited from
serving the Fund in any of its present capacities the Trustees would seek an
alternative provider(s) of such services.
INVESTMENT POLICIES
The Prospectus discusses the investment objective of the Fund and the
policies it employs to achieve that objective. The following discussion
supplements the description of the Fund's investment policies in the
Prospectus.
Description of Municipal Obligations
For purposes of this Statement of Additional Information, the term
"Municipal Obligations" and "New York Municipal Obligations" shall mean debt
obligations issued by the State of New York, its political subdivisions,
municipalities and public authorities and municipal obligations issued by
other government entities if, in the opinion of counsel to the respective
issuers, the interest from such obligations is exempt from Federal and New
York personal income taxes. "Municipal Obligations" and "New York Municipal
Obligations" include the following:
Municipal Bonds
Municipal Bonds, which generally have a maturity of more than one year
when issued, have two principal classifications: General Obligation Bonds and
Revenue Bonds. A Private Activity Bond is a particular kind of Revenue Bond.
The classification of General Obligation Bonds, Revenue Bonds and Private
Activity Bonds are discussed below.
1. General Obligation Bonds. The proceeds of these obligations are
used to finance a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems.
General Obligation Bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest.
2. Revenue Bonds. Revenue Bonds are issued to finance a wide variety
of capital projects including: electric, gas, water and sewer systems;
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security for a Revenue Bond is
generally the net revenues derived from a particular facility, group of
facilities or, in some cases, the proceeds of a special excise or other
specific revenue source. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service
reserve fund whose money may be used to make principal and interest payments
on the issuer's obligations. Some authorities provide further security in the
form of a state's ability (without obligation) to make up deficiencies in the
debt service reserve fund.
3. Private Activity Bonds. Private Activity Bonds, which are
considered Municipal Bonds if the interest paid thereon is exempt from
Federal income tax, are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business and
manufacturing, housing, sports and pollution control. These bonds are also
used to finance public facilities such as airports, mass transit systems,
ports and parking. The payment of the principal and interest on such bonds is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment. As noted in the Prospectus and discussed below
under "Taxes," interest income on these bonds may be an item of tax
preference subject to the Federal alternative minimum tax for individuals and
corporations.
Municipal Notes
Municipal Notes generally are used to provide for short-term capital
needs and generally have maturities of thirteen months or less. Municipal
Notes include:
1. Tax Anticipation Notes. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally, they are issued
in anticipation of various seasonal tax revenue, such as income, sales, use
and business taxes, and are payable from these specific future taxes.
2. Revenue Anticipation Notes. Revenue Anticipation Notes are issued
in expectation of receipt of other kinds of revenue, such as Federal revenues
available under the Federal Revenue Sharing Programs.
3. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
Notes.
Municipal Commercial Paper
Issues of Municipal Commercial Paper typically represent short-term,
unsecured, negotiable promissory notes. These obligations are issued by
agencies of state and local governments to finance seasonal working capital
needs of municipalities or to provide interim construction financing and are
paid from general revenues of municipalities or are refinanced with long-term
debt. In most cases, Municipal Commercial Paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
Municipal Lease Obligations
Municipal leases may take the form of a lease or a certificate of
participation in a purchase contract issued by state and local government
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and other
capital assets. A lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged,
although the lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make payments due under the lease
obligation. Municipal leases have special risks not normally associated with
Municipal Bonds. These obligations frequently contain "non-appropriation"
clauses that provide that the governmental issuer of the obligation has no
obligation to make future payments under the lease or contract unless money
is appropriated for such purposes by the legislative body on a yearly or
other periodic basis. In addition to the non-appropriation risk, municipal
leases represent a type of financing that has not yet developed the depth of
marketability associated with Municipal Bonds; moreover, although the
obligations will be secured by the leased equipment, the disposition of the
equipment in the event of foreclosure might prove difficult. For purposes of
the 10% limitation on the purchase of illiquid securities, the Fund will not
consider the municipal lease obligations or certificates of participation in
municipal lease obligations in which it invests as liquid, unless Dreyfus
shall determine, based upon such factors as the frequency of trades and
quotes for the obligation, the number of dealers willing to purchase or sell
the security and the number of other potential buyers, the willingness of
dealers to undertake to make a market in the security and the nature of
marketplace trades, that a security shall be treated as liquid for purposes
of such limitation.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may
become subject to laws enacted in the future by Congress, state legislators,
or referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon
municipalities to levy taxes. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its Municipal Obligations
may be materially affected.
Unlike the purchase or sale of a Municipal Bond, no consideration is
paid or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker an amount of
cash or cash equivalents equal to approximately 10% of the contract amount
(this amount is subject to change by the board of trade on which the contract
is traded and members of such board of trade may charge a higher amount).
This amount is known as initial margin and is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming that all contractual
obligations have been satisfied. Subsequent payments, known as variation
margin, to and from the broker, will be made on a daily basis as the price of
the index fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as marking-to-market. At any
time prior to the expiration of the contract, the Fund may elect to close the
position by taking an opposite position, which will operate to terminate the
Fund's existing position in the futures contract.
There are several risks in connection with the use of a municipal bond
index futures contract as a hedging device. Successful use of municipal bond
index futures contracts by the Fund is subject to the ability of Dreyfus to
predict correctly movements in the direction of interest rates. Such
predictions involve skills and techniques which may be different from those
involved in the management of a long-term municipal bond portfolio. In
addition, there can be no assurance that there will be a correlation between
movements in the price of the municipal bond index and movements in the price
of the Municipal Bonds which are the subject of the hedge. The degree of
imperfection of correlation depends upon various circumstances, such as
variations in speculative market demand for futures contracts and municipal
securities, technical influences on futures trading, and differences between
the municipal securities being hedged and the municipal securities underlying
the municipal bond index futures contracts, in such respects as interest rate
levels, maturities and creditworthiness of issuers. A decision of whether,
when and how to hedge involves the exercise of skill and judgment and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Fund intends to purchase or sell municipal bond index
futures contracts only if there is an active market for such contracts, there
is no assurance that a liquid market will exist for the contracts at any
particular time. Most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a
single trading day. The daily limit establishes the maximum amount the price
of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movement during
a particular trading day and, therefore, does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions. It
is possible that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, it will not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. As described above, however, there is
no guarantee that the price of Municipal Bonds will, in fact, correlate with
the price movements in the municipal bond index futures contract and thus
provide an offset to losses on a futures contract.
If the Fund has hedged against the possibility of an increase in
interest rates adversely affecting the value of the Municipal Bonds held in
its portfolio and rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of the Municipal Bonds it has hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have
to sell securities to meet daily variation margin requirements. Such sales
of securities may, but will not necessarily, be at increased prices which
reflect the decline in interest rates. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
When the Fund purchases municipal bond index futures contracts, an
amount of cash and U.S. government securities or other high grade debt
securities equal to the market value of the futures contracts will be
deposited in a segregated account with the Fund's custodian (and/or such
other persons as appropriate) to collateralize the positions and thereby
insure that the use of such futures contracts is not leveraged. In addition,
the ability of the Fund to trade in municipal bond index futures contracts
and options on interest rate futures contracts may be materially limited by
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company. See "Taxes" below.
Tender Option Bonds
The Fund may invest up to 10% of the value of its assets in 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. Dreyfus, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuer of the
underlying Municipal Obligation, of any custodian and 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 not invest more than 10% of the value of
its net assets in illiquid securities, which would include tender option
bonds for which the required notice to exercise the tender feature is more
than seven days if there is no secondary market available for these
obligations.
Use of Ratings as Investment Criteria
The ratings of nationally recognized statistical rating organizations
("NRSROs") such as Standard & Poor's ("S&P") and Moody's Investors Service,
Inc. ("Moody's") represent the opinions of these agencies as to the quality
of Municipal Obligations which they rate. It should be emphasized, however,
that such ratings are relative and subjective and are not absolute standards
of quality. These ratings will be used by the Fund as initial criteria for
the selection of portfolio securities, but the Fund will also rely upon the
independent advice of Dreyfus to evaluate potential investments. Among the
factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Further information
concerning the ratings of the NRSROs and their significance is contained in
the Appendix B to this Statement of Additional Information.
After being purchased by the Fund, the rating of a Municipal Obligation
may be reduced below the minimum rating required for purchase by the Fund or
the issuer of the Municipal Obligation may default on its obligations with
respect to the Municipal Obligation. In that event, the Fund will dispose of
the Municipal Obligation as soon as practicable, consistent with achieving an
orderly disposition of the Municipal Obligation, unless the Trust's Board of
Trustees determines that disposal of the Municipal Obligation would not be
in the best interest of the Fund. In addition, it is possible that a
Municipal Obligation may cease to be rated or an NRSRO might not timely
change its rating of a particular Municipal Obligation to reflect subsequent
events. Although neither event will require the sale of such Municipal
Obligation by the Fund, Dreyfus will consider such event in determining
whether the Fund should continue to hold the Municipal Obligation. In
addition, if an NRSRO changes its rating system, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with its
investment objective and policies.
Floating Rate and Variable Rate Obligations
The Fund may purchase floating rate and variable rate obligations,
including participation interests therein. Floating rate or variable rate
obligations provide that the rate of interest is set as a specific percentage
of a designated base rate (such as the prime rate at a major commercial bank)
and that the Fund can demand payment of the obligation at par plus accrued
interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external
interest rate. Frequently such obligations are secured by letters of credit
or other credit support arrangements provided by banks. The quality of the
underlying creditor or of the bank, as the case may be, must, as determined
by Dreyfus under the supervision of the Trustees, be equivalent to the
quality standard prescribed for the Fund. The Fund is currently permitted to
purchase floating rate and variable rate obligations with demand features in
accordance with requirements established by the SEC, which, among other
things, permit such instruments to be deemed to have remaining maturities of
thirteen months or less, notwithstanding that they may otherwise have a
stated maturity in excess of thirteen months.
The Fund may invest in participation interests purchased from banks in
floating rate or variable rate tax-exempt Municipal Obligations owned by
banks. A participation interest gives the purchaser 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, and
provides a demand feature. Each participation is backed by an irrevocable
letter of credit or guarantee of a bank (which may be the bank issuing the
participation interest, a bank issuing a confirming letter of credit to that
of the issuing bank, or a bank serving as agent of the issuing bank with
respect to the possible repurchase of the participation interest) that
Dreyfus, under the supervision of the Trustees, has determined meets the
prescribed quality standards for the Fund. The Fund has the right to sell
the instrument back to the issuing bank or draw on the letter of credit on
demand for all or any part of the Fund's participation interest in the
Municipal Obligation, plus accrued interest. The Fund is currently permitted
to invest in participation interests when the demand provision complies with
conditions established by the SEC. Banks will retain a service and letter of
credit fee and a fee for issuing repurchase commitments in an amount equal to
the excess of the interest paid on the Municipal Obligations over the
negotiated yield at which the instruments were purchased by the Fund.
When-Issued Securities
The Fund may purchase Municipal Obligations on a when-issued basis
(i.e., for delivery beyond the normal settlement date at the stated price and
yield). The payment obligation and the interest rate that will be received
on the Municipal Obligations purchased on a when-issued basis are each fixed
at the time the buyer enters into the commitment. Although the Fund will
purchase Municipal Obligations on a when-issued basis only with the intention
of actually acquiring the securities, the Fund may sell these securities
before the settlement date if it is deemed advisable as a matter of
investment strategy.
Municipal Obligations purchased on a when-issued basis and the
securities held in the Fund's portfolio are subject to changes in market
value based upon the public's perception of the creditworthiness of the
issuer and changes, real or anticipated, in the level of interest rates
(which will generally result in similar changes in value, i.e., both
experiencing appreciation when interest rates decline and depreciation when
interest rates rise). Therefore, to the extent the Fund remains
substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be a greater possibility of
fluctuation in the Fund's net asset value. Purchasing Municipal Obligations
on a when-issued basis can involve a risk that the yields available in the
market when the delivery takes place may actually be higher than those
obtained in the transaction.
The Fund will establish with the Fund's custodian a segregated account
consisting of cash or liquid debt securities in an amount at least equal to
the amount of its when-issued commitments. When the time comes to pay for
when-issued securities, the Fund will meet its obligations from then-
available cash flow, sale of securities held in the separate account, sale of
other securities or, although it would not normally expect to do so, from the
sale of the when-issued securities themselves (which may have a value greater
or lesser than the Fund's payment obligations). Sale of securities to meet
such obligations carries with it a greater potential for the realization of
capital gains, which are not exempt from Federal income tax.
Purchase of Securities with Stand-by Commitments
Pursuant to an exemptive order issued by the SEC under the Act, the Fund
may acquire standby commitments with respect to Municipal Obligations held in
its portfolio. Under a stand-by commitment, a broker-dealer, dealer or bank
would agree to purchase, at the Fund's option, a specified Municipal
Obligation at a specified price. Stand-by commitments acquired by the Fund
may also be referred to as "put options." The amount payable to the Fund
upon its exercise of a stand-by commitment normally would be (a) the
acquisition cost of the Municipal Obligation, less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the security, plus (b) all interest accrued on the
security since the last interest payment date during the period. Absent
unusual circumstances, in determining net asset value the Fund would value
the underlying Municipal Obligation at amortized cost. Accordingly, the
amount payable by the broker-dealer, dealer or bank upon exercise of a stand-
by commitment will normally be substantially the same as the portfolio value
of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment is unconditional and
unqualified. Although the Fund could not transfer a stand-by commitment, the
Fund could sell the underlying Municipal Obligation to a third party at any
time. It is expected that stand-by commitments generally will be available to
the Fund without the payment of any direct or indirect consideration. The
Fund may, however, pay for stand-by commitments either separately in cash or
by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held in the Fund's portfolio will not exceed
.5 of 1% of the value of the Fund's total assets calculated immediately after
such stand-by commitment was acquired.
The Fund intends to enter into stand-by commitments only with broker-
dealers, dealers or banks that Dreyfus believes present minimum credit risks.
The Fund's ability to exercise a stand-by commitment will depend on the
ability of the issuing institution to pay for the underlying securities at
the time the commitment is exercised. The credit of each institution issuing
a stand-by commitment to the Fund will be evaluated on an ongoing basis by
Dreyfus in accordance with procedures established by the Trustees.
The Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect
the valuation or maturity of the underlying Municipal Obligation, which will
continue to be valued in accordance with the amortized cost method. Each
stand-by commitment will be valued at zero in determining net asset value.
Should the Fund pay directly or indirectly for a stand-by commitment, its
costs will be reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires. Stand-by commitments will not
affect the dollar-weighted average maturity of the Fund's portfolio. The
Fund understands that the Internal Revenue Service has issued a revenue
ruling to the effect that a registered investment company will be treated for
Federal income tax purposes as the owner of Municipal Obligations acquired
subject to stand-by commitments and the interest on the Municipal Obligations
will be tax-exempt to the Fund.
Taxable Investments
The Fund anticipates being as fully invested as practicable in Municipal
Obligations. Because the Fund's purpose is to provide income exempt from
Federal and state personal income tax, the Fund will invest in taxable
obligations only if and when the Trustees believe it would be in the best
interests of its shareholders to do so. Situations in which the Fund may
invest up to 20% of its total assets in taxable securities include: (a)
pending investment of proceeds of sales of shares of the Fund or of portfolio
securities, (b) pending settlement of purchases of portfolio securities, and
(c) when the Fund is attempting to maintain liquidity for the purpose of
meeting anticipated redemptions. The Fund may temporarily invest more than
20% of its total assets in taxable securities to maintain a "defensive"
posture when, in the opinion of Dreyfus, it is advisable to do so because of
adverse market conditions affecting the market for Municipal Obligations.
The Fund may invest in only the following kinds of taxable securities
maturing in one year or less from the date of purchase: (1) obligations of
the United States Government, its agencies or instrumentalities; (2)
commercial paper rated at the time of purchase at least Prime-1 by Moody's or
A-1+ or A-1 by S&P; (3) certificates of deposit of domestic banks with total
assets of $1 billion or more; and (4) repurchase agreements (instruments
under which the seller of a security agrees to repurchase the security at a
specific time and price) with respect to any securities that the Fund is
permitted to hold.
Repurchase Agreements
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System or certain non-bank dealers. Under each repurchase
agreement the selling institution will be required to maintain the value of
the securities subject to the agreement at not less than their repurchase
price. If a particular bank or non-bank dealer defaults on its obligation to
repurchase the underlying debt instrument as required by the terms of a
repurchase agreement, the Fund will incur a loss to the extent that the
proceeds it realizes on the sale of the collateral are less than the
repurchase price of the instrument. In addition, should the defaulting bank
or non-bank dealer file for bankruptcy, the Fund could incur certain costs in
establishing that it is entitled to dispose of the collateral and its
realization on the collateral may be delayed or limited. Investments in
repurchase agreements are subject to the policy prohibiting investment of
more than 10% of the Fund's assets in restricted securities, securities
without readily available market quotations and repurchase agreements
maturing in more than seven days.
As noted in the Prospectus, the Fund may, on occasion, invest in
securities issued by other investment companies. These securities will be of
investment companies that determine their net asset value per share based on
the amortized cost or penny-rounding method. Such securities will be
acquired by the Fund within the limits prescribed by the Act, which include,
subject to certain exceptions, a prohibition against the Fund's investing
more than 10% of the value of its total assets in such securities.
Risk Factors
Special Factors Affecting the Fund
Some of the significant financial considerations relating to the Fund's
investment in New York Municipal Obligations are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement
of Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
Investing in New York Municipal Obligations. Each investor should
consider carefully the special risks inherent in the investment in New York
Municipal Obligations by the Fund. These risks result from the financial
condition of New York State and certain of its public bodies and
municipalities, including New York City. Beginning in early 1975, New York
State, New York City and other State entities faced serious financial diffi
culties which jeopardized the credit standing and impaired the borrowing
abilities of such entities and contributed to high interest rates on, and
lower market prices for, debt obligations issued by them. A recurrence of
such financial difficulties or a failure of certain financial recovery
programs could result in defaults or declines in the market values of various
New York Municipal Obligations in which the Fund may invest. If there should
be a default or other financial crisis relating to New York State, New York
City, a State or City agency, or a State municipality, the market value and
marketability of outstanding New York Municipal Obligations in the Fund's
portfolio and the interest income to the Fund could be adversely affected.
Moreover, the national recession and the significant slowdown in the New York
and regional economies in the early 1990s added substantial uncertainty to
estimates of the State's tax revenues, which, in part, caused the State to
incur cash-basis operating deficits in the General Fund and issue deficit
notes during the fiscal periods 1989 through 1992. The State's financial
operations have improved, however, during recent fiscal years. During the
fiscal periods 1992 through 1995, New York recorded balanced budgets on a
cash-basis. On a GAAP-basis, the State reported a General Fund operating
deficit of $1.426 billion for the 1994-95 fiscal year, as compared to an
operating surplus of $914 million in the prior fiscal year. The 1994-95
fiscal year deficit was caused by several factors, including the use of
$1.026 billion of the prior year's cash-based surplus to fund fiscal 1995
operating expenses and the adoption of changes in accounting methodologies by
the State Comptroller. There can be no assurance that New York will not face
substantial potential budget gaps in future years. In January 1992, Moody's
lowered from A to Baa1 the ratings on certain appropriation-backed debt of
New York State and its agencies. The State's general obligation, state
guaranteed and New York State Local Government Assistance Corporation bonds
continue to be rated A by Moody's. In January 1992, S&P lowered from A to A-
the ratings of New York State general obligation bonds and stated that it
continued to assess the ratings outlook as negative. The ratings of various
agency debt, state moral obligations, contractual obligations, lease purchase
obligations and state guarantees also were lowered. In February 1991,
Moody's lowered its rating on New York City's general obligation bonds from A
to Baa1 and in July 1995, S&P lowered its rating on such bonds from A- to
BBB+. The rating changes reflect the rating agencies' concerns about the
financial condition of New York State and City, the heavy debt load of the
State and City, and economic uncertainties in the region. Investors should
review "Appendix A" which more fully sets forth these and other risk factors.
Investment Restrictions
The following are fundamental investment restrictions of the Fund. The
Fund may not:
1. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
activities in the same industry. (For purposes of this limitation, U.S.
Government securities and state or municipal governments and their political
subdivisions are not considered members of any industry. In addition, this
limitation does not apply to investments of domestic banks, including U.S.
branches of foreign banks and foreign branches of U.S. banks.)
2. Borrow money or issue senior securities as defined in the Act,
except that (a) the Fund may borrow money in an amount not exceeding one-
third of the Fund's total assets at the time of such borrowing, and (b) the
Fund may issue multiple classes of shares. The purchase or sale of futures
contracts and related options shall not be considered to involve the
borrowing of money or issuance of senior securities.
3. Make loans or lend securities, if as a result thereof more than one-
third of the Fund's total assets would be subject to all such loans. For
purposes of this restriction, debt instruments and repurchase agreements
shall not be treated as loans.
4. Underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be deemed an
underwriting.
5. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate,
including mortgage loans, or securities of companies that engage in the real
estate business or invest or deal in real estate or interests therein).
6. Purchase or sell commodities, except that the Fund may enter into
futures contracts and related options, forward currency contracts and other
similar instruments.
The Fund may, notwithstanding any other fundamental investment policy or
restriction, invest all of its investable assets in securities of a single
open-end management investment company with substantially the same
fundamental investment objectives, policies, and restrictions as the Fund.
The following are non-fundamental investment restrictions of the Fund:
1. The Fund will not purchase or retain the securities of any issuer
if the officers, directors or Trustees of the Trust, its advisers, or
managers owning beneficially more than one half of one percent of the
securities of each issuer together own beneficially more than five percent of
such securities.
2. The Fund will not purchase securities of issuers (other than
securities issued or guaranteed by domestic or foreign governments or
political subdivisions thereof), including their predecessors, that have been
in operation for less than three years, if by reason thereof the value of the
Fund's investment in securities would exceed 5% of the Fund's total assets.
For purposes of this limitation, sponsors, general partners, guarantors and
originators of underlying assets may be treated as the issuer of a security.
3. The Fund will not purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total assets,
except that: (a) this restriction shall not apply to standby commitments, and
(b) this restriction shall not apply to the Fund's transactions in futures
contracts and related options.
4. The Fund will not purchase warrants if at the time of such
purchase: (a) more than 5% of the value of the Fund's assets would be
invested in warrants, or (b) more than 2% of the value of the Fund's assets
would be invested in warrants that are not listed on the NYSE or American
Stock Exchange ("AMEX") (for purposes of this limitation, warrants acquired
by the Fund in units or attached to securities will be deemed to have no
value).
5. The Fund will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, and other securities which are not
readily marketable. For purposes of this restriction, illiquid securities
shall not include commercial paper issued pursuant to Section 4(2) of the
Securities Act of 1933 and securities which may be resold under Rule 144A
under the Securities Act of 1933, provided that the Board of Trustees, or its
delegate, determines that such securities are liquid based upon the trading
markets for the specific security.
6. The Fund may not invest in securities of other investment
companies, except as they may be acquired as part of a merger, consolidation
or acquisition of assets and except to the extent otherwise permitted by the
Act.
7. The Fund will not purchase oil, gas or mineral leases (the Fund
may, however, purchase and sell the securities of companies engaged in the
exploration, development, production, refining, transporting and marketing of
oil, gas or minerals).
8. The Fund shall not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amounts to the securities
sold short, and provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.
9. The Fund shall not purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin.
10. The Fund shall not purchase any security while borrowings
representing more than 5% of the Fund's total assets are outstanding.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in
the values of assets will not constitute a violation of such restriction.
Under the Act, a fundamental policy may not be changed without the vote
of a majority of the outstanding voting securities of the Fund, as defined in
the Act. "Majority" means the lesser of (1) 67% or more of the shares
present at the Fund's meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (2)
more than 50% of the outstanding shares of the Fund. Non-fundamental
investments restrictions may be changed, without shareholder approval, by
vote of a majority of the Trust's Board of Trustees at any time.
In order to permit the sale of the Fund's shares in certain states, the
Trust may make commitments more restrictive than the investment restrictions
described above. Accordingly, pursuant to such commitments, the Fund has
undertaken not to invest in oil, gas or other mineral leases. In addition,
the Fund has undertaken not to invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities at the time
of purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be invested in warrants
not listed on AMEX or NYSE. Further, the Fund has given a representation
that investments will not be made in real estate limited partnerships.
Should the Trust determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of the Fund's shares in the state involved.
Portfolio Transactions
Decisions to buy and sell securities for the Fund and effectuation of
securities transactions are made by Dreyfus, subject to the overall
supervision and review of the Trustees. The same personnel are also in charge
of portfolio transactions for other clients of other subsidiaries and
affiliates of Dreyfus.
Purchases and sales of portfolio securities for the Fund will generally
be transacted with the issuer or a primary market maker on a net basis,
without the payment by the Fund of any brokerage commission for such
purchases or sales. Purchases from dealers serving as primary market makers
will reflect the spread between the bid and asked prices. In selecting
dealers and in executing portfolio transactions, Dreyfus seeks, on behalf of
the Fund, the best overall terms available. In doing so, Dreyfus considers
all matters it deems relevant, including the breadth of the market in the
security, the price of the security and the financial condition and executing
capability of the dealer.
Dealers may be selected who provide brokerage and/or research services
to the Trust and/or other accounts over which Dreyfus or its affiliates
exercise investment discretion. Such services may include advice concerning
the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or the purchasers or
sellers of securities; furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). The receipt
of research from dealers may be useful to Dreyfus in rendering investment
management services to the Trust and/or its other clients; and, conversely,
such information provided by its brokers or dealers who have executed
transaction orders on behalf of other clients of Dreyfus may be useful to
Dreyfus in carrying out its obligation to the Trust.
The Fund will not purchase Municipal Obligations during the existence of
any underwriting or selling group relating thereto of which an affiliate is a
member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of this limitation
in comparison with other investment companies which have a similar investment
objective but are not subject to such limitations.
Dreyfus will make investment decisions for the Fund independently from
those made for its other clients, other funds and clients of other
subsidiaries of Dreyfus. On occasion, however, the same investment decisions
will be made for the Fund as for one or more of Dreyfus' clients at about the
same time. In a case in which the Fund and one of these other clients are
simultaneously engaged in the purchase or sale of the same security, the
transactions will, to the extent feasible and practicable, be averaged as to
price and allocated as to amount among the Fund and/or the other client or
clients pursuant to a formula considered equitable. In some cases, this
system could have a detrimental effect on the price or volume of the security
to be purchased or sold on behalf of the Fund. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Fund.
For the fiscal years ended June 30, 1995 and June 30, 1994, the Fund
paid no stated brokerage commissions.
REDEMPTION OF FUND SHARES
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record.
The Account Application, Shareholder Services Form or later written request
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
the investor's agent, will cause the Fund to redeem a sufficient number of
shares in the investor's account to cover the amount of the Check and the
$2.00 charge. Dividends are earned until the Check clears. After clearance,
a copy of the Check will be returned to the investor. Investors generally
will be subject to the same rules and regulations that apply to checking
accounts, although election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.
If the amount of the Check, plus any applicable charges, is greater than
the value of the shares in an investor's account, the Check will be returned
marked insufficient funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Agent, and reasonably
believed by the Transfer Agent to be genuine. An investor will be charged a
$5.00 fee for each wire redemption, which will be deducted from the
investor's account and paid to the Transfer Agent. Ordinarily, the Fund will
initiate payment for shares redeemed pursuant to this Privilege on the next
business day after receipt if the Transfer Agent receives the redemption
request in proper form. Redemption proceeds will be transferred by Federal
Reserve wire only to the commercial bank account specified by the investor on
the Account Application or Shareholder Services Form. Redemption proceeds,
if wired, must be in the amount of $5,000 or more and will be wired to the
investor's account at the bank of record designated in the investor's file at
the Transfer Agent, if the investor's bank is a member of the Federal Reserve
System, or to a correspondent bank if the investor's bank is not a member.
Fees ordinarily are imposed by such bank and usually are borne by the
investor. Immediate notification by the correspondent bank to the investor's
bank is necessary to avoid a delay in crediting the funds to the investor's
bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder
of a joint account, and each signature must be guaranteed. Signatures on
endorsed certificates submitted for redemption also must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations as well as from participants in the NYSE 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.
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through the
ACH system unless more prompt transmittal specifically is requested.
