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DREYFUS PREMIER LIMITED TERM MASSACHUSETTS MUNICIPAL FUND
CLASS A, CLASS B, CLASS C AND CLASS R
DREYFUS PREMIER LIMITED TERM MUNICIPAL FUND
CLASS A, CLASS B, CLASS C AND CLASS R
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
NOVEMBER 1, 2000
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This Statement of Additional Information ("SAI"), which is not a
prospectus, supplements and should be read in conjunction with the current
Prospectuses of the Dreyfus Premier Limited Term Massachusetts Municipal Fund
("Massachusetts Municipal Fund") and the Dreyfus Premier Limited Term Municipal
Fund ("Municipal Fund") (individually, the "Fund", collectively, the "Funds"),
each dated November 1, 2000, as they may be revised from time to time. The Funds
are separate portfolios of The Dreyfus/Laurel Tax-Free Municipal Funds (the
"Trust"), an open-end management investment company, known as a mutual fund that
is registered with the Securities and Exchange Commission ("SEC"). To obtain a
copy of a Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-554-4611
In New York City -- Call 1-718-895-1206
Outside the U.S. -- Call 516-794-5452
Each Fund's financial statements for the fiscal year ended June 30, 2000,
including notes to the financial statements and supplementary information, and
the Independent Auditors' Report, are included in its Annual Report to
shareholders. A copy of each Annual Report accompanies this SAI. The financial
statements included in each Annual Report, and the Independent Auditors' Report
thereon, contained therein, and related notes, are incorporated herein by
reference.
<PAGE>
TABLE OF CONTENTS
Page
Description of The Funds/Trust..................................B-3
Management of The Funds........................................B-19
Management Arrangements........................................B-25
Purchase of Shares.............................................B-28
Distribution and Service Plans.................................B-34
Redemption of Shares...........................................B-38
Shareholder Services...........................................B-43
Additional Information about Purchases,
Exchanges and Redemptions......................................B-48
Determination of Net Asset Value...............................B-49
Dividends, Other Distributions and Taxes.......................B-49
Portfolio Transactions.........................................B-55
Performance Information........................................B-58
Information about the Funds/Trust..............................B-61
Counsel and Independent Auditors...............................B-63
Appendix A.....................................................B-64
Appendix B.....................................................B-68
<PAGE>
DESCRIPTION OF THE FUNDS/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. Prior
to March 31, 1997 the Massachusetts Municipal Fund's name was Premier Limited
Term Massachusetts Municipal Fund and Municipal Fund's name was Premier Limited
Term Municipal Fund. The Company is authorized to issue an unlimited number of
shares of beneficial interest, each without par value. The Trustees have
authorized shares of the Funds to be issued in four classes: Class A, Class B,
Class C and Class R.
The Dreyfus Corporation ("Dreyfus") serves as the Fund's investment
manager.
......Dreyfus Service Corporation (the "Distributor") is the distributor of the
Fund's shares.
General Investment Objective and Policies for Massachusetts Municipal
Fund. The Massachusetts Municipal Fund seeks to maximize current income exempt
from Federal income taxes and Massachusetts personal income taxes consistent
with what is believed to be the prudent risk of capital. The Massachusetts
Municipal Fund pursues its objective by investing in debt obligations of the
Commonwealth of Massachusetts, its political subdivisions, municipalities,
public authorities and municipal obligations issued by other governmental
entities, the interest from which is believed to be excluded from gross income
for Federal income taxes purposes and is exempt from Massachusetts personal
income taxes ("Massachusetts Municipal Obligations"), and which are of
"investment-grade" quality and generally of intermediate maturities.
Under normal market conditions, the Massachusetts Municipal Fund attempts
to invest 100%, and will invest a minimum of 80%, of its total assets in
Massachusetts Municipal Obligations. Massachusetts Municipal Obligations may
include (1) municipal bonds; (2) municipal notes; (3) municipal commercial
paper; (4) municipal leases, and (5) related investments. When, in Dreyfus'
opinion, adverse market conditions exist for Massachusetts Municipal
Obligations, and a "defensive" investment posture is warranted, the
Massachusetts Municipal Fund may temporarily invest more than 20% of its total
assets in money market instruments which produce income exempt from Federal
taxes, but not Massachusetts personal income taxes, or more than 20% of its
total assets in taxable obligations (including obligations the interest on which
is included in the calculation of the Federal alternative minimum tax for
individuals). Periods when a defensive posture is warranted include those
periods when the Massachusetts Municipal Fund's monies available for investment
exceed the Massachusetts Municipal Obligations available for purchase to meet
the Massachusetts Municipal Fund's rating, maturity and other investment
criteria. Under normal market conditions, the Massachusetts Municipal Fund may
invest up to 20% of its total assets in municipal obligations having maturity
and quality characteristics comparable to those for Massachusetts Municipal
Obligations, but which produce income exempt from Federal taxes, but not from
Massachusetts personal income taxes. The Massachusetts Municipal Fund's policy
of investing a minimum of 80% of its total assets in Massachusetts Municipal
Obligations is a fundamental policy of the Fund.
General Investment Objective and Policies for Municipal Fund. The
Municipal Fund seeks to maximize current income exempt from Federal income taxes
consistent with the prudent risk of capital. The Municipal Fund seeks to achieve
its objective by investing in debt obligations issued by states, cities,
counties, municipalities, municipal agencies and regional districts which are of
"investment-grade" quality and generally of intermediate maturities the interest
from which is, in the opinion of counsel to the respective issuers, exempt from
Federal income taxes ("Municipal Obligations").
Under normal market conditions, the Municipal Fund attempts to invest
100%, and will invest a minimum of 80%, of its total assets in Municipal
Obligations. However, the Municipal Fund has the ability under certain
conditions to invest 20% of its total assets in taxable obligations (including
obligations the interest on which is included in the calculation of the Federal
alternative minimum tax for individuals) and may, for defensive purposes under
abnormal market conditions, temporarily invest more than 20% of its total assets
in taxable obligations. In managing the Municipal Fund, Dreyfus seeks to take
advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. The Municipal Fund's policy of investing a minimum
of 80% of its total assets in Municipal Obligations is a fundamental policy of
the Fund.
General Information Regarding Both Funds. Each Fund is classified as
"non-diversified," as defined under the Investment Company Act of 1940 ("1940
Act"), and therefore, each Fund could invest all of its assets in the
obligations of a single issuer or relatively few issuers. Due to the Funds'
non-diversified status, changes in the financial condition or in the market's
assessment of an individual issuer may cause a Fund's share price to fluctuate
to a greater degree than if the Fund were diversified. However, the Funds intend
to conduct their operations so that each Fund will qualify under the Internal
Revenue Code of 1986, as amended (the "Code"), as a "regulated investment
company." To continue to qualify, among other requirements, each 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 each 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 ability of the Funds to meet their investment objectives is subject to
the ability of municipal issuers to meet their payment obligations. In addition,
the portfolio of each Fund will be affected by general changes in interest rates
that may result in increases or decreases in the value of Fund holdings.
Investors should recognize that, in periods of declining interest rates, the
yield of each Fund will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the yield of each Fund will tend to be
somewhat lower. Also, when interest rates are falling, the influx of new money
to each Fund will likely be invested in portfolio instruments producing lower
yields than the balance of that Fund's portfolio, thereby reducing the current
yield of the Fund. In periods of rising interest rates, the opposite can be
expected to occur.
The Municipal Fund may invest without limit in Municipal Obligations which
are repayable out of revenue streams generated from economically related
projects or facilities or whose issuers are located in the same state. The
Massachusetts Municipal Fund may invest without limit in Massachusetts Municipal
Obligations which are repayable out of revenue streams generated from
economically related projects or facilities or whose issuers are located in
Massachusetts. Sizable investments in these obligations could increase risk to
the Funds 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
year operating history.
Each Fund is authorized to borrow up to 10% of its total assets for
temporary or emergency purposes and to pledge its assets to the same extent in
connection with such borrowings.
Description of Municipal Obligations. "Municipal Obligations", when
referred to below, shall mean Municipal Obligations with respect to the
Municipal Fund and Massachusetts Municipal Obligations with respect to the
Massachusetts Municipal Fund. 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 Obligations or 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 discussed below under "Dividends, Other Distributions and
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
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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 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
15% limitation on the purchase of illiquid securities, a 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.
Lease obligations are a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional municipal
obligations. For these reasons, before investing in a lease obligation Dreyfus
will consider, among other things, whether (1) the leased property is essential
to a governmental function of the municipality, (2) the municipality is
prohibited from substituting or purchasing similar equipment if lease payments
are not appropriated, and (3) the municipality has maintained good market
acceptability for its lease obligations in the past.
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.
Other Instruments. Other types of tax-exempt instruments that may become
available in the future may be purchased by the Funds as long as Dreyfus
believes the quality of these instruments meets the Funds' quality standards.
Quality of Massachusetts Municipal Obligations and Municipal Obligations.
The Massachusetts Municipal Fund invests only in Massachusetts Municipal
Obligations and the Municipal Fund invests only in Municipal Obligations rated
at the time of purchase within the four highest quality ratings of Moody's
Investors Service, Inc. ("Moody's") (currently at least Baa or above for bonds,
at least MIG 3 or above for notes and at least Prime-2 or above for commercial
paper) or Standard & Poor's Ratings Group ("S&P") (at least BBB or above for
bonds, at least SP-2 or above for notes and at least A-2 or above for commercial
paper) or, if not rated by Moody's or S&P, of comparable quality to the above
ratings as determined by Dreyfus. Massachusetts Municipal Obligations and
Municipal Obligations rated within the four highest ratings are considered to be
of investment grade quality, although bonds rated in the lowest of these four
categories (Baa by Moody's or BBB by S&P) have some speculative characteristics
and involve greater risks and potentially higher yields than higher rated bonds.
A discussion of the categories of Massachusetts Municipal Obligations and
Municipal Obligations and the rating systems appears in Appendix B.
Because many issuers of Massachusetts Municipal Obligations and Municipal
Obligations may choose not to have their obligations rated, it is possible that
a large portion of a Fund's bond portfolio may consist of unrated obligations.
Unrated obligations are not necessarily of lower quality than rated obligations,
but to the extent the Funds invest in unrated obligations, the Funds will be
more reliant on Dreyfus' judgment, analysis and experience than would be the
case if the Funds invested only in rated obligations.
Price and Portfolio Maturity. The Funds generally invest in Municipal
Obligations having intermediate-term maturities, that can be expected to pay
higher yields and experience greater fluctuations in value than bonds with
short-term maturities. The average weighted maturity of the Municipal
Obligations in each Fund's individual portfolio is not expected to exceed ten
years. There is no limit on the maturity of any individual security. The market
value of the Municipal Obligations in a Fund's portfolio and, accordingly, a
Fund's net asset value ("NAV") typically will vary inversely with changes in
interest rates, declining when interest rates rise and rising when interest
rates decline. Under normal market conditions, the longer the average maturity
of a Fund's holdings, the greater its expected yield and price volatility.
Portfolio Securities. The average distribution of investments (at value)
in Municipal Obligations by ratings for each Fund for the fiscal year ended June
30, 2000, computed on a monthly basis, was as follows:
Fitch IBCA, Inc. Municipal
("Fitch") or Moody's or S&P Fund
--------- ------- --- ----
AAA Aaa AAA 63.2%
AA Aa AA 21.3
A A A 8.3
BBB Baa BBB 3.7
F-1, F-1+ MIG1, VMIG,P-1 SP-1+/SP-1,A-1 3.5
100.0
Massachusetts
Fitch or Moody's or S&P Municipal Fund
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AAA Aaa AAA 64.6%
AA Aa AA 19.7
A A A 3.8
BBB Baa BBB 7.8
F-1, F-1+ MIG1, VMIG, P-1 A-1 4.1
100.0
The actual distribution of a Fund's Municipal Obligations by ratings on
any given date will vary. In addition, the distribution of a Fund's investments
by rating as set forth above should not be considered as representative of that
Fund's future portfolio composition.
Tender Option Bonds. Each 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 each 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. No Fund will invest more than 15%
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.
Floating Rate and Variable Rate Obligations. A 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 Funds. 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. Changes in the
credit in the credit quality of banks and other financial institutions that
provide such credit or liquidity enhancements to the Fund's portfolio securities
could cause losses to the Fund and affect its share price.
A 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 Funds. A 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. 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 a Fund.
Taxable Investments. Each Fund anticipates being as fully invested as
practicable in Municipal Obligations. Because each Fund's purpose is to provide
income exempt from Federal (and in the case of the Massachusetts Municipal Fund
state personal) income taxes, a Fund will invest in taxable obligations only if
and when Dreyfus believes it would be in the best interests of its shareholders
to do so. Situations in which a 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. A 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. Under such circumstances, a Fund may invest in 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 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. A 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, a 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, a 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 15% of a Fund's assets
in illiquid securities, including repurchase agreements maturing in more than
seven days.
Other Investment Companies. Each Fund may invest in securities issued by
other investment companies to the extent that such investments are consistent
with the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, each 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.
Investment Techniques
In connection with its investment objective and policies, each Fund may
employ, among others, the following investment techniques:
When-Issued Securities. A 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 a Fund
will purchase Municipal Obligations on a when-issued basis only with the
intention of actually acquiring the securities, the Funds 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 a Fund remain 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 NAV. 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.
Each 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 the 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 each 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.
Investments in Municipal Bond Index and Interest Rate Futures Contracts
and Options on Municipal Bond Index and Interest Rate Futures Contracts. The
Fund may investment in municipal bond index futures contracts and interest rate
futures contracts and purchase and sell options on these futures contracts that
are traded on a domestic exchange or board of trade. Such investments may be
made by a Fund solely for the purpose of hedging against changes in the value of
its portfolio securities due to anticipated changes in interest rates and market
conditions, and not for purposes of speculation. Further, such investments will
be made only in unusual circumstances, such as when Dreyfus anticipates an
extreme change in interest rates or market conditions.
Municipal Bond Index and Interest Rate Futures Contracts. An interest rate
futures contract provides for the future purchase or sale of specified interest
rate sensitive debt securities such as United States Treasury bills, bonds and
notes, obligations of the Government National Mortgage Association and bank
certificates of deposit. Although most interest rate futures contracts require
the delivery of the underlying securities, some settle in cash. Each contract
designates the price, date, time and place of delivery. Entering into a futures
contract to deliver the index or instrument underlying the contract is referred
to as entering into a "short" position in the futures contract, whereas entering
into a futures contract to take delivery of the index or instrument is referred
to as entering into a "long" position in the futures contract. A municipal bond
index futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to a specific dollar amount
times the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. No physical delivery of the underlying municipal bonds in
the index is made. Municipal bond index futures contracts based on an index of
40 tax-exempt, long-term municipal bonds with an original issue size of at least
$50 million and a rating of A- or higher by S&P or A or higher by Moody's began
trading mid-1985.
The purpose of the acquisition or sale of a Municipal Bond Index Futures
Contract by a Fund, as the holder of long-term municipal securities, is to
protect the Fund from fluctuations in interest rates on tax-exempt securities
without actually buying or selling long-term municipal securities.
