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PROSPECTUS SEPTEMBER 1, 1995
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
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DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND (THE "FUND") IS AN
OPEN-END, NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A
MUNICIPAL BOND FUND. ITS GOAL IS TO PROVIDE YOU WITH AS HIGH A LEVEL OF
CURRENT INCOME EXEMPT FROM FEDERAL AND MASSACHUSETTS INCOME TAXES AS IS
CONSISTENT WITH THE PRESERVATION OF CAPITAL.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY.
THE FUND PROVIDES FREE REDEMPTION CHECKS, WHICH YOU CAN USE IN
AMOUNTS OF $500 OR MORE FOR CASH OR TO PAY BILLS. YOU CONTINUE TO EARN INCOME
ON THE AMOUNT OF THE CHECK UNTIL IT CLEARS. YOU CAN PURCHASE OR REDEEM SHARES
BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED SEPTEMBER 1, 1995,
WHICH MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF
CERTAIN AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST
TO SOME INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY, WRITE TO
THE FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR
CALL 1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THE
NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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TABLE OF CONTENTS
Page
Annual Fund Operating Expenses.................... 3
Condensed Financial Information................... 4
Description of the Fund........................... 4
Management of the Fund............................ 12
How to Buy Fund Shares............................ 13
Shareholder Services.............................. 14
How to Redeem Fund Shares......................... 17
Shareholder Services Plan......................... 20
Dividends, Distributions and Taxes................ 20
Performance Information........................... 22
General Information............................... 22
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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This Page Intentionally Left Blank
Page 2
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<S> <C>
Management Fees ......................................................................... .60%
Other Expenses........................................................................... .20%
Total Fund Operating Expenses ........................................................... .80%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $8 $26 $44 $99
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' annual return. You can
purchase Fund shares without charge directly from the Fund's distributor; you
may be charged a nominal fee if you effect transactions in Fund shares through
a securities dealer, bank or other financial institution. See "Management of
the Fund" and "Shareholder Services Plan."
Page 3
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose report thereon appears in
the Statement of Additional Information. Further financial data and related
notes are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each year indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------------------------------
1986(1) 1987 1988 1989 1990 1991 1992 1993 1994 1995
------- ----- ---- ----- ---- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of year... $15.50 $15.89 $15.48 $15.22 $15.66 $15.43 $15.59 $16.20 $17.01 $16.03
------- ------ ----- ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income _ net..... 1.17 1.12 1.10 1.09 1.08 1.06 1.01 .97 .91 .91
Net realized and unrealized gain (loss)
on investments......... .39 (.41) (.26) .44 (.23) .16 .60 .81 (.52) .22
------- ------ ----- ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS...... 1.56 .71 .84 1.53 .85 1.22 1.61 1.78 .39 1.13
------- ------ ----- ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net.... (1.17) (1.12) (1.10) (1.09) (1.08) (1.06) (1.00) (.97) (.92) (.91)
Dividends from net realized
gain on investments..... - - - - - - - - (.21) -
Dividends in excess of net realized
gain on investments..... - - - - - - - - (.24) -
------- ------ ----- ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS..... (1.17) (1.12) (1.10) (1.09) (1.08) (1.06) (1.00) (.97) (1.37) (.91)
------- ------ ----- ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year..... $15.89 $15.48 $15.22 $15.66 $15.43 $15.59 $16.20 $17.01 $16.03 $16.25
======= ======= ======= ====== ====== ====== ====== ======= ------ ------
TOTALINVESTMENTRETURN..... 10.85%(2) 4.27% 5.61% 10.39% 5.58% 8.20% 10.62% 11.27% 2.07% 7.39%
RATIOS / SUPPLEMENTALDATA:
Ratio of expenses to average net assets.. .26%(2) .64% .79% .83% .83% .81% .84% .81% .80% .80%
Ratio of net investment income to
average net assets...... 7.66%(2) 6.75% 7.18% 7.06% 6.92% 6.87% 6.30% 5.83% 5.30% 5.77%
Decrease reflected in above expense
ratios due to undertakings by
The Dreyfus Corporation.... .86%(2) .25% .10% .04% - - - - - -
Portfolio Turnover Rate.... 103.17%(3) 39.32% 71.18% 18.05% 55.02% 49.73% 68.07% 85.29% 29.73% 38.34
Net Assets, end of year
(000's omitted)... $54,756 $81,671 $84,160 $99,108 $107,861 $120,540 $157,061 $183,601 $168,473 $160,750
</TABLE>
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(1)From June 11, 1985 (commencement of operations) to May 31, 1986.
(2)Annualized.
(3)Not annualized.
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE _ The Fund's goal is to provide you with as high a
level of current income exempt from Federal and Massachusetts income taxes as
is consistent with the preservation of capital. To accomplish this goal, the
Fund invests primarily in the debt securities of the Commonwealth of
Massachusetts, its political subdivisions, authorities and corporations, the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal and Massachusetts income taxes (collectively, "Massachusetts
Municipal Obligations"). To the extent acceptable Massachusetts Municipal
Obligations are at any time unavailable for investment by the Fund, the Fund
may invest temporarily in
Page 4
other debt securities the interest from which is, in the opinion of bond
counsel to the issuer, exempt from Federal, but not Commonwealth of
Massachusetts, income tax. The Fund's investment objective cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940) of the Fund's outstanding voting shares. There can be no
assurance that the Fund's investment objective will be achieved.
MUNICIPAL OBLIGATIONS _ Debt securities the interest from which is, in the
opinion of bond counsel to the issuer, exempt from Federal income tax
("Municipal Obligations") generally include debt obligations issued to obtain
funds for various public purposes as well as certain industrial development
bonds issued by or on behalf of public authorities. Municipal Obligations are
classified as general obligation bonds, revenue bonds and notes. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax exempt
industrial development bonds, in most cases, are revenue bonds that generally
do not carry the pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities.
Municipal Obligations bear fixed, floating or variable rates of interest,
which are determined in some instances by formulas under which the Municipal
Obligation's interest rate will change directly or inversely to changes in
interest rates or an index, or multiples thereof, in many cases subject to a
maximum and minimum. Certain Municipal Obligations are subject to redemption
at a date earlier than their stated maturity pursuant to call options, which
may be separated from the related Municipal Obligation and purchased and sold
separately.
MANAGEMENT POLICIES _ It is a fundamental policy of the Fund that it will
invest at least 80% of the value of its net assets (except when maintaining a
temporary defensive position) in Municipal Obligations. At least 65% of the
value of the Fund's net assets (except when maintaining a temporary defensive
position) will be invested in bonds, debentures and other debt instruments.
Generally, at least 65% of the Fund's net assets will be invested in
Massachusetts Municipal Obligations and the remainder may be invested in
securities that are not Massachusetts Municipal Obligations and therefore may
be subject to Massachusetts income taxes. See "Risk Factors_ Investing in
Massachusetts Municipal Obligations" below, and "Dividends, Distributions and
Taxes."
At least 80% of the value of the Fund's net assets must consist of
Municipal Obligations which, in the case of bonds, are rated no lower than
Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard &
Poor's Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"). The
Fund may invest up to 20% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated lower than Baa by Moody's
and BBB by S&P and Fitch and as low as the lowest rating assigned by Moody's,
S&P or Fitch, but it currently is the intention of the Fund that this portion
of the Fund's portfolio be invested primarily in Municipal Obligations rated
no lower than Baa by Moody's or BBB by S&P or Fitch. The Fund may invest in
short-term Municipal Obligations which are rated in the two highest rating
categories by Moody's, S&P or Fitch. See "Appendix B" in the Statement of
Additional Information. Municipal Obligations rated BBB by S&P or Fitch or
Baa by Moody's are considered investment grade obligations; those rated BBB
by S&P and Fitch are regarded as having an adequate capacity to pay principal
and interest, while those rated Baa by Moody's are considered medium grade
obligations which lack outstanding investment characteristics and have specula
tive characteristics. Investments rated Ba or lower by Moody's and BB or
lower by S&P and Fitch ordinarily provide higher yields but involve greater
risk because of their speculative characteristics. The Fund may invest in
Municipal Obligations rated C by
Page 5
Moody's or D by S&P or Fitch, which is the lowest rating assigned by such
rating organizations and indicates that the Municipal Obligation is in default
and interest and/or repayment of principal is in arrears. See "Risk
Factors _Lower Rated Bonds" below for a further discussion of certain risks.