Redemption proceeds will be on deposit in the investor's account at an ACH
member bank ordinarily two business days after receipt of the redemption
request. An investor will be charged a $5.00 fee for each redemption
effected pursuant to this Privilege, which will be deducted from the
investor's account and paid to the Transfer Agent. See "Purchase of Fund
Shares-- Dreyfus TeleTransfer Privilege."
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record of the Fund, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests
for redemption in excess of such amount, the Trustees and executive officers
of the Trust reserve the right to make payments in whole or in part in
securities or other assets 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 this event, the securities would be valued in the
same manner as the Fund's portfolio is valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemptions. The right to redeem Fund shares may be
suspended or the date of payment postponed (a) for any period during which
the NYSE is closed (other than for customary weekend or holiday closings);
(b) when trading in the markets the Trust normally uses is restricted or when
an emergency exists as determined by the SEC 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 SEC, by order, may permit
for protection of the Fund's shareholders.
FUND EXCHANGES
Shares of other funds purchased by exchange will be purchased on the
basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a sales
load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a sales
load and additional shares acquired through reinvestment of
dividends or other distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein as
"Offered Shares"), provided that, if the sales load applicable to
the Offered Shares exceeds the maximum sales load that could have
been imposed in connection with the Purchased Shares (at the time
the Purchased Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor or the investor's Agent acting on
the investor's behalf must give exchange instructions to the Transfer Agent
in writing, by wire or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the applicable "No" box on the Account
Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange, the investor authorizes the
Transfer Agent to act on telephonic instructions from any person representing
himself or herself to be the investor or a representative of the investor's
Agent, and reasonably believed by the Transfer Agent to be genuine.
Telephone exchanges may be subject to limitations as to the amount involved
or the number of telephone exchanges permitted. Shares issued in certificate
form are not eligible for telephone exchange. Investors will be charged a
$5.00 fee for each exchange made out of the Fund, which will be deducted from
the investor's account and paid to the Transfer Agent.
This Privilege is available to shareholders resident in any state in
which shares of the fund being acquired may legally be sold. Shares may be
exchanged only between accounts having identical names and other identifying
designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchange service may be
modified or terminated at any time upon notice to shareholders.
VALUATION OF SHARES
The Prospectus describes the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. In addition,
portfolio securities held by the Fund may be actively traded in securities
markets which are open for trading on days when the Fund will not be
determining its net asset value. Accordingly, there may be occasions when
the Fund is not open for business but when the value of the Fund's portfolio
securities will be affected by such trading activity. The holidays (as
observed) on which the NYSE is closed currently are: New Years Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
It is the Trust's policy to use its best efforts to maintain the Fund's
net asset value per share ("NAV") at a constant value of $1.00. The Fund's
portfolio instruments are valued on the basis of amortized cost. This
involves valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may
result in periods during which the value, as determined by amortized cost, is
higher or lower than the price the Trust would receive if it sold the
instrument.
The valuation of the Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of the Fund's NAV at $1.00 are
permitted by a rule adopted by the SEC. Under this rule, the Fund must
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of thirteen months or
less, and invest only in securities determined by the Trustees to be eligible
securities with minimal credit risks at the time of their acquisition by the
Fund. In accordance with the rule, the Trustees have established procedures
designed to stabilize, to the extent reasonably practicable, the Fund's NAV
as computed for the purpose of sales and redemptions at $1.00. Such
procedures include review of the Fund's portfolio holdings by the Trustees,
at such intervals as they may deem appropriate, to determine whether the NAV
of the Fund calculated by using available market quotations or market
equivalents deviates from $1.00 based on amortized cost. The rule also
provides that the extent of any deviation between the Fund's NAV based upon
available market quotations or market equivalents and $1.00 NAV based on
amortized cost must be examined by the Trustees. In the event the Trustees
determine that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, pursuant to the
rule they must cause the Fund to take such corrective action as the Trustees
regard as necessary and appropriate, including: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a NAV by
using available market quotations.
PERFORMANCE DATA
From time to time, the Fund may quote its yield in advertisements,
shareholder reports or other communications to shareholders. The Fund may
compare its performance to that of other mutual funds, relevant indices or
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Performance rankings as reported in Changing Times, Business Week,
Institutional Investor, The Wall Street Journal, Mutual Fund Forecaster, No
Load Investor, Money Magazine, Morningstar Mutual Fund Values, U.S. News and
World Report, Forbes, Fortune, Barron's, Financial Planning, Financial
Planning on Wall Street, Certified Financial Planner Today, Investment
Advisor, Kiplinger's, Smart Money and similar publications may also be used
in comparing the Fund's performance.
Yields
The Fund's yield is computed by: (a) determining the net change in the
value of a hypothetical pre-existing account in a Fund having a balance of
one share at the beginning of a seven-calendar-day period for which yield is
to be quoted, (b) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and (c) annualizing
the results (i.e., multiplying the base period return by 365/7). The net
change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such
additional shares, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Fund may
calculate a compound effective annualized yield by adding 1 to the base
period return (calculated as described above), raising the sum to a power
equal to 365/7 and subtracting 1. The Fund's equivalent taxable yield is
computed by dividing that portion of the Fund's yield which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the Fund's yield that is not tax-exempt. For the seven-day period
ended June 30, 1995, the Fund's annualized current yields, compounded
effective yields, and equivalent taxable yields for its then existing
Investor shares and Class R shares were as follows:
7-Day Yield for Period Ended
June 30, 1995
Annualized Compounded Equivalent
Current Yield Effective Yield Taxable Yield*
Investor shares 3.46% 3.52% 6.13%
Class R shares 3.71% 3.78% 6.57%
Effective December 8, 1995, the Fund's separate "Investor" and "Class R"
designations were eliminated and the Fund became a single class Fund. For
the seven-day period ended December 18, 1995, the Fund's yield was 3.63%,
effective yield was 3.70% and equivalent taxable yield* was 6.43%. These
yields reflect the waiver of a portion of the management fee by Dreyfus,
without which the Fund's seven-day yield, effective yield and equivalent
taxable yield* for the period ended December 18, 1995, would have been 3.53%,
3.59% and 6.25%, respectively. See "Management of the Fund" in the
Prospectus.
* Example assumes a Federal marginal tax rate of 36% and a New York State
and New York City marginal tax rate of 11.785% (combined effective rate of
43.54%).
From time to time, advertising material for the Fund may include
biographical information relating to its portfolio manager and may refer to,
or include commentary by the portfolio manager relating to investment
strategy, asset growth, current or past business, political, economic or
financial conditions and other matters of general interest to investors.
TAXES
The Fund intends to satisfy the requirements for qualifying as a
"regulated investment company" under Subchapter M of the Code. Provided that
the Fund distributes at least 90% of its taxable net investment income,
including market discount and net realized short-term capital gains, and 90%
of the tax-exempt interest income (reduced by certain expenses), the Fund, if
it qualifies as a regulated investment company, will not be liable for
Federal income taxes to the extent its taxable net investment income and
capital gain net income are distributed to its shareholders.
Because the Fund will distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for Federal income tax purposes. If a shareholder receives an
exempt-interest dividend with respect to shares of the Fund and if such
shares are held by the shareholder for six months or less, then any loss on
the redemption or exchange of such shares will, to the extent of such exempt-
interest dividends, be disallowed. In addition, the Code may require a
shareholder, if he or she receives exempt-interest dividends, to treat as
taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of an exempt-
interest dividend paid by the Fund which represents income from private
activity bonds may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" of a facility financed by such bonds,
or a "related person" thereof. Moreover, as noted in the Fund's Prospectus,
some or all of the Fund's dividends may be a specific preference item, or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of Fund
dividends and distributions may affect a foreign corporate shareholder's
Federal "branch profits" tax liability and a Subchapter S corporation
shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisers as to whether they are (1)
substantial users with respect to a facility or related to such users within
the meaning of the Code or (2) subject to a Federal alternative minimum tax,
any applicable state alternative minimum tax, the Federal branch profits tax,
or the Federal excess net passive income tax.
Dividends derived by the Fund from tax-exempt interest are designated as
tax-exempt in the same percentage of the day's dividend as the actual tax-
exempt income earned that day. Thus, the percentage of the dividend
designated as tax-exempt may vary from day to day. Similarly, dividends
derived by the Fund from interest on New York Municipal Obligations will be
designated as exempt from the State of New York taxation in the same
percentage of the day's dividend as the actual interest on New York Municipal
Obligations earned on that day.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
the taxable dividends paid by the Fund and the distributions paid by the Fund
(in excess of $10 on an annualized basis) with respect to any non-corporate
shareholder who fails to furnish or certify his or her correct taxpayer
identification number, who has been notified that he or she is subject to
back up withholding due to underreporting of dividend or interest income or
who fails to certify that he or she has provided a correct taxpayer
identification number, and that he or she is not subject to such withholding.
An individual's tax identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be
credited against a shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute
for careful tax planning. Individuals may be exempt from New York state and
local personal income taxes on exempt-interest income derived from
obligations of issuers located in New York, but are usually subject to such
taxes on such dividends that are derived from obligations of issuers located
in other jurisdictions. Investors are urged to consult their tax advisers
with specific reference to their own tax situations.
DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company organized as an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts by an Agreement and Declaration of Trust dated March 28, 1983,
amended and restated December 9, 1992, and subsequently further amended. On
March 31, 1994 the Trust changed its name from "The Boston Company Tax-Free
Municipal Funds" to "The Laurel Tax-Free Municipal Funds." The Trust's name
was then changed from "The Laurel Tax-Free Municipal Funds" to "The
Dreyfus/Laurel Tax-Free Municipal Funds" effective October 17, 1994. On
December 8, 1995, the Fund's name was changed from Dreyfus/Laurel New York
Tax-Free Money Fund to Dreyfus BASIC New York Municipal Money Market Fund.
The Trustees have authority to create an unlimited number of shares of
beneficial interest, without par value, in separate series. Each series will
be treated as a separate entity. Currently, seven series have been
authorized (each a "fund"). The Trustees have authority to create additional
series at any time in the future without shareholder approval.
Each share (regardless of class) has one vote. On each matter submitted
to a vote of the shareholders, all shares of each fund or class shall vote
together as a single class, except as to any matter for which a separate vote
of any fund or class is required by the Act and except as to any matter which
affects the interest of a particular fund or class, in which case only the
holders of shares of the one or more affected funds or classes shall be
entitled to vote, each as a separate class.
The assets received by the Trust for the issue or sale of shares of each
Fund and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of each
fund are required to be segregated on the books of account, and are to be
charged with the expenses in respect to such fund and with a share of the
general expenses of the Trust. Any general expenses of the Trust not readily
identifiable as belonging to a particular fund shall be allocated by or under
the direction of the Trustees in such manner as the Trustees determine to be
fair and equitable, taking into consideration, among other things, the
relative sizes of the funds and the relative difficulty in administering each
fund. Each share of each fund represents an equal proportionate interest in
that fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such fund as are declared by the
Trustees. Upon any liquidation of a fund, shareholders thereof are entitled
to share pro rata in the net assets belonging to that fund available for
distribution.
The Trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Under
the Act, shareholders of record of no less than two-thirds of the outstanding
shares of the Trust may remove a Trustee through a declaration in writing or
by a vote cast in person or by proxy at a meeting called for that purpose.
The Trustees are required to call a meeting of shareholders for the purposes
of voting upon the question of removal of any Trustee when requested in
writing to do so by the shareholders of record of not less than 10% of the
Trust's outstanding shares.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Trust or a Trustee. The Agreement and Declaration of
Trust provides for indemnification from the Trust's property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations, a possibility which
Dreyfus believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of each fund in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of such
fund.
PRINCIPAL SHAREHOLDERS
As of January 31, 1996, the following companies/individuals owned
beneficially 5% or more of the outstanding shares of the Fund: Robert and
Harriet Heilbrunn, 1050 5th Avenue, New York, New York 10028, 6.7% record;
George A. Niedham, 79 East 79th Street, New York, New York 10021, 5.3%
record.
CUSTODIAN AND TRANSFER AGENT
Mellon Bank, which is located at Mellon Bank Center, Pittsburgh, PA
15219, serves as the Fund's custodian. Dreyfus Transfer, Inc., a wholly-
owned subsidiary of Dreyfus, located at One American Express Plaza,
Providence, Rhode Island 02903, 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. Dreyfus
Transfer, Inc. and Mellon Bank, as custodian, have no part in determining the
investment policies of the Fund or which securities are to be purchased or
sold by the Fund.
COUNSEL AND INDEPENDENT AUDITORS
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Second
Floor, Washington, D.C., 20036-1800, has passed upon the legality of the
shares offered by the Prospectus and this Statement of Additional
Information.
KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania
15219, was appointed by the Board of Trustees to serve as the Fund's
independent auditors for the year ending June 30, 1996, providing audit
services including (1) examination of the annual financial statements, (2)
assistance, review and consultation in connection with the SEC and (3) review
of the annual Federal income tax return filed on behalf of the Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended June 30, 1995
accompanies this Statement of Additional Information, and the financial
statements contained therein, and related notes, are incorporated by
reference herein.
APPENDIX A
RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
The financial condition of New York State (the "State") and certain of
its public bodies (the "Agencies") and municipalities, particularly New York
City (the "City"), could affect the market values and marketability of New
York Municipal Obligations which may be held by the Fund. The following
information constitutes only a brief summary, does not purport to be a
complete description, and is based on information drawn from official
statements relating to securities offerings of the State, the City and the
Municipal Assistance Corporation for the City of New York ("MAC") available
as of the date of this Statement of Additional Information. While the Fund
has not independently verified such information, it has no reason to believe
that such information is not correct in all material respects.
A national recession commenced in mid-1990. The downturn continued
through the remainder of the 1990-91 fiscal year, and was followed by a
period of weak economic growth during the remainder of the 1991 calendar
year. For the calendar year 1992, the national economy continued to recover,
although at a rate below all post-war recoveries. The recession was more
severe in the State than in other parts of the nation, owing to a significant
retrenchment in the financial services industry, cutbacks in defense
spending, and an overbuilt real estate market. The State economy remained in
recession until 1993, when employment growth resumed. Since early 1993, the
State has gained approximately 100,000 jobs. The State's economy is expected
to continue to expand modestly during 1995, but there will be a pronounced
slow-down during the course of the year. Although industries that export
goods and services abroad are expected to benefit from the lower dollar,
growth will be slowed by government cutbacks at all levels. On an average
annual basis, employment growth will be about the same as 1994. Both
personal income and wages are expected to record moderate gains in 1995.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for 1995-96 fiscal year was
formulated on June 20, 1995 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in
over half a century which proposed and, as enacted, projects an absolute year-
over-decline in General Fund disbursements. Spending for State operations is
projected to drop even more sharply, by 4.6%. Nominal spending from all
State funding sources (i.e., excluding Federal aid) is proposed to increase
by only 2.5% from the prior fiscal year, in contrast to the prior decade when
such spending growth averaged more than 6.0% annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of
unfunded 1994-95 initiatives, primarily for local aid programs; and the use
of one-time solutions, primarily surplus funds from the prior year, to fund
recurring spending in the 1994-95 budget. The Governor proposed additional
tax cuts, to spur economic growth and provide relief for low and middle-
income tax payers, which were larger than those ultimately adopted, and which
added $240 million to the then projected imbalance or budget gap, bringing
their total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, Federal
financial and monetary policies, the availability of credit and the condition
of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience worse-than-
predicted results in the 1994-95 fiscal year, with corresponding material and
adverse effects on the State's projections of receipts and disbursements.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds are
projected to be $33.110 billion, a decrease of $48 million from total
receipts in the prior fiscal year. Total General Fund disbursements and
transfers to other funds are projected to be $33.055 billion, a decrease of
$344 million from the total amount disbursed in the prior fiscal year.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address
any potential budgetary imbalance, the State may need to take significant
actions to align recurring receipts and disbursements in future fiscal years.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and
January 13, 1992, S&P changed its ratings on all of the State's outstanding
general obligation bonds from AA- to A and from A to A-, respectively. In
February 1991, Moody's lowered its rating on the City's general obligation
bonds from A to Baa1 and in July 1995, S&P lowered its rating on such bonds
from A- to BBB+. Ratings reflect only the respective views of such
organizations, and their concerns about the financial condition of New York
State and City, the debt load of the State and City and any economic
uncertainties about the region. There is no assurance that a particular
rating will continue for any given period of time or that any such rating
will not be revised downward or withdrawn entirely if, in the judgment of the
agency originally establishing the rating, circumstances so warrant.
(1) The State, Agencies and Other Municipalities. During the mid-
1970s, some of the Agencies and municipalities (in particular, the City)
faced extraordinary financial difficulties, which affected the State's own
financial condition. These events, including a default on short-term notes
issued by the New York State Urban Development Corporation ("UDC") in
February 1975, which default was cured shortly thereafter, and a continuation
of the financial difficulties of the City, created substantial investor
resistance to securities issued by the State and by some of its
municipalities and Agencies. For a time, in late 1975 and early 1976, these
difficulties resulted in a virtual closing of public credit markets for State
and many State related securities.
In response to the financial problems confronting it, the State
developed and implemented programs for its 1977 fiscal year that included the
adoption of a balanced budget on a cash basis (a deficit of $92 million that
actually resulted was financed by issuing notes that were paid during the
first quarter of the State's 1978 fiscal year). In addition, legislation was
enacted limiting the occurrence of additional so-called "moral obligation"
and certain other Agency debt, which legislation does not, however, apply to
MAC debt.
State Financial Cash-Basis Results--General Fund. The General Fund is
the principal operating fund of the State and is used to account for all
financial transactions, except those required to be accounted for in another
fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes. General Fund moneys
are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
tax and revenue anticipation notes ("TRANs"). First, the national recession,
and then the lingering economic slowdown in the New York and regional
economy, resulted in repeated shortfalls in receipts and three budget
deficits. For its 1992-93, 1993-94 and 1994-95 fiscal years, the State
recorded balanced budgets on a cash basis, with substantial fund balances in
1992-93 and 1993-94, and smaller fund balance in 1994-95, as described below.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in
the Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve
Fund ("CRF"). The CRF was established in State Fiscal year 1993-94, funded
partly with surplus moneys, to assist the State in financing the 1994-95
fiscal year costs of extraordinary ligation known or anticipated at that
time; the opening fund balance in State fiscal year 1994-95 was $265 million.
The $241 million change in the fund balance reflects the use of $264 million
in the CRF as planned, as well as the required deposit of $23 million to the
Tax Stabilization Reserve Fund. In addition, $278 million was on deposit in
the tax refund reserve account, $250 million of which was deposited at the
end of the State's 1994-95 fiscal year to continue the process of
restructuring the State's cash flow as part of the New York Local Government
Assistance Corporation ("LGAC") program.
Compared to the State Financial Plan for 1994-1995 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes.
Of this amount, the personal income tax accounts for $800 million, reflecting
weak estimated tax collections and lower withholding due to reduced wage and
salary growth, more severe reductions in brokerage industry bonuses than
projected earlier, and deferral of capital gains realizations in anticipation
of potential Federal tax changes. Business taxes fell short by $373 million,
primarily reflecting lower payments from banks as substantial overpayments of
1993 liability depressed net collections in the 1994-95 fiscal year. These
shortfalls were offset by better performance in the remaining taxes,
particularly the user taxes and fees, which exceeded projections by $210
million. Of this amount, $277 million was attributable to certain
restatements for accounting treatment purposes pertaining to the CRF and
LGAC; these restatements had no impact on balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the
CRF and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants
to local governments, primarily reflecting the conservative nature of the
original estimates of projected costs for social services and other programs.
Lower education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap
in the 1994-95 State Financial Plan. These actions included savings from a
hiring freeze, halting the development of certain services, and the
suspension of non-essential capital projects. These actions, together with
$71 million in other measures comprised the Governor's $259 million gap-
closing plan, submitted to the Legislature in connection with the 1995-96
Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140 billion
in the tax refund reserve account, $265 million in the CRF and $134 million
in its tax stabilization reserve fund. These fund balances were primarily
the result of an improving national economy, State employment growth, tax
collections that exceeded earlier projections and disbursements that were
below expectations. Deposits to the personal income tax refund reserve have
the effect of reducing reported personal income tax receipts in the fiscal
year when made and withdrawals from such reserve increase receipts in the
fiscal year when made. The balance in the tax reserve account will be used
to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million will be redeposited in the tax
refund reserve account at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as part of the
LGAC program. The balance in the contingency reserve fund was reserved to
meet the cost of litigation facing the State in its 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for the year was formulated on April 16, 1993 by $1.002
billion. Greater-than-expected receipts in the personal income tax, the bank
tax, the corporation franchise tax and the estate tax accounted for most of
this variance, and more than offset weaker-than-projected collections from
the sales and use tax and miscellaneous receipts. Collections from
individual taxes were affected by various factors including changes in
Federal business laws, sustained profitability of banks, strong performance
of securities firms, and higher-than-expected consumption of tobacco products
following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first
quarter of the State's 1993-94 year, and although this lagged the national
economic recovery, the growth in New York began earlier than forecasted. The
New York economy exhibited signs of strength in the service sector, in
construction, and in trade. Long Island, and the Mid-Hudson Valley continued
to lag the rest of the State in economic growth. Approximately 100,000 jobs
are believed to have been added during the 1993-94 fiscal year.
Disbursements and transfer from the General Fund were $303 million below
the level projected in April 1993, an amount that would have been $423
million had the State not accelerated the payment of Medicaid billings, which
in the April 1993 State Financial Plan were planned to be deferred into the
1994-95 fiscal year. Compared to the estimates included in the State
Financial Plan formulated in April 1993, disbursements were lower for
Medicaid, capital projects, and debt service (due to refundings). In
addition, $114 million was used to restructure the State's cash flow as part
of the LGAC program. Disbursements were higher-than-expected for general
support for public schools. The State also made the first of six required
payments to the State of Delaware related to the settlement of Delaware's
litigation against the State regarding the disposition of abandoned property
receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal
year. In addition, the State augmented this initial deposit with $132
million on debt service savings attributable to the refinancing of State and
public authority bonds during 1993-94. A year-end transfer of $36 million
was also made to the CRF, which, after a disbursement for authorized fund
purposes, brought the CRF balance at the end of 1993-94 to $265 million.
This amount was $165 million higher than the amount originally targeted for
this reserve fund.
For its 1992-93 fiscal year the State had a balanced budget on a cash
basis with a positive margin of $671 million in the General Fund that was
deposited in the refund reserve account.
After reflecting a 1992-93 year-end deposit to the refund reserve
account of $671 million, reported 1992-93 General Fund receipts were $45
million higher than originally projected in April 1992. If not for that year-
end transaction, which had the effect of reducing 1992-93 receipts by $671
million and making those receipts available in 1993-94, General Fund receipts
would have been $716 million higher than originally projected.
The favorable performance was primarily attributable to personal income
tax collections that were more than $700 million higher than originally
projected (before reflecting the refund reserve transaction). The
withholding and estimated payment components of the personal income tax
exceeded original estimates by more than $800 million combined, reflecting
both stronger economic activity, particularly at year's end, and the tax-
induced one-time acceleration of income into 1992. Modest shortfalls were
experienced in other components of the income tax.
There were large, but largely offsetting, variances in other categories.
Significantly higher-than-projected business tax collections and the receipt
of unbudgeted payments from the Medical Malpractice Insurance Association and
the New York Racing Association approximately offset the loss of an
anticipated $200 million Federal reimbursement, the loss of certain budgeted
hospital differential revenue as a result of unfavorable court decisions, and
shortfalls in certain miscellaneous revenue sources.
Disbursements and transfers to other funds totaled $30.829 billion, an
increase of $45 million above projections in April 1992. After adjusting for
the impact of a $150 million payment from the Medical Malpractice Insurance
Association to health insurers made pursuant to legislation passed in January
1993, actual disbursements were $105 million lower than projected. This
reduction primarily reflected higher-than-anticipated costs for educational
programs, as offset by lower costs in virtually all other categories of
spending, including Medicaid, local health programs, agency operations,
fringe benefits, capital projects and debt service.
During its 1989-90, 1990-91 and 1991-92 fiscal years, the State incurred
cash-basis operating deficits in the General Fund of $775 million, $1.081
billion and $575 million, respectively, prior to the issuance of short-term
TRANs, owing to lower-than-projected receipts.
Other Governmental Funds. Activity in the three other governmental
funds has remained relatively stable over the last three fiscal years, with
Federally-funded programs comprising approximately two-thirds of these funds.
The most significant change in the structure of these funds has been the
redirection, beginning in the 1993-94 fiscal year, of a portion of
transportation-related revenues from the General Fund to two new dedicated
funds in the Special Revenue and Capital Projects Fund types. These revenues
totalling $676 million in the 1994-95 fiscal year were used to support the
capital programs of the Department of Transportation and the Metropolitan
Transportation Authority ("MTA").
The Special Revenue Funds account for State receipts from specific
sources that are legally restricted in use to specified purposes and include
all moneys received from the Federal government. Total receipts in Special
Revenue Funds are projected at $25.547 billion in the State's 1995-96 fiscal
year. Disbursements from Special Revenue Funds are projected to be $26.002
billion for the State's 1995-96 fiscal year.
The Capital Projects Funds are used to finance the acquisition and
construction of major capital facilities and to aid local government units
and Agencies in financing capital constructions. Federal grants for capital
projects, largely highway-related, are projected to account for 24% of the
$4.170 billion in total projected receipts in Capital Projects Funds in the
State's 1995-96 fiscal year. Total disbursements for capital projects are
projected to be $4.160 billion during the State's 1995-96 fiscal year.
The Debt Service Funds serve to fulfill State debt service on long-term
general obligation State debt and other State lease/purchase and contractual
obligation financing commitments. Total receipts in Debt Service Funds are
projected to reach $2.409 billion in the State's 1995-96 fiscal year. Total
disbursements from Debt Service Funds for debt service, lease/purchase and
contractual obligation financing commitments are projected to be $2.506
billion for the 1994-95 fiscal year.
State Borrowing Plan. The State anticipates that its capital programs
will be financed, in part, through borrowings by the State and public
authorities in the 1995-96 fiscal year. The State expects to issue $248
million in general obligation bonds (including $70 million for purposes of
redeeming outstanding BANs) and $186 million in general obligation commercial
paper. The Legislature has also authorized the issuance of up to $33 million
in COPs during the State's 1995-96 fiscal year for equipment purchases and
$14 million for capital purposes. The projection of the State regarding its
borrowings for the 1995-96 fiscal year may change if circumstances require.
In addition, the LGAC is authorized to provide net proceeds of up to
$529 million during the 1995-96 fiscal year to redeem notes sold in June
1995.
State Agencies. The fiscal stability of the State is related, at least
in part, to the fiscal stability of its localities and various of its
Agencies. Various Agencies have issued bonds secured, in part, by
non-binding statutory provisions for State appropriations to maintain various
debt service reserve funds established for such bonds (commonly referred to
as "moral obligation" provisions).
At September 30, 1994, there were 18 Agencies that had outstanding debt
of $100 million or more. The aggregate outstanding debt, including refunding
bonds, of these 18 Agencies was $70.3 billion as of September 30, 1994. As
of March 31, 1995, aggregate Agency debt outstanding as State-supported debt
was $27.9 billion and as State-related was $36.1 billion. Debt service on
the outstanding Agency obligations normally is paid out of revenues generated
by the Agencies' projects or programs, but in recent years the State has
provided special financial assistance, in some cases on a recurring basis, to
certain Agencies for operating and other expenses and for debt service
pursuant to moral obligation indebtedness provisions or otherwise.
Additional assistance is expected to continue to be required in future years.
Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. Failure of the State to appropriate
necessary amounts or to take other action to permit certain Agencies to meet
their obligations could result in a default by one or more of such Agencies.
If a default were to occur, it would likely have a significant effect on the
marketability of obligations of the State and the Agencies. These Agencies
are discussed below.
The New York State Housing Finance Agency ("HFA") provides financing for
multifamily housing, State University construction, hospital and nursing home
development, and other programs. In general, HFA depends upon mortgagors in
the housing programs it finances to generate sufficient funds from rental
income, subsidies and other payments to meet their respective mortgage
repayment obligations to HFA, which provide the principal source of funds for
the payment of debt service on HFA bonds, as well as to meet operating and
maintenance costs of the projects financed. From January 1, 1976 through
March 31, 1987, the State was called upon to appropriate a total of $162.8
million to make up deficiencies in the debt service reserve funds of HFA
pursuant to moral obligation provisions. The State has not been called upon
to make such payments since the 1986-87 fiscal year and no payments are
anticipated during the 1995-96 fiscal year.
UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975,
because a substantial number of these housing program mortgagors are unable
to make full payments on their mortgage loans. Through a subsidiary, UDC is
currently attempting to increase its rate of collection by accelerating its
program of foreclosures and by entering into settlement agreements. UDC has
been, and will remain, dependent upon the State for appropriations to meet
its operating expenses. The State also has appropriated money to assist in
the curing of a default by UDC on notes which did not contain the State's
moral obligation provision.
The MTA oversees New York City's subway and bus lines by its affiliates,
the New York City Transit Authority and the Manhattan and Bronx Surface
Transit Operating Authority (collectively, the "TA"). Through MTA's
subsidiaries, the Long Island Rail Road Company, the Metro-North Commuter
Railroad Company and the Metropolitan Suburban Bus Authority, the MTA
operates certain commuter rail and bus lines in the New York metropolitan
area. In addition, the Staten Island Rapid Transit Authority, an MTA
subsidiary, operates a rapid transit line on Staten Island. Through its
affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"),
the MTA operates certain toll bridges and tunnels. Because fare revenues are
not sufficient to finance the mass transit portion of these operations, the
MTA has depended and will continue to depend for operating support upon a
system of State, local government and TBTA support and, to the extent
available, Federal operating assistance, including loans, grants and
subsidies. If current revenue projections are not realized and/or operating
expenses exceed current projections, the TA or commuter railroads may be
required to seek additional State assistance, raise fares or take other
actions.
Over the past several years the State has enacted several
taxes--including a surcharge on the profits of banks, insurance corporations
and general business corporations doing business in the 12-county region (the
"Metropolitan Transportation Region") served by the MTA and a special .25%
regional sales and use tax--that provide additional revenues for mass transit
purposes, including assistance to the MTA. In addition, since 1987, State
law has required that the proceeds of .25% mortgage recording tax paid on
certain mortgages in the Metropolitan Transportation Region be deposited in a
special MTA fund for operating or capital expenses. Further, in 1993, the
State dedicated a portion of certain additional State petroleum business tax
receipts to fund operating or capital assistance to the MTA. For the 1994-96
State fiscal year, total State assistance to the MTA is estimated at
approximately $1.1 billion.
A subway fire on December 28, 1990 and a subway derailment on August 28,
1991, each of which caused fatalities and many injuries, have given rise to
substantial claims for damages against both the TA and the City.
In 1981, the State Legislature authorized procedures for the adoption,
approval and amendment of a five-year plan for the capital program designed
to upgrade the performance of the MTA's transportation systems and to
supplement, replace and rehabilitate facilities and equipment, and also
granted certain additional bonding authorization therefor.
On April 5, 1993, the Legislature approved, and the Governor
subsequently signed into law, legislation authorizing a five-year $9.56
billion capital plan for the MTA for 1992-1996. The MTA has received
approval of the 1992-1996 Capital Program based on this legislation from the
MTA Capital Program Review Board (the "CPRB"), as State law requires. This
is the third five-year plan since the Legislature authorized procedures for
the adoption, approval and amendment of a five-year plan in 1981 for a
capital program designed to upgrade the performance of the MTA's
transportation systems and to supplement, replace and rehabilitate facilities
and equipment. The MTA, the TBTA and the TA are collectively authorized to
issue an aggregate of $3.1 billion of bonds (net of certain statutory
exclusions) to finance a portion of the 1992-96 Capital Program. The 1992-96
Capital Program was expected to be financed in significant part through
dedication of the State petroleum business tax receipts referred to above.
However, in December 1994 the proposed bond resolution based on such tax
receipts was not approved by the MTA Capital Program Review Board. Further
consideration of the resolution was deferred until 1995.
There can be no assurance that such governmental actions will be taken,
that sources currently identified will not be decreased or eliminated, or
that the 1992-1996 Capital Program will not be delayed or reduced. If the
MTA capital program is delayed or reduced because of funding shortfalls or
other factors, ridership and fare revenues may decline, which could, among
other things, impair the MTA's ability to meet its operating expenses without
additional State assistance.
The cities, towns, villages and school districts of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad powers
and responsibilities with respect to the government, finances and welfare of
these political subdivisions, especially in education and social services.
In recent years the State has been called upon to provide added financial
assistance to certain localities.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1995-96 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1995-96 fiscal year.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1993, the total indebtedness of all
localities in the State, other than the City, was approximately $17.7
billion. A small portion (approximately $105 million) of this indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
to enabling State legislation. State law requires the Comptroller to review
and make recommendations concerning the budgets of those local government
units other than the City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Fifteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1993.
Certain proposed Federal expenditure reductions would reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities
to increase local revenues to sustain those expenditures. If the State, the
City or any of the Agencies were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets, the
marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential
problems resulting from certain pending litigation, judicial decisions and
long-range economic trends. The longer-range, potential problems of
declining city population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in
the future.
Because of significant fiscal difficulties experienced from time to time
by the City of Yonkers, a Financial Control Board was created by the State in
1984 to oversee Yonkers' fiscal affairs. Future actions taken by the
Governor or the State Legislature to assist Yonkers in this crisis could
result in the allocation of State resources in amounts that cannot yet be
determined.
Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these litigations are those that
involve: (i) the validity and fairness of agreements and treaties by which
various Indian tribes transferred title to the State of approximately six
million acres of land in central New York; (ii) certain aspects of the
State's Medicaid rates and regulations, including reimbursements to providers
of mandatory and optional Medicaid services; (iii) contamination in the Love
Canal area of Niagara Falls; (iv) a challenge to the State's practice of
reimbursing certain Office of Mental Health patient-care expenses with
clients' Social Security benefits; (v) a challenge to the methods by which
the State reimburses localities for the administrative costs of food stamp
programs; (vi) a challenge to the State's possession of certain funds taken
pursuant to the State's Abandoned Property law; (vii) alleged responsibility
of State officials to assist in remedying racial segregation in the City of
Yonkers; (viii) an action, in which the State is a third party defendant, for
injunctive or other appropriate relief, concerning liability for the
maintenance of stone groins constructed along certain areas of Long Island's
shoreline; (ix) actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed the actuarial
funding methods for determining contributions to State employee retirement
systems; (x) an action against State and City officials alleging that the
present level of shelter allowance for public assistance recipients is
inadequate under statutory standards to maintain proper housing; (xi) an
action challenging legislation enacted in 1990 which had the effect of
deferring certain employer contributions to the State Teachers' Retirement
System and reducing State aid to school districts by a like amount; (xii) a
challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991 (described
below in this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway
Authority authorized by Chapter 56 of the Laws of 1993 (described below in
this Part); (xiv) challenges to the delay by the State Department of Social
Services in making two one-week Medicaid payments to the service providers;
(xv) challenges by commercial insurers, employee welfare benefit plans, and
health maintenance organizations to provisions of Section 2807-c of the
Public Health Law which impose 13%, 11% and 9% surcharges on inpatient
hospital bills and a bad debt and charity care allowance on all hospital
bills paid by such entities; (xvi) challenges to the promulgation of the
State's proposed procedure to determine the eligibility for and nature of
home care services for Medicaid recipients; (xvii) a challenge to State
implementation of a program which reduces Medicaid benefits to certain home-
relief recipients; and (xviii) challenges to the rationality and retroactive
application of State regulations recelebrating nursing home Medicaid rates.
Adverse developments or decisions in such cases could affect the ability
of the State to maintain a balanced 1994-95 State Financial Plan.
(2) New York City. In the mid-1970s, the City had large accumulated
past deficits and until recently was not able to generate sufficient tax and
other ongoing revenues to cover expenses in each fiscal year. However, the
City's operating results for the fiscal year ending June 30, 1994 were
balanced in accordance with GAAP, the twelfth consecutive year in which the
City achieved balanced operating results in accordance with GAAP. The City's
ability to maintain balanced operating results in future years is subject to
numerous contingencies and future developments.
The City's economy, whose rate of growth slowed substantially over the
past three years, is currently in recession. During the 1990 and 1991 fiscal
years, as a result of the slowing economy, the City has experienced
significant shortfalls in almost all of its major tax sources and increases
in social services costs, and has been required to take actions to close
substantial budget gaps in order to maintain balanced budgets in accordance
with the Financial Plan.
In 1975, the City became unable to market its securities and entered a
period of extraordinary financial difficulties. In response to this crisis,
the State created MAC to provide financing assistance to the City and also
enacted the New York State Financial Emergency Act for the City of New York
(the "Emergency Act") which, among other things, created the Financial
Control Board (the "Control Board") to oversee the City's financial affairs
and facilitate its return to the public credit markets. The State also
established the Office of the State Deputy Comptroller ("OSDC") to assist the
Control Board in exercising its powers and responsibilities. On June 30,
1986, the Control Board's powers of approval over the City Financial Plan
were suspended pursuant to the Emergency Act. However, the Control Board,
MAC and OSDC continue to exercise various monitoring functions relating to
the City's financial condition. The City prepares and operates under a
four-year financial plan which is submitted annually to the Control Board for
review and which the City periodically updates.
The City's independently audited operating results for each of its
fiscal years from 1981 through 1993 show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in its
net General Fund position. In addition, the City's financial statements for
the 1993 fiscal year received an unqualified opinion from the City's
independent auditors, the eleventh consecutive year the City has received
such an opinion.
In August 1993, the City adopted and submitted to the Control Board for
its review a four-year Financial Plan covering fiscal years 1994 through 1997
(the "Financial Plan"). The Financial Plan was based on the City's fiscal
year 1994 expense budget adopted June 14, 1993 as well as certain changes
incorporated subsequent to the budget adoption process. On November 23,
1993, the City adopted and submitted to the Control Board for its review a
first quarter modification to the Financial Plan (the "November
Modification") incorporating various re-estimates of revenues and
expenditures. For fiscal year 1994, the November Modification includes
additional resources stemming primarily from the City Comptroller's fiscal
year 1993 annual audit, savings from a reduction in prior years' accrued
expenditures, and higher State and Federal aid resulting from claims by the
City for reimbursement of various social services costs. These resources
were used to fund new needs in the November Modification including higher
costs in the uniformed agencies, at the Board of Education (the "BoE") and
for certain social services, the unlikelihood of the sale of the Off-Track
Betting Corporation (the "OTB"), and lower estimates of miscellaneous and
other revenues. After taking these adjustments into account, the November
Modification projects a balanced budget for fiscal year 1994, based upon
revenues of $31,585 billion. For fiscal years 1995, 1996 and 1997, the
November Modification projects budget gaps of $1.730 billion, $2.513 billion
and $2.699 billion, respectively. These gaps are higher by about $450
million in fiscal year 1995 and by about $700 million in each of fiscal years
1996 and 1997 than in the Financial Plan, primarily on account of the
nonrecurring value of the fiscal year 1994 revenue adjustments, the loss of
certain one-time resources funding BoE fiscal year 1994 spending needs, and
the reclassification of anticipated State aid from the baseline revenue
estimates to the gap-closing program. To offset these larger gaps, the
November Modification relies on additional City, State and other actions.
On December 1, 1993, a three-member panel appointed by the Mayor to
address City structural budget imbalance released a report setting forth its
findings and recommendations. In its report, the panel noted that budget
imbalance is likely to be greater than the City now projects by $255 million
in fiscal year 1995, rising to nearly $1.5 billion in fiscal year 1997. The
report provided a number of options that the City should consider in
addressing the structural balance issue such as severe cuts in City-funded
personnel levels, increases in residential property taxes and the sales tax,
and the imposition of bridge tolls and solid waste collection fees. The
report also noted that additional State actions will be required in many
instances to allow the City to cut its budget without grave damage to basic
services.
On December 21, 1993, OSDC issued a report reviewing the November
Modification. The report noted that while the outlook for fiscal year 1994
has improved since August, it will be necessary for the City to manage its
budget aggressively in order to stay on course for budget balance this year.
For fiscal years 1995 through 1997, the report expressed concern that the
gaps identified by the City in the November Modification are the largest as a
percentage of City-fund revenues that the City has faced at this point in the
fiscal year since budget balance in accordance with GAAP was first achieved
in fiscal year 1981.
On December 21, 1993, the staff of the Control Board issued its report
on the November Modification. The report states that the plan is now more
realistic in terms of the gaps it portrays and the solutions it offers.
However, the solutions are mostly limited to fiscal year 1994 while the gap
for fiscal year 1995 has been increased by $450 million. Beginning in fiscal
year 1995, budget gaps average over $1 billion annually. Therefore, the
staff recommends that prompt action to replace many current-year one-shots
with recurring savings is critical.
On February 2, 1994, the Mayor presented to the City Council and the
Control Board a mid-year modification to the Financial Plan (the "February
Modification"). The February Modification projects a balanced budget for
fiscal year 1994, based upon revenues of $31.735 billion, including a general
reserve of $81 million. For fiscal years 1995, 1996 and 1997, the February
Modification projects gaps of $2.261 billion, $3.167 billion and $3.253
billion, respectively, and assumes no wage and salary increases beyond the
expiration of current labor agreements which expire in fiscal years 1995 and
1996. These gaps have grown since November by about $530 million in fiscal
year 1995, and $650 million and $550 million in fiscal years 1996 and 1997,
respectively, owing in large part to lower estimates of real property tax
revenues. To close the budget gap projected for fiscal year 1995, the
February Modification includes a gap-closing program that consists of the
following major elements: (i) an agency program of $1.048 billion; (ii)
fringe benefit and pension savings of $400 million; (iii) an
intergovernmental aid package of $400 million; (iv) a work force reduction
program of $144 million; and (v) the assumption of a $234 million surplus
roll from fiscal year 1994. Implementation of many of the gap-closing
initiatives requires the cooperation of the municipal labor unions, the City
Council and the State and Federal governments. The February Modification
also includes a tax reduction program, with most of the financial impact
affecting the later years of the Plan period.
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $1.75 billion of notes for seasonal
financing purposes during the 1994 fiscal year. The City's capital financing
program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998 for the construction
and rehabilitation of the City's infrastructure and other fixed assets. The
major capital requirement include expenditures for the City's water supply
system, and waste disposal systems, roads, bridges, mass transit, schools and
housing. In addition, the City and the Municipal Water Finance Authority
have issued about $1.8 billion in refunding bonds in the 1994 fiscal year.
State Economic Trends. The State historically has been one of the
wealthiest states in the nation. For decades, however, the State has grown
more slowly than the nation as a whole, gradually eroding its relative
economic position. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx
of generally less affluent residents. Regionally, the older Northeast cities
have suffered because of the relative success that the South and the West
have had in attracting people and business. The City has also had to face
greater competition as other major cities have developed financial and
business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in the calendar
years 1984 through 1991, the State's rate of economic expansion was somewhat
slower than that of the nation. In the 1990-91 recession, the economy of the
State, and that of the rest of the Northeast, was more heavily damaged than
that of the nation as a whole and has been slower to recover. The total
employment growth rate in the State has been below the national average since
1984. The unemployment rate in the State dipped below the national rate in
the second half of 1981 and remained lower until 1991; since then, it has
been higher. According to data published by the U.S. Bureau of Economic
Analysis, during the past ten years, total personal income in the State rose
slightly faster than the national average only from 1986 through 1988.
APPENDIX B
INFORMATION ABOUT SECURITIES RATINGS
The following are excerpts from Description of Moody's Investors'
Service, Inc. ("Moody's) municipal bond ratings. Aaa -- judged to be of the
"best quality" and are referred to as "gilt edge"; interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure; Aa -- judged to be of "high quality by all standards," but as to
which margins of protection or other elements make long-term risks appear
somewhat larger than Aaa-rated Municipal Bonds; together with Aaa group they
comprise what are generally known as "high grade bonds"; A -- possess many
favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A-rated
Municipal Bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future; Baa --
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.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through Baa to indicate ranking within a
general rating category; 1 being the highest and 3 the lowest.
Description of Moody's ratings of state and municipal notes. Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG") and for variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Symbols used will be as follows: MIG 1/VMIG 1 --best
quality, enjoying strong protection for established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both; MIG 2/VMIG 2 -- high quality, with margins of
protection ample although not so large as in the preceding group; MIG 3/VMIG
3 --favorable quality, with all security elements accounted for but lacking
the undeniable strength of the preceding grades.
Description of Moody's commercial paper ratings. PRIME-1 ("P-1") --
judged to be of the best quality. Their short-term debt obligations carry
the smallest degree of investment risk; PRIME-2 -- indicates a strong
capacity for repayment, but to a lesser degree than 1.
Description of Standard & Poors ("S&P") Municipal Bond ratings. AAA --
has the highest rating assigned by S&P; extremely strong capacity to pay
principal and interest; AA -- has very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in a small
degree; A -- has a strong capacity to pay principal and interest, although
somewhat more susceptible to adverse changes in circumstances and economic
conditions; BBB -- regarded as having an adequate capacity to pay principal
and interest; normally exhibit adequate protection parameters but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest than for bonds in the A
category. Ratings may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories, except in the AAA
category.
Description of S&P's ratings of municipal note issues. SP-1+ -- very
strong capacity to pay principal and interest; SP-1 --strong capacity to pay
principal and interest; SP-2 --satisfactory capacity to pay principal and
interest.
Description of S&P's commercial paper ratings. A-1+ --indicates an
overwhelming degree of safety regarding timely payment; A-1 -- indicates a
very strong degree of safety regarding timely payment; A-2 -- indicates a
strong capacity for timely payment but with a relative degree of safety not
as overwhelming as for issues designated A-1.
Description of IBCA Limited/IBCA Inc. commercial paper ratings. Short-
term obligations, including commercial paper, rated A-1+ by IBCA Limited or
its affiliate IBCA Inc. are obligations supported by the highest capacity for
timely repayment. Obligations rated A-1 have a very strong capacity for
timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Description of Fitch Investors Services, Inc. commercial paper ratings.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance for timely payment. The
rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not
as great as indicated by the F-1+ and F-1 categories.
Description of Duff & Phelps Inc. commercial paper ratings. Duff &
Phelps Inc. employs the designation of Duff 1 with respect to top grade
commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is clearly outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations.
Duff 1-indicates high certainty of timely payment. Duff 2 indicates good
certainty of timely payment: liquidity factors and company fundamentals are
sound.
Various of the nationally recognized statistical rating organizations
("NRSROs") utilize rankings within rating categories indicated by a + or -.
The Fund, in accordance with industry practice, recognizes such rankings
within categories as graduations, viewing for example S&P's rating of A-1+
and A-1 as being in S&P's highest rating category.
Description of Thomson BankWatch, Inc. ("BankWatch") commercial paper
ratings. BankWatch will assign both short-term debt ratings and issuer
ratings to the issuers it rates. BankWatch will assign a short-term rating
("TBW-1," "TBW-2," "TBW-3," or "TBW-4") to each class of debt (e.g.,
commercial paper or non-convertible debt), having a maturity of one-year or
less, issued by a holding company structure or an entity within the holding
company structure that is rated by BankWatch. Additionally, BankWatch will
assign an issuer rating ("A," "A/B," "B," "B/C," "C," "C/D," "D," "D/E," and
"E") to each issuer that it rates.
PORTFOLIO OF INVESTMENTS
DREYFUS/LAUREL NEW YORK TAX-FREE MONEY FUND JUNE 30, 1995
<TABLE>
<CAPTION>
FACE VALUE
VALUE (NOTE 1)
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 100.1%
NEW YORK -- 91.1%
Babylon, New York, Industrial Development
Revenue:
$ 300,000 3.700% due 04/01/00+ $ 300,000
300,000 4.400% due 12/01/24+ 300,000
250,000 Broome County, New York, Industrial Development
Revenue,
4.000% due 12/15/03+ 250,000
500,000 Franklin County, New York, Industrial Develop-
ment Agency, Series A,
4.050% due 07/01/21+ 500,000
400,000 Hemstead Town, New York, Series A,
5.250% due 03/01/96 401,784
100,000 Jefferson County, New York, Industrial
Development Revenue,
4.060% due 12/01/12+++ 100,000
200,000 Metropolitan Transportation Authority,
New York,
3.750% due 07/01/21+ 200,000
300,000 Monroe County, New York, Industrial
Development Agency,
3.700% due 10/01/00+ 300,000
200,000 Montgomery, New York, Industrial Development
Agency, (Service Merchandise),
4.000% due 12/31/24+++ 200,000
700,000 New York City Municipal Water, Finance Author-
ity,
4.500% due 06/15/25+ 700,000
New York City, New York, General Obligation
Bonds:
100,000 Series A,
4.250% due 08/15/23+ 100,000
800,000 Series A-6,
4.000% due 08/01/18+ 800,000
500,000 Series A-9,
4.200% due 08/01/18+ 500,000
Series B:
200,000 4.550% due 08/15/21+ 200,000
200,000 4.500% due 10/01/21+ 200,000
200,000 Series F-3,
4.250% due 02/15/13+ 200,000
New York City, New York, Housing Development
Corporation:
500,000 3.850% due 07/01/05+ 500,000
300,000 4.000% due 02/01/07+ 300,000
500,000 3.900% due 12/15/24+ 500,000
600,000 3.8000% due 03/15/25+ 600,000
1,000,000 Special Obligation-96-A,
3.750% due 08/01/15+ 1,000,000
New York State Dormitory Authority Revenue:
1,200,000 3.900% due 07/01/15+ 1,200,000
300,000 8.750% due 07/01/15++ 306,072
New York State Energy Research & Development
Authority, Pollution Control Revenue:
700,000 3.800% due 10/01/14+++ 700,000
100,000 4.550% due 07/01/15+ 100,000
250,000 4.100% due 10/15/15++ 250,000
300,000 4.600% due 12/01/15++ 300,000
500,000 4.100% due 11/01/23+ 500,000
700,000 4.650% due 12/01/23++ 700,000
New York State Housing Finance Agency:
500,000 (Liberty),
4.000% due 11/01/05+ 500,000
500,000 (Sanai School),
4.000% due 11/01/14+ 500,000
100,000 Series PJ,
3.900% due 05/15/15+ 100,000
New York State Job Development Authority:
225,000 3.600% due 03/01/99+++ 225,000
400,000 3.650% due 03/01/00+++ 400,000
200,000 4.200% due 03/01/07+ 200,000
1,300,000 New York State Local Assistance Corporation,
Series B,
3.700% due 04/01/23+ 1,300,000
New York State Medical Care Facility:
1,050,000 Series C,
8.625% due 01/15/06++ 1,099,062
1,000,000 King Hospital Project,
8.500% due 01/15/22++ 1,046,061
New York State Power Authority, Utility Reve-
nue:
500,000 7.400% due 01/01/06++ 517,453
400,000 7.375% due 01/01/18++ 413,802
500,000 New York State, Series P, General Obligation,
4.100% due 07/18/95++ 500,000
Niagara County, New York:
400,000 General Obligation,
Series A,
4.200% due 11/15/24+ 400,000
500,000 Series 94B,
4.350% due 08/11/95 500,000
700,000 Niagara Falls, New York, Transportation Author-
ity,
4.000% due 10/01/19++ 700,000
300,000 Onondaga County, New York, Industrial
Development Agency,
Seymor Project,
3.300% due 06/15/97+++ 300,000
900,000 Saint Charles County, New York, Industrial De-
velopment Authority,
4.150% due 10/01/07+ 900,000
300,000 Saint Lawrence County, New York, Industrial De-
velopment Center,
4.000% due 05/01/25+ 300,000
700,000 Suffolk County, New York, Industrial Develop-
ment Center,
3.850% due 01/01/14+ 700,000
500,000 Suffolk County, New York, Tax Anticipation
Notes,
5.250% due 08/15/95 500,428
575,000 Tonawanda, New York,
4.210% due 12/21/95 575,369
Triborough Bridge & Tunnel Authority:
600,000 7.625% due 01/01/14++ 624,101
200,000 3.750% due 01/01/24+ 200,000
1,000,000 Wappingers, New York, Central School District,
4.125% due 06/14/96 1,004,370
306,000 West Genesee, New York, Central
School District,
4.700% due 06/01/96 307,766
600,000 Westchester County, New York,
5.000% due 12/14/95 601,321
490,000 White Plains, New York, City School District,
4.500% due 06/15/96 492,492
27,115,081
ALASKA -- 1.0%
300,000 Anchorage, Alaska, Higher Education for Pac
University,
4.500% due 07/01/17+ 300,000
PUERTO RICO -- 8.0%
Puerto Rico Commonwealth, Government
Development Bank:
600,000 3.800% due 12/01/15+ 600,000
Commercial Paper:
700,000 2.800% due 07/17/95++ 700,000
500,000 3.900% due 07/20/95++ 500,000
100,000 Puerto Rico Commonwealth, Highway and Transpor-
tation Authority,
3.800% due 07/01/99+ 100,000
200,000 Puerto Rico Commonwealth, Industrial Develop-
ment: Industrial Control,
4.050% due 12/01/15+ 200,000
300,000 Pollution Control,
4.350% due 12/01/13++ 300,262
2,400,262
TOTAL INVESTMENTS
(Cost $29,815,343*) 100.1% 29,815,343
OTHER ASSETS AND LIABILITIES (NET) (0.1) (25,877)
NET ASSETS 100.0% $29,789,466
<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate demand bonds are payable upon not more than seven calen-
dar days' notice. The interest rate shown reflects the rate currently
in effect.
++ Put bonds and notes have demand features to mature within one year.
The interest rate shown reflects the rate currently in effect.
+++ Variable rate demand notes are payable upon not more than 30 calendar
days' notice. The interest rate shown reflects the rate currently in
effect.
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
ASSETS
Investments, at value
(Cost $22,367,447, $102,632,371 and
$29,815,343, respectively) (Note 1)
See accompanying schedules $22,367,447 $102,632,371 $ 29,815,343
Cash -- 13,488 177,364
Interest receivable 321,211 636,046 264,116
Receivable for Fund shares sold 1,042,363 1,559,769 89,796
TOTAL ASSETS 23,731,021 104,841,674 30,346,619
LIABILITIES
Payable for investment securities purchased 503,350 3,200,000 493,418
Dividends payable 9,772 94,261 20,038
Payable for Fund shares redeemed 216,722 212,589 22,682
Investment management fee payable (Note 2) 20,307 84,998 16,292
Due to custodian 9,353 -- --
Accrued Trustees' fees and expenses (Note 2) 758 3,381 758
Distribution fee payable (Note 3) 3,182 15,405 3,965
TOTAL LIABILITIES 763,444 3,610,634 557,153
NET ASSETS $22,967,577 $101,231,040 $ 29,789,466
NET ASSETS CONSIST OF:
ACCUMULATED NET REALIZED GAIN/
(LOSS) ON INVESTMENTS SOLD $ (233) $ (51,059) $ 339
PAID-IN CAPITAL 22,967,810 101,282,099 29,789,127
TOTAL NET ASSETS $22,967,577 $101,231,040 $ 29,789,466
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
NET ASSETS:
Investor Shares $ 15,537,878 $ 75,746,221 $ 21,739,314
Class R Shares $ 7,429,699 $ 25,484,819 $ 8,050,152
SHARES OUTSTANDING:
Investor Shares 15,537,767 75,797,831 21,739,067
Class R Shares 7,429,644 25,501,860 8,050,060
NET ASSET VALUE:
INVESTOR SHARES
Net asset value, offering and redemption price
per share of beneficial interest outstanding $ 1.00 $ 1.00 $ 1.00
CLASS R SHARES
Net asset value, offering and redemption price
per share of beneficial interest outstanding $ 1.00 $ 1.00 $ 1.00
</TABLE>
STATEMENTS OF OPERATIONS
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 973,443 $ 4,113,322 $ 511,298
EXPENSES
Investment management fee (Note 2) 90,816 397,565 48,800
Distribution fee (Note 3) 38,346 222,784 20,798
Trustees' fees and expenses (Note 2) 2,069 9,343 1,308
Total expenses 131,231 629,692 70,906
NET INVESTMENT INCOME 842,212 3,483,630 440,392
NET REALIZED GAIN
ON INVESTMENTS (Note 1)
Net realized gain on investments sold during
the period 6 977 349
NET INCREASE IN NET ASSETS RESULTING FROM OPER-
ATIONS $ 842,218 $ 3,484,607 $ 440,741
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
Net investment income $ 842,212 $ 3,483,630 $ 440,392
Net realized gain on investments sold during
the year 6 977 349
Net increase in net assets resulting from oper-
ations 842,218 3,484,607 440,741
Distributions to shareholders from net invest-
ment income:
Investor shares (468,028) (2,605,776) (248,024)
Class R shares (374,184) (877,854) (192,368)
Net increase/(decrease) in net assets from Fund
share transactions (Note 4):
Investor shares (1,631,735) (10,764,289) 13,727,989
Class R shares (2,316,810) 5,659,254 2,591,101
Net increase/(decrease) in net assets (3,948,539) (5,104,058) 16,319,439
NET ASSETS:
Beginning of year 26,916,116 106,335,098 13,470,027
End of year $ 22,967,577 $ 101,231,040 $ 29,789,466
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
FOR THE YEAR OR PERIOD ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND* MONEY FUND MONEY FUND*
<S> <C> <C> <C>
Net investment income $ 346,378 $ 2,167,350 $ 204,215
Net realized loss on investments sold during
the year -- (1,311) --
Net increase in net assets result from opera-
tions 346,378 2,166,039 204,215
Distributions to shareholders from net invest-
ment income:
Investor Shares (198,324) (1,317,812) (124,785)
Trust Shares (118,164) (371,662) (78,946)
Institutional Shares (29,890) (477,876) (484)
Net increase/(decrease) in net assets from Fund
share transactions (Note 4):
Investor Shares (3,450,010) (21,462,072) (1,409,966)
Trust Shares 3,338,359 186,693 (2,241,040)
Net decrease in net assets (111,651) (21,276,690) (3,651,006)
NET ASSETS:
Beginning of year 27,027,767 127,611,788 17,121,033
End of year (including undistributed net in-
vestment income of $399 for the Dreyfus/Laurel
California Tax-Free Money Fund) $ 26,916,116 $ 106,335,098 $ 13,470,027
<FN>
* The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30.