Unlike the purchase or sale of a Municipal Obligation, no consideration is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a 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 underlying
instrument or 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, a 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 or interest rate futures contract as a hedging device. Successful use of
such futures contracts by the Funds is subject to Dreyfus' ability 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
underlying instrument of municipal bond index and movements in the price of the
Municipal Obligations 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 or interest rate 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 Funds intend to purchase or sell municipal bond index and
interest rate 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 Funds 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 Obligations
will, in fact, correlate with the price movements in the municipal bond index or
interest rate futures contract and thus provide an offset to losses on a futures
contract.
If a Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of the Municipal Obligations 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 Obligations it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if a 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. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
When the Funds purchase municipal bond index or interest rate 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 Funds' 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 Funds to trade in municipal bond index or interest rate futures contracts
and options on interest rate futures contracts may be materially limited by the
requirements of the Code, applicable to a regulated investment company. See
"Dividends, Other Distributions and Taxes" below.
Any income earned by the Funds from transactions in futures contracts will
be taxable. Accordingly, it is anticipated that such investments will be made
only in unusual circumstances, such as when Dreyfus anticipates an extreme
change in interest rates or market conditions. Successful use of futures
contracts by the Funds is subject to the ability of Dreyfus to correctly predict
movements in the direction of interest rates
Options on Municipal Bond Index or Interest Rate Futures Contracts. A Fund
may purchase put and call options on municipal bond index or interest rate
futures contracts which are traded on a domestic exchange or board of trade as a
hedge against changes in interest rates, and may enter into closing transactions
with respect to such options to terminate existing positions. A Fund will sell
put and call options on interest rate futures contracts only as part of closing
sale transactions to terminate its options positions. There is no guarantee that
such closing transactions can be effected.
A put or call on a municipal bond index or interest rate futures contract
gives the purchaser the right, in return for the premium paid, to assume a short
or long position, respectively, in the underlying futures contract as a
specified exercise price at any time prior to the expiration date of the option.
The Funds may purchase put and call options on both municipal bond index and
interest rate futures contracts. The Funds will sell options on these futures
contracts only as part of closing purchase transactions to terminate its options
position, although no assurance can be given that closing transactions can be
effected.
The Funds may purchase options when Dreyfus believes that interest rates
will increase and consequently the value of the Funds' portfolio securities will
decrease. The Funds may enter into futures contracts to buy an index or debt
security or may purchase call options when Dreyfus anticipates purchasing
portfolio securities at a time of declining interest rates.
Options on municipal bond index or interest rate futures contracts, as
contrasted with the direct investment in such contracts, gives the purchaser the
right, in return for the premium paid, to assume a position in such contracts at
a specified exercise price at any time prior to the expiration date of the
options. Upon exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures contract margin account,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss related
to the purchase of an option is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, a Fund's purchase of put or call
options will be based upon predictions as to anticipated interest rate trends by
Dreyfus, which could prove to be inaccurate. Even if Dreyfus' expectations are
correct there may be an imperfect correlation between the change in the value of
the options and of a Fund's portfolio securities.
Any income earned by the Funds from transactions in options on futures
contracts will be taxable. Accordingly, it is anticipated that such investments
will be made only in unusual circumstances, such as when Dreyfus anticipates an
extreme change in interest rates or market conditions. Successful use of futures
contracts by the Funds is subject to the ability of Dreyfus to correctly predict
movements in the direction of interest rates.
The Funds may not enter into futures contracts or purchase options on
futures contracts if, immediately thereafter, the sum of the amount of margin
deposits on the Funds' existing futures contracts and premiums paid for options
would exceed 5% of the value of a Fund's total assets, after taking into account
unrealized profits and losses on any existing contracts. When a Fund enters into
futures contracts, purchases an index or debt security or purchases call
options, an amount of cash, U.S. Government Securities or other high grade debt
securities equal to the market value of the contract will be deposited and
maintained in a segregated account with the Fund's custodian to collateralize
the positions, thereby insuring that the use of the contract is unleveraged.
The Funds reserve the right to invest in other kinds of futures contracts
and options on futures contracts subject to the policies the Board of Trustees
may establish from time to time.
Use of Ratings as Investment Criteria. The ratings of nationally
recognized statistical rating organizations ("NRSROs") such as S&P and 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 Funds as initial criteria for the selection of
portfolio securities, but the Funds 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 Appendix B to this SAI.
After being purchased by a 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 a 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, a Fund will attempt to use comparable ratings as standards for its
investments in accordance with its investment objective and policies.
Special Factors Affecting the Fund
Investing in Massachusetts Municipal Obligations. You should review the
information in "Appendix A", which provides a brief summary of special
investment considerations and risk factors relating to investing in
Massachusetts Municipal Obligations.
Certain Investments. 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, N.A. ("Mellon Bank"), an
affiliate of Dreyfus, has a leading relationship.
Master/Feeder Option. The Trust may in the future seek to achieve a Fund's
investment objective by investing all of the Fund's net investable assets in
another investment company having the same investment objective and
substantially the same investment policies and restrictions as those applicable
to the Fund. Shareholders of a Fund will be given at least 30 days' prior notice
of any such investment. Such investment would be made only if the Trust's Board
of Trustees determines it to be in the best interest of a Fund and its
shareholders. In making that determination, the Trust's Board of Trustees will
consider, among other things, the benefits to shareholders and/or the
opportunity to reduce costs and achieve operational efficiency. Although the
Funds believe that the Board of Trustees will not approve an arrangement that is
likely to result in higher costs, no assurance is given that risks will be
materially reduced if this option is implemented.
Investment Restrictions.
Fundamental. The following limitations have been adopted by each Fund.
Each Fund may not change any of these fundamental investment limitations without
the consent of: (a) 67% or more of the shares present at a meeting of
shareholders duly called if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy; or (b) more than 50% of
the outstanding shares of the Fund, whichever is less. Each Fund may not:
1. Purchase any securities which would cause more than 25% of the value of
a 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 1940 Act,
except that (a) a 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) a 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
at 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 a 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 each Fund may enter into
futures contracts and related options, forward currency contracts and other
similar instruments.
Each Fund of the Trust 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 objective, policies, and restrictions as the
Fund.
Nonfundamental. Each Fund has adopted the following additional
non-fundamental restrictions. These non-fundamental restrictions may be
changed without shareholder approval, in compliance with applicable law and
regulatory policy.
1. The Trust 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 5% of such securities.
2. No 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. No Fund will 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 a Fund's transactions in futures contracts and
related options.
4. No Fund will purchase warrants if at the time of such purchase: (a)
more than 5% of the value of such Fund's assets would be invested in warrants,
or (b) more than 2% of the value of such Fund's assets would be invested in
warrants that are not listed on the New York Stock Exchange ("NYSE") or American
Stock Exchange (for purposes of this undertaking, warrants acquired by a Fund in
units or attached to securities will be deemed to have no value).
5. No Fund will invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining maturities
in excess of seven days, time deposits with 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. No Fund may 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 1940 Act.
7. No Fund will purchase oil, gas or mineral leases (a 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. No Fund shall 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. No Fund shall purchase securities on margin, except that a 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. No Fund shall purchase any security while borrowings representing more
than 5% of such 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.
The investment objectives, policies, restrictions, practices and
procedures of the Funds, unless otherwise specified, may be changed without
shareholder approval. If a Fund's investment objective, policies, restrictions,
practices or procedures change, shareholders should consider whether the Fund
remains an appropriate investment in light of the shareholder's then-current
position and needs.
MANAGEMENT OF THE FUNDS
Trustees and Officers
The Trust's Board is responsible for the management and supervision of the
Funds. The Board approves all significant agreements between the Trust, on
behalf of the Funds, and those companies that furnish services to the Funds.
These companies are as follows:
The Dreyfus Corporation...................Investment Adviser
Dreyfus Service Corporation......................Distributor
Dreyfus Transfer, Inc.........................Transfer Agent
Mellon Bank........................................Custodian
The Trust has a Board composed of eight Trustees. 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 1940 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") and the Dreyfus High
Yield Strategies Fund.
Trustees of the Trust
o+JOSEPH S. DIMARTINO. Chairman of the Board of the Trust. Since January
1995, Mr. DiMartino has served as Chairman of the Board for various
funds in the Dreyfus Family of Funds. He is also a Director of The
Muscular Dystrophy Association, HealthPlan Services Corporation, a
provider of marketing, administrative and risk management services to
health and other benefit programs, Carlyle Industries, Inc. (formerly
Belding Heminway Company, Inc.), a button packager and distributor,
Century Business Services, Inc., a provider of various outsourcing
functions for small and medium sized companies, The Newark Group, a
privately held company providing a national network of paper recovery
facilities, paperboard mills and paperboard converting plants, and
QuikCAT.com, Inc., a private company engaged in the development of high
speed movement, routing, storage and encryption of data across cable,
wireless and all other modes of data transport. For more than five
years prior to January 1995, he was President, a director and, until
August, 1994, Chief Operating Officer of Dreyfus and Executive Vice
President and a director of the Distributor. From August 1994 until
December 31, 1994, he was a director of Mellon Financial Corporation.
Age: 57 years old. Address: 200 Park Avenue, New York, New York 10166.
o+JAMES M. FITZGIBBONS. Trustee of the Trust; Director, Lumber Mutual
Insurance Company; Director, Barrett Resources, Inc.; Chairman of the
Board, Davidson Cotton Company; former Chairman of the Board and CEO of
Fieldcrest Cannon, Inc. Age: 66 years old. Address: 40 Norfolk Road,
Brookline, Massachusetts 02167.
o*J. TOMLINSON FORT. Trustee of the Trust; Of Counsel, Reed, Smith, Shaw &
McClay (law firm). Age: 72 years old. Address: 204 Woodcock Drive,
Pittsburgh, Pennsylvania 15215.
o+ARTHUR L. GOESCHEL. Trustee of the Trust; Director, Calgon Carbon
Corporation; Director, Cerex Corporation; former Chairman of the Board
and Director, Rexene Corporation. Age: 78 years old. Address: Way
Hollow Road and Woodland Road, Sewickley, Pennsylvania 15143.
o+KENNETH A. HIMMEL. Trustee of the Trust; President & CEO, The Palladium
Company; President and CEO, Himmel and Company, Inc.; CEO, American Food
Management; former Director, The Boston Company, Inc. ("TBC"), and
Boston Safe Deposit and Trust Company, each an affiliate of Dreyfus.
Age: 54 years old. Address: 625 Madison Avenue, New York, New York
10022.
o+STEPHEN J. LOCKWOOD. Trustee of the Trust; Chairman of the Board and CEO,
LDG Reinsurance Corporation; Vice Chairman, HCCH. Age: 53 years old.
Address: 401 Edgewater Place, Wakefield, Massachusetts 01880.
o+ROSLYN M. WATSON. Trustee of the Trust; Principal, Watson Ventures, Inc.;
Director, American Express Centurion Bank; Director, Ontario Hydro
Services Company; Trustee, the Hyams Foundation, Inc. Age: 51 years
old. Address: 25 Braddock Park, Boston, Massachusetts 02116-5816.
o+BENAREE PRATT WILEY. Trustee of the Trust; President and CEO of The
Partnership, an organization dedicated to increasing the representation
of African Americans in positions of leadership, influence and decision-
making in Boston, MA; Trustee, Boston College; Trustee, WGBH Educational
Foundation; Trustee, Children's Hospital; Director, The Greater Boston
Chamber of Commerce; Director, The First Albany Companies, Inc.; from
April 1995 to March 1998, Director, TBC. Age: 54 years old. Address:
334 Boylston Street, Suite 400, Boston, Massachusetts.
-----------------------------
* "Interested person" of the Trust, as defined in 1940 Act.
o Member of the Audit Committee.
+ Member of the Nominating Committee.
Officers of the Trust
STEPHEN E. CANTER, President. President, Chief Operating Officer, Chief
---------
Investment Officer and Director of Dreyfus, and an officer of other
investment companies advised and administered by Dreyfus. Mr. Canter
also is a Director or an Executive Committee Member of the other
investment management subsidiaries of Mellon Financial Corporation, each
of which is an affiliate of Dreyfus. He is 55 years old.
MARK N. JACOBS, Vice President. Vice President, Secretary, and General
--------------
Counsel to Dreyfus, and an officer of other investment companies advised
and administered by Dreyfus. He is 54 years old.
JOSEPH CONNOLLY, Vice President and Treasurer. Director - Mutual Fund Accounting
of Dreyfus, and an officer of other investment companies advised and
administered by Dreyfus. He is 43 years old.
STEVEN F. NEWMAN, Secretary. Associate General Counsel and Assistant
----------
Secretary of Dreyfus, and an officer of other investment companies
advised and administered by Dreyfus. He is 51 years old.
JEFF PRUSNOFSKY, Assistant Secretary. Associate General Counsel of Dreyfus, and
an officer of other investment companies advised and administered by
Dreyfus. He is 35 years old.
MICHAEL A. ROSENBERG, Assistant Secretary. Associate General Counsel of
-------------------
Dreyfus, and an officer of other investment companies advised and
administered by Dreyfus. He is 40 years old.
MICHAEL CONDON, Assistant Treasurer. Senior Treasury Manager of Dreyfus, and an
officer of other investment companies advised and administered by Dreyfus.
He is 38 years old.
GREGORY S. GRUBER, Assistant Treasurer. Senior Accounting Manager -
-------------------
Municipal Bond Funds of Dreyfus, and an officer of other investment
companies advised and administered by Dreyfus. He is 41 years old.
The address of each Trust officer is 200 Park Avenue, New York, New York
10166.
No officer or employee of the Distributor (or of any parent, subsidiary or
affiliate thereof) receives any compensation from the Trust for serving as an
officer or Trustee of the Trust. The Dreyfus/Laurel Funds pay each
Director/Trustee who is not an "interested person" of the Trust (as defined in
the 1940 Act) $40,000 per annum, plus $5,000 per joint Dreyfus/Laurel Funds
Board meeting attended, $2,000 for separate committee meetings attended which
are not held in conjunction with a regularly scheduled Board meeting and $500
for Board meetings and separate committee meetings attended that are conducted
by telephone. The Dreyfus/Laurel Funds also reimburse each Director/Trustee who
is not an "interested person" of the Trust (as defined in the 1940 Act) for
travel and out-of-pocket expenses. The Chairman of the Board receives an
additional 25% of such compensation (with the exception of reimbursable
amounts). In the event that there is a joint committee meeting of the
Dreyfus/Laurel Funds and the Dreyfus High Yield Strategies Fund, the $2,000 fee
will be allocated between the Dreyfus/Laurel Funds and the Dreyfus High Yield
Strategies Fund.
In addition, the Trust currently has two Emeritus Board members who are
entitled to receive an annual retainer and a per meeting fee of one-half the
amount paid to them as Board members.