The Fund also may invest in securities which, while not rated, are determined
by The Dreyfus Corporation to be of comparable quality to the rated securities
in which the Fund may invest; for purposes of the 80% requirement described in
this paragraph, such unrated securities shall be deemed to have the rating so
determined. The Fund also may invest in Taxable Investments of the quality
described below.
The Fund may invest more than 25% of the value of its total assets in
Municipal Obligations which are related in such a way that an economic,
business or political development or change affecting one such security also
would affect the other securities; for example, securities the interest upon
which is paid from revenues of similar types of projects. As a result, the
Fund may be subject to greater risk as compared to a fund that does not
follow this practice.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users. Interest on Municipal Obligations
(including certain industrial development bonds), which are specified private
activity bonds, as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), issued after August 7, 1986, while exempt from Federal income
tax, is a preference item for the purpose of the alternative minimum tax.
Where a regulated investment company receives such interest, a proportionate
share of any exempt-interest dividend paid by the investment company may be
treated as such a preference item to shareholders. The Fund will invest no
more than 20% of the value of its net assets in Municipal Obligations the
interest from which gives rise to a preference item for the purpose of the
alternative minimum tax and, except for temporary defensive purposes, in
other investments subject to Federal income tax.
The Fund may purchase floating and variable rate demand notes and
bonds, which are tax exempt obligations ordinarily having stated maturities
in excess of one year, but which permit the holder to demand payment of
principal at any time or at specified intervals. Variable rate demand notes
include master demand notes which are obligations that permit the Fund to
invest fluctuating amounts at varying rates of interest, pursuant to direct
arrangements between the Fund, as lender, and the borrower. These obligations
permit daily changes in the amount borrowed. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Use of letters of credit or other credit support arrangements will not
adversely affect the tax exempt status of these obligations. Because these
obligations are direct lending arrangements between the lender and borrower,
it is not contemplated that such instruments generally will be traded, and
there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Each
obligation purchased by the Fund will meet the quality criteria established
for the purchase of Municipal Obligations. The Dreyfus Corporation, on behalf
of the Fund, will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations in the Fund's
portfolio.
The Fund may purchase from financial institutions participation
interests in Municipal Obligations (such as industrial development bonds and
municipal lease/purchase agreements). A participation interest gives the Fund
an undivided interest in the Municipal Obligation in the proportion that the
Fund's participation interest bears to the total principal amount of the
Municipal Obligation. These instruments may have fixed, floating or variable
rates of interest. If the participation interest is unrated, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank that the Board of Trustees has determined meets the
prescribed quality standards for banks set forth below, or the payment
obligation otherwise will be collateralized by U.S. Government securities.
For certain participation inter-
Page 6
ests, the Fund will have the right to demand payment, on not more than seven
days' notice, for all or any part of the Fund's participation interest in the
Municipal Obligation, plus accrued interest. As to these instruments, the Fund
intends to exercise its right to demand payment only upon a default under the
terms of the Municipal Obligation, as needed to provide liquidity to meet
redemptions, or to maintain or improve the quality of its investment
portfolio.
The Fund may purchase custodial receipts representing the right to
receive certain future principal and interest payments on Municipal
Obligations which underlie the custodial receipts. A number of different
arrangements are possible. In a typical custodial receipt arrangement, an
issuer or a third party owner of Municipal Obligations deposits such
obligations with a custodian in exchange for two classes of custodial
receipts. The two classes have different characteristics, but, in each case,
payments on the two classes are based on payments received on the underlying
Municipal Obligations. One class has the characteristics of a typical auction
rate security, where at specified intervals its interest rate is adjusted,
and ownership changes, based on an auction mechanism. This class's interest
rate generally is expected to be below the coupon rate of the underlying
Municipal Obligations and generally is at a level comparable to that of a
Municipal Obligation of similar quality and having a maturity equal to the
period between interest rate adjustments. The second class bears interest at
a rate that exceeds the interest rate typically borne by a security of
comparable quality and maturity; this rate also is adjusted, but in this case
inversely to changes in the rate of interest of the first class. If the
interest rate on the first class exceeds the coupon rate of the underlying
Municipal Obligations, its interest rate will exceed the rate paid on the
second class. In no event will the aggregate interest paid with respect to
the two classes exceed the interest paid by the underlying Municipal
Obligations. The value of the second class and similar securities should be
expected to fluctuate more than the value of a Municipal Obligation of
comparable quality and maturity and their purchase by the Fund should
increase the volatility of its net asset value and, thus, its price per
share. These custodial receipts are sold in private placements. The Fund also
may purchase directly from issuers, and not in a private placement, Municipal
Obligations having characteristics similar to custodial receipts. These
securities may be issued as part of a multiclass offering and the interest
rate on certain classes may be subject to a cap or floor.
The Fund may invest up to 15% of the value of its net assets in
securities as to which a liquid trading market does not exist, provided such
investments are consistent with the Fund's investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, and repurchase agreements providing for settlement in more than seven
days after notice. As to these securities, the Fund is subject to a risk that
should the Fund desire to sell them when a ready buyer is not available at a
price the Fund deems representative of their value, the value of the Fund's
net assets could be adversely affected.
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, the Fund
obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make
payment on demand. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Fund may pay for stand-by commitments if
such action is deemed necessary, thus increasing to a degree the cost of the
underlying Municipal Obligation and similarly decreasing such security's
yield to investors. Gains realized in connection with stand-by commitments
will be taxable. The Fund also may acquire call options on specific Municipal
Obligations. The Fund generally would purchase these call options to protect
the Fund from the issuer of the related Municipal Obligation redeeming, or
other holder of the call option from calling away, the Municipal Obligation
before maturity. The sale by the
Page 7
Fund of a call option that it owns on a specific Municipal Obligation could
result in the receipt of taxable income by the Fund.
The Fund may purchase tender option bonds. A tender option bond is a
Municipal Obligation (generally held pursuant to a custodial arrangement)
having a relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax exempt rates, that has
been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing
or similar agent at or near the commencement of such period, that would cause
the securities, coupled with the tender option, to trade at par on the date
of such determination. Thus, after payment of this fee, the security holder
effectively holds a demand obligation that bears interest at the prevailing
short-term tax exempt rate. The Dreyfus Corporation, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of the
underlying Municipal Obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in
payment of principal or interest on the underlying Municipal Obligations and
for other reasons.
The Fund may invest in zero coupon securities which are debt
securities issued or sold at a discount from their face value which do not
entitle the holder to any periodic payment of interest prior to maturity or a
specified redemption date (or cash payment date). The amount of the discount
varies depending on the time remaining until maturity or cash payment date,
prevailing interest rates, liquidity of the security and perceived credit
quality of the issuer. Zero coupon securities also may take the form of debt
securities that have been stripped of their unmatured interest coupons, the
coupons themselves and receipts or certificates representing interests in
such stripped debt obligations and coupons. The market prices of zero coupon
securities generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit qualities. The Fund may invest up to 5% of its assets
in zero coupon bonds which are rated below investment grade. See "Risk
Factors_Lower Rated Bonds" and "Other Investment Considerations" below, and
"Investment Objective and Management Policies_Risk Factors_Lower Rated Bonds"
and "Dividends, Distributions and Taxes" in the Statement of Additional
Information.