</TABLE>
See Notes to Financial Statements.
[This Page Intentionally Left Blank]
FINANCIAL HIGHLIGHTS
DREYFUS BASIC NEW YORK MUNICIPAL MONEY MARKET FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD*
Reference is made to Page 5 of the Fund's Prospectus dated February 29, 1996.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Dreyfus/Laurel Tax-Free Municipal Funds (the "Trust"), The Dreyfu-
s/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust and The Dreyfus/Lau-
rel Investment Series (collectively, "The Dreyfus/Laurel Funds") are all
registered open-end investment companies that are part of The Dreyfus Fam-
ily of Funds. The Trust is an investment company which consists of seven
funds: the Dreyfus/Laurel California Tax-Free Money Fund, the Dreyfus/Lau-
rel Massachusetts Tax-Free Money Fund, the Dreyfus/Laurel New York Tax-
Free Money Fund (collectively, the "Money Funds") (individually, the
"Fund"), the Premier Limited Term California Municipal Fund, the Premier
Limited Term Massachusetts Municipal Fund, the Premier Limited Term New
York Municipal Fund and the Premier Limited Term Municipal Fund. This re-
port contains financial statements for the Money Funds. The Trust is a
Massachusetts business trust and is registered with the Securities and Ex-
change Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. The Money
Funds currently offer two classes of shares: Investor shares and Class R
shares (effective October 17, 1994, the Trust shares were redesignated
Class R shares). Investor shares are sold primarily to retail investors
and bear a distribution fee. Class R shares are sold primarily to bank
trust departments and other financial service providers (including Mellon
Bank, N.A. ("Mellon Bank") and its affiliates) acting on behalf of custom-
ers having a qualified trust or investment account or relationship at such
institution, and bear no distribution fee. Each class of shares has iden-
tical rights and privileges, except with respect to the distribution fees
and voting rights on matters affecting a single class. The following is a
summary of significant accounting policies consistently followed by each
Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
(A) PORTFOLIO VALUATION:
Portfolio securities are valued on the basis of amortized cost in accor-
dance with Rule 2a-7 of the 1940 Act. Amortized cost valuation involves
valuing an instrument at its cost initially and thereafter assuming a con-
stant amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of the in-
strument.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains
and losses on investments sold are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Investment income and
realized and unrealized gains and losses are allocated based upon the rel-
ative average daily net assets of each class of shares.
(C) DISTRIBUTIONS TO SHAREHOLDERS:
Each Fund declares dividends from net investment income on a class level
on each day the Fund is open for business and pays such dividends no later
than the first business day of the next month. Each Fund may distribute
net realized capital gains on a Fund level, if any, annually or more fre-
quently to maintain its net asset value of $1.00 per share. Each Fund may
be subject to a 4.00% nondeductible excise tax for certain undistributed
amounts of net investment income and capital gain. Each Fund expects to
make additional distributions to avoid the application of the excise tax.
Income distributions and capital gain distributions on a Fund level are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments of income and gains on various investment se-
curities held by the Fund, timing differences and the differing character-
ization of distributions made by the Fund as a whole. Permanent differ-
ences on the Massachusetts Tax-Free Money Fund incurred during the year
ended June 30, 1995, which resulted from an expiration of capital loss
carryforward have been reclassified to paid-in capital at year end.
(D) EXPENSE ALLOCATION
Expenses of each Fund not directly attributable to the operations of any
class of shares are prorated between the classes based upon the relative
average daily net assets of each class. Distribution expense is directly
attributable to a particular class of shares and is charged only to that
class' operations.
(E) FEDERAL INCOME TAXES:
It is policy of each Fund to qualify as a regulated investment company, if
such qualification is in the best interests of its shareholders, by com-
plying with the requirements of the Internal Revenue Code applicable to
regulated investment companies and by distributing all of its earnings to
shareholders. Therefore, no Federal income tax provision is required.
2. INVESTMENT MANAGEMENT FEE, TRUSTEES' FEE AND OTHER PARTY TRANSACTIONS
Effective as of October 17, 1994, the Trust's investment management agree-
ment with Mellon Bank was transferred to The Dreyfus Corporation (the
"Manager"), a wholly-owned subsidiary of Mellon Bank. The Manager pro-
vides, or arranges for one or more third parties to provide, investment
advisory, administrative, custody, fund accounting and transfer agency
services to the Trust. The Manager also directs the investments of each
Fund in accordance with its investment objective, policies and limita-
tions. For these services, each Fund is contractually obligated to pay the
Manager a fee, calculated daily and paid monthly, at the annual rate of
0.35% of the value of that Fund's average daily net assets. Out of its
fee, the Manager pays all of the expenses of each Fund except brokerage
fees, taxes, interest, Rule 12b-1 distribution fees and expenses, fees and
expenses of non-interested Trustees (including counsel fees) and extraor-
dinary expenses. In addition, the Manager is required to reduce its fee in
an amount equal to each Fund's allocable portion of fees and expenses of
the non- interested Trustees (including counsel).
Prior to October 17, 1994, Mellon Bank served as the Trust's investment
manager pursuant to the investment management agreement described above.
Prior to September 23, 1994, Frank Russell Investment Management Company
(the "Administrator") served as each Fund's administrator and provided,
pursuant to an administration agreement, various administrative and corpo-
rate secretarial services to each Fund. Mellon Bank, as investment man-
ager, paid the Administrator's fee out of the management fee described
above.
Prior to October 17, 1994, Funds Distributor, Inc. served as distributor
of the Trust's shares. Effective as of October 17, 1994, Premier Mutual
Fund Services, Inc. ("Premier") serves as the Trust's distributor. Premier
also serves as the Trust's sub-administrator and, pursuant to a sub-
administration agreement with the Manager, provides various administrative
and corporate secretarial services to the Trust.
No officer or employee of Premier (or of any parent, subsidiary or affili-
ate thereof) receives any compensation from The Dreyfus/Laurel Funds for
serving as an officer or Director or Trustee of The Dreyfus/Laurel Funds.
In addition, no officer or employee of the Manager (or of any parent, sub-
sidiary or affiliate thereof) serves as an officer or Director or Trustee
of The Dreyfus/Laurel Funds. The Dreyfus/Laurel Funds pay each Director or
Trustee who is not an officer or employee of Premier (or any parent, sub-
sidiary or affiliate thereof), or of the Manager $27,000 per annum, $1,000
for each Board meeting attended and $750 for each Audit Committee meeting
attended, and reimburse each Director or Trustee for travel and out-of-
pocket expenses.
3. DISTRIBUTION PLAN
Each Fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act relating to its Investor shares. Under the Plan,
each Fund may pay annually up to 0.25% of the value of the average daily
net assets attributable to its Investor shares to compensate Premier and
Dreyfus Service Corporation, an affiliate of the Manager, for shareholder
servicing activities and Premier for activities and expenses primarily in-
tended to result in the sale of Investor shares. Class R shares bear no
distribution fee.
Under its terms, the Plan shall remain in effect from year to year, pro-
vided such continuance is approved annually by a vote of a majority of the
Trustees and a majority of those Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan.
4. SHARES OF BENEFICIAL INTEREST
The Trust has the authority to issue an unlimited number of shares of ben-
eficial interest of each class in each separate series, without par value.
The Trust offers two classes of shares of the Money Funds.
The tables below summarize transactions in Fund shares for the years or
periods indicated. Because each of the Money Funds has sold shares, issued
shares as reinvestments of dividends and redeemed shares only at a con-
stant net asset value of $1.00 per share, the number of shares represented
by such sales, reinvestments and redemptions is the same as the amounts
shown below for such transactions.
DREYFUS/LAUREL CALIFORNIA TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994*+#
<S> <C> <C>
INVESTOR SHARES:
Sold $ 32,912,720 $ 22,619,988
Issued as reinvestment of dividends and
distributions 462,650 225,575
Redeemed (35,007,105) (26,295,573)
Net decrease $ (1,631,735) $ (3,450,010)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995## JUNE 30, 1994*
<S> <C> <C>
CLASS R SHARES:
Sold $ 32,480,825 $10,968,762
Issued as reinvestment of dividends and
distributions 265,428 65,613
Redeemed (35,063,063) (7,696,016)
Net increase/(decrease) $ (2,316,810) $ 3,338,359
<FN>
* The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30.
+ Amounts include $8,676,000 of subscriptions, $28,427 of reinvestments
and $8,004,712 of redemptions for the Institutional Class up to April
4, 1994.
# Effective April 4, 1994 the Retail and Institutional Classes of shares
were reclassified as a single class of shares known as Investor shares.
## On October 17, 1994, the Trust shares were redesignated Class R shares.
</TABLE>
DREYFUS/LAUREL MASSACHUSETTS TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994+#
<S> <C> <C>
INVESTOR SHARES:
Sold $ 130,450,064 $ 139,311,367
Issued as reinvestment of dividends and
distributions 1,980,170 1,217,369
Redeemed (143,194,523) (161,990,808)
Net decrease $ (10,764,289) $ (21,462,072)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1995## JUNE 30, 1994
<S> <C> <C>
CLASS R SHARES:
Sold $ 81,076,293 $ 66,966,216
Issued as reinvestment of dividends and
distributions 513,180 112,247
Redeemed (75,930,219) (66,891,770)
Net increase $ 5,659,254 $ 186,693
<FN>
+ Amounts include $50,504,187 of subscriptions, $63,928 of reinvestments
and $60,326,788 of redemptions for the Institutional Class up to April
4, 1994.
# Effective April 4, 1994 the Retail and Institutional Classes of shares
were reclassified as a single class of shares known as Investor shares.
## On October 17, 1994, the Trust Shares were redesignated Class R shares.
</TABLE>
DREYFUS/LAUREL NEW YORK TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994*+#
<S> <C> <C>
INVESTOR SHARES:
Sold $ 23,865,192 $ 4,170,313
Issued as reinvestment of dividends and
distributions 240,333 123,051
Redeemed (10,377,536) (5,703,330)
Net increase/(decrease) $ 13,727,989 $(1,409,966)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995## JUNE 30, 1994*
<S> <C> <C>
CLASS R SHARES:
Sold $10,336,048 $ 3,604,985
Issued as reinvestment of dividends and
distributions 44,938 3,922
Redeemed (7,789,885) (5,849,947)
Net increase/(decrease) $ 2,591,101 $(2,241,040)
<FN>
* The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30.
+ Amounts include $11,467 of subscriptions, $468 of reinvestments and
$9,120 of redemptions for the Institutional Class up to April 4, 1994.
# Effective April 4, 1994 the Retail and Institutional Classes of shares
were reclassified as a single class of shares known as Investor shares.
## On October 17, 1994, the Trust shares were redesignated Class R shares.
</TABLE>
5. CAPITAL LOSS CARRYFORWARD
As of June 30, 1995, the California Tax-Free Money Fund had available for
Federal tax purposes unused capital loss carryforwards of $233 expiring in
the year 2000, the Massachusetts Tax-Free Money Fund had unused capital
loss carryforwards of $51,059 expiring in the year 2002.
6. CONCENTRATION OF CREDIT
Each Fund invests primarily in debt obligations issued by the Fund's re-
spective state (ie. California, Massachusetts, or New York) and its polit-
ical subdivisions, municipalities, agencies and public authorities who ob-
tain funds for various public purposes. Each Fund is more susceptible to
factors adversely affecting issuers of its respective state municipal se-
curities than is a municipal bond fund that is not concentrated in these
issuers to the same extent.
INDEPENDENT AUDITORS' REPORT
KPMG
The Board of Trustees and Shareholders
The Dreyfus/Laurel Tax-Free Municipal Funds:
We have audited the accompanying statements of assets and liabilities, in-
cluding the portfolio of investments, of the California Tax-Free Money
Fund, Massachusetts Tax-Free Money Fund and New York Tax-Free Money Fund
of The Dreyfus/Laurel Tax-Free Municipal Funds (formerly the Laurel Tax-
Free Municipal Funds) as of June 30, 1995, and the related statement of
operations for the year then ended and statement of changes in net assets
and financial highlights for Investor and Class R shares for each of the
years in the two-year period then ended for the Massachusetts Tax-Free
Money Fund and for the year ended June 30, 1995 and for the period from
December 1, 1993 to June 30, 1994 for the California Tax-Free Money Fund
and New York Tax-Free Money Fund. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsi-
bility is to express an opinion on these financial statements and finan-
cial highlights based on our audits. The financial highlights presented
for each of the years or periods ended June 30, 1993 or prior for the Mas-
sachusetts Tax-Free Money Fund and for each of the years or periods ended
November 30, 1993 or prior for the California Tax-Free Money Fund and New
York Tax-Free Money Fund were audited by other auditors whose reports
thereon, dated August 11, 1993 and January 18, 1994, expressed an unquali-
fied opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and fi-
nancial highlights are free of material misstatement. An audit also in-
cludes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirma-
tion of securities owned as of June 30, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principals used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the California Tax-Free Money Fund, Massachusetts Tax-Free Money Fund
and New York Tax-Free Money Fund of The Dreyfus/Laurel Tax-Free Municipal
Funds as of June 30, 1995, the results of their operations for the year
then ended and the change in their net assets and financial highlights for
each of the years or periods in the two-year period ended June 30, 1995 in
conformity with generally accepted accounting Principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
August 18, 1995
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
FEBRUARY 29, 1996
AS REVISED AUGUST 26, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus of The
Dreyfus/Laurel Tax-Free Municipal Funds (the "Trust") dated February 29, 1996
(As Revised August 26, 1996) (referred to herein as the "Prospectus")
describing the Dreyfus BASIC California Municipal Money Market Fund
(formerly, the Dreyfus/Laurel California Tax-Free Money Fund) (the "Fund").
To obtain a copy of the 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. and Canada -- Call 516-794-5452
The Dreyfus Corporation ("Dreyfus") serves as the Fund's investment
manager.
Premier Mutual Fund Services, Inc. ("Premier") is the distributor of the
Fund's shares.
TABLE OF CONTENTS
Page
Management of the Trust B-2
Purchase of Fund Shares B-10
(see also in the Prospectus "How to Buy Fund Shares")
Investment Policies B-11
(see also in the Prospectus "Investment Objective and Policies")
Redemption of Fund Shares B-24
(see also in the Prospectus "How to Redeem Fund Shares")
Fund Exchanges B-26
Valuation of Shares B-27
Performance Data B-28
Taxes B-29
(see also in the Prospectus "Dividends, Other
Distributions and Taxes")
Description of the Trust B-30
(see also in the Prospectus "Investment Objective and Policies")
Principal Shareholders B-31
Custodian and Transfer Agent B-32
Counsel and Independent Auditors B-32
Financial Statements B-32
Appendix A Risk Factors - Investing in
California Municipal Obligations B-33
Appendix B - Information about Securities Ratings B-45
MANAGEMENT OF THE TRUST
The organizations that provide services to the Trust are as follows:
Dreyfus as investment manager ("Investment Manager"), Mellon Bank, N.A.
("Mellon Bank") as custodian, Premier as the distributor ("Distributor") and
sub-administrator ("Sub-Administrator"), and Dreyfus Transfer, Inc. ("Dreyfus
Transfer"), a wholly-owned subsidiary of Dreyfus, as transfer agent
("Transfer Agent"). The functions they perform for the Trust are discussed
in the Prospectus and in this Statement of Additional Information.
On October 17, 1994, the name of the Trust was changed from "The Laurel
Tax-Free Municipal Funds" to "The Dreyfus/Laurel Tax-Free Municipal Funds"
and the name of the Fund was changed from Laurel California Tax-Free Money
Fund to Dreyfus/Laurel California Tax-Free Money Fund. On November 20, 1995,
the Fund's name changed from Dreyfus/Laurel California Tax-Free Money Fund to
Dreyfus BASIC California Municipal Money Market Fund.
Trustees and Officers
The Trust has a Board composed of twelve Trustees which supervises the
Trust's investment activities and reviews contractual arrangements with
companies that provide the Fund with services. The following lists the
Trustees and officers and their positions with the Trust and their present
and principal occupations during the past five years. Each Trustee who is an
"interested person" of the Trust (as defined in the Investment Company Act of
1940, as amended (the "Act")) is indicated by an asterisk. Each of the
Trustees also serves as a Director of The Dreyfus/Laurel Funds, Inc. and as a
Trustee of The Dreyfus/Laurel Funds Trust (collectively, with the Trust, the
"Dreyfus/Laurel Funds").
o+RUTH MARIE ADAMS. Trustee of the Trust; Professor of English and Vice
President Emeritus, Dartmouth College; Senator, United Chapters of Phi
Beta Kappa; Trustee, Woods Hole Oceanographic Institution. Age: 80
years old. Address: 1026 Kendal Lyme Road, Hanover, New Hampshire
03755.
o+FRANCIS P. BRENNAN. Chairman of the Board of Trustees and Assistant
Treasurer of the Trust; Director and Chairman, Massachusetts Business
Development Corp.; Director, Boston Mutual Insurance Company; Director
and Vice Chairman of the Board, Home Owners Federal Savings and Loan
(prior to May 1990). Age: 78 years old. Address: Massachusetts
Business Development Corp., One Liberty Square, Boston, Massachusetts
02109.
o*JOSEPH S. DiMARTINO. Trustee of the Trust since February 1995. Since
January 1995, Mr. DiMartino has served as Chairman of the Board for
various funds in the Dreyfus Family of Funds. For more than five years
prior thereto, he was President and a director of Dreyfus and Executive
Vice President and a director of Dreyfus Service Corporation, a wholly-
owned subsidiary of Dreyfus. From August 1994 to December 31, 1994, he
was a director of Mellon Bank Corporation. He is Chairman of the Board
of Noel Group, Inc., a trustee of Bucknell University; and a director of
the Muscular Dystrophy Association, HealthPlan Services Corporation,
Belding Heminway, Inc., Custis Industries, Inc., Simmons Outdoor
Corporation and Staffing Resources, Inc. Mr. DiMartino is also a Board
member of 93 other funds in the Dreyfus Family of Funds. Age: 52 years
old. Address: 200 Park Avenue, New York, New York 10166.
o+JAMES M. FITZGIBBONS. Trustee of the Trust; Chairman, Howes Leather
Company, Inc.; Director, Fiduciary Trust Company; Chairman, CEO and
Director, Fieldcrest-Cannon Inc.; Director, Lumber Mutual Insurance
Company; Director, Barrett Resources, Inc. Age: 60 years old. Address:
40 Norfolk Road, Brookline, Massachusetts 02167.
o*J. TOMLINSON FORT. Trustee of the Trust; Since 1990, Partner, Reed, Smith,
Shaw & McClay (law firm). Age: 65 years old. Address: 204 Woodcock
Drive, Pittsburgh, Pennsylvania 15215.
o+ARTHUR L. GOESCHEL. Trustee of the Trust; Director, Chairman of the Board
and Director, Rexene Corporation; Director, Calgon Carbon Corporation;
Director, Cerex Corporation; Director, National Picture Frame
Corporation; Chairman of the Board and Director, Tetra Corporation 1991-
1993; Director, Medalist Corporation 1992-1993; From 1988-1989 Director,
Rexene Corporation. Since May 1991, Mr. Goeschel has served as a
Trustee of Sewickley Valley Hospital. Age: 73 years old. Address: Way
Hollow Road and Woodland Road, Sewickley, Pennsylvania 15143.
o+KENNETH A. HIMMEL. Trustee of the Trust; Director, The Boston Company,
Inc. ("TBC") and Boston Safe Deposit and Trust Company; President and
Chief Executive Officer, Himmel & Co., Inc.; Vice Chairman, Sutton Place
Gourmet, Inc. Managing Partner, Franklin Federal Partners. Age: 49
years old. Address: Himmel and Company, Inc., 101 Federal Street, 22nd
Floor, Boston, Massachusetts 02110.
o*ARCH S. JEFFERY. Trustee of the Trust; Financial Consultant. Age: 76
years old. Address: 1817 Foxcroft Lane, Unit 306, Allison Park,
Pennsylvania 15101.
o+STEPHEN J. LOCKWOOD. Trustee of the Trust; President and CEO, LDG
Management Company Inc.; CEO, LDG Reinsurance Underwriters, SRRF
Management Inc. and Medical Reinsurance Underwriters Inc. Age: 48 years
old. Address: 401 Edgewater Place, Wakefield, Massachusetts 01880.
o+ROBERT D. MCBRIDE. Trustee of the Trust; Director, Chairman, McLouth
Steel; Director, Salem Corporation. Director, SMS/Concast, Inc. (1983-
1991). Age: 67 years old. Address: 15 Waverly Lane, Grosse Pointe
Farms, Michigan 48236.
o+JOHN J. SCIULLO. Trustee of the Trust; Dean Emeritus and Professor of Law,
Duquesne University Law School; Director, Urban Redevelopment Authority
of Pittsburgh. Age: 63 years old. Address: 321 Gross Street,
Pittsburgh, Pennsylvania 15224.
o+ROSLYN M. WATSON. Trustee of the Trust; Principal, Watson Ventures, Inc.;
Director, American Express Centurion Bank; Director, Harvard Community
Health Plan, Inc.; Director, Massachusetts Electric Company; Director,
The Hymans Foundations, Inc., prior to February, 1993; Real Estate
Development Project Manager and Vice President, The Gunwyn Company. Age:
45 years old. Address: 25 Braddock Park, Boston, Massachusetts 02116-
5816.
# ELIZABETH BACHMAN. Vice President and Assistant Secretary of the Company,
The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Funds, Inc. (since
January 1996); Counsel, Premier Mutual Fund Services, Inc. Prior to
September 1995, she was enrolled at the Fordham University School of Law
and received her J.D. in May 1995. Prior to September 1992, she was an
Assistant at the National Association for Public Interest Law. Age: 26
years old. Address: 200 Park Avenue, New York, New York 10166.
#MARIE E. CONNOLLY. President and Treasurer of the Trust, The Dreyfus/Laurel
Funds Trust and The Dreyfus/Laurel Funds, Inc. (since September 1994);
Vice President of the Trust, The Dreyfus/Laurel Funds Trust and The
Dreyfus/Laurel Funds, Inc. (March 1994 to September 1994); President,
Funds Distributor, Inc. (since 1992); Treasurer, Funds Distributor, Inc.
(July 1993 to April 1994); COO, Funds Distributor, Inc. (since April
1994); Director, Funds Distributor, Inc. (since July 1992); President,
COO and Director, Premier Mutual Fund Services, Inc. (since April 1994);
Senior Vice President and Director of Financial Administration, The
Boston Company Advisors, Inc. (December 1988 to May 1993). Age: 37 years
old. Address: One Exchange Place, Boston, Massachusetts 02109.
#FREDERICK C. DEY. Vice President of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since September 1994); Senior
Vice President, Premier Mutual Fund Services, Inc. (since August 1994);
Vice President, Funds Distributor, Inc. (since August 1994); Fundraising
Manager, Swim Across America (October 1993 to August 1994); General
Manager, Spring Industries (August 1988 to October 1993). Age: 33 years
old. Address: One Exchange Place, Boston, Massachusetts 02109.
#ERIC B. FISCHMAN. Vice President and Assistant Secretary (since January
1996) of the Trust, The Dreyfus/Laurel Funds Trust and The
Dreyfus/Laurel Funds, Inc.; Vice President and Associate General
Counsel, Premier Mutual Fund Services, Inc. (since August 1994); Vice
President and Associate General Counsel, Funds Distributor, Inc. (since
August 1994); Staff Attorney, Federal Reserve Board (September 1992 to
June 1994); Summer Associate, Venture Economics (May 1991 to September
1991); Summer Associate, Suffolk County District Attorney (June 1990 to
August 1990). Age: 31 years old. Address: 200 Park Avenue, New York,
New York 10166.
RICHARD W. HEALEY. Vice President of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since March 1994); Senior Vice
President, Funds Distributor, Inc. (since March 1993); Vice President,
The Boston Company, Inc., (March 1993 to May 1993); Vice President of
Marketing, Calvert Group (1989 to March 1993). Age: 41 years old.
Address: One Exchange Place, Boston, Massachusetts 02109.
# MARGARET PARDO. Assistant Secretary of the Company, The Dreyfus/Laurel
Funds Trust and The Dreyfus/Laurel Funds, Inc. (since January 1996);
Paralegal, Premier Mutual Fund Services, Inc. Prior to April 1995, she
was a Medical Coordination Officer at ORBIS International. Prior to
June 1992, she worked as a Program Coordinator at Physicians World
Communications Group. Age: 27 years old. Address: 200 Park Avenue, New
York, New York 10166.
#JOHN E. PELLETIER. Vice President and Secretary of the Trust, The
Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Funds, Inc. (since
September 1994); Senior Vice President, General Counsel and Secretary,
Funds Distributor, Inc. (since April 1994); Senior Vice President,
General Counsel and Secretary, Premier Mutual Fund Services, Inc. (since
August 1994); Counsel, The Boston Company Advisors, Inc. (February 1992
to March 1994); Associate, Ropes & Gray (August 1990 to February 1992).
Age: 31 years old. Address: One Exchange Place, Boston, Massachusetts
02109.
# JOHN J. PYBURN. Assistant Treasurer of the Trust, The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Funds, Inc. (since January 1996); Vice
President of Premier Mutual Fund Services, Inc. and an officer of other
investment companies advised or administered by Dreyfus. From 1984 to
July 1994, he was Assistant Vice President in the Mutual Fund Accounting
Department of Dreyfus. Age: 61 years old. Address: 200 Park Avenue,
New York, New York 10166.
JOSEPH F. TOWER, III. Assistant Treasurer of the Trust, The Dreyfus/Laurel
Funds Trust and The Dreyfus/Laurel Funds, Inc. (since January 1996);
Senior Vice President, Treasurer and Chief Financial Officer of Premier
Mutual Fund Services, Inc. and an officer of other investment companies
advised or administered by Dreyfus. 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. Age:
33 years old. Address: 200 Park Avenue, New York, New York 10166.
_____________________________________
* "Interested person" of the Trust, as defined in the Act.
o Member of the Audit Committee.
+ Member of the Nominating Committee.
# Officer also serves as an officer for other investment companies advised
by The Dreyfus Corporation.
No officer or employee of Premier (or of any parent, subsidiary or
affiliate thereof ) receives any compensation from the Trust for serving as
an officer or Trustee of the Trust. No officer or employee of Dreyfus (or of
any parent, subsidiary or affiliate thereof) serves as an officer or Trustee
of the Trust. The Dreyfus/Laurel Funds pay each Director/Trustee who is not
an "interested person" as defined in the Act, $27,000 per annum (and an
additional $75,000 for the Chairman of the Board of Directors/Trustees of the
Dreyfus/Laurel Funds), $1,000 per joint Dreyfus/Laurel Funds Board meeting
attended, and $750 per joint Dreyfus/Laurel Funds Audit Committee meeting
attended, and reimburse each Director/Trustee for travel and out-of-pocket
expenses.