The aggregate amount of fees and expenses received by each current Trustee
from the Trust for the fiscal year ended June 30, 2000, and from all other funds
in the Dreyfus Family of Funds for which such person was a Board member (the
number of which is set forth in parentheses next to each Board member's total
compensation)* during the year ended December 31, 1999, were as follows:
Total Compensation
Aggregate From the Trust and
Name of Board Compensation Fund Complex Paid
Member From the Trust# to Board Member
Joseph S. DiMartino** $27,083 $ 642,177 (189)
James M. Fitzgibbons $20,000 $ 74,989 (28)
J. Tomlinson Fort*** None None (28)
Arthur L. Goeschel $21,666 $ 80,989 (28)
Kenneth A. Himmel $18,333 $ 62,489 (28)
Stephen J. Lockwood $18,333 $ 68,989 (28)
Roslyn M. Watson $21,666 $ 80,989 (28)
Benaree Pratt Wiley $21,666 $ 80,989 (28)
----------------------------
# 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 fact paid directly by Dreyfus to the
non-interested Trustees. Amount does not include reimbursed expenses for
attending Board meetings, which amounted to $1,775.82 for the Trust.
* Represents the number of separate portfolios comprising the investment
companies in the Fund complex, including the Trust, for which the Board
member served.
** Mr. DiMartino became Chairman of the Board of the Dreyfus/Laurel Funds on
January 1, 1999.
*** J. Tomlinson Fort is paid directly by Dreyfus for serving as a Board
member of the Trust and the funds in the Dreyfus/Laurel Funds and
separately by the Dreyfus High Yield Strategies Fund. For the fiscal
year ended June 30, 2000, the aggregate amount of fees received by J.
Tomlinson Fort from Dreyfus for serving as a Board member of the Trust
was $21,666. For the year ended December 31, 1999, the aggregate amount
of fees received by Mr. Fort for serving as a Board member of all funds
in the Dreyfus/Laurel Funds (including the Trust) and Dreyfus High Yield
Strategies Fund (for which payment is made directly by the fund) was
$80,989. In addition, Dreyfus reimbursed Mr. Fort a total of $ 821.35
for expenses attributable to the Trust's Board meetings which is not
included in the $1,775.82 amount in note # above.
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 October 2. 2000.
Principal Shareholders. As of October 2, 2000, the following shareholders
owned beneficially or of record 5% or more of the outstanding Class A shares of
the Massachusetts Municipal Fund: Duncan M. McFarland, 299 Clapboardtree Street,
Westwood, MA 02090-2907; 7.0337%; Patricia Ostrander, 393 Walnut Street,
Brookline, MA 02146-7523; 6.0112%; Primevest Financial Services (FBO), Natalie
K. Schlundt, 400 First Street South, Suite 300, St. Cloud, MN 56302; 5.4661%.
As of October 2, 2000, the following shareholders owned beneficially or of
record 5% or more of the outstanding Class B shares of the Massachusetts
Municipal Fund: Wexford Clearing Services Corp. FBO, Kathryn S. Grosberg, 614
Queen Anne Road, Harwich, MA 02645-1961; 39.4323%; Donaldson Lufkin Jenrette,
Securities Corporation, Inc., PO Box 2052, Jersey City, NJ 07303-9998; 18.0871%;
Howard Green, 82 Williston Road, Brookline, MA, 2445-2141; 15.4783%; Donaldson
Lufkin Jenrette, Securities Corporation Inc.,
PO Box 2052, Jersey City, NJ 07303-9998; 7.3490%
As of October 2, 2000, the following shareholders owned beneficially or of
record 5% or more of the outstanding Class C shares of the Massachusetts
Municipal Fund: NFSC FEBO John Carroll, Mary Carroll, PO Box 621, Manomet, MA
02345, 59.6330%; Painewebber For the Benefit of Thomas A Merrill, 15 May Street,
Jamacia Plain, MA 02130-3032; 25.5153%; Henry Werrick & Charlotte Werrick
JTWROS, 14 Elaine Road, Hyannis, MA 02601-3438; 13.0923%.
As of October 2, 2000, the following shareholders owned beneficially or
of record 5% or more of the outstanding Class A Shares of the Municipal
Fund: Charles Schwab & Co. Inc., Reinvest Account, 101 Montgomery Street,
San Francisco, CA 94104-4122; 7.4125%.
As of October 2, 2000, the following shareholders owned beneficially or of
record 5% or more of the outstanding Class B shares of the Municipal Fund: MLPF
& S For the Sole Benefit Of Its Customers, 4800 Deer Lake Drive, East, Floor 3,
Jacksonville, FL 32246-6484; 20.8433%; Anna L. Parker, 2505 Overland Avenue,
Baltimore, MD 21214-2443; 12.4565%; Sally Golaske & Jeffrey W. Gillespie
Conservators, FBO Katherine G. Savidge, 4619 Groveland Avenue, Royal Oak, MI
48073-1528; 7.9656%; James J. Castranova, 950 North Kings Road, Apartment 355,
West Hollywood, CA 90069-6211; 6.9232%.
As of October 2, 2000, the following shareholders owned beneficially or of
record 5% or more of the outstanding Class C shares of the Municipal Fund: Dean
Witter For the Benefit Of Albert T. Nassi TTEE, Church Street Station, New York,
NY 10008-0250; 39.5763%; MLPF & S For the Sole Benefit Of Its Customers, 4800
Dear Lake Drive, East, Floor 3, Jacksonville, FL 32246-6484; 24.5149%; NFSC FEBO
# AFS-116882, Dale J. Costello, Lynn M. Costello, 7 Valdepenas Lane, Clifton
Park, NY 12065; 6.1854%; Painewebber For the Benefit of Madhukar A. Shanbhag,
290 Wood Acres, East Amherst, NY 14051-1640; 5.5779%; Orrin Devoto & Angela
Devoto, TTEES Devoto, 1990 Revocable Trust, 119 Springfield Drive, San
Francisco, CA 94132-1456; 5.3392%; NFSC FEBO #037-406295, Lon Slaughter, 401
South Park, San Angelo, TX 76901; 5.0241%.
A shareholder who beneficially owns, directly or indirectly, more than 25%
of the Fund's voting securities may be deemed a "control person" (as defined in
the 1940 Act) of the Fund.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
with the sections in the Funds' Prospectuses entitled "Expenses" and
"Management"
Dreyfus is a wholly-owned subsidiary of Mellon Bank, which is a
wholly-owned subsidiary of Mellon Financial Corporation ("Mellon"). Mellon is a
global multibank financial holding company incorporated under Pennsylvania law
in 1971 and registered under the Federal Bank Holding Company Act of 1956, as
amended. Mellon provides a comprehensive range of financial products and
services in domestic and selected international markets. Mellon is among the
twenty largest bank holding companies in the United States based on total
assets.
Management Agreement. Dreyfus serves as the investment manager for the
Funds pursuant to an Investment Management Agreement with the Trust (the
"Management Agreement"), subject to the overall authority of the Trust's Board
of Trustees in accordance with Massachusetts law. 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 Funds. As investment manager, Dreyfus manages
the Funds by making investment decisions based on each Fund's investment
objective, policies and restrictions. The Management Agreement is subject to
review and approval at least annually by the Board of Trustees.
The Management Agreement will continue from year to year as to each Fund
provided that a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and either a majority of all Trustees or a
majority (as defined in the 1940 Act) of the shareholders of the respective Fund
respective approve its continuance. The Trust may terminate the Management
Agreement with respect to each Fund upon the vote of a majority of the Board of
Trustees or upon the vote of a majority of the respective Fund's outstanding
voting securities on 60 days' written notice to Dreyfus. Dreyfus may terminate
the Management Agreement upon 60 days' written notice to the Trust. The
Management Agreement will terminate immediately and automatically upon its
assignment.
The following persons are officers and/or directors of Dreyfus:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a director; Thomas F. Eggers, Vice Chairman-Institutional and a
director; Lawrence S. Kash, Vice Chairman; Ronald P. O'Hanley III, Vice
Chairman; J. David Officer, Vice Chairman and a director, William T.
Sandalls, Jr., Executive Vice President; Stephen R. Byers, Senior Vice
President; Patrice M. Kozlowski, Senior Vice President- Corporate
Communications; Mark N. Jacobs, Vice President, General Counsel and
Secretary; Diane P. Durnin, Vice President-Product Development; Mary Beth
Leibig, Vice President-Human Resources; Ray Van Cott, Vice
President-Information Systems; Theodore A. Schachar, Vice President-Tax;
Wendy Strutt, Vice President; William H. Maresca, Controller; James Bitetto,
Assistant Secretary; Steven F. Newman, Assistant Secretary and Mandell L.
Berman, Burton Borgelt, Steven G. Elliott, Martin G. McGuinn, Richard W.
Sabo, and Richard F. Syron, directors.
Dreyfus' Code of Ethics subjects its employees' personal securities
transactions to various restrictions to ensure that such trading does not
disadvantage any fund advised by Dreyfus. In that regard, portfolio managers and
other investment personnel of Dreyfus must preclear and report their personal
securities transactions and holdings, which are reviewed for compliance with the
Code of Ethics and are also subject to the oversight of Mellon's Investment
Ethics Committee. Portfolio managers and other investment personnel who comply
with the Code of Ethics' preclearance and disclosure procedures, and the
requirements of the Committee, may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
Expenses. Under the Management Agreement, the Funds have agreed to pay
Dreyfus a "unitary fee" at the annual rate of 0.50 of 1% of the value of the
Funds' average daily net assets, computed daily and paid monthly. Under the
unitary fee structure, Dreyfus pays all of the Funds' expenses, except: (i)
brokerage fees, (ii) taxes, interest and extraordinary expenses (which are
expected to be minimal), and (iii) Rule 12b-1 fees, as applicable. Although
under the Management Agreement, Dreyfus is not required to pay the fees and
expenses of the non-interested Trustees (including counsel fees), Dreyfus is
required to reduce its management fee by the amount of such fees and expenses.
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 Funds. Dreyfus may waive all or a
portion of its fees payable by a Fund from time to time.
For the last three years, each Fund had the following management fees:
2000 1999 1998
Municipal Fund $477,384 $435,019 $263,445
Massachusetts Municipal $500,682 $402,864 $291,477
Fund
Distributor. The Distributor, a wholly-owned subsidiary of Dreyfus located
at 200 Park Avenue, New York, New York 10166, serves as the Fund's distributor
on a best efforts basis pursuant to an agreement with the Fund which is
renewable annually. Dreyfus may pay the Distributor for shareholder services
from Dreyfus' own assets, including past profits but not including the
management fee paid by a Fund. The Distributor may use part or all of such
payments to pay certain banks, securities brokers or dealers and other financial
institutions ("Agents") for these services. The Distributor also acts as
sub-administrator for the Funds and as distributor for the other funds in the
Dreyfus Family of Funds.
From August 23, 1994 through March 21, 2000, Premier Mutual Fund Services,
Inc., located at 60 State Street, Boston, MA 02109, ("Premier") served as the
Fund's distributor. Therefore, the disclosure below of amounts retained on the
sale of the Fund for the fiscal years ended June 30, 1998 and 1999, and for the
period from July 1, 1999 through March 21, 2000 refers to amounts retained by
Premier and for the period from March 22, 2000 through June 30, 2000 refers to
amounts retained by the Distributor from sales loads with respect to Class A,
and from contingent deferred sales charges ("CDSCs") with respect to Class B and
Class C, of each Fund. The disclosure below of amounts retained on the sale of
the Fund for the fiscal year ended June 30, 2000 refers to the aggregate amount
retained by the Distributor and Premier from sales loads with respect to Class
A, and from CDSCs with respect to Class B and Class C for that period.
<TABLE>
<CAPTION>
Name of Fund Class A
Fiscal Fiscal Period from Period from
Year Year July 1, 1999 March 22, 2000
Ended Ended Through through Fiscal Year
1998 1999 March 21, 2000 June 30, 2000 Ended 2000
------ ----- ---------- ------------- -----------
Massachusetts
<S> <C> <C> <C> <C> <C>
Municipal Fund $0 $1,524 $44 $826 $870
Municipal Fund 0 3,888 (76) 402 326
Class B
Fiscal Fiscal Period from Period from
Year Year July 1, 1999 March 22, 2000
Ended Ended Through through Fiscal Year
1998 1999 March 21, 2000 June 30, 2000 Ended 2000
------ ----- ---------- ------------- -----------
Massachusetts
Municipal Fund $900 $1,822 $2,676 $562 $3,238
Municipal Fund 3,143 5,368 4,784 8,357 13,141
Class C
Fiscal Fiscal Fiscal
Year Year July 1, 1999 March 22, Year
Ended Ended through 2000 through Ended
1998 1999 March 21, 2000 June 30, 2000 2000
---- ---- -------------- ------------- ----
Massachusetts
Municipal Fund $75 $256 $0 $0 $0
Municipal Fund 313 326 646 5,087 5,733
</TABLE>
Transfer and Dividend Disbursing Agent and Custodian. Dreyfus Transfer,
Inc., (the "Transfer Agent") a wholly-owned subsidiary of Dreyfus, P.O. Box
9671, Providence, RI 02940-9671, is each Fund's transfer and dividend disbursing
agent. Under a transfer agency agreement with the Trust, the Transfer Agent
arranges for the maintenance of shareholder account records for the Trust, 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 Trust during the month, and is
reimbursed for certain out-of-pocket expenses.
Mellon Bank, the parent of Dreyfus, located at One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, acts as the custodian of the Fund's investments.
Under a custody agreement with the Trust, Mellon Bank holds the Fund's portfolio
securities and keeps all necessary accounts and records. Dreyfus Transfer, Inc.
and Mellon Bank, as custodian, have no part in determining the investment
policies of a Fund or which securities are to be purchased or sold by the Fund.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Funds' Prospectuses entitled "Account Policies,"
"Services for Fund Investors," and "Instructions for Regular Accounts."
General. Class A, Class B and Class C shares may be purchased only by
clients of Agents, except that full-time or part-time employees of Dreyfus or
any of its affiliates or subsidiaries, directors of Dreyfus, Board members of a
fund advised by Dreyfus, including members of the Trust's Board, or the spouse
or minor child of any of the foregoing may purchase Class A shares directly
through the Distributor. Subsequent purchases may be sent directly to the
Transfer Agent or your Agent.
Class R shares are sold primarily to bank trust departments and other
financial service providers (including Mellon Bank and its affiliates) acting on
behalf of customers having a qualified trust or investment account or
relationship at such institution, or to customers who have received and hold
shares of the Fund distributed to them by virtue of such an account or
relationship. In addition, holders of Class R shares of a Fund who have held
their shares since April 4, 1994, may continue to purchase Class R shares of the
Fund, whether or not they otherwise would be eligible to do so. Institutions
effecting transactions in Class R shares for the accounts of their clients may
charge their clients direct fees in connection with such transactions.
When purchasing Fund shares, you must specify which Class is being
purchased. Stock certificates are issued only upon your written request. No
certificates are issued for fractional shares. Each Fund reserves the right to
reject any purchase order.
Agents may receive different levels of compensation for selling different
Classes of shares. Management understands that some Agents may impose certain
conditions on their clients which are different from those described in the
respective Fund's Prospectus, and, to the extent permitted by applicable
regulatory authority may charge their clients direct fees which would be in
addition to any amounts which might be received under the Distribution and
Service Plans. Each Agent has agreed to transmit to its clients a schedule of
such fees. You should consult your Agent in this regard.