From time to time, the Fund may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. Such loans may not exceed 331/3%
of the Fund's total assets. In connection with such loans, the Fund will
receive collateral consisting of cash, U.S. Government securities or
irrevocable letters of credit which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. The Fund can increase its income through the investment of such
collateral. The Fund continues to be entitled to payments in amounts equal to
interest or other distributions payable on the loaned security and receives
interest on the amount of the loan. Such loans will be terminable at any time
upon specified notice. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
From time to time, on a temporary basis other than for temporary
defensive purposes (but not to exceed 20% of the value of the Fund's net
assets) or for temporary defensive purposes, the Fund may invest in taxable
short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two
highest grades of Moody's, S&P or Fitch; obligations of the U.S. Government,
its agencies or instrumentalities; commercial paper rated not lower than P-1
by Moody's, A-1 by S&P or F-1 by Fitch; certificates of deposit of U.S.
domestic banks, including foreign branches of domestic banks, with assets of
one billion dollars or more; time deposits; bankers' acceptances
Page 8
and other short-term bank obligations; and repurchase agreements in respect
of any of the foregoing. Dividends paid by the Fund that are attributable to
income earned by the Fund from Taxable Investments will be taxable to
investors. See "Dividends, Distributions and Taxes." Except for temporary
defensive purposes, at no time will more than 20% of the value of the Fund's
net assets be invested in Taxable Investments and Municipal Obligations the
interest from which gives rise to a preference item for the purpose of the
alternative minimum tax. When the Fund has adopted a temporary defensive
position, including when acceptable Massachusetts Municipal Obligations are
unavailable for investment by the Fund, in excess of 35% of the Fund's net
assets may be invested in securities that are not exempt from Massachusetts
income tax. Under normal market conditions, the Fund anticipates that not more
than 5% of the value of its total assets will be invested in any one category
of Taxable Investments. Taxable Investments are more fully described in the
Statement of Additional Information, to which reference hereby is made.
CERTAIN FUNDAMENTAL POLICIES _ The Fund may (i) borrow money to the extent
permitted under the Investment Company Act of 1940, which currently limits
borrowing to no more than 331/3% of the value of the Fund's total assets; and
(ii) invest up to 25% of its assets in the securities of issuers in any
single industry, provided that there is no such limitation on the purchase of
Municipal Obligations and, for temporary defensive purposes, securities
issued by banks and obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. This paragraph describes fundamental
policies that cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act of 1940) of the Fund's outstanding
voting shares. See "Investment Objective and Management Policies_Investment
Restrictions" in the Statement of Additional Information.
RISK FACTORS
INVESTING IN MASSACHUSETTS MUNICIPAL OBLIGATIONS _ You should consider
carefully the special risks inherent in the Fund's investment in
Massachusetts Municipal Obligations. Massachusetts' economic difficulties and
fiscal problems in the late 1980s and early 1990s caused several rating
agencies to lower their ratings of Massachusetts Municipal Obligations. A
return of persistent serious financial difficulties could adversely affect
the market values and marketability of, or result in default in payment on,
outstanding Massachusetts Municipal Obligations. Massachusetts' expenditures
for State programs and services in each of the fiscal years 1987 through 1991
exceeded each year's current revenues. The budgeted operating funds of
Massachusetts ended fiscal years 1992, 1993 and 1994, however, with an excess
of revenues and other sources over expenditures and other uses of $312.3
million, $13.1 million and $26.8 million, respectively. Fiscal 1994 ended
with positive budgeted operating fund balances of $589.3 million. You should
obtain and review a copy of the Statement of Additional Information which
more fully sets forth these and other risk factors.
LOWER RATED BONDS _ You should carefully consider the relative risks of
investing in the higher yielding (and, therefore, higher risk) debt
securities in which the Fund may invest up to 20% of the value of its net
assets. These are bonds such as those rated Ba by Moody's or BB by S&P or
Fitch or as low as the lowest rating assigned by Moody's, S&P or Fitch. They
generally are not meant for short-term investing and may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income
securities. Bonds rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate. Bonds
rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability
to default than other speculative grade debt, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. Bonds rated BB by Fitch are considered speculative
and the payment of principal and interest may be affected at any time by
adverse economic changes. Bonds
Page 9
rated C by Moody's are regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated D by S&P are in default
and the payment of interest and/or repayment of principal is in arrears. Bonds
rated DDD, DD or D by Fitch are in actual or imminent default, are extremely
speculative and should be valued on the basis of their ultimate recovery
value in liquidation or reorganization of the issuer; DDD represents the
highest potential for recovery of such bonds; and D represents the lowest
potential for recovery. Such Municipal Obligations, though high yielding, are
characterized by great risk. See "Appendix B" in the Statement of Additional
Information for a general description of Moody's, S&P and Fitch ratings of
Municipal Obligations. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and, although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk
of these bonds. Therefore, although these ratings may be an initial criterion
for selection of portfolio investments, The Dreyfus Corporation also will
evaluate these securities and the ability of the issuers of such securities
to pay interest and principal. The Fund's ability to achieve its investment
objective may be more dependent on The Dreyfus Corporation's credit analysis
than might be the case for a fund that invested in higher rated securities.
Once the rating of a portfolio security has been changed, the Fund will
consider all circumstances deemed relevant in determining whether to continue
to hold the security.
The market price and yield of bonds rated Ba or lower by Moody's and
BB or lower by S&P and Fitch are more volatile than those of higher rated
bonds. Factors adversely affecting the market price and yield of these
securities will adversely affect the Fund's net asset value. In addition, the
retail secondary market for these bonds may be less liquid than that of
higher rated bonds; adverse market conditions could make it difficult at
times for the Fund to sell certain securities or could result in lower prices
than those used in calculating the Fund's net asset value.
The Fund may invest up to 5% of the value of its net assets in zero
coupon securities and pay-in-kind bonds (bonds which pay interest through the
issuance of additional bonds) rated Ba or lower by Moody's and BB or lower by
S&P and Fitch. These securities may be subject to greater fluctuations in
value due to changes in interest rates than interest-bearing securities and
thus may be considered more speculative than comparably rated
interest-bearing securities. See "Other Investment Considerations" below, and
"Investment Objective and Management Policies_ Risk Factors_Lower Rated
Bonds" and "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
OTHER INVESTMENT CONSIDERATIONS _ Even though interest-bearing securities
are investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. Certain
securities that may be purchased by the Fund, such as those with interest
rates that fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in interest rates and
can subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuing
entities. The Fund's net asset value generally will not be stable and should
fluctuate based upon changes in the value of the Fund's portfolio securities.
Securities in which the Fund invests may earn a higher level of current
income than certain shorter-term or higher quality securities which generally
have greater liquidity, less market risk and less fluctuation in market value.
New issues of Municipal Obligations usually are offered on a
when-issued basis, which means that delivery and payment for such Municipal
Obligations ordinarily take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that
will be received on the Municipal Obligations are fixed at the time the Fund
enters into the commitment. The Fund will make commitments to purchase such
Municipal Obligations only with the intention of actually acquiring
Page 10
the securities, but the Fund may sell these securities before the settlement
date if it is deemed advisable, although any gain realized on such sale would
be taxable. The Fund will not accrue income in respect of a when-issued
security prior to its stated delivery date. No additional when-issued
commitments will be made if more than 20% of the value of the Fund's net
assets would be so committed.
Municipal Obligations purchased on a when-issued basis and the
securities held in the Fund's portfolio are subject to changes in value (both
generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Municipal Obligations purchased
on a when-issued basis may expose the Fund to risk because they may experience
such fluctuations prior to their actual delivery. Purchasing Municipal
Obligations on a when-issued basis can involve the additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A segregated account of
the Fund consisting of cash, cash equivalents or U.S. Government securities
or other high quality liquid debt securities at least equal at all times to
the amount of the when-issued commitments will be established and maintained
at the Fund's custodian bank. Purchasing Municipal Obligations on a
when-issued basis when the Fund is fully or almost fully invested may result
in greater potential fluctuation in the value of the Fund's net assets and
its net asset value per share.
Federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, The Dreyfus Corporation will
consider, on an ongoing basis, a number of factors including the likelihood
that the issuing municipality will discontinue appropriating funding for the
leased property.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase
the cost of the Municipal Obligations available for purchase by the Fund and
thus reduce the available yield. Shareholders should consult their tax
advisers concerning the effect of these provisions on an investment in the
Fund. Proposals that may restrict or eliminate the income tax exemption for
interest on Municipal Obligations may be introduced in the future. If any
such proposal were enacted that would reduce the availability of Municipal
Obligations for investment by the Fund so as to adversely affect Fund
shareholders, the Fund would reevaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a type of
Municipal Obligation as taxable, the Fund would treat such security as a
permissible Taxable Investment within the applicable limits set forth herein.