The officers and Trustees of the Trust as a group owned beneficially
less than 1% of the total shares of the Fund outstanding as of January 31,
1996.
For the fiscal year ended June 30, 1995, the aggregate amount of fees
and expenses received by each current Trustee from the Trust and all other
funds in the Dreyfus Family of Funds for which such person is a Board member
were as follows:
<TABLE>
Total
Pension or Compensation from
Aggregate Retirement Benefits Estimated Annual the Trust and Fund
Name of Board Compensation from Accrued as Part of Benefits Upon Complex Paid to
Member the Trust# Fund's Expenses Retirement Board Member
- ------------- --------------- -------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Ruth Marie Adams $2,093 none none $ 34,750
Francis P. Brennan@ 6,642 none none 110,750
Joseph S. DiMartino** none none none 448,618*
James M. Fitzgibbons 2,031 none none 33,750
J. Tomlinson Fort** none none none none
Arthur L. Goeschel 2,093 none none 34,750
Kenneth A. Himmel 1,996 none none 33,000
Arch S. Jeffery** none none none none
Stephen J. Lockwood 1,934 none none 32,000
Robert D. McBride 2,156 none none 35,750
John J. Sciullo 2,093 none none 34,750
Roslyn M. Watson 2,156 none none 35,750
_____________________________
# Amounts required to be paid by the Trust directly to the non-interested Trustees that would be applied to offset a portion of
the management fee payable to Dreyfus, are in part paid directly by Dreyfus to the non-interested Trustees.
Amount does not include reimbursed expenses for attending Board meetings, which amounted to $1,192 for the Dreyfus/Laurel Funds.
* Estimated amount for fiscal year ended June 30, 1995.
** Joseph S. DiMartino, J. Tomlinson Fort and Arch Jeffery are paid directly by Dreyfus for serving as Board members of the
Trust and the funds in the Dreyfus/Laurel Funds. For the fiscal year ended June 30, 1995, the aggregate
amount of fees and expenses received by Joseph S. DiMartino, J. Tomlinson Fort and
Arch Jeffery from Dreyfus for serving as a Board member of the Trust were $1,792, $2,156 and $2,156, respectively and for serving
as a Board member of all funds in the Dreyfus/Laurel Funds (including the Trust) were $14,000, $35,750 and $35,750, respectively.
In addition, Dreyfus reimbursed Messrs. DiMartino, Fort and Jeffery a total of $136 for expenses attributable to the Trust's Board
meetings ($136 is not included in $1,192 above).
@ The compensation of Francis P. Brennan includes $75,000 by Dreyfus to be the Chairman of the Board.
</TABLE>
Management Arrangements
Dreyfus serves as the investment manager for the Fund pursuant to an
Investment Management Agreement (the "Management Agreement") with the Trust
dated November 20, 1995. Dreyfus is a wholly-owned subsidiary of Mellon
Bank. Pursuant to the Management Agreement, Dreyfus provides, or arranges
for one or more third parties to provide, investment advisory,
administrative, custody, fund accounting and transfer agency services to the
Fund. As investment manager, Dreyfus manages the Fund by making investment
decisions based on the Fund's investment objective, policies and
restrictions.
Prior to November 20, 1995, Dreyfus served as investment manager to the Fund
pursuant to the prior investment management agreement (the "Prior Management
Agreement") with the Trust dated April 4, 1994 and transferred from Mellon
Bank to Dreyfus on October 17, 1994.
Prior to May 21, 1993, The Boston Company Advisors, Inc. ("TBC Advisors")
served as investment adviser to the Fund pursuant to a written agreement,
which was last approved by the Trustees, including a majority of the Trustees
who are not "interested persons" of the Trust, on July 22, 1992. From May 21,
1993 through April 3, 1994, TBC Advisors served as investment adviser to the
Fund pursuant to a written agreement ("TBC Advisors Agreement"), which was
last approved by the Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust, on July 21, 1993 and approved by the
shareholders of the Fund on December 31, 1992. The TBC Advisors Agreement
became effective on May 21, 1993, upon the consummation of the sale of Boston
Group Holdings, Inc., the parent company of The Boston Company, Inc. ("TBC"),
to Mellon Bank Corporation. TBC Advisors is a wholly-owned subsidiary of
TBC, a financial services holding company. TBC is in turn a wholly-owned
subsidiary of Mellon Bank Corporation. Mellon Bank later served as investment
manager to the Fund pursuant to the Prior Management Agreement, which was
last approved by the Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust or Mellon Bank, on November 22, 1993
(subject to shareholder approval) and approved by the shareholders of the
Fund on March 29, 1994. The Prior Management Agreement became effective on
April 4, 1994. As stated above, Dreyfus, a wholly-owned subsidiary of Mellon
Bank, is the current investment manager pursuant to the Management Agreement,
which was last approved by the Trustees on July 26, 1995.
The current Management Agreement with Dreyfus provides for a "unitary fee."
Under the unitary fee structure, Dreyfus pays all expenses of the Fund
except: (i) brokerage commissions, (ii) taxes, interest and extraordinary
expenses (which are expected to be minimal), and (iii) Rule 12b-1 fees, as
applicable. Under the unitary fee, Dreyfus provides, or arranges for one or
more third parties to provide, investment advisory, administrative, custody,
fund accounting and transfer agency services to the Fund. For the provision
of such services directly, or through one or more third parties, Dreyfus
receives as full compensation for all services and facilities provided by it,
a fee computed daily and paid monthly at the annual rate of .45 of 1% of the
Fund's average daily net assets, less the accrued fees and expenses
(including counsel fees) of the non-interested Trustees of the Trust. The
Management Agreement provides that certain redemption, exchange and account
closeout charges are payable directly by the Fund's shareholders to the
Fund's Transfer Agent and the fee payable by the Fund to Dreyfus is not
reduced by the amount of charges payable to the Transfer Agent. Under the
prior agreement with TBC Advisors, the payments to the investment manager
covered merely the provision of investment advisory services (and payment for
sub-advisory services) and certain specified administrative services. Under
this previous arrangement, the Fund also paid for additional non-investment
advisory expenses, such as custody and transfer agency services, that were
not paid by the investment adviser.
The Management Agreement will remain in effect through November 19, 1997 and
will continue thereafter from year to year provided that a majority of the
Trustees who are not interested persons of the Fund and either a majority of
all Trustees or a majority of the shareholders of the Fund approve its
continuance. The Fund may terminate the Management Agreement, without prior
notice to Dreyfus, upon the vote of a majority of the Board of Trustees or
upon the vote of a majority of the outstanding voting securities of the Fund
on 60 days written notice to Dreyfus. Dreyfus may terminate the Management
Agreement upon 60 days' written notice to the Fund. The Management Agreement
will terminate immediately and automatically upon its assignment.
The following persons are officers and/or directors of Dreyfus: Howard
Stein, Chairman of the Board and Chief Executive Officer; W. Keith Smith,
Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director, Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration and a director; Barbara E. Casey, Vice President-Dreyfus
President-Dreyfus Retirement Services; Diane M. Coffey, Vice President-
Corporate Communications; Elie M. Genadry, Vice President-Institutional
Sales; William T. Sandalls, Jr., Senior Vice President, Chief Financial
Officer and a director; William F. Glavin, Jr., Vice President-Corporate
Development; Andrew S. Wasser, Vice President-Information Services; Mark N.
Jacobs, Vice President-Fund Legal and Compliance and Secretary; Jeffrey N.
Nachman, Vice President-Mutual Fund Accounting; Maurice Bendrihem,
Controller; Elvira Oslapas; Assistant Secretary; Mandell L. Berman, Frank V.
Cahouet, Alvin E. Friedman, Lawrence M. Greene and Julian M. Smerling
directors.
As compensation for Dreyfus' services, the Fund pays a fee, based on its
total average daily net assets, that is computed daily and paid monthly at
the annual rate of .45 of 1%. Dreyfus has agreed to limit its fee, or to
reimburse the Fund for expenses, to ensure that the Fund's total operating
expenses do not exceed .35 of 1% for the period from November 20, 1995
through November 19, 1996. In addition, Dreyfus may waive all or a portion
of its fees payable by the Fund from time to time.
The following table shows the fees paid by the Fund to TBC Advisors or
Mellon (as the prior investment advisors) and to Dreyfus (the current
investment manager), including any fee waivers or expense reimbursements by TBC
Advisors, Mellon Bank or Dreyfus, pursuant to the Fund's prior investment
advisory agreements, during the Fund's 1993, 1994 and 1995 fiscal years:
1995 * 1994 * (1) 1993 **
------
Fees Fees Fees Fees Fees Fees
Paid (2) Waived (3) Paid (4) Waived (5) Paid Waived (5)
--------- ------- -------- ---------- ---- ---------
$90,816 $22,135 $45,706 $56,403 (6) $103,006 $165,734(7)
_______________________________
* For the fiscal year ended June 30. The Fund changed its fiscal year end
from November 30 to June 30.
** For the fiscal years ended November 30.
(1) Effective April 4, 1994, Mellon Bank served as the Fund's investment
manager.
(2) For the fiscal year ended June 30, 1995, there were no fee waivers or
expense reimbursements.
(3) Fees paid to Mellon Bank for investment management services for the
period from April 4, 1994 to the fiscal year ended June 30, 1994.
(4) Fees paid to TBC Advisors for investment advisory services for the
period from December 1, 1993 to April 3, 1993.
(5) TBC Advisors waived all or a portion of its fees and/or reimbursed
expenses of the Fund from time to time in order to increase the Fund's
net income available for distribution to shareholders.
(6) Includes $10,697 reimbursement by TBC Advisors.
(7) Includes $35,728 reimbursement by TBC Advisors.
Dreyfus has agreed that if in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to the Management Agreement, but excluding
interest, brokerage expenses, taxes and extraordinary items) exceed the
expense limitation of any state, it will reduce its management fees by the
amount of such excess expense. Such a fee reduction, if any, will be
reconciled on a monthly basis. The most restrictive state expense limitation
applicable to the Fund requires a reduction of fees in any year that such
expenses exceed 2.5% of the first $30 million of average net assets, 2.0% of
the next $70 million of average net assets and 1.5% of the remaining average
net assets. A number of factors, including the size of the Fund, will
determine which of these restrictions will be applicable to the Fund at any
given time. No reimbursement pursuant to state expense limitations was
required for the Fund for the fiscal year ended June 30, 1995.
In addition, under a distribution plan adopted by the Fund pursuant to
Rule 12b-1 under the Act, which was terminated effective November 20, 1995,
the Fund paid Dreyfus Service Corporation, a subsidiary of Dreyfus, for
shareholder servicing, and the Distributor for shareholder servicing and
expenses permanently intended to result in the sale of Investor shares, at
the annual rate of .25% attributable to its Investor shares. For the year
ended June 30, 1995, the Fund paid $38,346 in distribution fees attributable
to its Investor shares.
PURCHASE OF FUND SHARES
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and
for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 P.M., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange ("NYSE") are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 P.M., New York time, on any business day the
Transfer Agent and the NYSE are open for business, or orders made on
Saturday, Sunday or any Fund holiday (e.g. when the NYSE is not open for
business), will be credited to the shareholders's Fund account on the second
bank business day following such purchase order.
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
In-Kind Purchases. If the following conditions are satisfied, the Fund
may at its discretion, permit the purchase of shares through an "in-kind"
exchange of securities. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus
any cash, must be at least equal to $25,000. Shares purchased in exchange
for securities generally cannot be redeemed for fifteen days following the
exchange in order to allow time for the transfer to settle.
The basis of the exchange will depend upon the relative NAV of the
Shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Fund and
prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities. For further
information about "in-kind" purchases, call 1-800-645-6561.
Federal Law Affecting Mellon Bank
The Glass-Steagall Act of 1933 prohibits national banks from engaging in
the business of underwriting, selling or distributing securities and
prohibits a member bank of the Federal Reserve System from having certain
affiliations with an entity engaged principally in that business. The
activities of Mellon Bank in informing its customers of, and performing,
investment and redemption services in connection with the Fund, and in
providing services to the Fund as custodian, as well as investment advisory
activities of Dreyfus, may raise issues under these provisions. Mellon Bank
has been advised by counsel that its activities contemplated under this
arrangement are consistent with its statutory and regulatory obligations.
Changes in either federal or state statutes and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as further judicial or administrative decisions or interpretations of
such future statutes and regulations could prevent Mellon Bank or Dreyfus
from continuing to perform all or a part of the above services for its
customers and/or the Fund. If Mellon Bank or Dreyfus were prohibited from
serving the Fund in any of its present capacities the Trustees would seek an
alternative provider(s) of such services.
INVESTMENT POLICIES
The Prospectus discusses the Fund's investment objective and the
policies it employs to achieve that objective. The following discussion
supplements the description of the Fund's investment policies in the
Prospectus.
Description of Municipal Obligations
For purposes of this Statement of Additional Information, the term
"Municipal Obligations" and "California Municipal Obligations" shall mean
debt obligations issued by the State of California, its political
subdivisions, municipalities and public authorities and municipal obligations
issued by other government entities if, in the opinion of counsel to the
respective issuers, the interest from such obligations is exempt from Federal
and California personal income taxes. "Municipal Obligations" and
"California Municipal Obligations" include the following:
Municipal Bonds
Municipal Bonds, which generally have a maturity of more than one year
when issued, have two principal classifications: General Obligation Bonds and
Revenue Bonds. A Private Activity Bond is a particular kind of Revenue Bond.
The classification of General Obligation Bonds, Revenue Bonds and Private
Activity Bonds are discussed below.
1. General Obligation Bonds. The proceeds of these obligations are
used to finance a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems.
General Obligation Bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest.
2. Revenue Bonds. Revenue Bonds are issued to finance a wide variety
of capital projects including: electric, gas, water and sewer systems;
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security for a Revenue Bond is
generally the net revenues derived from a particular facility, group of
facilities or, in some cases, the proceeds of a special excise or other
specific revenue source. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service
reserve fund whose money may be used to make principal and interest payments
on the issuer's obligations. Some authorities provide further security in the
form of a state's ability (without obligation) to make up deficiencies in the
debt service reserve fund.
3. Private Activity Bonds. Private Activity Bonds, which are
considered Municipal Bonds if the interest paid thereon is exempt from
Federal income tax, are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business and
manufacturing, housing, sports and pollution control. These bonds are also
used to finance public facilities such as airports, mass transit systems,
ports and parking. The payment of the principal and interest on such bonds is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment. As noted in the Prospectus and discussed below
under "Taxes," interest income on these bonds may be an item of tax
preference subject to the Federal alternative minimum tax for individuals and
corporations.
Municipal Notes
Municipal Notes generally are used to provide for short-term capital
needs and generally have maturities of thirteen months or less. Municipal
Notes include:
1. Tax Anticipation Notes. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally, they are issued
in anticipation of various seasonal tax revenue, such as income, sales, use
and business taxes, and are payable from these specific future taxes.
2. Revenue Anticipation Notes. Revenue Anticipation Notes are issued
in expectation of receipt of other kinds of revenue, such as federal revenues
available under the Federal Revenue Sharing Programs.
3. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
Notes.
Municipal Commercial Paper
Issues of Municipal Commercial Paper typically represent short-term,
unsecured, negotiable promissory notes. These obligations are issued by
agencies of state and local governments to finance seasonal working capital
needs of municipalities or to provide interim construction financing and are
paid from general revenues of municipalities or are refinanced with long-term
debt. In most cases, Municipal Commercial Paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
Municipal Lease Obligations
Municipal leases may take the form of a lease or a certificate of
participation in a purchase contract issued by state and local government
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and other
capital assets. A lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged,
although the lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make payments due under the lease
obligation. Municipal leases have special risks not normally associated with
Municipal Bonds. These obligations frequently contain "non-appropriation"
clauses that provide that the governmental issuer of the obligation has no
obligation to make future payments under the lease or contract unless money
is appropriated for such purposes by the legislative body on a yearly or
other periodic basis. In addition to the non-appropriation risk, municipal
leases represent a type of financing that has not yet developed the depth of
marketability associated with Municipal Bonds; moreover, although the
obligations will be secured by the leased equipment, the disposition of the
equipment in the event of foreclosure might prove difficult. For purposes of
the 10% limitation on the purchase of illiquid securities, the Fund will not
consider the municipal lease obligations or certificates of participation in
municipal lease obligations in which it invests as liquid, unless Dreyfus
shall determine, based upon such factors as the frequency of trades and
quotes for the obligation, the number of dealers willing to purchase or sell
the security and the number of other potential buyers, the willingness of
dealers to undertake to make a market in the security and the nature of
marketplace trades, that a security shall be treated as liquid for purposes
of such limitation.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may
become subject to laws enacted in the future by Congress, state legislators,
or referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon
municipalities to levy taxes. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its Municipal Obligations
may be materially affected.
Unlike the purchase or sale of a Municipal Bond, no consideration is
paid or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker an amount of
cash or cash equivalents equal to approximately 10% of the contract amount
(this amount is subject to change by the board of trade on which the contract
is traded and members of such board of trade may charge a higher amount).
This amount is known as initial margin and is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming that all contractual
obligations have been satisfied. Subsequent payments, known as variation
margin, to and from the broker, will be made on a daily basis as the price of
the index fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as marking-to-market. At any
time prior to the expiration of the contract, the Fund may elect to close the
position by taking an opposite position, which will operate to terminate the
Fund's existing position in the futures contract.
There are several risks in connection with the use of a municipal bond
index futures contract as a hedging device. Successful use of municipal bond
index futures contracts by the Fund is subject to the ability of Dreyfus to
predict correctly movements in the direction of interest rates. Such
predictions involve skills and techniques which may be different from those
involved in the management of a long-term municipal bond portfolio. In
addition, there can be no assurance that there will be a correlation between
movements in the price of the municipal bond index and movements in the price
of the Municipal Bonds which are the subject of the hedge. The degree of
imperfection of correlation depends upon various circumstances, such as
variations in speculative market demand for futures contracts and municipal
securities, technical influences on futures trading, and differences between
the municipal securities being hedged and the municipal securities underlying
the municipal bond index futures contracts, in such respects as interest rate
levels, maturities and creditworthiness of issuers. A decision of whether,
when and how to hedge involves the exercise of skill and judgment and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Fund intends to purchase or sell municipal bond index
futures contracts only if there is an active market for such contracts, there
is no assurance that a liquid market will exist for the contracts at any
particular time. Most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a
single trading day. The daily limit establishes the maximum amount the price
of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movement during
a particular trading day and, therefore, does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions. It
is possible that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, it will not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. As described above, however, there is
no guarantee that the price of Municipal Bonds will, in fact, correlate with
the price movements in the municipal bond index futures contract and thus
provide an offset to losses on a futures contract.
If the Fund has hedged against the possibility of an increase in
interest rates adversely affecting the value of the Municipal Bonds held in
its portfolio and rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of the Municipal Bonds it has hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have
to sell securities to meet daily variation margin requirements. Such sales
of securities may, but will not necessarily, be at increased prices which
reflect the decline in interest rates. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
When the Fund purchases municipal bond index futures contracts, an
amount of cash and U.S. government securities or other high grade debt
securities equal to the market value of the futures contracts will be
deposited in a segregated account with the Fund's custodian (and/or such
other persons as appropriate) to collateralize the positions and thereby
insure that the use of such futures contracts is not leveraged. In addition,
the ability of the Fund to trade in municipal bond index futures contracts
and options on interest rate futures contracts may be materially limited by
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company. See "Taxes" below.
Tender Option Bonds
The Fund may invest up to 10% of the value of its assets in 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. Dreyfus, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuer of the underlying Municipal Obligation, of any custodian and 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 not invest more than 10% of
the value of its net assets in illiquid securities, which would include
tender option bonds for which the required notice to exercise the tender
feature is more than seven days if there is no secondary market available for
these obligations.
Use of Ratings as Investment Criteria
The ratings of nationally recognized statistical rating organizations
("NRSROs") such as Standard & Poor's ("S&P") and Moody's Investors Service,
Inc. ("Moody's") represent the opinions of these agencies as to the quality
of Municipal Obligations which they rate. It should be emphasized, however,
that such ratings are relative and subjective and are not absolute standards
of quality. These ratings will be used by the Fund as initial criteria for
the selection of portfolio securities, but the Fund will also rely upon the
independent advice of Dreyfus to evaluate potential investments. Among the
factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Further information
concerning the ratings of the NRSROs and their significance is contained in
the Appendix B to this Statement of Additional Information.
After being purchased by the Fund, the rating of a Municipal Obligation
may be reduced below the minimum rating required for purchase by the Fund or
the issuer of the Municipal Obligation may default on its obligations with
respect to the Municipal Obligation. In that event, the Fund will dispose of
the Municipal Obligation as soon as practicable, consistent with achieving an
orderly disposition of the Municipal Obligation, unless the Trust's Board of
Trustees determines that disposal of the Municipal Obligation would not be
in the best interest of the Fund. In addition, it is possible that a
Municipal Obligation may cease to be rated or an NRSRO might not timely
change its rating of a particular Municipal Obligation to reflect subsequent
events. Although neither event will require the sale of such Municipal
Obligation by the Fund, Dreyfus will consider such event in determining
whether the Fund should continue to hold the Municipal Obligation. In
addition, if an NRSRO changes its rating system, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with its
investment objectives and policies.
Floating Rate and Variable Rate Obligations
The Fund may purchase floating rate and variable rate obligations,
including participation interests therein. Floating rate or variable rate
obligations provide that the rate of interest is set as a specific percentage
of a designated base rate (such as the prime rate at a major commercial bank)
and that the Fund can demand payment of the obligation at par plus accrued
interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external
interest rate. Frequently such obligations are secured by letters of credit
or other credit support arrangements provided by banks. The quality of the
underlying creditor or of the bank, as the case may be, must, as determined
by Dreyfus under the supervision of the Trustees, be equivalent to the
quality standard prescribed for the Fund. The Fund is currently permitted to
purchase floating rate and variable rate obligations with demand features in
accordance with requirements established by the SEC, which, among other
things, permit such instruments to be deemed to have remaining maturities of
thirteen months or less, notwithstanding that they may otherwise have a
stated maturity in excess of thirteen months.
The Fund may invest in participation interests purchased from banks in
floating rate or variable rate tax-exempt Municipal Obligations owned by
banks. A participation interest gives the purchaser 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, and
provides a demand feature. Each participation is backed by an irrevocable
letter of credit or guarantee of a bank (which may be the bank issuing the
participation interest, a bank issuing a confirming letter of credit to that
of the issuing bank, or a bank serving as agent of the issuing bank with
respect to the possible repurchase of the participation interest) that
Dreyfus, under the supervision of the Trustees, has determined meets the
prescribed quality standards for the Fund. The Fund has the right to sell
the instrument back to the issuing bank or draw on the letter of credit on
demand for all or any part of the Fund's participation interest in the
Municipal Obligation, plus accrued interest. The Fund is currently permitted
to invest in participation interests when the demand provision complies with
conditions established by the SEC. Banks will retain a service and letter of
credit fee and a fee for issuing repurchase commitments in an amount equal to
the excess of the interest paid on the Municipal Obligations over the
negotiated yield at which the instruments were purchased by the Fund.
When-Issued Securities
The Fund may purchase Municipal Obligations on a when-issued basis
(i.e., for delivery beyond the normal settlement date at the stated price and
yield). The payment obligation and the interest rate that will be received
on the Municipal Obligations purchased on a when-issued basis are each fixed
at the time the buyer enters into the commitment. Although the Fund will
purchase Municipal Obligations on a when-issued basis only with the intention
of actually acquiring the securities, the Fund may sell these securities
before the settlement date if it is deemed advisable as a matter of
investment strategy.
Municipal Obligations purchased on a when-issued basis and the
securities held in the Fund's portfolio are subject to changes in market
value based upon the public's perception of the creditworthiness of the
issuer and changes, real or anticipated, in the level of interest rates
(which will generally result in similar changes in value, i.e., both
experiencing appreciation when interest rates decline and depreciation when
interest rates rise). Therefore, to the extent the Fund remains
substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be a greater possibility of
fluctuation in the Fund's net asset value. Purchasing Municipal Obligations
on a when-issued basis can involve a risk that the yields available in the
market when the delivery takes place may actually be higher than those
obtained in the transaction.
The Fund will establish with the Fund's custodian a segregated account
consisting of cash or liquid debt securities in an amount at least equal to
the amount of its when-issued commitments. When the time comes to pay for
when-issued securities, the Fund will meet its obligations from then-
available cash flow, sale of securities held in the segregated account, sale
of other securities or, although it would not normally expect to do so, from
the sale of the when-issued securities themselves (which may have a value
greater or less than the Fund's payment obligations). Sale of securities to
meet such obligations carries with it a greater potential for the realization
of capital gains, which are not exempt from Federal income tax.
Purchase of Securities with Stand-by Commitments
Pursuant to an exemptive order issued by the SEC under the Act, the Fund
may acquire standby commitments with respect to Municipal Obligations held in
its portfolio. Under a stand-by commitment, a broker-dealer, dealer or bank
would agree to purchase, at the Fund's option, a specified Municipal
Obligation at a specified price. Stand-by commitments acquired by the Fund
may also be referred to as "put options." The amount payable to the Fund
upon its exercise of a stand-by commitment normally would be (a) the
acquisition cost of the Municipal Obligation, less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the security, plus (b) all interest accrued on the
security since the last interest payment date during the period. Absent
unusual circumstances, in determining net asset value the Fund would value
the underlying Municipal Obligation at amortized cost. Accordingly, the
amount payable by the broker-dealer, dealer or bank upon exercise of a stand-
by commitment will normally be substantially the same as the portfolio value
of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment is unconditional and
unqualified. Although the Fund could not transfer a stand-by commitment, the
Fund could sell the underlying Municipal Obligation to a third party at any
time. It is expected that stand-by commitments generally will be available to
the Fund without the payment of any direct or indirect consideration. The
Fund may, however, pay for stand-by commitments either separately in cash or
by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held in the Fund's portfolio will not exceed
.5 of 1% of the value of the Fund's total assets calculated immediately after
such stand-by commitment was acquired.
The Fund intends to enter into stand-by commitments only with broker-
dealers, dealers or banks that Dreyfus believes present minimum credit risks.
The Fund's ability to exercise a stand-by commitment will depend on the
ability of the issuing institution to pay for the underlying securities at
the time the commitment is exercised. The credit of each institution issuing
a stand-by commitment to the Fund will be evaluated on an ongoing basis by
Dreyfus in accordance with procedures established by the Trustees.
The Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise their rights thereunder
for trading purposes. The acquisition of a stand-by commitment would not
affect the valuation or maturity of the underlying Municipal Obligation,
which will continue to be valued in accordance with the amortized cost
method. Each stand-by commitment will be valued at zero in determining net
asset value. Should the Fund pay directly or indirectly for a stand-by
commitment, its costs will be reflected as an unrealized loss for the period
during which the commitment is held by the Fund and will be reflected in
realized gain or loss when the commitment is exercised or expires. Stand-by
commitments will not affect the dollar-weighted average maturity of the
Fund's portfolio. The Fund understands that the Internal Revenue Service has
issued a revenue ruling to the effect that a registered investment company
will be treated for Federal income tax purposes as the owner of Municipal
Obligations acquired subject to stand-by commitments and the interest on the
Municipal Obligations will be tax-exempt to the Fund.
Taxable Investments
The Fund anticipates being as fully invested as practicable in Municipal
Obligations. Because the Fund's purpose is to provide income exempt from
Federal and state personal income tax, the Fund will invest in taxable
obligations only if and when the Trustees believe it would be in the best
interests of its shareholders to do so. Situations in which the Fund may
invest up to 20% of its total assets in taxable securities include: (a)
pending investment of proceeds of sales of shares of the Fund or of portfolio
securities, (b) pending settlement of purchases of portfolio securities, and
(c) when the Fund is attempting to maintain liquidity for the purpose of
meeting anticipated redemptions. The Fund may temporarily invest more than
20% of its total assets in taxable securities to maintain a "defensive"
posture when, in the opinion of Dreyfus, it is advisable to do so because of
adverse market conditions affecting the market for Municipal Obligations.