The minimum initial investment is $1,000. Subsequent investments must be
at least $100. The initial investment must be accompanied by the respective
Fund's Account Application. Each Fund reserves the right to vary the initial and
subsequent investment minimum requirements at any time.
Federal regulations require that you provide a certified taxpayer
identification number ("TIN") upon opening or reopening an account. See
"Dividends, Other Distributions and Taxes" and the respective 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 ("IRS").
Net Asset Value Per Share. An investment portfolio's NAV refers to the
worth of one share. The NAV for shares of each Class of each Fund is computed by
adding, with respect to such Class of shares, the value of the Fund's
investments, cash, and other assets attributable to that Class, deducting
liabilities of the Class and dividing the result by the number of shares of that
Class outstanding. Shares of each Class of each Fund are offered on a continuous
basis. For purposes of determining NAV for each Fund, bonds are valued by an
independent pricing service approved by the Trust's Board of Trustees at fair
value as determined by the pricing service. See "Determination of Net Asset
Value." Options and financial futures on municipal and U.S. treasury securities
are valued at the last sales price on the securities exchange on which such
securities are primarily traded or at the last sales price on the national
securities market on each business day. Investments not listed on an exchange or
the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked prices.
Bid price is used when no asked price is available.
NAV is determined as of the close of business of trading on the floor of
the NYSE (currently 4 p.m., New York Time) on each day the NYSE is open for
business. For purposes of determining NAV, options and futures contracts will be
valued 15 minutes after the close of trading on the floor of the NYSE. Orders
received in proper form by the Transfer Agent or other entity authorized to
receive orders on behalf of the Fund before the close of trading on the floor of
the NYSE are effective on, and will receive the public offering price determined
on, that day. Except in the case of certain orders transmitted by dealers as
described in the following paragraph, orders received after such close of
business are effective on, and receive the share price determined on, the next
business day.
Orders for the purchase of Fund shares received by dealers by the close of
trading on the floor of the NYSE on any business day and transmitted to the
Distributor or its designee by the close of its business day (normally 5:15
p.m., New York time) will be based on the public offering price per share
determined as of the close of trading on the floor of the NYSE on that day.
Otherwise, the orders will be based on the next determined public offering
price. It is the dealers' responsibility to transmit orders so that they will be
received by the Distributor or its designee before the close of its business
day. For certain institutions that have entered into Agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution could
be held liable for resulting fees and/or losses.
Class A Shares. The public offering price for Class A shares of each Fund
is the NAV of that Class, plus a sales load as shown below:
Total Sales Load
As a % of As a % of Dealers'
Offering Net Asset Reallowance
Amount of Transaction Price Value as a % of
---------------------
Per Share Per Share Offering Price
Less than $100,000............... 3.00 3.10 2.75
$100,000 to less than 2.75 2.80 2.50
$250,000...............
$250,000 to less than 2.25 2.30 2.00
$500,000
$500,000 to less than 2.00 2.00 1.75
$1,000,000
Sales Loads--Class A . The scale of sales loads applies to purchases of
Class A shares made by any "purchaser," which term includes an individual and/or
spouse purchasing securities for his, her or their own account or for the
account of any minor children, or a trustee or other fiduciary purchasing
securities for a single trust estate or a single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code although more than one beneficiary
is involved) or a group of accounts established by or on behalf of the employees
of an employer or affiliated employers pursuant to an employee benefit plan or
other program (including accounts established pursuant to Sections 403(b),
408(k), and 457 of the Code); or an organized group which has been in existence
for more than six months, provided that it is not organized for the purpose of
buying redeemable securities of a registered investment company and provided
that the purchases are made through a central administration or a single dealer,
or by other means which result in economy of sales effort or expense
Set forth below is an example of the method of computing the offering
price of the Class A shares. The example assumes a purchase of Class A shares
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the relevant Fund's Prospectus at a price based upon the NAV of a Class
A share on June 30, 2000.
Municipal Massachusetts
Fund Municipal Fund
Net Asset Value per share $11.94 $11.89
Per Share Sales Charge - 3.00%
of offering price (3.10% of
net asset value per share) $0.37 $0.37
Per Share Offering Price to
the Public $12.31 $12.26
Holders of Class A accounts of a Fund as of December 28, 1994 may continue
to purchase Class A shares of that Fund at NAV. However, investments by such
holders in other funds advised by Dreyfus will be subject to the applicable
front-end sales load.
With respect to each Fund, there is no initial sales charge on purchases
of $1,000,000 or more of Class A shares. However, if you purchase Class A shares
without an initial sales charge as part of an investment of at least $1,000,000
and redeem all or a portion of those shares within one year after purchase, a
CDSC of 1.00% will be imposed at the time of redemption. The Distributor may pay
Agents an amount up to 1% of the NAV of Class A shares purchased by their
clients that are subject to a CDSC. The terms contained below under "Redemption
of Shares-Contingent Deferred Sales Charge-Class B Shares" (other than the
amount of the CDSC and time periods) and "Redemption of Shares-Waiver Of CDSC"
are applicable to the Class A shares subject to a CDSC. Letter of Intent and
Right of Accumulation apply to such purchases of Class A shares.
Full-time employees of NASD member firms and full-time employees of other
financial institutions which have entered into an agreement with the Distributor
pertaining to the sale of Fund shares (or which otherwise have a brokerage
related or clearing arrangement with an NASD member firm or financial
institution with respect to the sale of such shares) may purchase Class A shares
for themselves directly or pursuant to an employee benefit plan or other
program, or for their spouses or minor children, at NAV, provided that they have
furnished the Distributor with such information as it may request from time to
time in order to verify eligibility for this Privilege. This privilege also
applies to full-time employees of financial institutions affiliated with NASD
member firms whose full-time employees are eligible to purchase Class A shares
at NAV. In addition, Class A shares are offered at NAV to full-time or part-time
employees of Dreyfus or any of its affiliates or subsidiaries, directors of
Dreyfus, and Board members of a fund advised by Dreyfus, including members of
the Trust's Board, or the spouse or minor child of any of the foregoing.
Class A shares may be purchased at NAV through certain broker-dealers and
other financial institutions which have entered into an agreement with the
Distributor, which includes a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or a similar program under
which such clients pay a fee to such broker-dealer or other financial
institution.
Class A shares also may be purchased at NAV, subject to appropriate
documentation, through a broker-dealer or other financial institution with the
proceeds from the redemption of shares of a registered open-end management
investment company not managed by Dreyfus or its affiliates. The purchase of
Class A shares of a Fund must be made within 60 days of such redemption and the
shareholder must have either (i) paid an initial sales charge or a CDSC or (ii)
been obligated to pay at any time during the holding period, but did not
actually pay on redemption, a deferred sales charge with respect to such
redeemed shares.
Class A shares also may be purchased at NAV, subject to appropriate
documentation, by (i) qualified separate accounts maintained by an insurance
company pursuant to the laws of any State or territory of the United States,
(ii) a State, county or city or instrumentality thereof, (iii) a charitable
organization (as defined in Section 501(c)(3) of the Code) investing $50,000 or
more in Fund shares, and (iv) a charitable remainder trust (as defined in
Section 501(6)(3) of the Code).
The dealer reallowance may be changed from time to time but will remain
the same for all dealers. The Distributor, at its expense, may provide
additional promotional incentives to dealers that sell shares of funds advised
by Dreyfus which are sold with a sales load, such as the Funds. In some
instances, those incentives may be offered only to certain dealers who have sold
or may sell significant amounts of shares.
Class B Shares. The public offering price for Class B shares is the NAV of
that Class. No initial sales charge is imposed at the time of purchase. A CDSC
is imposed, however, on certain redemptions of Class B shares as described in
each Fund's Prospectus.
Approximately six years after the date of purchase, Class B shares
automatically will convert to Class A shares, based on the relative NAVs for
shares of each such Class. Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted on a pro rata
basis together with other Class B shares, in the proportion that a shareholder's
Class B shares converting to Class A shares bears to the total Class B shares
not acquired through the reinvestment of dividends and distributions.
Class C Shares. The public offering price for Class C shares is the NAV of
that Class. No initial sales charge is imposed at the time of purchase. A CDSC
is imposed, however, on redemptions of Class C shares made within the first year
of purchase. See "Class B shares" above and "How to Redeem Shares."
Class B and C Shares. The Distributor compensates certain Agents for
selling Class B and Class C shares at the time of purchase from its own assets.
The proceeds of the CDSC and the distribution fee, in part, are used to defray
these expenses.
Class R Shares. The public offering price for Class R shares is the NAV
--------------
of that Class.
Right of Accumulation- Class A shares. Reduced sales loads apply to any
purchase of Class A shares, shares of other funds in the Dreyfus Premier Family
of Funds which are sold with a sales load, shares of certain other funds advised
by Dreyfus or Founders Asset Management LLC ("Founders"), an affiliate of
Dreyfus, which are sold with a sales load and shares acquired by a previous
exchange of such shares (hereinafter referred to as "Eligible Funds"), by you
and any related "purchaser" as defined above, where the aggregate investment,
including such purchase, is $100,000 or more. If, for example, you previously
purchased and still hold Class A shares, or shares of any other Eligible Fund or
combination thereof, with an aggregate current market value of $80,000 and
subsequently purchase Class A shares or shares of an Eligible Fund having a
current value of $40,000, the sales load applicable to the subsequent purchase
would be reduced to 2.75% of the offering price. All present holdings of
Eligible Funds may be combined to determine the current offering price of the
aggregate investment in ascertaining the sales load applicable to each
subsequent purchase.
To qualify for reduced sales loads, at the time of purchase you or your
Agent must notify the Distributor if orders are made by wire, or the Transfer
Agent if orders are made by mail. The reduced sales load is subject to
confirmation of your holdings through a check of appropriate records.
TeleTransfer Privilege. You may purchase Fund shares (minimum $500 and
maximum $150,000 per day) by telephone through the TeleTransfer Privilege if you
have checked the appropriate box and supplied the necessary information on the
Account Application or have filed a Shareholder Services Form with the Transfer
Agent. The proceeds will be transferred between the bank account designated in
one of these documents and your Fund account. Only a bank account maintained in
a domestic financial institution that is an ACH member may be so designated.
TeleTransfer purchase orders may be made at any time. Purchase orders received
by 4:00 p.m., New York time, on any business day that the Transfer Agent and the
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
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the TeleTransfer Privilege, the initial
payment for purchase of Fund shares must be drawn on, and redemption proceeds
paid to, the same bank and account as are designated on the Account Application
or Shareholder Services Form on file. If the proceeds of a particular redemption
are to be wired to an account at any other bank, the request must be in writing
and signature-guaranteed. See "Redemption of Shares - TeleTransfer Privilege."
Each Fund may modify or terminate this Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated by either
Fund.
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, a 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 applicable 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 NAVs of the shares
purchased and securities exchanged. Securities accepted by a Fund will be valued
in the same manner as the Fund values its assets. Any interest earned on the
securities following their delivery to a Fund and priors 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
1-800-554-4611.
DISTRIBUTION AND SERVICE PLANS
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectuses entitled "Your Investment."
Class A, Class B and Class C shares are subject to annual fees for
distribution and shareholder services.
The SEC has adopted Rule 12b-1 under the 1940 Act ("Rule") regulating the
circumstances under which investment companies such as the Trust may, directly
or indirectly, bear the expenses of distributing their shares. The Rule defines
distribution expenses to include expenditures for "any activity which is
primarily intended to result in the sale of fund shares." The Rule, among other
things, provides that an investment company may bear such expenses only pursuant
to a plan adopted in accordance with the Rule.
Distribution Plan--Class A shares. With respect to the Class A shares of
each Fund, the Trust has adopted a Distribution Plan pursuant to the Rule (the
"Class A Plan"), whereby Class A shares of a Fund may spend annually up to 0.25%
of the average of its net assets to compensate Mellon Bank and its affiliates
(including but not limited to Dreyfus and the Distributor) for shareholder
servicing activities and the Distributor for shareholder servicing activities
and expenses primarily intended to result in the sale of Class A shares of the
Fund. The Class A Plan allows the Distributor to make payments from the Rule
12b-1 fees it collects from a Fund to compensate Agents that have entered into
Selling Agreements ("Agreements") with the Distributor. Under the Agreements,
the Agents are obligated to provide distribution related services with regard to
the Funds and/or shareholder services to the Agent's clients that own Class A
shares of the Funds. The Trust's Board of Trustees believes that there is a
reasonable likelihood that the Class A Plan will benefit each Fund and the
holders of its Class A shares.
The Class A Plan provides that a report of the amounts expended under the
Class A Plan, and the purposes for which such expenditures were incurred, must
be made to the Trust's Trustees for their review at least quarterly. In
addition, the Class A Plan provides that it may not be amended to increase
materially the costs which a Fund may bear for distribution pursuant to the
Class A Plan without approval of a Fund's shareholders, and that other material
amendments of the Class A Plan must be approved by the vote of a majority of the
Trustees and of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who do not have any direct or indirect financial
interest in the operation of the Plan, cast in person at a meeting called for
the purpose of considering such amendments. The Class A Plan is subject to
annual approval by the entire Board of Trustees and by the Trustees who are
neither interested persons nor have any direct or indirect financial interest in
the operation of the Class A Plan, by vote cast in person at a meeting called
for the purpose of voting on the Class A Plan. The Class A Plan is terminable,
as to a Fund's Class A shares, at any time by vote of a majority of the Trustees
who are not interested persons and have no direct or indirect financial interest
in the operation of the Class A Plan or by vote of the holders of a majority of
the outstanding shares of such class of the Fund.
Distribution and Service Plans -- Class B and C Shares. In addition to the
above described Class A Plan for Class A shares, the Board of Trustees has
adopted a Service Plan (the "Service Plan") under the Rule for Class B and Class
C shares, pursuant to which the Fund pays the Distributor, and/or any of its
affiliates, a fee at the annual rate of 0.25% of the value of the average daily
net assets of Class B and Class C shares for the provision of certain services
to the holders of Class B and Class C shares. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and providing services related to the maintenance of such
shareholder accounts. With regard to such services, each Agent is required to
disclose to its clients any compensation payable to it by the Fund and any other
compensation payable by its clients in connection with the investment of their
assets in Class B and Class C shares. The Distributor may pay one or more Agents
in respect of services for these Classes of shares. The Distributor determines
the amounts, if any, to be paid to Agents under the Service Plan and the basis
on which such payments are made. The Trust's Board of Trustees has also adopted
a Distribution Plan pursuant to the Rule with respect to Class B and Class C
shares (the "Distribution Plan") pursuant to which the Fund pays the Distributor
for distributing the Fund's Class B and Class C shares at an aggregate annual
rate of 0.50% of the value of the average daily net assets of Class B and Class
C shares. The Trust's Board of Trustees believes that there is a reasonable
likelihood that the Distribution and Service Plan (the "Plans") will benefit the
Fund and the holders of Class B and Class C shares.