The Fund's classification as a "non-diversified" investment company
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified" investment company is required by the Investment
Company Act of 1940 generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to qualify as a
"reg-
Page 11
ulated investment company" for purposes of the Code, which requires that,
at the end of each quarter of its taxable year, (i) at least 50% of the
market value of the Fund's total assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Fund's assets may be inv
ested in the obligations of a limited number of issuers, the Fund's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified
investment company.
Investment decisions for the Fund are made independently from those
of other investment companies advised by The Dreyfus Corporation. However, if
such other investment companies are prepared to invest in, or desire to
dispose of, Municipal Obligations or Taxable Investments at the same time as
the Fund, available investments or opportunities for sales will be allocated
equitably to each investment company. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, was formed in 1947 and serves as the Fund's investment adviser.
The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As
of August 2, 1995, The Dreyfus Corporation managed or administered
approximately $79 billion in assets for more than 1.8 million investor
accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Board of Trustees in
accordance with Massachusetts law. The Fund's primary portfolio manager is L.
Lawrence Troutman. He has held that position since January 1986, and has been
employed by The Dreyfus Corporation since October 1985. The Fund's other
portfolio managers are identified in the Statement of Additional Information.
The Dreyfus Corporation also provides research services for the Fund as well
as for other funds advised by The Dreyfus Corporation through a professional
staff of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCOCredit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$203 billion in assets as of June 30, 1995, including approximately $73
billion in mutual fund assets. As of June 30, 1995, Mellon, through various
subsidiaries, provided non-investment services, such as custodial or
administration services, for more than $707 billion in assets, including
approximately $71 billion in mutual fund assets.
For the fiscal year ended May 31, 1995, the Fund paid The Dreyfus
Corporation a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. From time to time, The Dreyfus
Corporation may waive receipt of its fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the overall
expense ratio of the Fund and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Fund will not
Page 12
pay The Dreyfus Corporation at a later time for any amounts it may waive, nor
will the Fund reimburse The Dreyfus Corporation for any amounts it may assume.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder and distribution services from The Dreyfus Corporation's own
assets, including past profits but not including the management fee paid by
the Fund. The Fund's distributor may use part or all of such payments to pay
security dealers, banks or other financial institutions in respect of these
services.
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of FDI Distribution Services,
Inc., a provider of mutual fund administration services, which in turn is a
wholly-owned subsidiary of FDI Holdings, Inc., the parent company of which is
Boston Institutional Group, Inc.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 90 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
Fund shares are sold without a sales charge. You may be charged a
nominal fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution. Share certificates are issued
only upon your written request. No certificates are issued for fractional
shares. It is not recommended that the Fund be used as a vehicle for Keogh,
IRA or other qualified plans. The Fund reserves the right to reject any
purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a securities dealer, bank or other financial institution which has
made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. The initial investment must be
accompanied by the Fund's Account Application. For full-time or part-time
employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries, directors of The Dreyfus Corporation, Board members of a fund
advised by The Dreyfus Corporation, including members of the Fund's Board, or
the spouse or minor child of any of the foregoing, the minimum initial
investment is $1,000. For full-time or part-time employees of The Dreyfus
Corporation or any of its affiliates or subsidiaries who elect to have a
portion of their pay directly deposited into their Fund account, the minimum
initial investment is $50. The Fund reserves the right to vary further the
initial and subsequent investment minimum requirements at any time. Fund
shares also are offered without regard to the minimum initial investment
requirements through Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant to the
Dreyfus Step Program described under "Shareholder Services." These services
enable you to make regularly scheduled investments and may provide you with a
convenient way to invest for long-term financial goals. You should be aware,
however, that periodic investment plans do not guarantee a profit and will
not protect an investor against loss in a declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds." Payments to open new accounts which are mailed
should be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence,
Rhode Island 02940-9387, together with your Account Application. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. Neither initial nor subseq
uent investments should be made by third party check. Purchase orders may be
delivered in person only to a Dreyfus Financial Center. THESE ORDERS WILL BE
FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information."
Page 13
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA #8900051981/Dreyfus
Massachusetts Tax Exempt Bond Fund, for purchase of Fund shares in your name.
The wire must include your Fund account number (for new accounts, your
Taxpayer Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent. Net asset value per share is determined as of the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time), on each day the New York Stock Exchange is open for business. Net
asset value per share is computed by dividing the value of the Fund's net
assets (i.e., the value of its assets less liabilities) by the total number
of shares outstanding. The Fund's investments are valued by an independent
pricing service approved by the Board of Trustees and are valued at fair
value as determined by the pricing service. The pricing service's procedures
are reviewed under the general supervision of the Board of Trustees. For
further information regarding the methods employed in valuing Fund
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application
or have filed a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one of
these documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member
may be so designated. The Fund may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
FUND EXCHANGES _ You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by The Dreyfus
Corporation, to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be of
interest
Page 14
to you. If you desire to use this service, please call 1-800-645-6561 to
determine if it is available and whether any conditions are imposed on its
use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of Personal Retirement Plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, shares being exchanged must have a
value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No"box on the Account Application, indicating that you
specifically refuse this privilege. The Telephone Exchange Privilege may be
established for an existing account by written request, signed by all
shareholders on the account, or by a separate signed Shareholder Services
Form, also available by calling 1-800-645-6561. If you have established the
Telephone Exchange Privilege, you may telephone exchange instructions by
calling 1-800-221-4060 or, if you are calling from overseas, call
1-401-455-3306. See "How to Redeem Fund Shares _ Procedures." Upon an
exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Check Redemption Privilege, Wire Redemption Privilege, Telephone
Redemption Privilege, Dreyfus TELETRANSFER Privilege, and the
dividend/capital gain distribution option (except for Dreyfus Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect
to the foregoing categories of shares. To qualify, at the time of your
exchange you must notify the Transfer Agent. Any such qualification is
subject to confirmation of your holdings through a check of appropriate
records. See "Shareholder Services" in the Statement of Additional
Information. No fees currently are charged shareholders directly in
connection with exchanges, although the Fund reserves the right, upon not less
than 60 days' written notice, to charge shareholders a nominal fee in
accordance with rules promulgated by the Securities and Exchange Commission.
The Fund reserves the right to reject any exchange request in whole or in
part. The availability of Fund Exchanges may be modified or terminated at any
time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE _ Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in shares of other funds in the
Dreyfus Family of Funds of which you are currently an investor. The amount
you designate, which can be expressed either in terms of a specific dollar or
share amount ($100 minimum), will be exchanged automatically on the first
and/or fifteenth of the month according to the schedule you have selected.
Shares will be exchanged at the then-current net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a
sales load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by mailing written notification to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
The Fund may charge a service fee for this Privilege. No such fee currently
is con-
Page 15
templated. The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss. For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto-Exchange Authorizat
ion Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark _ Dreyfus-AUTOMATIC Asset
Builder permits you to purchase Fund shares (minimum of $100 and maximum
$150,000 per transaction) at regular intervals selected by you. Fund shares
are purchased by transferring funds from the bank account designated by you.
At your option, the bank account designated by you will be debited in the
specified amount, and Fund shares will be purchased, once a month, on either
the first or fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated. To establish a Dreyfus-AUTOMATIC Asset
Builder account, you must file an authorization form with the Transfer Agent.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may cancel your participation in this Privilege or change the amount of
purchase at any time by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671, and the
notification will be effective three business days following receipt. The
Fund may modify or terminate this Privilege at any time or charge a service
fee. No such fee currently is contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE _ Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the Federal
government automatically deposited into your Fund account. You may deposit as
much of such payments as you elect. To enroll in Dreyfus Government Direct
Deposit, you must file with the Transfer Agent a completed Direct Deposit
Sign-Up Form for each type of payment that you desire to include in the
Privilege. The appropriate form may be obtained by calling 1-800-645-6561.
Death or legal incapacity will terminate your participation in this
Privilege. You may elect at any time to terminate your participation by
notifying in writing the appropriate Federal agency. Further, the Fund may
terminate your participation upon 30 days' notice to you.