The Fund may invest in only the following kinds of taxable securities
maturing in one year or less from the date of purchase: (1) obligations of
the United States Government, its agencies or instrumentalities; (2)
commercial paper rated at the time of purchase at least Prime-1 by Moody's or
A-1+ or A-1 by S&P; (3) certificates of deposit of domestic banks with total
assets of $1 billion or more; and (4) repurchase agreements (instruments
under which the seller of a security agrees to repurchase the security at a
specific time and price) with respect to any securities that the Fund is
permitted to hold.
Repurchase Agreements
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System or certain non-bank dealers. Under each repurchase
agreement the selling institution will be required to maintain the value of
the securities subject to the agreement at not less than their repurchase
price. If a particular bank or non-bank dealer defaults on its obligation to
repurchase the underlying debt instrument as required by the terms of a
repurchase agreement, the Fund will incur a loss to the extent that the
proceeds it realizes on the sale of the collateral are less than the
repurchase price of the instrument. In addition, should the defaulting bank
or non-bank dealer file for bankruptcy, the Fund could incur certain costs in
establishing that it is entitled to dispose of the collateral and its
realization on the collateral may be delayed or limited. Investments in
repurchase agreements are subject to the policy prohibiting investment of
more than 10% of the Fund's assets in restricted securities, securities
without readily available market quotations and repurchase agreements
maturing in more than seven days.
As noted in the Prospectus, the Fund may, on occasion, invest in
securities issued by other investment companies. These securities will be of
investment companies that determine their net asset value per share based on
the amortized cost or penny-rounding method. Such securities will be
acquired by the Fund within the limits prescribed by the Act, which include,
subject to certain exceptions, a prohibition against the Fund's investing
more than 10% of the value of its total assets in such securities.
Special Factors Affecting the Fund
Some of the significant financial considerations relating to the Fund's
investments in California Municipal Obligations are summarized below. This
summary information is derived principally from official statements and
prospectuses relating to securities offerings of the State of California and
various local agencies in California that were available prior to the date of
this Statement of Additional Information and does not purport to be a
complete description of any of the considerations mentioned herein. The
accuracy and completeness of the information contained in such official
statements has not been verified independently.
Risk Factors
Investing in California Municipal Obligations. Investors should
consider carefully the special risks inherent in the Fund's investment in
California Municipal Obligations. These risks result from certain amendments
to the California Constitution and other statutes that limit the taxing and
spending authority of California governmental entities, as well as from the
general financial condition of the State of California. From mid-1990 to
late 1993, the State suffered a recession with the worst economic, fiscal and
budget conditions since the 1930s. As a result, the State has experienced
recurring budget deficits for four of its five fiscal years ended June 30,
1992. The State had operating surpluses of approximately $109 million in
1992-93 and $917 million in 1993-94. However at June 30, 1994, according to
California's Department of Finance, the State's Special Fund for Economic
Uncertainties had an accumulated deficit, on a budget basis, of approximately
$1.8 billion. A further consequence of the large budget imbalances has been
that the State depleted its available cash resources and has had to use a
series of external borrowings to meet its cash needs. To meet its cash flow
needs in the 1994-95 fiscal year, the State issued, in July and August 1994,
$4.0 billion of revenue anticipation warrants and $3.0 billion of revenue
anticipation notes. The 1994-95 Budget Act contains a plan to retire a
projected $1.025 billion deficit in the 1995-96 fiscal year. The Department
of Finance projects that, after repaying the last of the carryover budget
deficit, there will be a positive balance of $28 million in the Special Fund
for Economic Uncertainties at June 30, 1996. As a result of the
deterioration of the State's budget and cash situation between October 1991
and July 1994, the rating on the State's general obligation bonds was reduced
by S&P from AAA to A, by Moody's from Aaa to A1 and by Fitch from AAA to A.
These and other factors may have the effect of impairing the ability of the
issuers of California Municipal Obligations to pay interest on, or repay
principal of, such California Municipal Obligations. Investors should review
Appendix A which sets forth additional information relating to investing in
California Municipal Obligations.
Investment Restrictions
The following are fundamental investment restrictions of the Fund. The
Fund may not:
1. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
activities in the same industry. (For purposes of this limitation, U.S.
Government securities and state or municipal governments and their political
subdivisions are not considered members of any industry. In addition, this
limitation does not apply to investments of domestic banks, including U.S.
branches of foreign banks and foreign branches of U.S. banks).
2. Borrow money or issue senior securities as defined in the Act,
except that (a) the Fund may borrow money in an amount not exceeding one-
third of the Fund's total assets at the time of such borrowing, and (b) the
Fund may issue multiple classes of shares. The purchase or sale of futures
contracts and related options shall not be considered to involve the
borrowing of money or issuance of senior securities.
3. Make loans or lend securities, if as a result thereof more than one-
third of the Fund's total assets would be subject to all such loans. For
purposes of this restriction, debt instruments and repurchase agreements
shall not be treated as loans.
4. Underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be deemed an
underwriting.
5. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate,
including mortgage loans, or securities of companies that engage in the real
estate business or invest or deal in real estate or interests therein).
6. Purchase or sell commodities, except that the Fund may enter into
futures contracts and related options, forward currency contracts and other
similar instruments.
The Fund may, notwithstanding any other fundamental investment policy or
restriction, invest all of its investable assets in securities of a single
open-end management investment company with substantially the same
fundamental investment objectives, policies and restrictions as the Fund.
The following are non-fundamental investment restrictions of the Fund:
1. The Fund will not purchase or retain the securities of any issuer
if the officers, directors or Trustees of the Trust, its advisers, or
managers owning beneficially more than one half of one percent of the
securities of each issuer together own beneficially more than five percent of
such securities.
2. The Fund will not purchase securities of issuers (other than
securities issued or guaranteed by domestic or foreign governments or
political subdivisions thereof), including their predecessors, that have been
in operation for less than three years, if by reason thereof the value of the
Fund's investment in securities would exceed 5% of the Fund's total assets.
For purposes of this limitation, sponsors, general partners, guarantors and
originators of underlying assets may be treated as the issuer of a security.
3. The Fund will not purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total assets,
except that: (a) this restriction shall not apply to standby commitments and
(b) this restriction shall not apply to the Fund's transactions in futures
contracts and related options.
4. The Fund will not purchase warrants if at the time of such
purchase: (a) more than 5% of the value of the Fund's assets would be
invested in warrants or (b) more than 2% of the value of the Fund's assets
would be invested in warrants that are not listed on the NYSE or American
Stock Exchange ("AMEX") (for purposes of this limitation, warrants acquired
by the Fund in units or attached to securities will be deemed to have no
value).
5. The Fund will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, and other securities which are not
readily marketable. For purposes of this restriction, illiquid securities
shall not include commercial paper issued pursuant to Section 4(2) of the
Securities Act of 1933 and securities which may be resold under Rule 144A
under the Securities Act of 1933, provided that the Board of Trustees, or its
delegate, determines that such securities are liquid based upon the trading
markets for the specific security.
6. The Fund may not invest in securities of other investment
companies, except as they may be acquired as part of a merger, consolidation
or acquisition of assets and except to the extent otherwise permitted by the
Act.
7. The Fund will not purchase oil, gas or mineral leases (the Fund
may, however, purchase and sell the securities of companies engaged in the
exploration, development, production, refining, transporting and marketing of
oil, gas or minerals).
8. The Fund shall not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amounts to the securities
sold short, and provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.
9. The Fund shall not purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin.
10. The Fund shall not purchase any security while borrowings
representing more than 5% of the Fund's total assets are outstanding.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in
the values of assets will not constitute a violation of such restriction.
Under the Act, a fundamental policy may not be changed without the vote
of a majority of the outstanding voting securities of the Fund, as defined in
the Act. "Majority" means the lesser of (1) 67% or more of the shares
present at the Fund's meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (2)
more than 50% of the outstanding shares of the Fund. Non-fundamental
investment restrictions may be changed, without shareholder approval, by vote
of a majority of the Trust's Board of Trustees at any time.
In order to permit the sale of the Fund's shares in certain states, the
Trust may make commitments more restrictive than the investment restrictions
described above. Accordingly, pursuant to such commitments, the Fund has
undertaken not to invest in oil, gas or other mineral leases. In addition,
the Trust has undertaken not to invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities at the time
of purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be invested in warrants
not listed on AMEX or NYSE. Further, the Fund has given a representation
that investments will not be made in real estate limited partnerships.
Should the Trust determine that any such commitment is no longer in the best
interests of the Trust and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state involved.
Portfolio Transactions
Decisions to buy and sell securities for the Fund and effectuation of
securities transactions are made by Dreyfus, subject to the overall
supervision and review of the Trustees. The same personnel are also in charge
of portfolio transactions for other clients of other subsidiaries and
affiliates of Dreyfus.
Purchases and sales of portfolio securities for the Fund will generally
be transacted with the issuer or a primary market maker on a net basis,
without the payment by the Fund of any brokerage commission for such
purchases or sales. Purchases from dealers serving as primary market makers
will reflect the spread between the bid and asked prices. In selecting
dealers and in executing portfolio transactions, Dreyfus seeks, on behalf of
the Fund, the best overall terms available. In doing so, Dreyfus considers
all matters it deems relevant, including the breadth of the market in the
security, the price of the security and the financial condition and executing
capability of the dealer.
Dealers may be selected who provide brokerage and/or research services
to the Trust and/or other accounts over which Dreyfus or its affiliates
exercise investment discretion. Such services may include advice concerning
the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or the purchasers or
sellers of securities; furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). The receipt
of research from dealers may be useful to Dreyfus in rendering investment
management services to the Trust and/or its other clients; and, conversely,
such information provided by its brokers or dealers who have executed
transaction orders on behalf of other clients of Dreyfus may be useful to
Dreyfus in carrying out its obligation to the Trust.
The Fund will not purchase Municipal Obligations during the existence of
any underwriting or selling group relating thereto of which an affiliate is a
member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of this limitation
in comparison with other investment companies which have a similar investment
objective but are not subject to such limitations.
Dreyfus will make investment decisions for the Fund independently from
those made for its other clients, other funds and clients of other
subsidiaries of Dreyfus. On occasion, however, the same investment decisions
will be made for the Fund as for one or more of Dreyfus' clients at about the
same time. In a case in which the Fund and one of these other clients are
simultaneously engaged in the purchase or sale of the same security, the
transactions will, to the extent feasible and practicable, be averaged as to
price and allocated as to amount among the Fund and/or the other client or
clients pursuant to a formula considered equitable. In some cases, this
system could have a detrimental effect on the price or volume of the security
to be purchased or sold on behalf of the Fund. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Fund.
For the fiscal years ended June 30, 1995 and June 30, 1994, the Fund
paid no stated broker commissions.
REDEMPTION OF FUND SHARES
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record.
The Account Application, Shareholder Services Form or later written request
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
the investor's agent, will cause the Fund to redeem a sufficient number of
shares in the investor's account to cover the amount of the Check and the
$2.00 charge. Dividends are earned until the Check clears. After clearance,
a copy of the Check will be returned to the investor. Investors generally
will be subject to the same rules and regulations that apply to checking
accounts, although election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.
If the amount of the Check, plus any applicable charges, is greater than
the value of the shares in an investor's account, the Check will be returned
marked insufficient funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Agent, and reasonably
believed by the Transfer Agent to be genuine. An investor will be charged a
$5.00 fee for each wire redemption, which will be deducted from the
investor's account and paid to the Transfer Agent. Ordinarily, the Fund will
initiate payment for shares redeemed pursuant to this Privilege on the next
business day after receipt if the Transfer Agent receives the redemption
request in proper form. Redemption proceeds will be transferred by Federal
Reserve wire only to the commercial bank account specified by the investor on
the Account Application or Shareholder Services Form. Redemption proceeds,
if wired, must be in the amount of $5,000 or more and will be wired to the
investor's account at the bank of record designated in the investor's file at
the Transfer Agent, if the investor's bank is a member of the Federal Reserve
System, or to a correspondent bank if the investor's bank is not a member.
Fees ordinarily are imposed by such bank and usually are borne by the
investor. Immediate notification by the correspondent bank to the investor's
bank is necessary to avoid a delay in crediting the funds to the investor's
bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder
of a joint account, and each signature must be guaranteed. Signatures on
endorsed certificates submitted for redemption also must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations as well as from participants in the NYSE 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.
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through the
ACH system unless more prompt transmittal specifically is requested.
Redemption proceeds will be on deposit in the investor's account at an ACH
member bank ordinarily two business days after receipt of the redemption
request. An investor will be charged a $5.00 fee for each redemption
effected pursuant to this Privilege, which will be deducted from the
investor's account and paid to the Transfer Agent. See "Purchase of Fund
Shares--Dreyfus TeleTransfer Privilege."
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record of the Fund, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests
for redemption in excess of such amount, the Trustees and executive officers
of the Trust reserve the right to make payments in whole or in part in
securities or other assets 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 this event, the securities would be valued in the
same manner as the Fund's portfolio is valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemptions. The right to redeem Fund shares may be
suspended or the date of payment postponed (a) for any period during which
the NYSE is closed (other than for customary weekend or holiday closings);
(b) when trading in the markets the Trust normally uses is restricted or when
an emergency exists as determined by the SEC 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 SEC, by order, may permit
for protection of the Fund's shareholders.
FUND EXCHANGES
Shares of other funds purchased by exchange will be purchased on the
basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a sales
load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a sales
load and additional shares acquired through reinvestment of
dividends or other distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein as
"Offered Shares"), provided that, if the sales load applicable to
the Offered Shares exceeds the maximum sales load that could have
been imposed in connection with the Purchased Shares (at the time
the Purchased Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor or the investor's Agent acting on
the investor's behalf must give exchange instructions to the Transfer Agent
in writing, by wire or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the applicable "No" box on the Account
Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange, the investor authorizes the
Transfer Agent to act on telephonic instructions from any person representing
himself or herself to be the investor or a representative of the investor's
Agent, and reasonably believed by the Transfer Agent to be genuine.
Telephone exchanges may be subject to limitations as to the amount involved
or the number of telephone exchanges permitted. Shares issued in certificate
form are not eligible for telephone exchange. Investors will be charged a
$5.00 fee for each exchange made out of the Fund, which will be deducted from
the investor's account and paid to the Transfer Agent.
This Privilege is available to shareholders resident in any state in
which shares of the fund being acquired may legally be sold. Shares may be
exchanged only between accounts having identical names and other identifying
designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Exchange service may be
modified or terminated at any time upon notice to shareholders.
VALUATION OF SHARES
The Prospectus describes the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. In addition,
portfolio securities held by the Fund may be actively traded in securities
markets which are open for trading on days when the Fund will not be
determining its net asset value. Accordingly, there may be occasions when
the Fund is not open for business but when the value of the Fund's portfolio
securities will be affected by such trading activity. The holidays (as
observed) on which the NYSE is closed currently are: New Years Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
It is the Trust's policy to use its best efforts to maintain the Fund's
net asset value per share ("NAV") at a constant value of $1.00. The Fund's
portfolio instruments are valued on the basis of amortized cost. This
involves valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may
result in periods during which the value, as determined by amortized cost, is
higher or lower than the price the Trust would receive if it sold the
instrument.
The valuation of the Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of the Fund's NAV at $1.00 are
permitted by a rule adopted by the SEC. Under this rule, the Fund must
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of thirteen months or
less, and invest only in securities determined by the Trustees to be eligible
securities with minimal credit risks at the time of their acquisition by the
Fund. In accordance with the rule, the Trustees have established procedures
designed to stabilize, to the extent reasonably practicable, the Fund's NAV
as computed for the purpose of sales and redemptions at $1.00. Such
procedures include review of the Fund's portfolio holdings by the Trustees,
at such intervals as they may deem appropriate, to determine whether the NAV
of the Fund calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost. The rule
also provides that the extent of any deviation between the Fund's NAV based
upon available market quotations or market equivalents and $1.00 NAV value
based on amortized cost must be examined by the Trustees. In the event the
Trustees determine that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders,
pursuant to the rule they must cause the Fund to take such corrective action
as the Trustees regard as necessary and appropriate, including: selling
portfolio instruments prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a NAV by using available market quotations.
PERFORMANCE DATA
From time to time, the Fund may quote its yield in advertisements,
shareholder reports or other communications to shareholders. The Fund may
compare its performance to that of other mutual funds, relevant indices or
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Performance rankings as reported in Changing Times, Business Week,
Institutional Investor, The Wall Street Journal, Mutual Fund Forecaster, No
Load Investor, Money Magazine, Morningstar Mutual Fund Values, U.S. News and
World Report, Forbes, Fortune, Barron's, Financial Planning, Financial
Planning on Wall Street, Certified Financial Planner Today, Investment
Advisor, Kiplinger's, Smart Money and similar publications may also be used
in comparing the Fund's performance.
Yields
The Fund's yield is computed by: (a) determining the net change in the
value of a hypothetical pre-existing account in the Fund having a balance of
one share at the beginning of a seven-calendar-day period for which yield is
to be quoted, (b) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and (c) annualizing
the results (i.e., multiplying the base period return by 365/7). The net
change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such
additional shares, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Fund may
calculate a compound effective annualized yield by adding 1 to the base
period return (calculated as described above), raising the sum to a power
equal to 365/7 and subtracting 1. The Fund's equivalent taxable yield is
computed by dividing that portion of the Fund's yield which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the Fund's yield that is not tax-exempt. For the seven-day period
ended June 30, 1995, the Fund's annualized current yields, compounded
effective yields, and equivalent taxable yields for its then-existing
Investor shares and Class R shares were as follows:
7-Day Yield for Period Ended
June 30, 1995
Annualized Compounded Equivalent
Current Yield Effective Yield Taxable Yield*
------------- ----------------- ---------------
Investor shares 3.63% 3.70% 6.30%
Class R shares 3.88% 3.95% 6.74%
Effective November 20, 1995, the Fund's separate "Investor" and "Class
R" designations were eliminated and the Fund became a single class Fund. For
the seven-day period ended November 30, 1995, the Fund's yield was 3.47%,
effective yield was 3.53% and equivalent taxable yield* was 6.02%. These
yields reflect the waiver of a portion of the management fee by Dreyfus,
without which the Fund's seven-day yield, effective yield and equivalent
taxable yield* for the period ended November 30, 1995, would have been 3.37%,
3.43% and 5.85%, respectively. See "Management of the Fund" in the
Prospectus.
* Example assumes a Federal marginal tax rate of 36% and a California
marginal tax rate of 10% (combined effective rate of 42.40%).
From time to time, advertising material for the Fund may include
biographical information relating to its portfolio manager and may refer to,
or include commentary by the portfolio manager relating to investment
strategy, asset growth, current or past business, political, economic or
financial conditions and other matters of general interest to investors.
TAXES
The Fund intends to satisfy the requirements for qualifying as a
"regulated investment company" under Subchapter M of the Code. Provided that
the Fund distributes at least 90% of its taxable net investment income,
including market discount and net realized short-term capital gains, and 90%
of the tax-exempt interest income (reduced by certain expenses), the Fund,
if it qualifies as a regulated investment company, will not be liable for
Federal income taxes to the extent its taxable net investment income and
capital gain net income are distributed to its shareholders.
Because the Fund will distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for Federal income tax purposes. If a shareholder receives an
exempt-interest dividend with respect to shares of the Fund and if such
shares are held by the shareholder for six months or less, then any loss on
the redemption or exchange of such shares will, to the extent of such exempt-
interest dividends, be disallowed. In addition, the Code may require a
shareholder, if he or she receives exempt-interest dividends, to treat as
taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of an exempt-
interest dividend paid by the Fund which represents income from private
activity bonds may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" of a facility financed by such bonds,
or a "related person" thereof. Moreover, as noted in the Fund's Prospectus,
some or all of the Fund's dividends may be a specific preference item, or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of Fund
dividends and distributions may affect a foreign corporate shareholder's
Federal "branch profits" tax liability and a Subchapter S corporation
shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisers as to whether they are (1)
substantial users with respect to a facility or related to such users within
the meaning of the Code or (2) subject to a Federal alternative minimum tax,
any applicable state alternative minimum tax, the Federal branch profits tax,
or the Federal excess net passive income tax.
Dividends derived by the Fund from tax-exempt interest are designated as
tax-exempt in the same percentage of the day's dividend as the actual tax-
exempt income earned that day. Thus, the percentage of the dividend
designated as tax-exempt may vary from day to day. Similarly, dividends
derived by the Fund from interest on California Municipal Obligations will be
designated as exempt from the State of California taxation in the same
percentage of the day's dividend as the actual interest on California
Municipal Obligations earned on that day.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
the taxable dividends paid by the Fund and the distributions paid by the Fund
(in excess of $10 on an annualized basis) with respect to any non-corporate
shareholder who fails to furnish or certify his or her correct taxpayer
identification number, who has been notified that he or she is to subject to
back up withholding due to underreporting of dividend or interest income or
who fails to certify that he or she has provided a correct taxpayer
identification number, and that he or she is not subject to such withholding.
An individual's tax identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be
credited against a shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute
for careful tax planning. Individuals may be exempt from California state and
local personal income taxes on exempt-interest income derived from
obligations of issuers located in California, but are usually subject to such
taxes on such dividends that are derived from obligations of issuers located
in other jurisdictions. Investors are urged to consult their tax advisers
with specific reference to their own tax situations.
DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company organized as an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts by an Agreement and Declaration of Trust dated March 28, 1983,
amended and restated December 9, 1992, and subsequently further amended. On
March 31, 1994 the Trust changed its name from "The Boston Company Tax-Free
Municipal Funds" to "The Laurel Tax-Free Municipal Funds." The Trust's name
was then changed from "The Laurel Tax-Free Municipal Funds" to "The
Dreyfus/Laurel Tax-Free Municipal Funds" effective October 17, 1994. On
November 20, 1995, the Fund's name was changed from Dreyfus/Laurel California
Tax-Free Money Fund to Dreyfus BASIC California Municipal Money Market Fund.
The Trustees have authority to create an unlimited number of shares of
beneficial interest, without par value, in separate series. Each series will
be treated as a separate entity. Currently, seven series have been
authorized (each a "fund"). The Trustees have authority to create additional
series at any time in the future without shareholder approval.
Each share (regardless of class) has one vote. On each matter submitted
to a vote of the shareholders, all shares of each fund or class shall vote
together as a single class, except as to any matter for which a separate vote
of any fund or class is required by the Act and except as to any matter which
affects the interest of a particular fund or class, in which case only the
holders of shares of the one or more affected funds or classes shall be
entitled to vote, each as a separate class.
The assets received by the Trust for the issue or sale of shares of
each fund and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specifically allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of each
fund are required to be segregated on the books of account, and are to be
charged with the expenses in respect to such fund and with a share of the
general expenses of the Trust. Any general expenses of the Trust not readily
identifiable as belonging to a particular fund shall be allocated by or under
the direction of the Trustees in such manner as the Trustees determine to be
fair and equitable, taking into consideration, among other things, the
relative sizes of the funds and the relative difficulty in administering each
fund. Each share of each fund represents an equal proportionate interest in
that fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such fund as are declared by the
Trustees. Upon any liquidation of a fund, shareholders thereof are entitled
to share pro rata in the net assets belonging to that fund available for
distribution.
The Trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Under
the Act, shareholders of record of no less than two-thirds of the outstanding
shares of the Trust may remove a Trustee through a declaration in writing or
by a vote cast in person or by proxy at a meeting called for that purpose.
The Trustees are required to call a meeting of shareholders for the purposes
of voting upon the question of removal of any Trustee when requested in
writing to do so by the shareholders of record of not less than 10% of the
Trust's outstanding shares.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Trust or a Trustee. The Agreement and Declaration of
Trust provides for indemnification from the Trust's property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations, a possibility which
Dreyfus believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of each fund in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of such
fund.
PRINCIPAL SHAREHOLDERS
As of January 31, 1996, the following companies/individuals owned
beneficially 5% or more of the outstanding shares of the Fund: Boston and
Company, Attention: John Kacinko, Three Mellon Bank Center, Pittsburgh, PA
15259, 41% record.
CUSTODIAN AND TRANSFER AGENT
Mellon Bank, which is located at Mellon Bank Center, Pittsburgh, PA
15219, serves as the Fund's custodian. Dreyfus Transfer, Inc., a wholly-
owned subsidiary of Dreyfus, located at One American Express Plaza,
Providence, Rhode Island 02903, 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. Dreyfus
Transfer, Inc. and Mellon Bank, as custodian, have no part in determining the
investment policies of the Fund or which securities are to be purchased or
sold by the Fund.
COUNSEL AND INDEPENDENT AUDITORS
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Second
Floor, Washington, D.C., 20036-1800, has passed upon the legality of the
shares offered by the Prospectus and this Statement of Additional
Information.
KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania
15219, was appointed by the Board of Trustees to serve as the Fund's
independent auditors for the year ending June 30, 1996, providing audit
services including (1) examination of the annual financial statements, (2)
assistance, review and consultation in connection with the SEC and (3) review
of the annual Federal income tax return filed on behalf of the Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended June 30, 1995
accompanies this Statement of Additional Information, and the financial
statements contained therein, and related notes, are incorporated by
reference herein.
APPENDIX A
RISK FACTORS - INVESTING
IN CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California (the "State") constitutional amendments, legislative
measures, executive orders, civil actions and voter initiatives, as well as
the general financial condition of the State, could adversely affect the
ability of issuers of California Municipal Obligations to pay interest and
principal on such 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 California and various local agencies, available as of the
date of this Statement of Additional Information. While the Fund has not
independently verified such information, it has no reason to believe that
such information is not correct in all material respects.
Recent Developments. From mid-1990 to late 1993, the State suffered a
recession with the worst economic, fiscal and budget conditions since the
1930s. Construction, manufacturing (especially aerospace), exports and
financial services, among others, were all severely affected. Job losses
have been the worst of any post-war recession. Unemployment reached 10.1% in
January 1994, but fell sharply to 7.7% in October and November 1994.
According to the State's Department of Finance, recovery from the recession
in California began in 1994.
The recession seriously affected State tax revenues, which basically
mirror economic conditions. It also has caused increased expenditures for
health and welfare programs. The State also has been facing a structural
imbalance in its budget with the largest programs supported by the General
Fund (K-12 schools and community colleges, health and welfare, and
corrections) growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. As a result, the State experienced
recurring budget deficits in the late 1980s and early 1990s. The State
Controller reported that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92. The State had an operating surplus of
approximately $109 million in 1992-93 and $836 million in 1993-94. However,
at June 30, 1994, according to the Department of Finance, the State's Special
Fund for Economic Uncertainties ("SFEU") still had a deficit, on a budget
basis, of approximately $1.8 billion.
The accumulated budget deficits over the past several years, together
with expenditures for school funding which have not been reflected in the
budget, and reduction of available internal borrowable funds, have combined
to significantly deplete the State's cash resources to pay its ongoing
expenses. In order to meet its cash needs, the State has had to rely for
several years on a series of external borrowings, including borrowings past
the end of a fiscal year. Such borrowings are expected to continue in future
fiscal years. To meet its cash flow needs in the 1994-95 fiscal year the
State issued, in July and August 1994, $4.0 billion of revenue anticipation
warrants which mature on April 25, 1996, and $3.0 billion of revenue
anticipation notes which matured on June 28, 1995.
As a result of the deterioration in the State's budget and cash
situation, the rating agencies reduced the State's credit ratings. Between
October 1991 and July 1994, the rating on the State's general obligation
bonds was reduced by S&P from "AAA" to "A," by Moody's from "Aaa" to "A1" and
by Fitch from "AAA" to "A."
The 1994-95 Fiscal Year Budget (as updated in the January 10, 1995
Governor's Budget) is projected to have $41.9 billion of General Fund
revenues and transfers and $40.9 billion of budgeted expenditures. In
addition, the 1994-95 Budget Act anticipates deferring retirement of about $1
billion of the accumulated budget deficit to the 1995-96 fiscal year when it
is intended to be fully retired by June 30, 1996.
The Governor's Budget for 1995-96 proposes General Fund revenues and
transfers of $44.1 billion and expenditures of $43.4 billion, which would
leave a balance of approximately $28 million in the budget reserve, the SFEU,
at June 30, 1996 after repayment of the accumulated budget deficits. The
Budget proposal is based on a number of assumptions, including receipt of
$473 million from the Federal government to offset costs of undocumented and
refugee immigrants.