A quarterly report of the amounts expended under each Plan, and the
purposes for which such expenditures were incurred, must be made to the Trustees
for their review. In addition, each Plan provides that it may not be amended to
increase materially the cost which holders of Class B or Class C shares may bear
pursuant to the Plan without the approval of the holders of such Classes and
that other material amendments of the Plan must be approved by the Board of
Trustees and by the Trustees who are not interested persons of the Fund and have
no direct or indirect financial interest in the operation of the Plan or in any
agreements entered into in connection with the Plan, by vote cast in person at a
meeting called for the purpose of considering such amendments. Each Plan is
subject to annual approval by such vote of the Trustees cast in person at a
meeting called for the purpose of voting on the Plan. Each Plan may be
terminated at any time by vote of a majority of the Trustees who are not
interested persons and have no direct or indirect financial interest in the
operation of the Plan or in any agreements entered into in connection with the
Plan or by vote of the holders of a majority of Class B and Class C shares.
An Agent entitled to receive compensation for selling and servicing a
Fund's shares may receive different compensation with respect to one Class of
shares over another. Potential investors should read this SAI in light of the
terms governing Agreements with their Agents. The fees payable under each plan
described above are payable without regard to actual expenses incurred. Each
Fund and the Distributor may suspend or reduce payments under any of the plans
at any time, and payments are subject to the continuation of the Fund's plans
and the Agreements described above. From time to time, the Agents, the
Distributor and each Fund may voluntarily agree to reduce the maximum fees
payable under the plans.
<TABLE>
<CAPTION>
For the period from July 1, 1999 through March 21, 2000, each Fund paid
Premier, and for the period from March 22, 2000 through June 30, 2000, each Fund
paid the Distributor, and for the fiscal year ended June 30, 2000, each Fund
paid Premier and the Distributor, in the aggregate, the following distribution
fees:
Amount Paid by Amount Paid by
Class A to Class A to the Total Amount Paid by
Premier for Distributor for Class A to both Premier
Period from July Period from March and the Distributor for
1, 1999 through 22, 2000 through fiscal year ended
Name of Fund March 21, 2000 June 30, 2000 June 30, 2000
------------ --------------- ----------------- ------------------------
Massachusetts
<S> <C> <C> <C>
Municipal Fund $3,027 $30,825 $33,852
Municipal Fund 46,010 62,143
16,133
Amount Paid by Amount Paid by
Class B to Class B to the Total Amount Paid by
Premier for Distributor for Class B to both Premier
Period from July Period from March and the Distributor for
1, 1999 through 22, 2000 through fiscal year ended
Name of Fund March 21, 2000 June 30, 2000 June 30, 2000
------------ --------------- ----------------- ------------------------
Massachusetts
Municipal Fund $ 3,080 $1,216 $4,296
Municipal Fund 6,389 16,760
10,371
Amount Paid by Amount Paid by
Class C to Class C to the Total Amount Paid by
Premier for Distributor for Class C to both Premier
Period from July Period from March and the Distributor for
1, 1999 through 22, 2000 through fiscal year ended
Name of Fund March 21, 2000 June 30, 2000 June 30, 2000
------------ --------------- ----------------- ------------------------
Massachusetts
Municipal Fund $927 $143 $1,070
Municipal Fund 1,395 5,924
4,529
For the period from July 1, 1999 through March 21, 2000, each Fund paid
Premier, and for the period from March 22, 2000 through June 30, 2000, each Fund
paid the Distributor, and for the fiscal year ended June 30, 2000, each Fund
paid Premier and the Distributor, in the aggregate, with respect to Class B and
C shares, the following service fees:
Amount Paid by Amount Paid by
Premier for Distributor for Total Amount Paid to
Period from July Period from March both Premier and the
1, 1999 through 22, 2000 through Distributor for fiscal year
March 21, 2000 June 30, 2000 ended June 30, 2000 with
with respect to respect to respect to
Class B Class B Class B
--------------- ----------------- ------------------------
Massachusetts
Municipal Fund $935 $1,213 $2,148
Municipal Fund 3,431 4,949 8,380
Amount Paid by Amount Paid by
Premier for Distributor for Total Amount Paid to
Period from July Period from March both Premier and the
1, 1999 through 22, 2000 through Distributor for fiscal year
March 21, 2000 June 30, 2000 ended June 30, 2000 with
with respect to respect to respect to
Class C Class C Class C
--------------- ----------------- ------------------------
Massachusetts
Municipal Fund $463 $72 $535
Municipal Fund 2,396 566 2,962
</TABLE>
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Account Policies,"
"Services For Fund Investors," and "Instructions for Regular Accounts."
General. If you hold Fund shares of more than one Class, any request for
redemption must specify the Class of shares being redeemed. If you fail to
specify the Class of shares to be redeemed or if you own fewer shares of the
Class than specified to be redeemed, the redemption request may be delayed until
the Transfer Agent receives further instructions from you or your Agent.
The Funds impose no charges (other than any applicable CDSC) when shares
are redeemed. Agents or other institutions may charge their clients a 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.
Procedures. You may redeem Fund shares by using the regular redemption
procedure through the Transfer Agent, or, if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent, through the
TeleTransfer Privilege. If you are a client of a Selected Dealer, you may redeem
Fund shares through the Selected Dealer. Other redemption procedures may be in
effect for clients of certain Agents and institutions. Each Fund makes available
to certain large institutions the ability to issue redemption instructions
through compatible computer facilities. Each 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. Each
Fund may modify or terminate any redemption privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is contemplated.
Shares for which certificates have been issued are not eligible for the
TeleTransfer Privilege.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. If you select the TeleTransfer Privilege or
Telephone Exchange Privilege, which is granted automatically unless you refuse
it, you authorize the Transfer Agent to act on telephone instructions (including
over The Dreyfus Touch(R) automated telephone system) from any person
representing himself or herself to be you, or a representative of your Agent,
and reasonably believed by the Transfer Agent to be genuine. Each 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.
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 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 the purchase check or
TeleTransfer purchase order, which may take up to eight business days or more.
In addition, the Fund will reject requests to redeem shares by wire or telephone
or pursuant to the TeleTransfer Privilege for a period of eight business days
after receipt by the Transfer Agent of the purchase check or the TeleTransfer
purchase order against which such redemption is requested. These procedures will
not apply if your shares were purchased by wire payment, or 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.
During times of drastic economic or market conditions, you may experience
difficulty in contacting the Transfer Agent by telephone to request a
TeleTransfer 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 TeleTransfer redemption had
been used. During the delay, the Fund's NAV may fluctuate.
TeleTransfer Privilege. You may request by telephone that redemption
proceeds (minimum $500 per day) be transferred between your Fund account and
your bank account. Only a bank account maintained in a domestic financial
institution which is an ACH member may be designated. Redemption proceeds will
be on deposit in the your account at an ACH member bank ordinarily two business
days after receipt of the redemption request. Investors should be aware that if
they have selected the TeleTransfer Privilege, any request for a wire redemption
will be effected as a TeleTransfer transaction through the ACH system unless
more prompt transmittal specifically is requested. Holders of jointly registered
Fund or bank accounts may redeem through the TeleTransfer Privilege for transfer
to their bank account only up to $500,000 within any 30-day period. See
"Purchase of Shares-- TeleTransfer Privilege."
Redemption Through a Selected Dealer. Customers of Selected Dealers, may
make redemption requests to their Selected Dealer. If the Selected Dealer
transmits the redemption request so that it is received by the Transfer Agent
prior to the close of trading on the floor of the NYSE (currently 4:00 p.m., New
York time), the redemption request will be effective on that day. If a
redemption request is received by the Transfer Agent after the close of trading
on the floor of the NYSE, the redemption request will be effective on the next
business day. It is the responsibility of the Selected Dealer to transmit a
request so that it is received in a timely manner. The proceeds of the
redemption are credited to your account with the Selected Dealer. See "Purchase
of Shares" for a discussion of additional conditions or fees that may be imposed
upon redemption.
In addition, the Distributor or its designee will accept orders from
Selected Dealers with which the Distributor has sales agreements for the
repurchase of Fund shares held by shareholders. Repurchase orders received by
dealers by the close of trading on the floor of the NYSE on any business day and
transmitted to the Distributor or its designee prior to the close of its
business day (normally 5:15 p.m., New York time) are effected at the price
determined as of the close of trading on the floor of the NYSE on that day.
Otherwise, the Fund shares will be redeemed at the next determined NAV. It is
the responsibility of the Selected Dealer to transmit orders on a timely basis.
The Selected Dealer may charge the shareholder a fee for executing the order.
This repurchase arrangement is discretionary and may be withdrawn at any time.
Reinvestment Privilege. Upon written request, you may reinvest up to the
number of Class A or Class B shares you have redeemed, within 45 days of
redemption, at the then-prevailing NAV without a sales load, or reinstate your
account for the purpose of exercising the Fund Exchanges. Upon reinstatement,
with respect to Class B shares, or Class A shares if such shares were subject to
a CDSC, your account will be credited with an amount equal to the CDSC
previously paid upon redemption of the shares reinvested. The Reinvestment
Privilege may be exercised only once.
Share Certificates; Signatures. Any certificates representing Fund shares
to be redeemed must be submitted with the redemption request. Written redemption
requests must be signed by each shareholder, including each holder of a joint
account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations
as well as from participants in the 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.
Redemption Commitment. The Trust has committed itself to pay in cash all
redemption requests by any shareholder of record of a 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 Board of Trustees reserves 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 such event, the securities
would be valued in the same manner as each Fund's portfolio is valued. If the
recipient sold such securities, brokerage charges might be incurred.
Suspension of Redemptions. The right to redeem Fund shares may be
suspended or the date of payment postponed (a) during any period when the NYSE
is closed (other than customary weekend and holiday closings); (b) when trading
in the markets a Fund ordinarily utilizes is restricted or when an emergency
exists as determined by the SEC so that disposal of the Fund's investments or
determination of its NAV is not reasonably practicable, or (c) for such other
periods as the SEC, by order, may permit to protect a Fund's shareholders.
Contingent Deferred Sales Charge - Class B shares. A CDSC is payable to
the Distributor on any redemption of Class B shares which reduces the current
NAV of your Class B shares to an amount below the dollar amount of all payments
by you for purchase of your Class B shares at the time of redemption. No CDSC
will be imposed to the extent that the NAV of the Class B shares redeemed does
not exceed (i) the current NAV of Class B shares acquired through reinvestment
of dividends or other distributions, plus (ii) increases in the NAV of your
Class B shares above the dollar amount of all your payments for the purchase of
Class B shares held by you at the time of redemption.
If the aggregate value of Class B shares redeemed has declined below their
original cost as a result of a Fund's performance, a CDSC may be applied to the
then-current NAV rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge will
depend on the number of years from the time you purchased the Class B shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of Class B
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates of
the CDSC:
Year Since CDSC as a % of
Purchase Payment Amount Invested or
Was Made Redemption Proceeds
First......................... 3.00
Second........................ 3.00
Third......................... 2.00
Fourth........................ 2.00
Fifth......................... 1.00
Sixth......................... 0.00
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and other
distributions; then of amounts representing the increase in NAV of Class B
shares above the total amount of payments for the purchase of Class B shares
made during the preceding five years; then of amounts representing the cost of
shares purchased five years prior to the redemption; and finally, of amounts
representing the cost of shares held for the longest period of time within the
applicable five-year period.
For example, assume an investor purchased 100 shares at $10 share for a
cost of $1,000. Subsequently, the shareholder acquired five additional shares
through dividend reinvestment. During the second year after the purchase the
investor decided to redeem $500 of his or her investment. Assuming at the time
of the redemption the NAV had appreciated to $12 per share, the value of the
investor's shares would be $1,260 (105 shares at $12 per share). The CDSC would
not be applied to the value of the reinvested dividend shares and the amount
which represents appreciation ($260). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 3% (the applicable rate
in the second year after purchase) for a total CDSC of $7.20.
For purposes of determining the applicable CDSC payable with respect to
redemption of Class B shares of a Fund where such shares were acquired through
exchange of Class B shares of another fund advised by Dreyfus, the year since
purchase payment was made is based on the date of purchase of the original Class
B shares of the fund exchanged.
Contingent Deferred Sales Charge - Class C shares. A CDSC of .75% is paid
to the Distributor on any redemption of Class C shares within one year of the
date of purchase. The basis for calculating the payment of any such CDSC will be
the method used in calculating the CDSC for Class B shares. See "Contingent
Deferred Sales Charge - Class B shares" above.
Waiver of CDSC. The CDSC may be waived in connection with (a) redemptions
made within one year after the death or disability, as defined in Section
72(m)(7) of the Code, of the shareholder, (b) redemptions as a result of a
combination of any investment company with the Funds by merger, acquisition of
assets or otherwise and (c) redemptions pursuant to the Automatic Withdrawal
Plan, as described under "Shareholder Services-Automatic Withdrawal Plan" below.
If the Trust's Board of Trustees determines to discontinue the waiver of the
CDSC, the disclosure in the Funds' Prospectuses will be revised appropriately.
Any Fund shares subject to a CDSC which were purchased prior to the termination
of such waiver will have the CDSC waived as provided in the relevant Fund's
Prospectus at the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption you must
notify the Transfer Agent or your Agent must notify the Distributor. Any such
qualification is subject to confirmation of your entitlement.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the sections in each Fund's Prospectus entitled "Accounts Policies" and
"Services for Fund Investors."
The services and privileges described under this heading may not be
available to clients of certain Agents and some Agents may impose certain
conditions on their clients which are different from those described below. You
should consult your Agent in this regard.
Fund Exchanges. You may purchase, in exchange for shares of a Fund, shares
of the same Class of another fund in the Dreyfus Premier Family of Funds, shares
of the same Class of certain funds advised by Founders, or shares of certain
other funds in the Dreyfus Family of Funds, to the extent such shares are
offered for sale in your state of residence. Shares of the same Class of such
other funds purchased by exchange will be purchased on the basis of relative NAV
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.
E. Shares of funds subject to a CDSC that are exchanged for shares of
another fund will be subject to the higher applicable CDSC of the two
funds, and for purposes of calculating CDSC rates and conversion
periods, if any, will be deemed to have been held since the date the
shares being exchanged were initially purchased.
To accomplish an exchange under item D above, an investor's Agent must
notify the Transfer Agent of the investor's prior ownership of shares with a
sales load and the investor's account number. Any such exchange is subject to
confirmation of a shareholder's holdings through a check of appropriate records.
To request an exchange, an investor or an investor's Agent acting on the
investor's 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 1-800-554-4611. 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 the investor
checks the relevant "No" box on the Account Application, indicating that the
investor specifically refuses this privilege. The Telephone Exchange Privilege
may be established for an existing account by written request signed by all
shareholders on the account, by a separate Shareholder Services Form, available
by calling 1-800-554-4611, or, by oral request from any of the authorized
signatories on the account, also by calling 1-800-554-4611. If you previously
have established the Telephone Exchange Privilege, you may telephone exchange
instructions (including over The Dreyfus Touch(R) Automated Telephone System) by
calling 1-800-554-4611. If calling from overseas, call 516- 794-5452. See "How
to Redeem Fund Shares - Procedures." Upon an exchange into a new account, the
following shareholder services and Privileges, as applicable and where
available, will be automatically carried over to the fund into which the
exchange is made: Telephone Exchange Privilege, TeleTransfer Privilege and the
dividends and distributions payment option (except for Dividend Sweep) selected
by the investor.