DREYFUS PAYROLL SAVINGS PLAN _ Dreyfus Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus Payroll Savings Plan account, you must
file an authorization form with your employer's payroll department. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may change the amount of purchase or cancel the authorization only by
written notification to your employer. It is the sole responsibility of your
employer, not the Distributor, The Dreyfus Corporation, the Fund, the
Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
DREYFUS STEP PROGRAM _ Dreyfus Step Program enables you to purchase Fund
shares without regard to the Fund's minimum initial investment requirements
through Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government Direct Deposit
Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step
Program account, you must supply the necessary information on the Fund's
Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-782-6620.
You may terminate your participation in
Page 16
this Program at any time by discontinuing your participation in
Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government Direct Deposit Privilege
or Dreyfus Payroll Savings Plan, as the case may be, as provided under the
terms of such Privilege(s). The Fund may modify or terminate this Program at
any time.
DREYFUS DIVIDEND OPTIONS _ Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share
prices which do not include the sales load or which reflect a reduced sales
load. If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be subject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits you to transfer electronically on the payment date
dividends or dividends and capital gain distributions, if any, from the Fund
to a designated bank account. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. Banks may charge a fee for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments do not apply
for Dreyfus Dividend Sweep. The Fund may modify or terminate these privileges
at any time or charge a service fee. No such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN _ The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been issued
may not be redeemed through the Automatic Withdrawal Plan.
HOW TO REDEEM FUND SHARES
GENERAL _ You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
The Fund imposes no charges when shares are redeemed. Securities
dealers, banks or other financial institutions may charge their clients a
nominal fee for effecting redemptions of Fund shares. Any certificates
representing Fund shares being redeemed must be submitted with the redemption
request. The value of the shares redeemed may be more or less than their
original cost, depending upon the Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION
Page 17
PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE, FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE
CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET
BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES
WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU
OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE
REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS
ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO
EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES _ You may redeem shares by using the regular redemption procedure
through the Transfer Agent, the Check Redemption Privilege, the Wire
Redemption Privilege, the Telephone Redemption Privilege, or the Dreyfus
TELETRANSFER privilege. The Fund makes available to certain large institutions
the ability to issue redemption instructions through compatible computer
facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or telephone exchange privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you and
reasonably believed by the Transfer Agent to be genuine. The Fund will
require the Transfer Agent to employ reasonable procedures, such as requiring
a form of personal identification, to confirm that instructions are genuine
and, if it does not follow such procedures, the Fund or the Transfer Agent
may be liable for any losses due to unauthorized or fraudulent instructions.
Neither the Fund nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information." Redemption requests
must be signed by each shareholder, including each owner of a joint account,
and each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations, as well as from participants in
the New York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. If you have any questions with respect to signature-guarantees,
please call one of the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE _ You may request on the Account Application,
Shareholder Services Form or by later written request that the Fund provide
Redemption Checks drawn on the Fund's account.
Page 18
Redemption Checks may be made payable to the order of any person in the
amount of $500 or more. Potential fluctuation in the net asset value of Fund
shares should be considered in determining the amount of the check. Redemption
Checks should not be used to close your account. Redemption Checks are free,
but the Transfer Agent will impose a fee for stopping payment of a Redemption
Check upon your request or if the Transfer Agent cannot honor the Redemption
Check due to insufficient funds or other valid reason. You should date your
Redemption Checks with the current date when you write them. Please do not
postdate your Redemption Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of presentment
for payment, if they are otherwise in good order. Shares for which
certificates have been issued may not be redeemed by Redemption Check. This
Privilege may be modified or terminated at any time by the Fund or the
Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE _ You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
Account Application or file a Shareholder Services Form with the Transfer
Agent. You may direct that redemption proceeds be paid by check (maximum
$150,000 per day)made out to the owners of record and mailed to your address.
Redemption proceeds of less than $1,000 will be paid automatically by check.
Holders of jointly registered Fund or bank accounts may have redemption
proceeds of not more than $250,000 wired within any 30-day period. You may
telephone redemption requests by calling 1-800-221-4060 or, if you are
calling from overseas, call 1-401-455-3306. The Fund reserves the right to
refuse any redemption request, including requests made shortly after a change
of address, and may limit the amount involved or the number of such requests.
This Privilege may be modified or terminated at any time by the Transfer
Agent or the Fund. The Statement of Additional Information sets forth
instructions for transmitting redemption requests by wire. Shares for which
certificates have been issued are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE _ You may redeem shares (maximum $150,000 per
day) by telephone if you have checked the appropriate box on the Fund's
Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares for which certificates have been issued are not eligible for this
Privilege.
DREYFUS TELETRANSFER PRIVILEGE _ You may redeem shares (minimum $500 per
day) by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within a 30-day period. The Fund
reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or terminate
this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
Page 19
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares issued in certificate form are not eligible for this Privilege.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan pursuant to which
the Fund reimburses Dreyfus Service Corporation, a wholly-owned subsidiary of
The Dreyfus Corporation, an amount not to exceed an annual rate of .25 of 1%
of the value of the Fund's average daily net assets for certain allocated
expenses of providing personal services and/or maintaining shareholder
accounts. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends from net investment income on
each day the New York Stock Exchange is open for business. Fund shares begin
earning income dividends on the day following the date of purchase. Dividends
usually are paid on the last business day of each month and are automatically
reinvested in additional Fund shares at net asset value or, at your option,
paid in cash. The Fund's earnings for Saturdays, Sundays and holidays are
declared as dividends on the next business day. If you redeem all shares in
your account at any time during the month, the dividends to which you are
entitled will be paid to you along with the proceeds of the redemption.
If you are an omnibus accountholder and indicate in a partial redemption
request that a portion of any accrued dividends to which such account is
entitled belongs to an underlying accountholder who has redeemed all shares
in his or her account, such portion of the accrued dividends will be paid
to you along with the proceeds of the redemption. Distributions from net
realized securities gains, if any, generally are declared and paid once a
year, but the Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the Investment Company Act of 1940. The Fund
will not make distributions from net realized securities gains unless capital
loss carryovers, if any, have been utilized or have expired. You may choose
whether to receive distributions in cash or to reinvest in additional Fund
shares at net asset value. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Except for dividends from Taxable Investments, the Fund anticipates
that substantially all dividends from net investment income paid by the Fund
will not be subject to Federal income tax. Dividends derived from Taxable
Investments, together with distributions from any net realized short-term
securities gains and all or a portion of any gains realized from the sale or
other disposition of certain market discount bonds, paid by the Fund are
subject to Federal income tax as ordinary income, whether or not reinvested
in additional Fund shares. No dividend paid by the Fund will qualify for the
dividends received deduction allowable to certain U.S. corporations.
Distributions from net realized long-term securities gains of the Fund
generally are taxable as long-term capital gains for Federal income tax
purposes if you are a citizen or resident of the United States. The Code
provides that the net capital gain of an individual generally will not be
subject to Federal income tax at a rate in excess of 28%. Under the Code,
interest on indebtedness incurred or continued to purchase or carry Fund
shares which is deemed to relate to exempt-interest dividends is not
deductible.
Dividends paid by the Fund to a Massachusetts resident are not
subject to Massachusetts personal income tax to the extent the dividends are
attributable to income received by the Fund from Massachusetts Municipal
Obligations or direct U.S. Government obligations and are properly designated
as such. Distributions of capital gain dividends by the Fund to a
Massachusetts resident are not subject to Massachusetts personal income tax
to the extent such distributions are attributable to gain from the sale of
certain Massachusetts Municipal Obligations, the gain from which is exempt
from Massachusetts personal income tax, and the distributions and properly
designated as such. Dividends or distributions by the Fund to a Massachusetts
resident that are attributable to most other sources are subject to
Massachusetts personal income tax. In addition, distributions from the Fund
may be included in the net
Page 20
income measure of the corporate excise tax for corporate shareholders which
are subject to the Massachusetts corporate excise tax. The Fund believes that
distributions from net realized long-term securities gains that are taxable
by Massachusetts are reportable as long-term capital gains, irrespective of
how long the resident has held shares in the Fund. Fund shares are not
subject to property taxation by Massachusetts or its political subdivisions.
To the extent investors are obligated to pay state or local taxes outside of
Massachusetts, dividends and distributions by the Fund may represent taxable
income.