On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Funds") filed for protection under
Chapter 9 of the Federal Bankruptcy Code, after reports that the Funds had
suffered significant market losses in their investments, causing a liquidity
crisis for the Funds and the County. More than 180 other public entities,
most of which, but not all, are located in the County, were also depositors
in the Funds. As of mid-January 1995, following a restructuring of most of
the Funds' assets to increase their liquidity and reduce their exposure to
interest rate increases, the County estimated the Funds' loss at about $1.69
billion, or about 23% of their initial deposits of approximately $7.5
billion. Many of the entities which deposited monies in the Funds, including
the County, are facing cash flow difficulties because of the bankruptcy
filing and may be required to reduce programs or capital projects. This also
may effect their ability to meet their outstanding obligations.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the State to intervene, but the State cannot presently predict
what, if any, action may occur.
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8
on the Richter Scale struck Los Angeles causing significant damage to public
and private structures and facilities. Although some individuals and
businesses suffered losses totaling in the billions of dollars, the overall
effect of the earthquake on the regional and State economy is not expected to
be serious.
State Finances. State moneys are segregated into the General Fund and
approximately 600 Special Funds. The General Fund consists of the revenues
received into the State Treasury and earnings from State investments, which
are not required by law to be credited to any other fund. The General Fund
is the principal operating fund for the majority of governmental activities
and is the depository of most major State revenue sources.
The SFEU is funded with General Fund revenues and was established to
protect the State from unforeseen reduced levels of revenues and/or
unanticipated expenditure increases. Amounts in the SFEU may be transferred
by the Controller as necessary to meet cash needs of the General Fund. The
Controller is required to return moneys so transferred without payment of
interest as soon as there are sufficient moneys in the General Fund. For
budgeting and accounting purposes, any appropriation made from the SFEU is
deemed an appropriation from the General Fund. For year-end reporting
purposes, the Controller is required to add the balance in the SFEU to the
balance in the General Fund so as to show the total monies then available for
General Fund purposes.
Inter-fund borrowing has been used for many years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1994, the General Fund had outstanding loans in the aggregate principal
amount of $5.2 billion, which consisted of $4.0 billion of internal loans to
the General Fund from the SFEU and other Special Funds and $1.2 billion of
external loans represented by the 1994 revenue anticipation warrants.
Articles XIIIA and XIIIB to the State Constitution and Other Revenue Law
Changes. Prior to 1977, revenues of the State government experienced
significant growth primarily as a result of inflation and continuous
expansion of the tax base of the State. In 1978, State voters approved an
amendment to the State Constitution known as Proposition 13, which added
Article XIIIA to the State Constitution, reducing ad valorem local property
taxes by more than 50%. In addition, Article XIIIA provides that additional
taxes may be levied by cities, counties and special districts only upon
approval of not less than a two-thirds vote of the "qualified electors" of
such district, and requires not less than a two-thirds vote of each of the
two houses of the State Legislature to enact any changes in State taxes for
the purpose of increasing revenues, whether by increased rate or changes in
methods of computation.
Primarily as a result of the reductions in local property tax revenues
received by local governments following the passage of Proposition 13, the
Legislature undertook to provide assistance to such governments by
substantially increasing expenditures from the General Fund for that purpose
beginning in the 1978-79 fiscal year. In recent years, in addition to such
increased expenditures, the indexing of personal income tax rates (to adjust
such rates for the effects of inflation), the elimination of certain
inheritance and gift taxes and the increase of exemption levels for certain
other such taxes had a moderating impact on the growth in State revenues. In
addition, the State has increased expenditures by providing a variety of tax
credits, including renters' and senior citizens' credits and energy credits.
The State is subject to an annual "appropriations limit" imposed by
Article XIIIB of the State Constitution adopted in 1979. Article XIIIB
prohibits the State from spending "appropriations subject to limitation" in
excess of the appropriations limit imposed. "Appropriations subject to
limitations" are authorizations to spend "proceeds of taxes," which consist
of tax revenues, and certain other funds, including proceeds from regulatory
licenses, user charges or other fees to the extent that such proceeds exceed
"the cost reasonably borne by such entity in providing the regulation,
product or service." One of the exclusions from these limitations is "debt
service" (defined as "appropriations required to pay the cost of interest and
redemption charges, including the funding of any reserve or sinking fund
required in connection therewith, on indebtedness existing or legally
authorized as of January 1, 1979 or on bonded indebtedness thereafter
approved" by the voters). In addition, appropriations required to comply
with mandates of courts or the Federal government and, pursuant to
Proposition 111 enacted in June 1990, appropriations for qualified capital
outlay projects and appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels are
not included as appropriations subject to limitation. In addition, a number
of recent initiatives were structured or proposed to create new tax revenues
dedicated to certain specific uses, with such new taxes expressly exempted
from the Article XIIIB limits (e.g., increased cigarette and tobacco taxes
enacted by Proposition 99 in 1988). The appropriations limit also may be
exceeded in cases of emergency. However, unless the emergency arises from
civil disturbance or natural disaster declared by the Governor, and the
appropriations are approved by two-thirds of the Legislature, the
appropriations limit for the next three years must be reduced by the amount
of the excess.
The State's appropriations limit in each year is based on the limit for
the prior year, adjusted annually for changes in California per capita
personal income and changes in population, and adjusted, when applicable, for
any transfer of financial responsibility of providing services to or from
another unit of government. The measurement of change in population is a
blended average of statewide overall population growth, and change in
attendance at local school and community college ("K-14") districts. As
amended by Proposition 111, the appropriations limit is tested over
consecutive two-year periods. Any excess of the aggregate "proceeds of
taxes" received over such two-year periods above the combined appropriations
limits for those two years is divided equally between transfers to
K-14 districts and refunds to taxpayers.
As originally enacted in 1979, the State's appropriations limit was
based on its 1978-79 fiscal year authorizations to expend proceeds of taxes
and was adjusted annually to reflect changes in cost of living and population
(using different definitions, which were modified by Proposition 111).
Commencing with the 1991-92 fiscal year, the State's appropriations limit is
adjusted annually based on the actual 1986-87 limit, and as if Proposition
111 had been in effect. The State Legislature has enacted legislation to
implement Article XIIIB which defines certain terms used in Article XIIIB and
sets forth the methods for determining the State's appropriations limit.
Government Code Section 7912 requires an estimate of the State's
appropriations limit to be included in the Governor's Budget, and thereafter
to be subject to the budget process and established in the Budget Act.
For the 1990-91 fiscal year, the State appropriations limit was $32.7
billion, and appropriations subject to limitation were $7.51 billion under
the limit. The limit for the 1991-92 fiscal year was $34.2 billion, and
appropriations subject to limitations were $3.8 billion under the limit. The
limit for the 1992-93 fiscal year was $35.01 billion, and the appropriations
subject to limitation were $7.53 billion under the limit. The limit for the
1993-94 fiscal year was $36.60 billion, and the appropriations subject to
limitation were $6.55 billion under the limit. The estimated limit for the
1994-95 fiscal year is $37.53 billion, and the appropriations subject to
limitations are estimated to be $5.83 billion under the limit.
In November 1988, State voters approved Proposition 98, which changed
State funding of public education below the university level and the
operation of the State's appropriations limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues. Under Proposition 98 (as
modified by Proposition 111, which was enacted in June 1990), K-14 schools
are guaranteed the greater of (a) 40.3% of General Fund revenues ("Test 1"),
(b) the amount appropriated to K-14 schools in the prior year, adjusted for
changes in the cost of living (measured as in Article XIIIB by reference to
California per capita personal income) and enrollment ("Test 2"), or (c) a
third test, which would replace the second test in any year when the
percentage growth in per capita General Fund revenues from the prior year
plus .5% is less than the percentage growth in California per capita personal
income ("Test 3"). Under "Test 3," schools would receive the amount
appropriated in the prior year adjusted for changes in enrollment and per
capita General Fund revenues, plus an additional small adjustment factor. If
"Test 3" is used in any year, the difference between "Test 3" and "Test 2"
would become a "credit" to schools which would be the basis of payments in
future years when per capita General Fund revenue growth exceeds per capita
personal income growth.
Proposition 98 permits the Legislature by two-thirds vote of both
houses, with the Governor's concurrence, to suspend the K-14 schools' minimum
funding formula for a one-year period. In the fall of 1989, the Legislature
and the Governor utilized this provision to avoid having 40.3% of revenues
generated by a special supplemental sales tax enacted for earthquake relief
go to K-14 schools. Proposition 98 also contains provisions transferring
certain State tax revenues in excess of the Article XIIIB limit to K-14
schools.
The 1991-92 Budget Act, applying "Test 2" of Proposition 98,
appropriated approximately $18.4 billion for K-14 schools pursuant to
Proposition 98. During the course of the fiscal year, revenues proved to be
substantially below expectations. By the time the Governor's Budget was
introduced in January 1992, it became clear that per capita growth in General
Fund revenues for 1991-92 would be far smaller than the growth in California
per capita personal income and the Governor's Budget therefore reflected a
reduction in Proposition 98 funding in 1991-92 by applying "Test 3" rather
than "Test 2."
In response to the changing revenue situation and to fully fund the
Proposition 98 guarantee in both the 1991-92 and 1992-93 fiscal years without
exceeding it, the Legislature enacted several bills as part of the 1992-93
budget package which responded to the fiscal crisis in education funding.
Fiscal year 1991-92 Proposition 98 appropriations for K-14 schools were
reduced by $1.083 billion. In order to not adversely impact cash received by
school districts, however, a short-term loan was appropriated from the non-
Proposition 98 State General Fund. The Legislature then appropriated $16.6
billion to K-14 schools for 1992-93 (the minimum guaranteed by Proposition
98), but designated $1.083 billion of this amount to "repay" the prior year
loan, thereby reducing cash outlays in 1992-93 by that amount. In addition
to reducing the 1991-92 fiscal year appropriations for K-14 schools by $1.083
billion and converting the amount to a loan (the "inter-year adjustment"),
Chapter 703, Statutes of 1992 also made an adjustment to "Test 1," based on
the additional $1.2 billion of local property taxes that were shifted to
schools and community colleges. The "Test 1" percentage changed from 40% to
37%. Additionally, Chapter 703 contained a provision that if an appellate
court should determine that the "Test 1" recalculation or the inter-year
adjustment is unconstitutional, unenforceable or invalid, Proposition 98
would be suspended for the 1992-93 fiscal year, with the result that K-14
schools would receive the amount intended by the 1992-93 Budget Act
compromise.
The State Controller stated in October 1992 that, because of a drafting
error in Chapter 703, he could not implement the $1.083 billion reduction of
the 1991-92 school funding appropriation, which was part of the inter-year
adjustment. The Legislature untimely enacted corrective legislation as part
of the 1993-94 Budget package to implement the $1.083 billion inter-year
adjustment as originally intended.
In the 1992-93 Budget Act, a new loan of $732 million was made to K-12
schools in order to maintain per-average daily attendance ("ADA") funding at
the same level as 1991-92, at $4,187. An additional loan of $241 million was
made to community college districts. These loans are to be repaid from
future Proposition 98 entitlements. (The teachers' organization lawsuit
discussed above also seeks to declare invalid the provision making the $732
million a loan "repayable" from future years' Proposition 98 funds.
Including both State and local funds, and adjusting for the loans and
repayments, on a cash basis, total Proposition 98 K-12 funding in 1992-93
increased to $21.5 billion, 2.4% more than the amount in 1992-93 ($21.0
billion).
Based on revised State tax revenues and estimated decreased reported
pupil enrollment, the 1993-94 Budget Act projected that the 1992-93
Proposition 98 Budget Act appropriations of $16.6 billion exceeded a revised
minimum guarantee by $313 million. As a result, the 1993-94 Budget Act
reverted $25 million in 1992-93 appropriations to the General Fund. Limiting
the reversion to this amount ensures that per ADA funding for general
purposes will remain at the prior year level of $4,217 per pupil. The 1993-
94 Governor's Budget subsequently proposed deficiency funding of $121 million
for school apportionments and special education, increasing funding per pupil
in 1992-93 to $4,244. The 1993-94 Budget Act also designated $98 million in
1992-93 appropriations toward satisfying prior years' guarantee levels, an
obligation that resulted primarily from updating State tax revenues for 1991-
92, and designates $190 million as a loan repayable from 1993-94 funding.
The 1993-94 Budget Act projected the Proposition 98 minimum funding
level at $13.5 billion based on the "Test 3" calculation where the guarantee
is determined by the change in per capita growth in General Fund revenues,
which are projected to decrease on a year-over-year basis. This amount also
takes into account increased property taxes transferred to school districts
from other local governments.
Legislation accompanying the 1993-94 Budget Act (Chapter 66/93) provided
a new loan of $609 million to K-12 schools in order to maintain per ADA
funding at $4,217 and a loan of $178 million to community colleges. These
loans have been combined with the K-14 1992-93 loans into one loan totalling
$1.760 billion. Repayment of this loan would be from future years'
Proposition 98 entitlements, and would be conditioned on maintaining current
funding levels per pupil for K-12 schools. Chapter 66 also reduced the "Test
1" percentage to 35% to reflect the property tax shift among local government
agencies.
The 1994-95 Budget Act appropriated $14.4 billion of Proposition 98
funds for K14 schools based on Test 2. This exceeds the minimum Proposition
98 guarantee by $8 million to maintain K-12 funding per pupil at $4,217.
Based upon updated State revenues, growth rates and inflation factors, the
1994-95 Budget Act appropriated an additional $286 million within Proposition
98 for the 1993-94 fiscal year, to reflect a need in appropriations for
school districts and county offices of education, as well as an anticipated
deficiency in special education fundings. These and other minor
appropriation adjustments increase the 1993-94 Proposition 98 guarantee to
$13.8 billion, which exceeds the minimum guarantee in that year by $272
million and provides per pupil funding of $4,225.
The 1995-96 Governor's Budget adjusts the 1993-94 minimum guarantee to
reflect changes in enrollment and inflation, and 1993-94 Proposition 98
appropriations were increased to $14.1 billion, primarily to reflect changes
in the statutory continuous appropriation for apportionments. The revised
appropriations now exceed the minimum guarantee by $32 million. This
appropriation level still provides per-pupil funding of $4,225.
The 1994-95 Proposition 98 minimum guarantee also has been adjusted for
changes in factors described above, and is now calculated to be $14.9
billion. Within the minimum guarantee, the dollars per pupil have been
maintained at the prior year's level; consequently, the 1994-95 minimum
guarantee now includes a loan repayment of $135 million, and the per-pupil
funding increases to $4,231.
The 1995-96 Governor's Budget proposes to appropriate $15.9 billion of
Proposition 98 funds to K-14 to meet the guarantee level. Included within
the guarantee is a loan repayment of $379 million for the combined
outstanding loans of $1.76 billion. Funding per pupil is estimated to
increase by $61 over 1994-95 to $4,292.
Sources of Tax Revenue. The California personal income tax, which in
1992-93 contributed about 44% of General Fund revenues, is closely modeled
after the Federal income tax law. It is imposed on net taxable income (gross
income less exclusions and deductions). The tax is progressive with rates
ranging from 1% to 11%. Personal, dependent, and other credits are allowed
against the gross tax liability. In addition, taxpayers may be subject to an
alternative minimum tax ("AMT") which is much like the Federal AMT. This is
designed to ensure that excessive use of tax preferences does not reduce
taxpayers' liabilities below some minimum level. Legislation enacted in July
1991 added two new marginal tax rates, at 10% and 11%, effective for tax
years 1991 through 1995. After 1995, the maximum personal income tax rate is
scheduled to return to 9.3%, and the AMT rate is scheduled to drop from 8.5%
to 7%.
The personal income tax is adjusted annually by the change in the
consumer price index to prevent taxpayers from being pushed into higher tax
brackets without a real increase in income.
The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Most retail sales and leases are
subject to the tax. However, exemptions have been provided for certain
essentials such as food for home consumption, prescription drugs, gas,
electricity and water. Sales tax accounted for about 35% of General Fund
revenue in 1993-94. Bank and corporation tax revenues comprised about 12% of
General Fund revenue in 1993-94. In 1989, Proposition 99 added a 25 cents
per pack excise tax on cigarettes, and a new equivalent excise tax on other
tobacco products. Legislation enacted in 1993 added an additional 2 cents
per pack for the purpose of funding breast cancer research.
General Financial Condition of the State. In the years following
enactment of the Federal Tax Reform Act of 1986, and conforming changes to
the State's tax laws, taxpayer behavior became more difficult to predict, and
the State experienced a series of fiscal years in which revenue came in
significantly higher or lower than original estimates. The 1989-90 fiscal
year ended with revenues below estimates and the SFEU was fully depleted by
June 30, 1990. This date essentially coincided with the date of the most
recent recession, and the State subsequently accumulated a budget deficit in
the SFEU approaching $2.8 billion at its peak. The State's budget problems
in recent years also have been caused by a structural imbalance which has
been identified by the current and previous Administrations. The largest
General Fund programs -- K-14 education, health, welfare and corrections --
were increasing faster than the revenue base, driven by the State's rapid
population increases.
Starting in the 1990-91 fiscal year, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance and
to close large "budget gaps" which were identified. The Legislature and
Governor eventually agreed on significant cuts in program expenditures, some
transfers of program responsibilities and funding from the State to local
governments, revenue increases (particularly in the 1991-92 fiscal year
budget), and various one-time adjustments and accounting changes. However,
as the recession took hold and deepened after the summer of 1990, revenues
dropped sharply and expenditures for health and welfare programs increased as
job losses mounted, so that the State ended each of the 1990-91 and 1991-92
fiscal years with an unanticipated deficit in the budget reserve, the SFEU,
as compared to projected positive balances.
As a result of the revenue shortfalls accumulating for the previous two
fiscal years, the Controller in April 1992 indicated that cash resources
(including borrowing from Special Funds) would not be sufficient to meet all
General Fund obligations due on June 30 and July 1, 1992. On June 25, 1992,
the Controller issued $475 million of 1992 Revenue Anticipation Warrants (the
"1992 Warrants") in order to provide funds to cover all necessary payments
from the General Fund at the end of the 1991-92 fiscal year and on July 1,
1992. The 1992 Warrants were paid on July 24, 1992. In addition to the 1992
Warrants, the Controller reported that as of June 30, 1992, the General Fund
had borrowed $1.336 billion from the SFEU and $4.699 billion from other
Special Funds, using all but about $183 million of borrowable cash resources.
To balance the 1992-93 Governor's Budget, program reductions totalling
$4.365 billion and a revenue and transfer increase of $872 million were
proposed for the 1991-92 and 1992-93 fiscal years. Economic performance in
the State continued to be sluggish after the 1992-93 Governor's Budget was
prepared. By the time of the "May Revision," issued on May 20, 1992, the
Administration estimated that the 1992-93 Budget needed to address a gap of
about $7.9 billion, much of which was needed to repay the accumulated budget
deficits of the previous two years.
The severity of the budget actions needed led to a long delay in
adopting the budget. With the failure to enact a budget by July 1, 1992, the
State had no legal authority to pay many of its vendors until the budget was
passed. Starting on July 1, 1992, the Controller was required to issue
"registered warrants" in lieu of normal warrants backed by cash to pay many
State obligations. Available cash was used to pay constitutionally mandated
and priority obligations, such as debt service on bonds and revenue
anticipation warrants. Between July 1 and September 4, 1992, the Controller
issued an aggregate of approximately $3.8 billion of registered warrants
payable from the General Fund, all of which were called for redemption by
September 4, 1992 following enactment of the 1992-93 Budget Act and issuance
by the State of $3.3 billion of interim notes.
The Legislature enacted the 1992-93 Budget Bill on August 29, 1992, and
it was signed by the Governor on September 2, 1992. The 1992-93 Budget Act
provided for expenditures of $57.4 billion and consisted of General Fund
expenditures of $40.8 billion and Special Fund and Bond Fund expenditures of
$16.6 billion. The Department of Finance estimated a balance in the SFEU of
$28 million on June 30, 1993.
The $7.9 billion budget gap was closed primarily through cuts in the
program expenditures (principally for health and welfare programs, aid to
schools and support for higher education), together with some increases in
revenues from accelerated collections and changes in tax laws to confirm to
Federal law changes, and a variety of on-time inter-fund transfers and
deferrals. The other major component of the budget compromise was a law
requiring local governments to transfer a total of $1.3 billion to K-12
school and community college districts, thereby reducing by that amount
General Fund support for those districts under Proposition 98.
In May 1993, the Department of Finance projected that the General Fund
would end the fiscal year on June 30, 1993 with an accumulated budget deficit
of about $2.8 billion, and a negative fund balance of about $2.2 billion (the
difference being certain reserves for encumbrances and school funding costs).
As a result, the State issued $5 billion of revenue anticipation notes and
warrants.
The Governor's 1993-94 Budget, introduced on January 8, 1993, proposed
General Fund expenditures of $37.3 billion, with projected revenues of $39.9
billion. It also proposed Special Fund expenditures of $12.4 billion and
Special Fund revenues of $12.1 billion. The 1993-94 fiscal year represented
the third consecutive year the Governor and the Legislature were faced with a
very difficult budget environment, requiring revenue actions and expenditure
cuts totaling billions of dollars to produce a balanced budget. To balance
the budget in the face of declining revenues, the Governor proposed a series
of revenue shifts from local government, reliance on increased Federal aid
and reductions in state spending.
The "May Revision" of the Governor's Budget, released on May 20, 1993,
indicated that the revenue projections of the January Budget Proposal were
tracking well, with the full year 1992-93 about $80 million higher than the
January projection. Personal income tax revenue was higher than projected,
sales tax was close to target, and bank and corporation taxes were lagging
behind projections. The May Revision projected the State would have an
accumulated deficit of about $2.75 billion by June 30, 1993. The Governor
proposed to eliminate this deficit over an 18-month period. He also agreed
to retain the 0.5% sales tax scheduled to expire June 30 for a six-month
period, dedicated to local public safety purposes, with a November election
to determine a permanent extension. Unlike previous years, the Governor's
Budget and May Revision did not calculate a "gap" to be closed, but rather
set forth revenue and expenditure forecasts and proposals designed to produce
a balanced budget.
The 1993-94 Budget Act was signed by the Governor on June 30, 1993,
along with implementing legislation. The Governor vetoed about $71 million
in spending. With enactment of the Budget Act, the State carried out its
regular cash flow borrowing program for the fiscal year, which included the
issuance of approximately $2 billion of revenue anticipation notes that
matured on June 28, 1994.
The 1993-94 Budget Act was predicated on General Fund revenues and
transfers estimated at $40.6 billion, about $700 million higher than the
January Governor's Budget, but still about $400 million below 1992-93 (and
the second consecutive year of actual decline). The principal reasons for
declining revenues were the continued weak economy and the expiration (or
repeal) of three fiscal steps taken in 1991--a half cent temporary sales tax,
a deferral of operating loss carry forwards, and repeal by initiative of a
sales tax on candy and snack foods.
The 1993-94 Budget Act also assumed Special Fund revenues of $11.9
billion, an increase of 2.9% over 1992-93.
The 1993-94 Budget Act included General Fund expenditures of $38.5
billion (a 6.3% reduction from projected 1992-93 expenditures of $41.1
billion), in order to keep a balanced budget within the available revenues.
The Budget also included Special Fund expenditures of $12.1 billion, a 4.2%
increase.
The 1993-94 Budget Act contained no General Fund tax/revenue increases
other than a two year suspension of the renters' tax credit.
Administration reports during the course of the 1993-94 fiscal year
indicated that while economic recovery appeared to have started in the second
half of the fiscal year, recessionary conditions continued longer than had
been anticipated when the 1993-94 Budget Act was adopted. Overall, revenues
for the 1993-94 fiscal year were about $800 million lower than original
projections, and expenditures were about $780 million higher, primarily
because of higher health and welfare caseloads, lower property taxes which
require greater State support for K-14 education to make up to shortfall, and
lower than anticipated Federal government payments for immigration-related
costs. The reports in May and June 1994, indicated that revenues in the
second half of the 1993-94 fiscal year were very close to the projections
made in the Governor's Budget of January 10, 1994, which was consistent with
a slow turn around in the economy.
The Department of Finance's July 1994 Bulletin, which included final
June receipts, reported that June revenues were $114 million (2.5%) above
projection, with final end-of-year results at $377 million (about 1%) above
the May Revision projections. Part of this result was due to the end-of-year
adjustments and reconciliations. Personal income tax and sales tax continued
to track projections. The largest factor in the higher than anticipated
revenues was from bank and corporation taxes, which were $140 million (18.4%)
above projection in June.
During the 1993-94 fiscal year, the State implemented the Deficit
Retirement Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 that matured
December 21, 1994. This borrowing reduced the cash deficit at the end of the
1993-94 fiscal year. Nevertheless, because of the $1.5 billion variance from
the original 1993-94 Budget Act assumptions, the General Fund ended the
fiscal year at June 30, 1994 carrying forward an accumulated deficit of
approximately $1.8 billion.
Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion of revenue
anticipation warrants issued as part of the Deficit Retirement Plan, the
State issued an additional $2.0 billion of revenue anticipation warrants that
matured July 26, 1994, which were needed to fund the State's obligations and
expenses through the end of the 1993-94 fiscal year.
The 1994-95 fiscal year represented the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget environment
to produce a balanced budget. Many program cost and budgetary adjustments
had already been made in the last three years. The Governor's Budget
Proposal, as updated in May and June 1994, recognized that the accumulated
deficit could not be repaid in one year, and proposed a two-year solution.
The budget proposal set forth revenue and expenditure forecasts and revenue
and expenditure proposals which estimated operating surpluses for the budget
for both 1994-95 and 1995-96, and lead to the elimination of the accumulated
budget deficit, estimated at about $1.8 billion at June 30, 1994, by June 30,
1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projected revenues and transfers of $41.9 billion, $2.1 billion higher than
revenues in 1993-94. This reflected the Administration's forecast of an
improving economy. Also included in this figure was the projected receipt of
about $360 million from the Federal government to reimburse the State's cost
of incarcerating undocumented immigrants, most of which eventually was not
received.
The 1994-95 Budget Act projected Special Fund revenues of $12.1 billion,
a decrease of 2.4% from 1993-94 estimated revenues.
The 1994-95 Budget Act projected General Fund expenditures of $40.9
billion, an increase of $1.6 billion over the 1993-94 fiscal year. The 1994-
95 Budget Act also projected Special Fund expenditures of $13.7 billion, a
5.4% increase over 1993-94 fiscal year estimated expenditures.
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after 1995 failed at the June 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving about $390 million in the 1995-96 fiscal year.
The 1994-95 Budget Act assumed that the State would use a cash flow
borrowing program in 1994-95 which combines one-year notes and two-year
warrants, which were issued. Issuance of the warrants allows the State to
defer repayment of approximately $1.0 billion of its accumulated budget
deficit into the 1995-96 fiscal year. The Budget Adjustment Law enacted
along with the 1994-95 Budget Act is designed to ensure that the warrants
will be repaid in the 1995-96 fiscal year.
Reports by the Department of Finance in May, 1995 indicate that, with
economic recovery well underway in the State, General Fund revenues for the
entire 1994-95 fiscal year were above projections, and expenditures were
below projections because of slower than anticipated health/welfare caseload
growth and school enrollments. The aggregate effect improved the budget
picture by about $500 million, leaving an estimated budget deficit of about
$630 million at June 30, 1995.
For the first time in four years, the State enters the upcoming 1995-96
fiscal year with strengthening revenues based on an improving economy. On
January 10, 1995, the Governor presented his 1995-96 Fiscal Year Budget
Proposal (the "Proposed Budget"). The Proposed Budget estimates General Fund
revenues and transfers of $42.5 billion (an increase of 0.2% over 1994-95).
This nominal increase from 1994-95 fiscal year reflects the Governor's
realignment proposal and the first year of his tax cut proposal. Without
these two proposals, General Fund revenues would be projected at
approximately $43.8 billion, or an increase of 3.3% over 1994-95.
Expenditures are estimated at $41.7 billion (essentially unchanged from 1994-
95). Special Fund revenues are estimated at $13.5 billion (10.7% higher than
1994-95) and Special Fund expenditures are estimated at $13.8 billion (12.2%
higher than 1994-95). The Proposed Budget projects that the General Fund
will end the fiscal year at June 30, 1996 with a budget surplus in SFEU of
about $92 million, or less than 1% of General Fund expenditures, and will
have repaid all of the accumulated budget deficits.