By using the Telephone Exchange Privilege, the investor authorizes the
Transfer Agent to act on telephonic instructions (including over The Dreyfus
Touch(R) automated telephone system) from any person representing himself or
herself to be 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. No fees currently are charged shareholders directly in
connection with exchanges, although each Fund reserves the right, upon not less
than 60 days' written notice, to charge shareholders a nominal fee in accordance
with rules promulgated by the SEC. Each 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
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege permits
you to purchase (on a semi-monthly, monthly, quarterly or annual basis), in
exchange for shares of a Fund, shares of the same Class of another fund in the
Dreyfus Premier Family of Funds, shares of the same Class of certain funds
advised by Founders, or shares of certain other funds in the Dreyfus Family of
Funds, of which you are a shareholder. The amount the investor designates, which
can be expressed either in terms of a specific dollar or share amount ($100
minimum), will be exchanged automatically on the first and/or fifteenth day of
the month according to the schedule the investor has selected. This Privilege is
available only for existing accounts. Shares will be exchanged on the basis of
relative NAV as described above under "Fund Exchanges." Enrollment in or
modification or cancellation of this Privilege is effective three business days
following notification by the investor. An investor will be notified if the
investor's account falls below the amount designated to be exchanged under this
Privilege. In this case, an investor's account will fall to zero unless
additional investments are made in excess of the designated amount prior to the
next Auto-Exchange transaction.
The right to exercise this Privilege may be modified or canceled by each
Fund or the Transfer Agent. You may modify or cancel your exercise of this
Privilege at any time by mailing written notification to Dreyfus Premier Limited
Term Municipal Fund or Dreyfus Premier Limited Term Massachusetts Municipal Fund
(as applicable), P.O. Box 6587, Providence, Rhode Island 02940-6587. Each Fund
may charge a service fee for the use of this Privilege. No such fee currently is
contemplated. For more information concerning this Privilege and the funds in
the Dreyfus Premier Family of Funds or the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto- Exchange
Authorization Form, please call toll free 1-800-554-4611.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of a fund being acquired may
legally be sold. Shares may be exchanged only between accounts having identical
names and other identifying designations. 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 and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-554-4611. The Funds reserve the right to reject any
exchange request in whole or in part. The Fund Exchange service or the
Auto-Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
Dreyfus-Automatic Asset Builder(R). Dreyfus-Automatic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased by
transferring funds from the bank account designated by you at your option. Only
an account maintained at a domestic financial institution which is an ACH member
may be so designated. To establish a Dreyfus-Automatic Asset Builder account,
you must file an authorization form with the Transfer Agent. You may obtain the
necessary authorization form by calling 1-800-554-4611. You may cancel your
participation in this Privilege or change the amount of purchase at any time by
mailing written notification to the applicable Fund, P.O. Box 6581, Providence,
Rhode Island 02940-6587 and the notification will be effective three business
days following receipt. Each Fund may modify or terminate this Privilege at any
time or charge a service fee. No such fee currently is contemplated.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the yield on
the shares. If withdrawal payments exceed reinvested dividends and other
distributions, the investor's shares will be reduced and eventually may be
depleted. An Automatic Withdrawal Plan may be established by filing an Automatic
Withdrawal Plan application with the Transfer Agent or by oral request from any
of the authorized signatories on the account by calling 1-800-554-4611.
Automatic Withdrawal may be terminated at any time by the investor, the Fund or
the Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
No CDSC with respect to Class B shares will be imposed on withdrawals made
under the Automatic Withdrawal Plan, provided that the amounts withdrawn under
the plan do not exceed an annual rate of 12% of the greater of the account value
at the time of the first withdrawal under the Automatic Withdrawal Plan ("AWP"),
or the account value at the time of the subsequent withdrawal. Withdrawals with
respect to Class B shares under the AWP that exceed such amounts will be subject
to a CDSC. Class C shares, and Class A shares to which a CDSC applies, that are
withdrawn pursuant to the Automatic Withdrawal Plan will be subject to any
applicable CDSC. Purchases of additional Class A shares where the sales load is
imposed concurrently with withdrawals of Class A shares generally are
undesirable.
Dividend Options. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from a Fund in shares of the same Class of another fund in the Dreyfus
Premier Family of Funds, shares of the same Class of certain funds advised by
Founders, or shares of certain other funds in the Dreyfus Family of Funds, of
which you are shareholder. Shares of the same class of other funds purchased
pursuant to this Privilege will be purchased on the basis of relative NAV per
share as follows:
A. Dividends and other distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds that are
offered without a sales load.
B. Dividends and other distributions paid by a fund which does not
charge a sales load may be invested in shares of other funds sold
with a sales load, and the applicable sales load will be deducted.
C. Dividends and other distributions paid by a fund which charges a
sales load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that, if the
sales load applicable to the Offered Shares exceeds the maximum sales
load charged by the fund from which dividends or other distributions
are being swept, without giving effect to any reduced loads, the
difference will be deducted.
D. Dividends and other distributions paid by a fund may be invested in
shares of other funds that impose a CDSC and the applicable CDSC, if
any, will be imposed upon redemption of such shares.
Dividend ACH permits you to transfer electronically on the payment date
dividends or dividends and other distributions, if any, from a Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an ACH member may be so designated. Banks may charge a fee
for this service.
For more information concerning these Privileges, or to request a Dividend
Options Form, please call toll free 1-800-554-4611. You may cancel these
Privileges by mailing written notification to Dreyfus Premier Limited Term
Massachusetts Municipal Fund or Dreyfus Premier Limited Term Municipal Fund (as
applicable), P.O. Box 6587, Providence, Rhode Island 02940-6587. To select a new
fund after cancellation, you must submit a new Dividend Options Form. Enrollment
in or cancellation of these Privileges is effective three business days
following receipt. These Privileges are available only for existing accounts and
may not be used to open new accounts. Minimum subsequent investments do not
apply for Dreyfus Dividend Sweep. Each may modify or terminate these Privileges
at any time or charge a service fee. No such fee currently is contemplated.
Dreyfus Government Direct Deposit Privilege. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social Security or
certain veterans', military or other payments from the Federal government
automatically deposited into your Fund account. You may deposit as much of such
payments as you elect. To enroll in Dreyfus Government Direct Deposit, you must
file with the Transfer Agent a completed Direct Deposit Sign-Up Form for each
type of payment that you desire to include in this Privilege. The appropriate
form may be obtained from your Agent or by calling 1-800-554-4611. Death or
legal incapacity will terminate your participation in this Privilege. You may
elect at any time to terminate your participation by notifying in writing the
appropriate Federal agency. Further, the respective Fund may terminate your
participation upon 30 days' notice to you.
Letter of Intent - Class A shares. By signing a Letter of Intent form,
available by calling 1-800-554-4611, you become eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a
13-month period pursuant to the terms and conditions set forth in the Letter of
Intent. A minimum initial purchase of $5,000 is required. To compute the
applicable sales load, the offering price of shares you hold (on the date of
submission of the Letter of Intent) in any Eligible Fund that may be used toward
"Right of Accumulation" benefits described above may be used as a credit toward
completion of the Letter of Intent. However, the reduced sales load will be
applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if you do not purchase the
full amount indicated in the Letter of Intent. The escrow will be released when
you fulfill the terms of the Letter of Intent by purchasing the specified
amount. If your purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect your total purchase at the end of 13 months. If
total purchases are less than the amount specified, you will be requested to
remit an amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If such
remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A shares of the Funds held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase, or the
Funds to sell, the full amount indicated at the sales load in effect at the time
of signing, but you must complete the intended purchase to obtain the reduced
sales load. At the time you purchase Class A shares, you must indicate your
intention to do so under a Letter of Intent. Purchases pursuant to a Letter of
Intent will be made at the then-current NAV plus the applicable sales load in
effect at the time such Letter of Intent was executed.
ADDITIONAL INFORMATION ABOUT PURCHASES,
EXCHANGES AND REDEMPTIONS
The Funds are intended to be long-term investment vehicles and are not
designed to provide investors with a means of speculation on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to a Fund's
performance and its shareholders. Accordingly, if a Fund's management determines
that an investor is engaged in excessive trading, the Fund, with or without
prior notice, may temporarily or permanently terminate the availability of Fund
Exchanges, or reject in whole or part any purchase or exchange request, with
respect to such investor's account. Such investors also may be barred from
purchasing other funds in the Dreyfus Family of Funds. Generally, an investor
who makes more than four exchanges out of a Fund during any calendar year or who
makes exchanges that appear to coincide with an active market-timing strategy
may be deemed to be engaged in excessive trading. Accounts under common
ownership or control will be considered as one account for purposes of
determining a pattern of excessive trading. In addition, a Fund may refuse or
restrict purchase or exchange requests by any person or group if, in the
judgment of the Fund's management, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies or could
otherwise be adversely affected or if the Fund receives or anticipates receiving
simultaneous orders that may significantly affect the Fund (e.g., amounts equal
to 1% or more of the Fund's total assets). If an exchange request is refused, a
Fund will take no other action with respect to the shares until it receives
further instructions from the investor. A Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would be
disruptive to efficient portfolio management or would adversely affect the Fund.
A Fund's policy on excessive trading applies to investors who invest in the Fund
directly or through financial intermediaries, but does not apply to the Dreyfus
Auto-Exchange Privilege, or to any automatic investment or withdrawal privilege
described herein.
During times of drastic economic or market conditions, a Fund may suspend
Fund Exchanges temporarily without notice and treat exchange requests based on
their separate components - redemption orders with a simultaneous request to
purchase the other fund's shares. In such a case, the redemption request would
be processed at the Fund's next determined NAV but the purchase order would be
effective only at the NAV next determined after the fund being purchased
receives the proceeds of the redemption, which may result in the purchase being
delayed.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectuses entitled "Account Policies."
The Funds' investments are valued by Dreyfus, after consultation with an
independent pricing service (the "Service") approved by the Trustees. When, in
the judgment of the Service, quoted bid prices for investments are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated by
the service based upon it evaluation of the marker for such securities).
Investments for which, in the judgment of the Service, there are no readily
obtainable market quotations (which constitute a majority of each Fund's
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of municipal
securities of comparable quality, coupon, maturity and type; indications as to
value from dealers; and general market conditions. The procedures of the Service
are reviewed periodically by Dreyfus under the general supervision and
responsibility of the Trustees, which may replace any such Service at any time
if they determine it to be in the best interests of the Trust to do so.
NYSE Closings. The holidays (as observed) on which the NYSE is
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currently scheduled to be closed are: New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectuses entitled "Distributions and Taxes."
General. Each Fund declares daily and pays dividends monthly from its net
investment income, if any, and distributes any net realized capital gains on an
annual basis, but it may make distributions on a more frequent basis to comply
with the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the 1940 Act. Neither Fund will make
distributions from net realized capital gains unless all capital loss
carryovers, if any, have been utilized or have expired. All expenses are accrued
daily and deducted before declaration of dividends to investors. Shares
purchased on a day on which a Fund calculates its NAV will begin to accrue
dividends on that day, and redemption orders effected on any particular day will
receive dividends declared only through the business day prior to the day of
redemption. Dividends paid by each Class are calculated at the same time and in
the same manner and are in the same amount, except that the expenses
attributable solely to a particular Class will be borne exclusively by that
Class. Class B and C shares will receive lower per share dividends than Class A
shares which will receive lower per share dividends than Class R shares, because
of the higher expenses borne by the relevant Class.
Investors may choose whether to receive dividends and other distributions
in cash, to receive dividends in cash, and reinvest other distributions in
additional Fund shares at NAV, or to reinvest both dividends and other
distributions in additional Fund shares at NAV.
Any dividend or other distribution paid shortly after an investor's
purchase of shares may have the effect of reducing the net asset value of the
shares below the cost of his or her investment. Such a dividend or other
distribution would be a return on investment in an economic sense, although
taxable as stated under "Dividends, Other Distributions and Taxes" in the Funds'
Prospectuses. In addition, if a shareholder sells shares of a Fund held for six
months or less and receives a capital gain distribution with respect to those
shares, any loss incurred on the sale of those shares will be treated as a
long-term capital loss to the extent of the capital gain distribution received.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by a Fund and received by the
shareholders on December 31 of that year if the distributions are paid by a Fund
during the following January. Accordingly, those distributions will be taxed to
shareholders for the year in which that December 31 falls.
It is expected that the Funds will qualify for treatment as a "regulated
investment company" ("RIC") under the Code so long as such qualification is in
the best interests of its shareholders. Such qualification will relieve the
Funds of any liability for Federal income tax to the extent its earnings and
realized gains are distributed in accordance with applicable provisions of the
Code. To qualify for treatment as a RIC under the Code, each Fund (1) must
distribute to its shareholders each year at least 90% of its investment company
taxable income (generally consisting of net investment income ("Distribution
Requirements), net short-term capital gains and net gains from certain foreign
currency transactions), (2) must derive at least 90% of its annual gross income
from specified sources ("Income Requirement"), and (3) must meet certain asset
diversification and other requirements.
The term "regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Because each 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 a 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 a
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 Funds' Prospectuses, some or all of a 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 from taxable investments, together with distributions
from net realized short-term capital gains and all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds
(collectively "dividends distributions") paid by the Funds are taxable to U.S.
shareholders as ordinary income, to the extent of the Fund's earnings and
profits, whether received in cash or reinvested in Fund shares. Distributions
from the Funds' capital gain (the excess of net long-term capital gain over
short-term capital loss) are taxable to such shareholders as long-term capital
gains, regardless of how long the shareholders have held their Fund shares and
whether such distributions are received in cash or reinvested in additional Fund
shares. The Code provides that an individual generally will be taxed on his or
her net capital gain at a maximum rate of 20% with respect to capital gain from
securities held for more than one year. Dividends and other distributions also
may be subject to state and local taxes.
Dividends derived by the Funds 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
Funds from interest on relevant state Municipal Obligations will be designated
as exempt from that state's taxation in the same percentage of the day's
dividend as the actual interest on that state's Municipal Obligations earned on
that day.
Notice as to the tax status of your dividends and distributions other will
be mailed to you annually. You also will receive periodic summaries of your
account that will include information as to dividends and distributions from net
capital gains, if any, paid during the year.
The Code provides for the "carryover" of some or all of the sales load
imposed on Class A shares if (1) a shareholder redeems those shares or exchanges
those shares for shares of another fund advised or administered by Dreyfus
within 91 days of purchase and (2) in the case of a redemption, acquires other
Fund Class A shares through exercise of the Reinvestment Privilege or, in the
case of an exchange, such other fund reduces or eliminates its otherwise
applicable sales load for the purpose of the exchange. In these cases, the
amount of the sales load charged or the purchase of the original Class A shares,
up to the amount of the reduction of the sales load pursuant to the Reinvestment
Privilege or on the exchange, as the case may be, is not included in the basis
of such shares for purposes of computing, gain or loss on the redemption or the
exchange and instead is added to the basis of the shares acquired pursuant to
the Reinvestment Privilege or the exchange.