Although all or a substantial portion of the dividends paid by the
Fund may be excluded by shareholders of the Fund from their gross income for
Federal income tax purposes, the Fund may purchase specified private activity
bonds, the interest from which may be (i) a preference item for purposes of
the alternative minimum tax, (ii) a component of the "adjusted current
earnings" preference item for purposes of the corporate alternative minimum
tax as well as a component in computing the corporate environmental tax or
(iii) a factor in determining the extent to which a shareholder's Social
Security benefits are taxable. If the Fund purchases such securities, the
portion of the Fund's dividends related thereto will not necessarily be tax
exempt to an investor who is subject to the alternative minimum tax and/or
tax on Social Security benefits and may cause an investor to be subject to
such taxes.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year. These statements set forth
the dollar amount of income exempt from Federal tax and the dollar amount, if
any, subject to Federal tax. These dollar amounts will vary depending on the
size and length of time of your investment in the Fund. If the Fund pays
dividends derived from taxable income, it intends to designate as taxable the
same percentage of the day's dividends as the actual taxable income earned on
that day bears to total income earned on that day. Thus, the percentage of
the dividend designated as taxable, if any, may vary from day to day.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of taxable dividends,
distributions from net realized securities gains and the proceeds of any
redemption, regardless of the extent to which gain or loss may be realized,
paid to a shareholder if such shareholder fails to certify either that the
TIN furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or 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.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended May 31, 1995 as a "regulated investment company" under the
Code. The Fund intends to continue to so qualify if such qualification is in
the best interests of its shareholders. Such qualification relieves the Fund
of any liability for Federal income taxes to the extent its earnings are
distributed in accordance with applicable provisions of the Code. The Fund is
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding questions as to
Federal, state or local taxes.
Page 21
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, tax equivalent yield, average annual total
return and/or total return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of the Fund's
current yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to a stated
current yield calculated as described above.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter time periods depending
upon the length of time during which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from CDA
Investment Technologies, Inc., Lipper Analytical Services, Inc., Moody's Bond
Survey Bond Index, Lehman Brothers Municipal Bond Index, Morningstar, Inc.
and other industry publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated March 13, 1985, and
commenced operations on June 11, 1985. The Trustees have authorized an
unlimited number of shares of beneficial interest, par value $.01 per share.
Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
Page 22
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Fund in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund. As discussed under "Management of the Fund" in the
Statement of Additional Information, the Fund ordinarily will not hold
shareholder meetings; however, shareholders under certain circumstances may
have the right to call a meeting of shareholders for the purpose of voting to
remove Trustees.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; outside the U.S. and
Canada, call 516-794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 23
DREYFUS
Massachusetts
Tax Exempt
Bond Fund
Prospectus
(lion Logo)
Registration Mark
Copy Rights 1995, Dreyfus Service Corporation
267p14090195
__________________________________________________________________________
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SEPTEMBER 1, 1995
__________________________________________________________________________
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus Massachusetts Tax Exempt Bond Fund (the "Fund"), dated
September 1, 1995 as it may be revised from time to time. To obtain a
copy of the Fund's Prospectus, please write to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or call the following
numbers:
Call Toll Free 1-800-645-6561
In New York City--Call 1-718-895-1206
Outside the U.S. and Canada--Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . B-9
Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . . . . . B-15
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . B-15
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . B-16
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . B-21
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . B-21
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . . B-22
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . B-23
Information About the Fund. . . . . . . . . . . . . . . . . . . . . . . B-24
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . . . B-24
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-26
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . B-37
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . B-46
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Description of the Fund."
Portfolio Securities
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended May 31,
1995, computed on a monthly basis, was as follows:
<TABLE>
<CAPTION>
Fitch Investors Moody's Investors Standard & Poor's
Service, Inc. Service, Inc. Corporation Percent of
("Fitch") or ("Moody's") or ("S&P") Value
<S> <C> <C> <C>
AAA Aaa AAA 41.6%
AA Aa AA 14.7
A A A 29.7
BBB Baa BBB 5.1
F-1 VMIG-1/MIG-1, P-1 SP-1, A-1 1.1(1)
Not Rated Not Rated Not Rated 7.8(2)
--------
100.0%
========
</TABLE>
_____________________________________
(1) Includes tax exempt notes rated in one of the two highest rating
categories by Moody's, S&P or Fitch. These securities, together with
Municipal Obligations rated Baa or better by Moody's or BBB or better
by S&P or Fitch, are taken into account at the time of a purchase for
purposes of determining that the Fund's portfolio meets the 80%
minimum quality standard discussed in the Fund's Prospectus.
(2) Included in the Not Rated category are securities comprising 7.8% of
the Fund's market value which, while not rated, have been determined
by the Manager to be of comparable quality to securities in the
AAA/Aaa (.2%) and Baa/BBB (7.6%) rating categories.
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses
and lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show
facilities, airport, mass transit, industrial, port or parking facilities,
air or water pollution control facilities and certain local facilities for
water supply, gas, electricity, or sewage or solid waste disposal; the
interest paid on such obligations may be exempt from Federal income tax,
although current tax laws place substantial limitations on the size of
such issues. Such obligations are considered to be Municipal Obligations
if the interest paid thereon qualifies as exempt from Federal income tax
in the opinion of bond counsel to the issuer. There are, of course,
variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time
such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, will have the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligations.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease
obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. The staff of
the Securities and Exchange Commission currently considers certain lease
obligations to be illiquid. Determination as to the liquidity of such
securities is made in accordance with guidelines established by the Fund's
Board. Pursuant to such guidelines, the Board has directed the Manager to
monitor carefully the Fund's investment in such securities with particular
regard to (1) the frequency of trades and quotes for the lease
obligation; (2) the number of dealers willing to purchase or sell the
lease obligation and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the lease
obligation; (4) the nature of the marketplace trades including the time
needed to dispose of the lease obligation, the method of soliciting offers
and the mechanics of transfer; and (5) such other factors concerning the
trading market for the lease obligation as the Manager may deem relevant.
In addition, in evaluating the liquidity and credit quality of a lease
obligation that is unrated, the Fund's Board has directed the Manager to
consider (a) whether the lease can be cancelled; (b) what assurance there
is that the assets represented by the lease can be sold; (c) the strength
of the lessee's general credit (e.g., its debt, administrative, economic,
and financial characteristics ); (d) the likelihood that the municipality
will discontinue appropriating funding for the leased property because the
property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such
other factors concerning credit quality as the Manager may deem relevant.
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities. See "Investment Restriction No. 11" below.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of
the underlying Municipal Obligations and that payment of any tender fees
will not have the effect of creating taxable income for the Fund. Based
on the tender option bond agreement, the Fund expects to be able to value
the tender option bond at par; however, the value of the instrument will
be monitored to assure that it is valued at fair value.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the extent
that the ratings given by Moody's, S&P or Fitch for Municipal Obligations
may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in
the Fund's Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings may be
an initial criterion for selection of portfolio investments, the Manager
also will evaluate these securities.
Illiquid Securities. If a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities
Act of 1933, as amended, for certain restricted securities held by the
Fund, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board of Trustees.
Because it is not possible to predict with assurance how the market for
restricted securities pursuant to Rule 144A will develop, the Fund's Board
of Trustees has directed the Manager to monitor carefully the Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
To the extent that, for a period of time, qualified institutional buyers
cease purchasing restricted securities pursuant to Rule 144A, the Fund's
investing in such securities may have the effect of increasing the level
of illiquidity in the Fund's portfolio during such period.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home
Loan Bank, by the right of the issuer to borrow from the U.S. Treasury;
others, such as those issued by the Federal National Mortgage Association,
by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government -
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, since it is not so obligated by law. The Fund will
invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of one billion dollars.