Recent Economic Trends. Revised employment data indicate that
California's recession ended in 1993, and following a period of stability, a
solid recovery is now underway. The State's unemployment rate fell from 9.2%
in fiscal 1993 to 8.6% in fiscal 1994. The national unemployment rate in
1994 was 6.1%. The number of employed Californians increased more than
250,000 during fiscal 1994.
Other indicators, including retail sales, homebuilding activity,
existing home sales and bank lending volume all confirm the State's recovery.
Personal income was severely affected by the Northridge Earthquake,
which reduced the first quarter 1994 figure by $22 billion at an annual rate,
reflecting the uninsured damage to residences and unincorporated businesses.
As a result, personal income growth for all of 1994 was about 2.8%. However,
excluding the Northridge effects, growth would have been in excess of 3%.
APPENDIX B
INFORMATION ABOUT SECURITIES RATINGS
The following are excerpts from Description of Moody's Investors'
Service, Inc. ("Moody's) municipal bond ratings. Aaa -- judged to be of the
"best quality" and are referred to as "gilt edge"; interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure; Aa -- judged to be of "high quality by all standards," but as to
which margins of protection or other elements make long-term risks appear
somewhat larger than Aaa-rated Municipal Bonds; together with Aaa group they
comprise what are generally known as "high grade bonds"; A -- possess many
favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A-rated
Municipal Bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future; Baa --
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.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through Baa to indicate ranking within a
general rating category; 1 being the highest and 3 the lowest.
Description of Moody's ratings of state and municipal notes. Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG") and for variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Symbols used will be as follows: MIG 1/VMIG 1 --best
quality, enjoying strong protection for established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both; MIG 2/VMIG 2 -- high quality, with margins of
protection ample although not so large as in the preceding group; MIG 3/VMIG
3 --favorable quality, with all security elements accounted for but lacking
the undeniable strength of the preceding grades.
Description of Moody's commercial paper ratings. PRIME-1 ("P-1") --
judged to be of the best quality. Their short-term debt obligations carry
the smallest degree of investment risk; PRIME-2 -- indicates a strong
capacity for repayment, but to a lesser degree than 1.
Description of Standard & Poors ("S&P") Municipal Bond ratings. AAA --
has the highest rating assigned by S&P; extremely strong capacity to pay
principal and interest; AA -- has very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in a small
degree; A -- has a strong capacity to pay principal and interest, although
somewhat more susceptible to adverse changes in circumstances and economic
conditions; BBB -- regarded as having an adequate capacity to pay principal
and interest; normally exhibit adequate protection parameters but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest than for bonds in the A
category. Ratings may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories, except in the AAA
category.
Description of S&P's ratings of municipal note issues. SP-1+ -- very
strong capacity to pay principal and interest; SP-1 --strong capacity to pay
principal and interest; SP-2 --satisfactory capacity to pay principal and
interest.
Description of S&P's commercial paper ratings. A-1+ --indicates an
overwhelming degree of safety regarding timely payment; A-1 -- indicates a
very strong degree of safety regarding timely payment; A-2 -- indicates a
strong capacity for timely payment but with a relative degree of safety not
as overwhelming as for issues designated A-1.
Description of IBCA Limited/IBCA Inc. commercial paper ratings. Short-
term obligations, including commercial paper, rated A-1+ by IBCA Limited or
its affiliate IBCA Inc. are obligations supported by the highest capacity for
timely repayment. Obligations rated A-1 have a very strong capacity for
timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Description of Fitch Investors Services, Inc. commercial paper ratings.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance for timely payment. The
rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not
as great as indicated by the F-1+ and F-1 categories.
Description of Duff & Phelps Inc. commercial paper ratings. Duff &
Phelps Inc. employs the designation of Duff 1 with respect to top grade
commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is clearly outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations.
Duff 1-indicates high certainty of timely payment. Duff 2 indicates good
certainty of timely payment: liquidity factors and company fundamentals are
sound.
Various of the nationally recognized statistical rating organizations
("NRSROs") utilize rankings within rating categories indicated by a + or -.
The Fund, in accordance with industry practice, recognizes such rankings
within categories as graduations, viewing for example S&P's rating of A-1+
and A-1 as being in S&P's highest rating category.
Description of Thomson BankWatch, Inc. ("BankWatch") commercial paper
ratings. BankWatch will assign both short-term debt ratings and issuer
ratings to the issuers it rates. BankWatch will assign a short-term rating
("TBW-1," "TBW-2," "TBW-3," or "TBW-4") to each class of debt (e.g.,
commercial paper or non-convertible debt), having a maturity of one-year or
less, issued by a holding company structure or an entity within the holding
company structure that is rated by BankWatch. Additionally, BankWatch will
assign an issuer rating ("A," "A/B," "B," "B/C," "C," "C/D," "D," "D/E," and
"E") to each issuer that it rates.
PORTFOLIO OF INVESTMENTS
DREYFUS/LAUREL CALIFORNIA TAX-FREE MONEY FUND JUNE 30, 1995
<TABLE>
<CAPTION>
FACE VALUE
VALUE (NOTE 1)
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 97.4%
CALIFORNIA -- 97.4%
$ 900,000 Anaheim, California, Multifamily Housing Reve-
nue,
4.050% due 08/01/20+ $ 900,000
California Educational Facilitiies Authority
Revenue,
200,000 8.625% due 01/01/16++ 208,165
1,200,000 9.125% due 02/01/16++ 1,256,184
100,000 California Housing Finance Authority Revenue,
3.950% due 07/15/13+ 100,000
California Health Facilities Authority Revenue:
400,000 (Granada Medical Project),
4.250% due 01/01/15+ 400,000
200,000 (Pooled Loan Program),
4.050% due 10/01/10+ 200,000
(Saint Joseph):
750,000 4.500% due 08/01/17++ 750,000
95,000 4.100% due 07/01/13+ 95,000
California Pollution Control Financing Author-
ity, Pollution Control Revenue:
1,150,000 (Champlin Petroleum),
4.550% due 06/01/03++ 1,150,000
(South Down, Inc.):
400,000 3.400% due 02/15/98++++ 400,000
300,000 3.400% due 04/15/98++++ 300,000
Series B:
200,000 (Shell Oil Co.),
4.050% due 10/01/11++++ 200,000
300,000 (Rocklin),
4.300% due 06/01/17+ 300,000
200,000 (Delano),
4.250% due 08/01/19+ 200,000
100,000 Series C, (Shell Oil Co.),
4.050% due 11/01/00+ 100,000
1,000,000 Series E, (Pacific Gas and Electricity),
4.200% due 07/13/95++++ 1,000,000
500,000 (Southern California Edison Inc.), Series D,
3.200% due 03/01/08++ 500,000
California Statewide, Community Development
Revenue:
200,000 3.850% due 08/01/19+ 200,000
675,000 3.850% due 06/01/04++ 675,000
100,000 Concord, California, Multifamily Housing Reve-
nue,
3.950% due 07/15/18+ 100,000
800,000 Contra Costa, California, Transportation Au-
thority,
3.900% due 03/01/09++ 800,000
700,000 East Bay, California, Municipal Utillity Dis-
trict,
7.000% due 03/01/08++ 729,461
490,000 Healdsburg, California, Community
Redevelopment Agency,
4.200% due 01/01/98+ 490,000
450,000 Huntington Park, California, Redevelopment
Agency,
5.100% due 08/01/15++ 449,195
300,000 Kern County, California, Certificates of Par-
ticipation, Series D,
3.900% due 08/01/06+ 300,000
1,000,000 Long Beach, California, Harbor Department Reve-
nue, Series A-2,
4.150% due 03/04/23++ 1,000,000
100,000 Los Angeles, California, Community Development
Agency, Multifamily Housing Revenue,
3.95% due 07/01/15++ 100,000
400,000 Los Angeles, California, Transportation Author-
ity, Regional Airports, Series E,
4.350% due 12/01/24+ 400,000
500,000 Los Angeles County, California, Local Tax
and Revenue Anticipation Notes,
4.500% due 07/01/96++ 503,350
1,350,000 Los Angeles, California, Local Transportation
Authority,
4.500% due 07/06/95 1,350,134
100,000 Los Angeles County, California, Multifamily
Housing Authority, (Poinsettia Project),
3.850% due 07/01/19+ 100,000
1,000,000 Metropolitan Water District,
5.000% due 04/25/96++ 1,005,956
400,000 Monterey Peninsula, California,
Water Managment District,
4.350% due 07/01/22+ 400,000
1,500,000 Northern California Power Agency,
9.750% due 07/01/08++ 1,530,001
400,000 Ontario, California, Multifamily Housing Au-
thority, (Vineyard Project),
4.050% due 12/01/05+ 400,000
400,000 Palm Springs, California, Community
Redevelopment Agency,
4.550% due 12/01/14++ 400,000
675,000 Rincon Del Diablo, California, Water District,
4.350% due 02/01/15++ 675,000
500,000 Sacramento County, California, Certificates of
Participation,
3.650% due 06/01/20+ 500,000
200,000 Sacramento County, California, Multifamily
Housing Revenue, Series A,
4.100% due 04/15/07+ 200,000
500,000 Sacramento County, California, Municipal Util-
ity District,
4.050% due 07/17/95 500,000
735,000 San Diego, California, Multifamily Housing Rev-
enue, (Market Street Square Project),
4.350% due 11/01/25+ 735,000
500,000 San Francisco, California,
Bay Area Rapid Transit Authority,
(737 Post Project), Series D
8.750% due 07/01/04++ 515,001
250,000 Santa Cruz County, California, Industrial De-
velopment Authority,
3.850% due 11/01/18+ 250,000
TOTAL INVESTMENTS
(Cost $22,367,447*) 97.4% 22,367,447
OTHER ASSETS AND LIABILITIES (NET) 2.6 600,130
NET ASSETS 100.0% $22,967,577
<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate demand bonds payable upon not more than seven calendar
days' notice. The interest rate shown reflects the rate currently in
effect.
++ Put bonds and notes have demand features to mature within one year.
+++ Variable daily demand notes are payable upon not more than one busi-
ness day's notice. The interest rate shown reflects the rate cur-
rently in effect.
++++ Variable daily demand notes are payable upon not more than 30 calen-
dar days' notice. The interest rate shown reflects the rate currently
in effect.
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
ASSETS
Investments, at value
(Cost $22,367,447, $102,632,371 and
$29,815,343, respectively) (Note 1)
See accompanying schedules $22,367,447 $102,632,371 $ 29,815,343
Cash -- 13,488 177,364
Interest receivable 321,211 636,046 264,116
Receivable for Fund shares sold 1,042,363 1,559,769 89,796
TOTAL ASSETS 23,731,021 104,841,674 30,346,619
LIABILITIES
Payable for investment securities purchased 503,350 3,200,000 493,418
Dividends payable 9,772 94,261 20,038
Payable for Fund shares redeemed 216,722 212,589 22,682
Investment management fee payable (Note 2) 20,307 84,998 16,292
Due to custodian 9,353 -- --
Accrued Trustees' fees and expenses (Note 2) 758 3,381 758
Distribution fee payable (Note 3) 3,182 15,405 3,965
TOTAL LIABILITIES 763,444 3,610,634 557,153
NET ASSETS $22,967,577 $101,231,040 $ 29,789,466
NET ASSETS CONSIST OF:
ACCUMULATED NET REALIZED GAIN/
(LOSS) ON INVESTMENTS SOLD $ (233) $ (51,059) $ 339
PAID-IN CAPITAL 22,967,810 101,282,099 29,789,127
TOTAL NET ASSETS $22,967,577 $101,231,040 $ 29,789,466
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
NET ASSETS:
Investor Shares $ 15,537,878 $ 75,746,221 $ 21,739,314
Class R Shares $ 7,429,699 $ 25,484,819 $ 8,050,152
SHARES OUTSTANDING:
Investor Shares 15,537,767 75,797,831 21,739,067
Class R Shares 7,429,644 25,501,860 8,050,060
NET ASSET VALUE:
INVESTOR SHARES
Net asset value, offering and redemption price
per share of beneficial interest outstanding $ 1.00 $ 1.00 $ 1.00
CLASS R SHARES
Net asset value, offering and redemption price
per share of beneficial interest outstanding $ 1.00 $ 1.00 $ 1.00
</TABLE>
STATEMENTS OF OPERATIONS
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 973,443 $ 4,113,322 $ 511,298
EXPENSES
Investment management fee (Note 2) 90,816 397,565 48,800
Distribution fee (Note 3) 38,346 222,784 20,798
Trustees' fees and expenses (Note 2) 2,069 9,343 1,308
Total expenses 131,231 629,692 70,906
NET INVESTMENT INCOME 842,212 3,483,630 440,392
NET REALIZED GAIN
ON INVESTMENTS (Note 1)
Net realized gain on investments sold during
the period 6 977 349
NET INCREASE IN NET ASSETS RESULTING FROM OPER-
ATIONS $ 842,218 $ 3,484,607 $ 440,741
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
<S> <C> <C> <C>
Net investment income $ 842,212 $ 3,483,630 $ 440,392
Net realized gain on investments sold during
the year 6 977 349
Net increase in net assets resulting from oper-
ations 842,218 3,484,607 440,741
Distributions to shareholders from net invest-
ment income:
Investor shares (468,028) (2,605,776) (248,024)
Class R shares (374,184) (877,854) (192,368)
Net increase/(decrease) in net assets from Fund
share transactions (Note 4):
Investor shares (1,631,735) (10,764,289) 13,727,989
Class R shares (2,316,810) 5,659,254 2,591,101
Net increase/(decrease) in net assets (3,948,539) (5,104,058) 16,319,439
NET ASSETS:
Beginning of year 26,916,116 106,335,098 13,470,027
End of year $ 22,967,577 $ 101,231,040 $ 29,789,466
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
THE DREYFUS/LAUREL TAX-FREE MUNICIPAL FUNDS
FOR THE YEAR OR PERIOD ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
DREYFUS/ DREYFUS/ DREYFUS/
LAUREL LAUREL LAUREL
CALIFORNIA MASSACHUSETTS NEW YORK
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND* MONEY FUND MONEY FUND*
<S> <C> <C> <C>
Net investment income $ 346,378 $ 2,167,350 $ 204,215
Net realized loss on investments sold during
the year -- (1,311) --
Net increase in net assets result from opera-
tions 346,378 2,166,039 204,215
Distributions to shareholders from net invest-
ment income:
Investor Shares (198,324) (1,317,812) (124,785)
Trust Shares (118,164) (371,662) (78,946)
Institutional Shares (29,890) (477,876) (484)
Net increase/(decrease) in net assets from Fund
share transactions (Note 4):
Investor Shares (3,450,010) (21,462,072) (1,409,966)
Trust Shares 3,338,359 186,693 (2,241,040)
Net decrease in net assets (111,651) (21,276,690) (3,651,006)
NET ASSETS:
Beginning of year 27,027,767 127,611,788 17,121,033
End of year (including undistributed net in-
vestment income of $399 for the Dreyfus/Laurel
California Tax-Free Money Fund) $ 26,916,116 $ 106,335,098 $ 13,470,027
<FN>
* The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30.
</TABLE>
See Notes to Financial Statements.
[This Page Intentionally Left Blank]
FINANCIAL HIGHLIGHTS
DREYFUS BASIC CALIFORNIA MUNICIPAL MONEY MARKET FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD*
Reference is made to Page 5 of the Fund's Prospectus dated February 29, 1996.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Dreyfus/Laurel Tax-Free Municipal Funds (the "Trust"), The Dreyfu-
s/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust and The Dreyfus/Lau-
rel Investment Series (collectively, "The Dreyfus/Laurel Funds") are all
registered open-end investment companies that are part of The Dreyfus Fam-
ily of Funds. The Trust is an investment company which consists of seven
funds: the Dreyfus/Laurel California Tax-Free Money Fund, the Dreyfus/Lau-
rel Massachusetts Tax-Free Money Fund, the Dreyfus/Laurel New York Tax-
Free Money Fund (collectively, the "Money Funds") (individually, the
"Fund"), the Premier Limited Term California Municipal Fund, the Premier
Limited Term Massachusetts Municipal Fund, the Premier Limited Term New
York Municipal Fund and the Premier Limited Term Municipal Fund. This re-
port contains financial statements for the Money Funds. The Trust is a
Massachusetts business trust and is registered with the Securities and Ex-
change Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. The Money
Funds currently offer two classes of shares: Investor shares and Class R
shares (effective October 17, 1994, the Trust shares were redesignated
Class R shares). Investor shares are sold primarily to retail investors
and bear a distribution fee. Class R shares are sold primarily to bank
trust departments and other financial service providers (including Mellon
Bank, N.A. ("Mellon Bank") and its affiliates) acting on behalf of custom-
ers having a qualified trust or investment account or relationship at such
institution, and bear no distribution fee. Each class of shares has iden-
tical rights and privileges, except with respect to the distribution fees
and voting rights on matters affecting a single class. The following is a
summary of significant accounting policies consistently followed by each
Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
(A) PORTFOLIO VALUATION:
Portfolio securities are valued on the basis of amortized cost in accor-
dance with Rule 2a-7 of the 1940 Act. Amortized cost valuation involves
valuing an instrument at its cost initially and thereafter assuming a con-
stant amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of the in-
strument.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains
and losses on investments sold are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Investment income and
realized and unrealized gains and losses are allocated based upon the rel-
ative average daily net assets of each class of shares.
(C) DISTRIBUTIONS TO SHAREHOLDERS:
Each Fund declares dividends from net investment income on a class level
on each day the Fund is open for business and pays such dividends no later
than the first business day of the next month. Each Fund may distribute
net realized capital gains on a Fund level, if any, annually or more fre-
quently to maintain its net asset value of $1.00 per share. Each Fund may
be subject to a 4.00% nondeductible excise tax for certain undistributed
amounts of net investment income and capital gain. Each Fund expects to
make additional distributions to avoid the application of the excise tax.
Income distributions and capital gain distributions on a Fund level are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments of income and gains on various investment se-
curities held by the Fund, timing differences and the differing character-
ization of distributions made by the Fund as a whole. Permanent differ-
ences on the Massachusetts Tax-Free Money Fund incurred during the year
ended June 30, 1995, which resulted from an expiration of capital loss
carryforward have been reclassified to paid-in capital at year end.
(D) EXPENSE ALLOCATION
Expenses of each Fund not directly attributable to the operations of any
class of shares are prorated between the classes based upon the relative
average daily net assets of each class. Distribution expense is directly
attributable to a particular class of shares and is charged only to that
class' operations.
(E) FEDERAL INCOME TAXES:
It is policy of each Fund to qualify as a regulated investment company, if
such qualification is in the best interests of its shareholders, by com-
plying with the requirements of the Internal Revenue Code applicable to
regulated investment companies and by distributing all of its earnings to
shareholders. Therefore, no Federal income tax provision is required.
2. INVESTMENT MANAGEMENT FEE, TRUSTEES' FEE AND OTHER PARTY TRANSACTIONS
Effective as of October 17, 1994, the Trust's investment management agree-
ment with Mellon Bank was transferred to The Dreyfus Corporation (the
"Manager"), a wholly-owned subsidiary of Mellon Bank. The Manager pro-
vides, or arranges for one or more third parties to provide, investment
advisory, administrative, custody, fund accounting and transfer agency
services to the Trust. The Manager also directs the investments of each
Fund in accordance with its investment objective, policies and limita-
tions. For these services, each Fund is contractually obligated to pay the
Manager a fee, calculated daily and paid monthly, at the annual rate of
0.35% of the value of that Fund's average daily net assets. Out of its
fee, the Manager pays all of the expenses of each Fund except brokerage
fees, taxes, interest, Rule 12b-1 distribution fees and expenses, fees and
expenses of non-interested Trustees (including counsel fees) and extraor-
dinary expenses. In addition, the Manager is required to reduce its fee in
an amount equal to each Fund's allocable portion of fees and expenses of
the non- interested Trustees (including counsel).
Prior to October 17, 1994, Mellon Bank served as the Trust's investment
manager pursuant to the investment management agreement described above.
Prior to September 23, 1994, Frank Russell Investment Management Company
(the "Administrator") served as each Fund's administrator and provided,
pursuant to an administration agreement, various administrative and corpo-
rate secretarial services to each Fund. Mellon Bank, as investment man-
ager, paid the Administrator's fee out of the management fee described
above.
Prior to October 17, 1994, Funds Distributor, Inc. served as distributor
of the Trust's shares. Effective as of October 17, 1994, Premier Mutual
Fund Services, Inc. ("Premier") serves as the Trust's distributor. Premier
also serves as the Trust's sub-administrator and, pursuant to a sub-
administration agreement with the Manager, provides various administrative
and corporate secretarial services to the Trust.
No officer or employee of Premier (or of any parent, subsidiary or affili-
ate thereof) receives any compensation from The Dreyfus/Laurel Funds for
serving as an officer or Director or Trustee of The Dreyfus/Laurel Funds.
In addition, no officer or employee of the Manager (or of any parent, sub-
sidiary or affiliate thereof) serves as an officer or Director or Trustee
of The Dreyfus/Laurel Funds. The Dreyfus/Laurel Funds pay each Director or
Trustee who is not an officer or employee of Premier (or any parent, sub-
sidiary or affiliate thereof), or of the Manager $27,000 per annum, $1,000
for each Board meeting attended and $750 for each Audit Committee meeting
attended, and reimburse each Director or Trustee for travel and out-of-
pocket expenses.
3. DISTRIBUTION PLAN
Each Fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act relating to its Investor shares. Under the Plan,
each Fund may pay annually up to 0.25% of the value of the average daily
net assets attributable to its Investor shares to compensate Premier and
Dreyfus Service Corporation, an affiliate of the Manager, for shareholder
servicing activities and Premier for activities and expenses primarily in-
tended to result in the sale of Investor shares. Class R shares bear no
distribution fee.
Under its terms, the Plan shall remain in effect from year to year, pro-
vided such continuance is approved annually by a vote of a majority of the
Trustees and a majority of those Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan.
4. SHARES OF BENEFICIAL INTEREST
The Trust has the authority to issue an unlimited number of shares of ben-
eficial interest of each class in each separate series, without par value.
The Trust offers two classes of shares of the Money Funds.
The tables below summarize transactions in Fund shares for the years or
periods indicated. Because each of the Money Funds has sold shares, issued
shares as reinvestments of dividends and redeemed shares only at a con-
stant net asset value of $1.00 per share, the number of shares represented
by such sales, reinvestments and redemptions is the same as the amounts
shown below for such transactions.
DREYFUS/LAUREL CALIFORNIA TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994*+#
<S> <C> <C>
INVESTOR SHARES:
Sold $ 32,912,720 $ 22,619,988
Issued as reinvestment of dividends and
distributions 462,650 225,575
Redeemed (35,007,105) (26,295,573)
Net decrease $ (1,631,735) $ (3,450,010)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995## JUNE 30, 1994*
<S> <C> <C>
CLASS R SHARES:
Sold $ 32,480,825 $10,968,762
Issued as reinvestment of dividends and
distributions 265,428 65,613
Redeemed (35,063,063) (7,696,016)
Net increase/(decrease) $ (2,316,810) $ 3,338,359
<FN>
* The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30.
+ Amounts include $8,676,000 of subscriptions, $28,427 of reinvestments
and $8,004,712 of redemptions for the Institutional Class up to April
4, 1994.
# Effective April 4, 1994 the Retail and Institutional Classes of shares
were reclassified as a single class of shares known as Investor shares.
## On October 17, 1994, the Trust shares were redesignated Class R shares.
</TABLE>
DREYFUS/LAUREL MASSACHUSETTS TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994+#
<S> <C> <C>
INVESTOR SHARES:
Sold $ 130,450,064 $ 139,311,367
Issued as reinvestment of dividends and
distributions 1,980,170 1,217,369
Redeemed (143,194,523) (161,990,808)
Net decrease $ (10,764,289) $ (21,462,072)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1995## JUNE 30, 1994
<S> <C> <C>
CLASS R SHARES:
Sold $ 81,076,293 $ 66,966,216
Issued as reinvestment of dividends and
distributions 513,180 112,247
Redeemed (75,930,219) (66,891,770)
Net increase $ 5,659,254 $ 186,693
<FN>
+ Amounts include $50,504,187 of subscriptions, $63,928 of reinvestments
and $60,326,788 of redemptions for the Institutional Class up to April
4, 1994.
# Effective April 4, 1994 the Retail and Institutional Classes of shares
were reclassified as a single class of shares known as Investor shares.
## On October 17, 1994, the Trust Shares were redesignated Class R shares.
</TABLE>
DREYFUS/LAUREL NEW YORK TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994*+#
<S> <C> <C>
INVESTOR SHARES:
Sold $ 23,865,192 $ 4,170,313
Issued as reinvestment of dividends and
distributions 240,333 123,051
Redeemed (10,377,536) (5,703,330)
Net increase/(decrease) $ 13,727,989 $(1,409,966)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995## JUNE 30, 1994*
<S> <C> <C>
CLASS R SHARES:
Sold $10,336,048 $ 3,604,985
Issued as reinvestment of dividends and
distributions 44,938 3,922
Redeemed (7,789,885) (5,849,947)
Net increase/(decrease) $ 2,591,101 $(2,241,040)
<FN>
* The Fund changed its fiscal year end to June 30. Prior to this, the
Fund's fiscal year end was November 30.
+ Amounts include $11,467 of subscriptions, $468 of reinvestments and
$9,120 of redemptions for the Institutional Class up to April 4, 1994.
# Effective April 4, 1994 the Retail and Institutional Classes of shares
were reclassified as a single class of shares known as Investor shares.
## On October 17, 1994, the Trust shares were redesignated Class R shares.
</TABLE>
5. CAPITAL LOSS CARRYFORWARD
As of June 30, 1995, the California Tax-Free Money Fund had available for
Federal tax purposes unused capital loss carryforwards of $233 expiring in
the year 2000, the Massachusetts Tax-Free Money Fund had unused capital
loss carryforwards of $51,059 expiring in the year 2002.
6. CONCENTRATION OF CREDIT
Each Fund invests primarily in debt obligations issued by the Fund's re-
spective state (ie. California, Massachusetts, or New York) and its polit-
ical subdivisions, municipalities, agencies and public authorities who ob-
tain funds for various public purposes. Each Fund is more susceptible to
factors adversely affecting issuers of its respective state municipal se-
curities than is a municipal bond fund that is not concentrated in these
issuers to the same extent.
INDEPENDENT AUDITORS' REPORT
KPMG
The Board of Trustees and Shareholders
The Dreyfus/Laurel Tax-Free Municipal Funds:
We have audited the accompanying statements of assets and liabilities, in-
cluding the portfolio of investments, of the California Tax-Free Money
Fund, Massachusetts Tax-Free Money Fund and New York Tax-Free Money Fund
of The Dreyfus/Laurel Tax-Free Municipal Funds (formerly the Laurel Tax-
Free Municipal Funds) as of June 30, 1995, and the related statement of
operations for the year then ended and statement of changes in net assets
and financial highlights for Investor and Class R shares for each of the
years in the two-year period then ended for the Massachusetts Tax-Free
Money Fund and for the year ended June 30, 1995 and for the period from
December 1, 1993 to June 30, 1994 for the California Tax-Free Money Fund
and New York Tax-Free Money Fund. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsi-
bility is to express an opinion on these financial statements and finan-
cial highlights based on our audits. The financial highlights presented
for each of the years or periods ended June 30, 1993 or prior for the Mas-
sachusetts Tax-Free Money Fund and for each of the years or periods ended
November 30, 1993 or prior for the California Tax-Free Money Fund and New
York Tax-Free Money Fund were audited by other auditors whose reports
thereon, dated August 11, 1993 and January 18, 1994, expressed an unquali-
fied opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and fi-
nancial highlights are free of material misstatement. An audit also in-
cludes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirma-
tion of securities owned as of June 30, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principals used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the California Tax-Free Money Fund, Massachusetts Tax-Free Money Fund
and New York Tax-Free Money Fund of The Dreyfus/Laurel Tax-Free Municipal
Funds as of June 30, 1995, the results of their operations for the year
then ended and the change in their net assets and financial highlights for
each of the years or periods in the two-year period ended June 30, 1995 in
conformity with generally accepted accounting Principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
August 18, 1995