The Funds must withhold and remit to the U.S. Treasury ("backup
withholding") 31 % of taxable dividends, capital gain distributions and
redemption proceeds, regardless of the extent to which gain or loss may be
realized, paid to an individual or certain other non-corporate shareholders if
the shareholder fails to certify that the TIN furnished to the Fund is correct.
Backup withholding at that rate also is required from dividends and capital gain
distributions payable to such a shareholder if (1) that shareholder fails to
certify that he or she has not received notice from the IRS that the shareholder
is subject to backup withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return, or (2) the
IRS notifies the Funds to institute backup withholding because the IRS
determines the shareholder's TIN is incorrect or that the shareholder has failed
to properly report such income.
A TIN is either the Social Security number, IRS individual taxpayer
identification number or employer identification number of the record owner of
the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account and may
be claimed as a credit on the record owner's Federal income tax return.
The Funds may be subject to a non-deductible 4% excise tax, measured with
respect to certain undistributed amounts of taxable investment income and
capital gains.
While the Funds do not expect to realize a significant amount of net
long-term capital gains, any such gains realized will be distributed annually as
described in the Funds' Prospectuses. Such distributions ("capital gain
dividends"), if any, will be taxable to the shareholders as long- term capital
gains, regardless of how long a shareholder has held a Fund's shares, and will
be designated as capital gain dividends in a written notice mailed by the Funds
to the shareholders after the close of the Funds' prior taxable year. If a
shareholder receives a capital gain dividend with respect to any share and if
such share is held by the shareholder for six months or less, then any loss (to
the extent not disallowed pursuant to the other six month rule described above)
on the sale or exchange of such share, to the extent of the capital gain
dividend, shall be treated as a long-term capital loss.
A portion of the dividends paid by a Fund, whether received in cash or
reinvested in additional Fund shares, may be eligible for the dividends-
received deduction allowed to corporations. The eligible portion may not exceed
the aggregate dividends received by a Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Gains from the sale or other disposition of foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and gains
from options, futures and forward contracts derived by the Fund with respect to
its business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain and loss. However, a portion of the gain or loss from
the disposition of foreign currencies and non-U.S. dollar denominated securities
(including debt instruments, certain financial forward, futures and option
contracts and certain preferred stock) may be treated as ordinary income or loss
under Section 988 of the Code. In addition, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income. Moreover, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as ordinary
income under Section 1258. "Conversion transactions" are defined to include
certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a Fund from
certain futures and forward contracts and options transactions will be treated
as 60% long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss will arise upon exercise or lapse of such contracts and options as
well as from closing transactions. In addition, any such contracts or options
remaining unexercised at the end of a Fund's taxable year will be treated as
sold for their then fair market value (a process known as "marking to market"),
resulting in additional gain or loss to the Fund characterized in the manner
described above.
Offsetting positions held by a Fund involving certain foreign currency
forward contracts or options may constitute "straddles." "Straddles" are defined
to include "offsetting positions" in actively traded personal property. The tax
treatment of straddles is governed by Sections 1092 and 1258 of the Code, which,
in certain circumstances, override or modify Sections 1256 and 988. As such, all
or a portion of any short-term or long- term capital gain from certain straddle
transactions may be recharacterized ordinary income. If the Fund were treated as
entering into "straddles" by reason of its engaging in certain forward contracts
or options transactions, such "straddles" would be characterized as "mixed
straddles" if the forward contracts or options transactions comprising a part of
such straddles were governed by Section 1256. Each Fund may make one or more
elections with respect to mixed straddles. Depending on which election is made,
if any, the results to a Fund may differ. If no election is made, then to the
extent the "straddle" and conversion transaction rules apply to positions
established by a Fund, losses realized by a Fund will be deferred to the extent
of unrealized gain in the offsetting position. Moreover, as a result of the
"straddle" and conversion transaction rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains or ordinary
income.
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally will apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transaction that are identified hedging or straddle transactions
of the Code can be subject to the constructive sale provisions.
Investment by a Fund in securities issued or acquired at a discount (for
example, zero coupon securities) could, under special tax rules, affect the
amount and timing of distributions to shareholders by causing the Fund to
recognize income prior to the receipt of cash payments. For example, a Fund
could be required to take into gross income annually a portion of the discount
(or deemed discount) at which the securities were issued and to distribute such
income to satisfy the Distribution Requirement and avoid the 4% excise tax
discussed above. In such case, the Fund may have to dispose of securities it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
State and Local Taxes. Depending upon the extent of a Fund's activities in
states and localities in which it is deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities. Shareholders are
advised to consult their tax advisers concerning the application of state and
local taxes to them.
Foreign Shareholders U.S. Federal Income Taxation. U.S. federal income
taxation of a shareholder who, as to the United States, is a nonresident alien
individual, a foreign trust or estate, a foreign corporation or a foreign
partnership (a "foreign shareholder") depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by the
shareholder, as discussed generally below. Special U.S. federal income tax rules
that differ from those described below may apply to certain foreign persons who
invest in a Fund, such as a foreign shareholder entitled to claim the benefits
of an applicable tax treaty. Foreign shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.
Foreign Shareholders - Dividends. Dividends (other than exempt- interest
dividends) distributed to a foreign shareholder whose ownership of Fund shares
is not effectively connected with a U.S. trade or business carried on by the
foreign shareholder ("effectively connected") generally will be subject to a
U.S. federal withholding tax of 30% (or lower treaty rate). If a foreign
shareholder's ownership of Fund shares is effectively connected, however, then
all distributions to that shareholder will not be subject to such withholding
and instead will be subject to U.S. federal income tax at the graduated rates
applicable to U.S. citizens and domestic corporations, as the case may be.
Foreign shareholders also may be subject to the branch profits tax.
Capital gains realized by foreign shareholders on the sale of Fund shares
and distributions to them of net capital gain (the excess of long- term capital
gain over short-term capital loss), generally will not be subject to U.S.
federal income tax unless the foreign shareholder is a nonresident alien
individual and is physically present in the United States for more than 182 days
during the taxable year. In the case of certain foreign shareholders, the Fund
may be required to withhold U.S. Federal income tax at a rate of 31% of capital
gain distributions and of the gross proceeds from a redemption of Fund shares
unless the shareholder furnishes the Fund with a certificate regarding the
shareholder's foreign status.
Distributions paid by the Funds to a non-resident foreign investor, as
well as the proceeds of any redemptions by such an investor, regardless of the
extent to which gain or loss may be realized, generally are not subject to US.
withholding tax. However, such distributions may be subject to backup
withholding, unless the foreign investor certifies his non-U.S. residency
status.
Foreign Shareholders - Estate Tax. Foreign individuals generally are
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subject to U.S. federal estate tax on their U.S. situs property, such as
shares of the Funds, that they own at the time of their death. Certain
credits against that tax and relief under applicable tax treaties may be
available.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
PORTFOLIO TRANSACTIONS
All portfolio transactions of a Fund are placed on behalf of each Fund by
Dreyfus. Debt securities purchased and sold by a Fund are generally traded on a
net basis (i.e., without commission) through dealers acting for their own
account and not as brokers, or otherwise involve transactions directly with the
issuer of the instrument. This means that a dealer (the securities firm or bank
dealing with a Fund) makes a market for securities by offering to buy at one
price and sell at a slightly higher price. The difference between the prices is
known as a spread. Other portfolio transactions may be executed through brokers
acting as agent. Each Fund will pay a spread or commissions in connection with
such transactions. Dreyfus uses its best efforts to obtain execution of
portfolio transactions at prices which are advantageous to each Fund and at
spreads and commission rates, if any, which are reasonable in relation to the
benefits received. Dreyfus also places transactions for other accounts that it
provides with investment advice.
Brokers and dealers involved in the execution of portfolio transactions on
behalf of a Fund are selected on the basis of their professional capability and
the value and quality of their services. In selecting brokers or dealers,
Dreyfus will consider various relevant factors, including, but not limited to,
the size and type of the transaction; the nature and character of the markets
for the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer; the broker-dealer's
execution services rendered on a continuing basis; and the reasonableness of any
spreads (or commissions, if any). Any spread, commission, fee or other
remuneration paid to an affiliated broker-dealer is paid pursuant to the
Company's procedures adopted in accordance with Rule 17e-1 under the 1940 Act.
Brokers or dealers may be selected who provide brokerage and/or research
services to a Fund 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 services from broker-dealers may be useful to
Dreyfus in rendering investment management services to a Fund and/or its other
clients; and, conversely, such information provided by 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 Fund. The receipt of
such research services does not reduce the normal independent research
activities of Dreyfus; however, it enables it to avoid the additional expenses
which might otherwise be incurred if it were to attempt to develop comparable
information through its own staff.
The Funds 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 Funds 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.
Although Dreyfus manages other accounts in addition to the Funds,
investment decisions for the Funds are made independently from decisions made
for these other accounts. It sometimes happens that the same security is held by
more than one of the accounts managed by Dreyfus. Simultaneous transactions may
occur when several accounts are managed by the same investment manager,
particularly when the same investment instrument is suitable for the investment
objective of more than one account.
When more than one account is simultaneously engaged in the purchase or
sale of the same investment instrument, the prices and amounts are allocated in
accordance with a formula considered by Dreyfus to be equitable to each account.
In some cases this system could have a detrimental effect on the price or volume
of the investment instrument as far as the Funds are concerned. In other cases,
however, the ability of the Funds to participate in volume transactions will
produce better executions for the Funds. While the Trustees will continue to
review simultaneous transactions, it is their present opinion that the
desirability of retaining Dreyfus as investment manager to the Funds outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
The Funds paid no stated brokerage commissions for the fiscal years ended
June 30, 2000, 1999 and 1998.
Portfolio Turnover. While securities are purchased for the Funds on the
basis of potential for current income and not for short-term trading profits, a
Fund's portfolio turnover rate may exceed 100%. A portfolio turnover rate of
100% would occur, for example, if all the securities held by a Fund were
replaced once in a period of one year. A higher rate of portfolio turnover
involves correspondingly greater brokerage commissions and other expenses that
must be borne directly by the Funds and, thus, indirectly by their shareholders.
In addition, a higher rate of portfolio turnover may result in the realization
of larger amounts of short-term and/or long-term capital gains that, when
distributed to the Fund's shareholders, are taxable to them at the then current
rate. Nevertheless, securities transactions for the Funds will be based only
upon investment considerations and will not be limited by any other
considerations when Dreyfus deems its appropriate to make changes in the Funds'
assets. The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases and sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of securities in
the Fund during the year. Portfolio turnover may vary from year to year as well
as within a year. The portfolio turnover rates for the fiscal years ended June
30, 1998, 1999 and 2000 for the Municipal Fund were 14.62%, 28.19% and 45.65%,
respectively. The portfolio turnover rates for the fiscal years ended June 30,
1998, 1999 and 2000 for the Massachusetts Municipal Fund were 6.63%, 16.35% and
31.89%, respectively.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Performance Information."
The Massachusetts Municipal Fund's current yield for the 30-day period
ended June 30, 2000 was 4.38%, 4.02%, 4.06% and 4.77%, for its Class A, Class B,
Class C and Class R shares, respectively. The Municipal Fund's current yield for
the 30-day period ended June 30, 2000 was 4.21%, 3.84%, 3.86% and 4.59% for its
Class A, Class B, Class C and Class R shares, respectively. The Massachusetts
Municipal Fund's equivalent taxable yield* for the 30-day period ended June 30,
2000 was 7.70%, 7.07%, 7.14% and 8.39% for its Class A, Class B, Class C and
Class R shares, respectively. The Municipal Fund's equivalent taxable yield for
the 30-day period ended June 30, 2000 was 6.97%, 6.36%, 6.39% and 7.60% for its
Class A, Class B, Class C and Class R shares, respectively. Current yield is
computed pursuant to a formula which operates, with respect to each Class, as
follows: the amount of the Fund's expenses with respect to such Class accrued
for the 30-day period (net of reimbursements) is subtracted from the amount of
the dividends and interest earned (computed in accordance with regulatory
requirements) by the Fund with respect to such Class during the period. That
result is then divided by the product of: (a) the average daily number of shares
outstanding during the period that were entitled to receive dividends, and (b)
the maximum offering price per share in the case of Class A or the net asset
value per share in the case of Class B, Class C and Class R on the last day of
the period less any undistributed earned income per share reasonably expected to
be declared as a dividend shortly thereafter. The quotient is then added to 1,
and that sum is raised to the 6th power, after which 1 is subtracted. The
current yield is then arrived at by multiplying the result by 2.
The Massachusetts Municipal Fund's average annual total returns for Class
A shares for the 1, 5 and 10 year periods ended June 30, 2000 were 0.12%, 3.90%
and 5.77%, respectively. The average annual total returns for Class B shares for
the 1 and 5 year periods ended June 30, 2000 and for the period December 28,
1994 (inception of Class B) through June 30, 2000 were -0.27%, 3.90% and 4.83%,
respectively. The average annual total returns for Class C shares for the 1 and
5 year periods ended June 30, 2000 and for the period December 28, 1994
(inception of Class C) through June 30, 2000 were 1.89%, 4.09% and 4.85%,
respectively. The average annual total returns for Class R shares for the 1 and
5 year periods ended June 30, 2000 and for the period February 1, 1993
(inception of Class R) through June 30, 2000 were 3.37%, 4.79% and 4.98%,
respectively.
The Municipal Fund's average annual total returns for Class A shares for
the 1, 5 and 10 year periods ended June 30, 2000 were 0.58%, 4.16% and 5.86%,
respectively. The average annual total returns for Class B shares for the 1 and
5 year periods ended June 30, 2000 and for the period December 28, 1994
(inception of Class B) through June 30, 2000 were 0.26%, 4.11 and 5.08%,
respectively. The average annual total returns for Class C shares for the 1 and
5 year periods ended June 30, 2000 and for the period December 28, 1994
(inception of Class C) through June 30, 2000 were 2.51%, 4.37% and 5.16%,
respectively. The average annual total returns for Class R for the 1 and 5 year
periods ended June 30, 2000 and for the period February 1, 1993 (inception of
Class R) through June 30, 2000 were 4.01%, 5.07% and 5.18%, respectively.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value (maximum offering
price in the case of Class A) per share with a hypothetical $1,000 payment made
at the beginning of the period (assuming the reinvestment of dividends and other
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result. Average annual total return figures calculated in
accordance with such formula assume that in the case of Class A the maximum
sales load has been deducted from the hypothetical initial investment at the
time of purchase or in the case of Class B or C the maximum applicable CDSC has
been paid upon redemption at the end of the period.
The Massachusetts Municipal Fund's total return for the period September
24, 1985 (commencement of operations) through June 30, 2000 for Class A was
166.34%. Without giving effect to the applicable front-end sales load, the total
return for Class A was 174.59%. The Massachusetts Municipal Fund's total return
for Class B and Class C for the period from December 28, 1994 (inception date of
Class B and Class C) to June 30, 2000 was 29.68% and 29.84%, respectively. The
Massachusetts Municipal Fund's total return for Class R shares for the period
February 1, 1993 (inception of Class R) to June 30, 2000 was 43.33%.
The Municipal Fund's total return for Class A shares for the period
October 1, 1985 (commencement of operations) through June 30, 2000 was 187.95%.