Time deposits which may be held by the Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase agreements involve the acquisition by the Fund of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Fund to resell, the instrument at a fixed price,
usually not more than one week after its purchase. The Fund's custodian
or sub-custodian will have custody of, and will hold in a segregated
account, securities acquired by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Fund. In an attempt to reduce the
risk of incurring a loss on a repurchase agreement, the Fund will enter
into repurchase agreements only with domestic banks with total assets in
excess of one billion dollars or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Fund may invest, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. The Manager will monitor on
an ongoing basis the value of the collateral to assure that it always
equals or exceeds the repurchase price. Certain costs may be incurred by
the Fund in connection with the sale of the securities if the seller does
not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the
seller of the securities, realization on the securities by the Fund may be
delayed or limited. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
Lending Portfolio Securities. To a limited extent, the Fund may lend
its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its portfolio securities, the Fund
can increase its income through the investment of the cash collateral.
For purposes of this policy, the Fund considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by
banks whose securities meet the standards for investment by the Fund to be
the equivalent of cash. Such loans may not exceed 331/3% of the value of
the Fund's total assets. From time to time, the Fund may return to the
borrower or a third party which is unaffiliated with the Fund, and which
is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value
of the securities rises above the level of such collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in
connection with the loan. These conditions may be subject to future
modification.
Risk Factors
Investing in Massachusetts Municipal Obligations. Investors should
consider carefully the special risks inherent in the Fund's investment in
Massachusetts Municipal Obligations. Massachusetts' economic difficulties
and fiscal problems in the late 1980s and early 1990s caused several
rating agencies to lower their ratings of Massachusetts Municipal
Obligations. A return of persistent serious financial difficulties could
adversely affect the market values and marketability of, or result in
default in payment on, outstanding Massachusetts Municipal Obligations.
Massachusetts' expenditures for State programs and services in each of the
fiscal years 1987 through 1991 exceeded each year's current revenues. The
budgeted operating funds of Massachusetts ended fiscal years 1992, 1993
and 1994, however, with an excess of revenues and other sources over
expenditures and other uses of $312.3 million, $13.1 million and $26.8
million, respectfully. Fiscal 1994 ended with positive budgeted operating
fund balances of $589.3 million. Investors should review Appendix A which
more fully sets forth these and other risk factors.
Lower Rated Bonds. The Fund is permitted to invest in securities
rated below Baa by Moody's and below BBB by S&P and Fitch. Such bonds,
though higher yielding, are characterized by risk. See in the Prospectus
"Description of the Fund--Risk Factors-- Lower Rated Bonds" for a
discussion of certain risks and "Appendix B" for a general description of
Moody's, S&P and Fitch ratings of Municipal Obligations. Although ratings
may be useful in evaluating the safety of interest and principal payments,
they do not evaluate the market value risk of these bonds. The Fund will
rely on the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the Manager will take
into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, the quality of the
issuer's management and regulatory matters. It also is possible that a
rating agency might not timely change the rating on a particular issue to
reflect subsequent events. As stated above, once the rating of a bond in
the Fund's portfolio has been changed, the Manager will consider all
circumstances deemed relevant in determining whether the Fund should
continue to hold the bond.
Investors should be aware that the market values of many of these
bonds tend to be more sensitive to economic conditions than are higher
rated securities and will fluctuate over time. These bonds are considered
by S&P, Moody's and Fitch, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk
than securities in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market
price and yield and the Fund's ability to dispose of particular issues
when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of
the issuer. The lack of a liquid secondary market for certain securities
also may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating
its net asset value. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values and
liquidity of these securities. In such cases, judgment may play a greater
role in valuation because less reliable, objective data may be available.
These bonds may be particularly susceptible to economic downturn. It
is likely that any economic recession could disrupt severely the market
for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon and increase the incidence of
default for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The
Fund has no arrangement with any person concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
Lower rated zero coupon securities, in which the Fund may invest up
to 5% of its total assets, involve special considerations. The credit
risk factors pertaining to lower rated securities also apply to lower
rated zero coupon bonds. Such zero coupon bonds carry an additional risk
in that, unlike bonds which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless
a portion of such securities are sold and, if the issuer defaults, the
Fund may obtain no return at all on its investment. See "Dividends,
Distributions and Taxes."
Investment Restrictions
The Fund has adopted investment restrictions numbered 1 through 7 as
fundamental policies, which cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940,
as amended ("Act")) of the Fund's outstanding voting shares. Investment
restrictions numbered 8 through 12 are not fundamental policies and may be
changed by a vote of a majority of the Fund's Trustees at any time. The
Fund may not:
1. Invest more than 25% of its assets in the securities of issuers
in any single industry; provided that there shall be no
limitation on the purchase of Municipal Obligations and, for
temporary defensive purposes, securities issued by banks and
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
2. Borrow money, except to the extent permitted under the Act
(which currently limits borrowing to no more than 33-1/3% of the
value of the Fund's total assets). For purposes of this
investment restriction, the entry into options, forward
contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not
constitute borrowing.
3. Purchase or sell real estate, commodities or commodity
contracts, or oil and gas interests, but this shall not prevent
the Fund from investing in Municipal Obligations secured by real
estate or interests therein, or prevent the Fund from purchasing
and selling options, forward contracts, futures contracts,
including those relating to indices, and options on futures
contracts or indices.
4. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of
Municipal Obligations directly from an issuer for its own
portfolio to take advantage of the lower purchase price
available, and except to the extent the Fund may be deemed an
underwriter under the Securities Act of 1933, as amended, by
virtue of disposing of portfolio securities.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements; however,
the Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines
established by the Securities and Exchange Commission and the
Fund's Board of Trustees.
6. Issue any senior security (as such term is defined in Section
18(f) of the Act), except to the extent that the activities
permitted in Investment Restrictions numbered 2, 3 and 10 may be
deemed to give rise to a senior security.
7. Sell securities short or purchase securities on margin, but the
Fund may make margin deposits in connection with transactions in
options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or
indices.
8. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and
options or as otherwise provided in the Fund's Prospectus.
9. Invest in securities of other investment companies, except to
the extent permitted under the Act.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings
and to the extent related to the deposit of assets in escrow in
connection with the purchase of securities on a when-issued or
delayed-delivery basis and collateral and initial or variation
margin arrangements with respect to options, futures contracts,
including those related to indices, and options on futures
contracts or indices.
11. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which
are illiquid (which securities could include participation
interest (including municipal lease/purchase agreements) that
are not subject to the demand feature described in the Fund's
Prospectus, and floating and variable rate demand obligations as
to which the Fund cannot exercise the demand feature described
in the Fund's Prospectus on less than seven days' notice and as
to which there is no secondary market), if, in the aggregate,
more than 15% of its net assets would be so invested.
12. Invest in companies for the purpose of exercising control.
For purposes of Investment Restriction No. 1, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry." If a percentage restriction is adhered to at the time
of an investment, a later increase or decrease in percentage resulting
from a change in values or assets will not constitute a violation of such
restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. Each Trustee who is deemed to be an "interested person"
of the Fund, as defined in the Act, is indicated by an asterisk.
Trustees of the Fund
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the Fund's distributor. From August 1994 to
December 31, 1994, he was a director of Mellon Bank Corporation. He
is Chairman of the Board of Noel Group, Inc., a venture capital
company; a trustee of Bucknell University; and a director of the
Muscular Dystrophy Association, HealthPlan Services Corporation,
Belding Heminway Company, Inc., a manufacturer and marketer of
industrial threads, specialty yarn, home furnishing fabrics,
Curtis Industries, Inc., a national distributor of security products,
chemicals and automotive and other hardware, Simmons Outdoor
Corporation and Staffing Resources, Inc. He is 51 years old and his
address is 200 Park Avenue, New York, New York 10166.
*DAVID W. BURKE, Trustee. Consultant to the Manager since August 1994.
From October 1990 to August 1994, Vice President and Chief
Administrative Officer of the Manager. From 1977 to 1990, Mr. Burke
was involved in the management of national television news, as Vice
President and Executive Vice President of ABC News, and subsequently
as President of CBS News. He is 59 years old and his address is 200
Park Avenue, New York, New York 10166.
SAMUEL CHASE, Trustee. Since 1982, President of Samuel Chase & Company,
Ltd., an economic consulting firm. From 1983 to 1989, Chairman of
Chase, Brown & Blaxall, Inc., an economic consulting firm. He is 63
years old and his address is 4410 Massachusetts Avenue N.W., Suite
408, Washington, D.C. 20016.