Without giving effect to the applicable front-end sales load, the total return
for Class A was 196.87%. The Municipal Fund's total return for Class B and Class
C for the period December 28, 1994 (inception date of Class B and Class C) to
June 30, 2000 was 31.42% and 31.98%, respectively. The Municipal Fund's total
return for Class R shares for the period February 1, 1993 (inception of Class R)
to June 30, 2000 was 45.40%.
Total return is calculated by subtracting the amount of a Fund's net asset
value (maximum offering price in the case of Class A) per share at the beginning
of a stated period from the net asset value (maximum offering price in the case
of Class A) per share at the end of the period (after giving effect to the
reinvestment of dividends and other distributions during the period and any
applicable CDSC), and dividing the result by the net asset value (maximum
offering price in the case of Class A) per share at the beginning of the period.
Total return also may be calculated based on the net asset value per share at
the beginning of the period instead of the maximum offering price per share at
the beginning of the period for Class A shares or without giving effect to any
applicable CDSC at the end of the period for Class B or C shares. In such cases,
the calculation would not reflect the deduction of the sales load with respect
to Class A shares or any applicable CDSC with respect to Class B or C shares,
which, if reflected would reduce the performance quoted.
The Funds may also advertise the yield and tax-equivalent yield on a Class
of shares. The tax-equivalent yield of a Fund shows the level of taxable yield
needed to produce an after-tax equivalent to such Fund's tax- free yield. This
is done by increasing a class' yield by the amount necessary to reflect the
payment of Federal income tax (and state income tax, if applicable) at a stated
tax rate.
Each Fund may compare the performance of its shares 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 a Fund's
performance. Furthermore, a Fund may quote its yields in advertisements or in
shareholder reports.
From time to time, a Fund's advertising materials may refer to Morningstar
ratings, and the related analyses supporting the rating.
From time to time, advertising material for a Fund may including
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.
From time to time, advertising materials may refer to studies performed by
Dreyfus or its affiliates, such as "The Dreyfus Tax Informed Investing Study" or
"The Dreyfus Gender Investment Comparison Study (1996-1997)" or other such
studies.
Yield information is useful in reviewing the Funds' performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
portfolios, portfolio maturity, operating expenses and market conditions. The
Funds' yields and total returns will also be affected if Dreyfus waives any
portion of its investment management fees.
The Funds' net investment income changes in response to fluctuations in
interest rates and the expenses of the Funds. Consequently, any given
performance quotation should not be considered as representative of the Funds'
performance for any specified period in the future.
For the purpose of determining the interest earned on debt obligations
that were purchased by a Fund at a discount or premium, the formula generally
calls for amortization of the discount or premium; the amortization schedule
will be adjusted monthly to reflect changes in the market values of the debt
obligations.
A 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.
Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates a Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to a
Fund from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
INFORMATION ABOUT THE FUNDS/TRUST
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Fund shares
have equal rights in liquidation. Fund shares are without par value, have no
preemptive or subscription rights, and are freely transferable.
The Trust is a "series fund," which is a mutual fund divided into separate
portfolios, each of which is treated as a separate entity for certain matters
under the 1940 Act and for other purposes. A shareholder of one portfolio is not
deemed to be a shareholder of any other portfolio. For certain matters
shareholders vote together as a group; as to others they vote separately by
portfolio, or, where matters affect different classes of a portfolio
differently, by class. The Trustees have authority to create an unlimited number
of shares of beneficial interest, without par value, in separate series. The
Trustees have authority to create additional series at any time in the future
without shareholder approval.
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 1940 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
1940 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.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as the Trust, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by such matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the interests
of each series in the matter are identical or that the matter does not affect
any interest of such series. The Rule exempts the selection of independent
accountants and the election of Trustees from the separate voting requirements
of the Rule.
The Funds will send annual and semi-annual financial statements to all of
its shareholders.
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.
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 Funds' Prospectuses and this SAI.
KPMG LLP, 757 Third Avenue, New York, NY 10017, was appointed by the
Trustees to serve as the Funds' independent auditors for the year ending June
30, 2001, providing audit services including (1) examination of the annual
financial statements (2) assistance, review and consultation in connection with
SEC filings (3) and review of the annual Federal income tax return filed on
behalf of each Fund.
<PAGE>
APPENDIX A
RISK FACTORS - INVESTING
IN MASSACHUSETTS MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the Commonwealth of
Massachusetts available as of the date of this SAI. While the Fund has not
independently verified this information, it has no reason to believe that such
information is not correct in all material aspects.
Between 1982 and 1988, the economies of Massachusetts and New England were
among the strongest performers in the nation, with growth rates considerably
higher than those for the national economy as a whole. Between 1989 and 1992,
however, both Massachusetts and New England experienced growth rates
significantly below the national average. Since then, growth rates in
Massachusetts and New England have improved to levels on par with the rest of
the nation. In 1997, the economies of both Massachusetts and New England grew at
a faster pace than the nation as a whole for the first time since 1988. The
Massachusetts economy has been the strongest in New England, making up an
average of 47.7% of New England's total Gross Product and an average of 2.8% of
the nation's economy over the decade and a half.
In 1998, employment levels in every industry increased or remained
constant. The most rapid growth in 1998 came in the construction sector and the
services sector, which grew at rates of 7.6% and 2.8%, respectively. Total
non-agricultural employment in Massachusetts grew at a rate of 1.9% in 1998.
While the Massachusetts unemployment rate was significantly lower than the
national average between 1979 and 1989, the economic recession of the early
1990s caused unemployment rates in Massachusetts to rise significantly above the
national average. However, the economic recovery that began in 1993 has caused
unemployment rates in Massachusetts to decline faster than the national average.
As a result, since 1994 the unemployment rate in Massachusetts has been below
the national average. The unemployment rate in Massachusetts fell from 3.4% in
June 1998 to 3.1% in June 1999 and the United States unemployment rate remained
the same between June 1998 and June 1999. In 1998, average annual pay levels in
Massachusetts were the fourth highest in the nation, and the personal income
growth rate was the eight highest in the nation.
Massachusetts ended each of the fiscal years 1995 through 1999 with a
positive closing fund balance in its budgeted operating funds, and expects to do
so again at the close of fiscal 2000. Year-to-date tax collections through May
totaled approximately $13.909 billion, an increase of approximately $1.165
billion, or 9.1%, over the same period in fiscal 1999. Taking into account
expected reversions (i.e., appropriations that will not be spent in fiscal
2000), the Executive Office for Administration and Finance projected in June
2000 fiscal 2000 spending of approximately $31.259 billion, a 5.0% increase over
fiscal 1999 spending.
A cash flow projection for the balance of fiscal 2000 was released by the
State Treasurer and the Secretary of Administration and Finance on March 7,
2000. Fiscal 2000 was projected to end with a cash balance of $776.6 million,
excluding any fiscal 2000 activity that will occur after June 30, 2000 and
excluding the Stabilization Fund. Bond issues of $250 million each were
projected to occur in April and June, 2000. Federal grant anticipation note and
note issues of $450 million and $150 million were projected to occur in April
and June 2000, respectively. (These bond and note issues did not occur as
projected. It is now anticipated that the Commonwealth will issue approximately
$650 million of general obligation bonds in June, 2000 and $600 million of
federal grant anticipation notes in August, 2000.)
In recent years, health related costs have risen dramatically in
Massachusetts and across the nation, and the increase in Massachusetts' Medicaid
and group health insurance costs reflects this trend. In fiscal 1993, Medicaid
was the largest item in Massachusetts' budget and has been one of the fastest
growing budget items. However the rate of increase has abated in recent years,
due to a number of savings and cost-cutting initiatives, such as managed care
and utilization review. During fiscal years 1995, 1996, 1997, 1998 and 1999,
Medicaid expenditures were $3.398 billion, $3.416 billion, $3.456 billion,
$3.666 billion and $3.856 billion, respectively. The average annual growth rate
from fiscal 1995 to fiscal 1999 was 3.3%. It is estimated that in fiscal 2000,
Medicaid expenditures will be $4.092 billion, an increase of 6.1% from fiscal
1999.
On June 15, 2000 the federal Health Care Financing Administration
(HCFA) sent a letter to nine states, including Massachusetts, New York and
Florida, indicating that portions of their Medicaid programs may be funded with
impermissible taxes on health care providers, jeopardizing federal
reimbursements collected on any Medicaid program expenditures funded with such
taxes. If HCFA makes a final determination that the Commonwealth has imposed an
impermissible provider tax, HCFA will undertake an audit of the Commonwealth's
uncompensated care pool program and seek retroactive repayment of federal
Medicaid reimbursements. Under federal regulations recoupment of federal
Medicaid reimbursements is generally accomplished by withholding a portion of
future Medicaid reimbursements to the state owing the repayment. States can
appeal a request for repayment to an appeals panel within the U.S. Department of
Health and Human Services and then to a federal district court. Since 1993, the
Commonwealth has received an estimated $920 million in federal Medicaid
reimbursements related to the expenditures in question. Clarification of the law
surrounding permissible provider taxes is a national issue and resolution could
take several years.
Massachusetts' pension costs had risen dramatically as the Commonwealth
appropriated funds to address in part the unfunded liabilities that had
accumulated over several decades. Total pension costs increased an aggregate
rate of 3.54% from $908.9 million in fiscal 1994 to $1.07 billion in fiscal
1998. Since fiscal 1998, total pension costs have decreased to $990.2 million in
fiscal 1999 and are estimated to be $987.4 million in fiscal 2000. As
recommended by the Governor, the Senate and House fiscal 2001 budget
appropriates $922 million for the state's pension funding schedule and an
additional $100 million related to increased pension liabilities due to the
conversion to a new actuarial software.
Payments for debt service on Massachusetts general obligation bonds and
notes have risen at an average annual rate of 1.11% from $1.15 billion in fiscal
1994 to $1.21 billion in fiscal 1998. Payments for debt service in fiscal 1999
amounted to $1.17 billion. State law generally imposes a 10% limit on the total
appropriations in any fiscal year that may be expended for payment of interest
and principal on general obligation debt. As of January 1, 2000 the State had
approximately $9.9 billion of long-term general obligation debt outstanding and
short-term direct obligations of the Commonwealth totaled $175.0 million.
Certain independent authorities and agencies within the State are
statutorily authorized to use debt for which Massachusetts is directly, in whole
or in part, or indirectly liable. Massachusetts' liabilities are either in the
form of (i) a direct guaranty, (ii) state support through contract assistance
payments for debt service, or (iii) indirect obligations. Massachusetts is
indirectly liable for the debt of certain authorities through a moral obligation
to maintain the funding of reserve funds which are pledged as security for the
authorities' debt.
In November 1980, voters in the Commonwealth approved a state-wide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees imposed
on cities and towns by certain government entities, including county
governments. The law is not a constitutional provision and accordingly is
subject to amendment or repeal by the legislature. Proposition 2 1/2, as amended
to date, limits the property taxes which a Massachusetts city or town may assess
in any fiscal year to the lesser of (i) 2.5% of the full and fair cash value of
real estate and personal property therein and (ii) 2.5% over the previous year's
levy limit plus any growth in the tax base from certain new construction and
parcel subdivisions. In addition, Proposition 2 1/2 limits any increase in the
charges and fees assessed by certain governmental entities, including county
governments, on cities and towns to the sum of (i) 2.5% of the total charges and
fees imposed in the preceding fiscal year, and (ii) any increase in charges for
services customarily provided locally or services obtained by the city or town
at its option. The law contains certain override provisions which require voter
approval at a general or special election. Proposition 2 1/2 also limits any
annual increase in the total assessments on cities and towns by any county,
district, authority, the Commonwealth, or any other governmental entity except
regional school districts and regional water and sewer districts whose budgets
are approved by two-thirds of their member cities and towns. During the 1980's,
Massachusetts increased payments to the cities, towns and regional school
districts ("Local Aid") to mitigate the impact of Proposition 2 1/2 on local
programs and services. In fiscal 2000, approximately 21.7% of Massachusetts'
budgeted expenditures were allocated to Local Aid.
Many factors affect the financial condition of the Commonwealth and its
cities, towns and public bodies, such as social, environmental, and economic
conditions, many of which are not within the control of such entities. As is the
case with most urban states, the continuation of many of Massachusetts'
programs, particularly its human services programs, is in significant part
dependent upon continuing Federal reimbursements which have been steadily
declining. The loss of grants to Massachusetts and its cities and towns could
further slow economic development. To the extent that such factors may exist,
they could have an adverse effect on economic conditions in Massachusetts,
although what effects, if any, such factors would have on Massachusetts'
Municipal Obligations cannot be predicted.
<PAGE>
APPENDIX B
Municipal Bond, Municipal Note, Bond, Note and Commercial Paper Ratings
S&P
Municipal Bond and Bond Ratings
AAA An obligation rated `AAA' has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated `AA' differs from the highest rated issues only in
small degree. The obligors capacity to meet its financial commitment on
the obligation is very strong.
A An obligation rated `A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated `BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
The ratings from `AA' to `BBB' may be modified by the addition of a plus (+) or
a minus (-) sign to show relative standing within the major rating categories
Municipal Note and Note Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse finance and economic changes over the term of the
notes.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issuers designated `A-1.'
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
Moody's
Municipal Bond and Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long- term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within each generic rating classification from Aa through Baa.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a midrange ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
Municipal Note, Note and other Short-Term Obligations
There are four rating categories for short-term obligations that define an
investment grade situation. These are designated Moody's Investment Grade as MIG
1 (best quality) through MIG 4 (adequate quality). Short-term obligations of
speculative quality are designated SG.
In the case of variable rate demand obligations (VRDOs), a two component
rating is assigned. The first element represents an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the other
represents an evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG 1/
VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/
MIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/
VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow
and market access for refinancing is likely to be less well
established.
MIG 4/
VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
Commercial Paper Rating
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
1 Leading market positions in well-established industries.
2 High rates of return on funds employed.
3 Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
4 Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
5 Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above
but to a lesser agree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternative liquidity is
maintained.
Fitch
Municipal Bond and Bond Ratings
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in
the `AAA' and `AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+'.
A Bonds considered to be investment grade and of high credit quality, The
obligor's ability to pay interest an repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and,
therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with
higher ratings
+/- Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term and Commercial Paper Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
`F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned `F-1+' and `F-1' ratings.
Duff & Phelps Inc.
Long-Term Ratings
AAA Highest credit quality. The risks factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but AA
may vary slightly from time to time because of economic conditions.
AA-
A+ Protections factors are average but adequate. However, risk factors are A
more variable and greater in periods of economic stress.
A-
BBB+ Below-average protection factors but still considered sufficient for
prudent BBB investment. Considerable variability in risk during economic cycles.
BBB-
Short-Term and Commercial Paper Ratings
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
D-1- High certainly of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financial requirements, access to capital markets is good. Risk factors
are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
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* Examples assume a Federal marginal tax rate of 39.6% for the Municipal Fund
and a Federal marginal tax rate of 39.6% and a Massachusetts marginal tax
rate of 5.85% (combined effective rate of 43.13% for the Massachusetts
Municipal Fund].