GORDON J. DAVIS, Trustee. Since October 1994, a senior partner with the law
firm of LeBoeuf, Lamb, Greene & MacRae. From 1983 to September 1994,
Mr. Davis was a senior partner with the law firm of Lord Day & Lord,
Barrett Smith. From 1978 to 1983, he was Commissioner of Parks and
Recreation for the City of New York. He is also a director of
Consolidated Edison, a utility company, and Phoenix Home Life
Insurance Company and a member of various other corporate and not-
for-profit boards. He is 53 years old and his address is 241 Central
Park West, New York, New York 10023.
JONI EVANS, Trustee. Senior Vice President of the William Morris Agency.
From September 1987 to May 1993, Executive Vice President of Random
House, Inc. and, from January 1991 to May 1993, President and
Publisher of Turtle Bay Books; from January 1987 to December 1990,
Publisher of Random House Adult Trade Division; and from 1985 to
1987, President of Simon and Schuster - Trade Division. She is 53
years old and her address is 1350 Avenue of the Americas, New York,
New York 10022.
ARNOLD S. HIATT, Trustee. Chairman of The Stride Rite Foundation. From
1969 to June 1992, Chairman of the Board, President or Chief
Executive Officer of The Stride Rite Corporation, a multi-divisional
footwear manufacturing and retailing company. Mr. Hiatt is also a
director of The Cabot Corporation. He is 68 years old and his
address is 400 Atlantic Avenue, Boston, Massachusetts 02110.
DAVID J. MAHONEY, Trustee. President of David Mahoney Ventures since
1983. From 1968 to 1983, he was Chairman and Chief Executive Officer
of Norton Simon Inc., a producer of consumer products and services.
Mr. Mahoney is also a director of National Health Laboratories Inc.,
Bionaire Inc. and Good Samaritan Health Systems, Inc. He is 72 years
old and his address is 745 Fifth Avenue, Suite 700, New York, New
York 10151.
BURTON N. WALLACK, Trustee. President and co-owner of Wallack Management
Company, a real estate management company managing real estate in the
New York City area. He is 44 years old and his address is 18 East
64th Street, Suite 3D, New York, New York 10021.
Ordinarily, no meetings of shareholders will be held for the purpose
of electing Trustees unless and until such time as less than a majority of
the Trustees holding office have been elected by shareholders, at which
time the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Under the Act, shareholders of record of not less
than two-thirds of the Fund's outstanding shares may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at
a meeting called for that purpose. The Trustees are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any such Trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
For so long as the Fund's plan described in the section "Shareholder
Services Plan" remains in effect, the Trustees of the Fund who are not
"interested persons" of the Fund, as defined in the Act, will be selected
and nominated by the Trustees who are not "interested persons" of the
Fund.
The Fund typically pays its Trustees an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. The aggregate
amount of compensation paid by the Fund to each Trustee for the fiscal
year ended May 31, 1995, and by all other funds in the Dreyfus Family of
Funds for which such person is a Board member (the number of which is set
forth in parenthesis next to each Board member's total compensation) for
the year ended December 31, 1994, was as follows:
<TABLE>
<CAPTION>
(3) (5)
(2) Pension or (4) Total Compensation
(1) Aggregate Retirement Benefits Estimated Annual From Fund and
Name of Board Compensation From Accrued as Part of Benefits Upon Fund Complex
Member Fund* Fund's Expenses Retirement Paid to Board Member
-------------- ------------------ ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
David W. Burke $2,245 none none $ 27,898 (51)
Joseph S. DiMartino $3,125** none none $445,000*** (93)
Samuel Chase $2,700 none none $ 46,250 (13)
Gordon J. Davis $ 505 none none $ 29,602 (24)
Joni Evans $2,750 none none $ 46,250 (13)
Arnold S. Hiatt $2,750 none none $ 42,750 (13)
David J. Mahoney $2,250 none none $ 43,000 (13)
Burton N. Wallack $2,750 none none $ 46,250 (13)
_____________________
* Amount does not include reimbursed expenses for attending Board meetings, which
amounted to $457 for all Trustees as a group.
** Estimated amount for the current fiscal year ending May 31, 1996.
*** Estimated amount for the year ending December 31, 1995.
</TABLE>
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc. Prior to December 1991, she served as Vice
President and Controller, and later as Senior Vice President, of The
Boston Company Advisors, Inc. She is 37 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President
and General Counsel of the Distributor and an officer of other
investment companies advised or administered by the Manager. From
February 1992 to July 1994, he served as Counsel for The Boston
Company Advisors, Inc. From August 1990 to February 1992, he was
employed as an Associate at Ropes & Gray. He is 30 years old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From September
1992 to August 1994, he was an attorney with the Board of Governors
of the Federal Reserve System. He is 30 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to
August 1994, he was manager of the High Performance Fabric Division
of Springs Industries Inc. He is 33 years old.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The
Boston Company, Inc. where he held various management positions in
the Corporate Finance and Treasury areas. He is 32 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1984 to July 1994, he was
Assistant Vice President in the Mutual Fund Accounting Department of
the Manager. He is 59 years old.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts. She is 50 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Trustees and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of beneficial interest outstanding on July 31, 1995.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board of Trustees or (ii)
vote of a majority (as defined in the Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance also
is approved by a majority of the Trustees who are not "interested persons"
(as defined in the Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders of the Fund on August 2, 1994, and
was last approved by the Fund's Board of Trustees, including a majority of
the Trustees who are not "interested persons" of any party to the
Agreement, at a meeting held on April 26, 1995. The Agreement is
terminable without penalty, on not more than 60 days' notice, by the
Fund's Board of Trustees or by vote of the holders of a majority of the
Fund's outstanding voting shares, or, upon not less than 90 days' notice,
by the Manager. The Agreement will terminate automatically in the event
of its assignment (as defined in the Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Robert E. Riley, President, Chief
Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration; Daniel C. Maclean, Vice President and General Counsel;
Barbara E. Casey, Vice President-Dreyfus Retirement Services; Diane M.
Coffey, Vice President-Corporate Communications; Elie M. Genadry, Vice
President-Institutional Sales; William F. Glavin, Jr., Vice President-
Corporate Development; Henry D. Gottmann, Vice President-Retail Sales and
Service; Mark N. Jacobs, Vice President-Mutual Fund Legal and Compliance
and Secretary; Jeffrey N. Nachman, Vice President-Mutual Fund Accounting;
Andrew S. Wasser, Vice President-Information Services; Katherine C.
Wickham, Vice President-Human Resources; Elvira Oslapas, Assistant
Secretary; Maurice Bendrihem, Controller; and Mandell L. Berman, Frank V.
Cahouet, Alvin E. Friedman, Lawrence M. Greene, Julian M. Smerling and
David B. Truman, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the
Fund's Trustees. The Manager is responsible for investment decisions, and
provides the Fund with portfolio managers who are authorized by the Board
of Trustees to execute purchases and sales of securities. The Fund's
portfolio managers are Joseph P. Darcy, A. Paul Disdier, Karen M. Hand,
Stephen C. Kris, Richard J. Moynihan, Jill C. Shaffro, L. Lawrence
Troutman, Samuel J. Weinstock and Monica S. Wieboldt. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the
Fund as well as for other funds advised by the Manager. All purchases and
sales are reported for the Trustees' review at the Board meeting
subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: taxes, interest, loan commitment
fees, interest and distribution paid on securities sold short, brokerage
fees and commissions, if any, fees of Trustees who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of the Manager, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
independent pricing services, costs of maintaining the Fund's existence,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of shareholders' reports and
meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders, and any extraordinary expenses.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for the Manager's services, the Fund has agreed to
pay the Manager a monthly management fee at the annual rate of .60 of 1%
of the value of the Fund's average daily net assets. The management fees
paid to the Manager for the fiscal years ended May 31, 1993, 1994 and 1995
amounted to $1,031,668, $1,104,362 and $943,634, respectively.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage fees, interest on
borrowings and (with the prior written consent of the necessary state
securities commissions) extraordinary expenses, but including the
management fee, exceed 1-1/3% of the value of the Fund's average net assets
for the fiscal year, the Fund may deduct from the payment to be made to
the Manager under the Agreement, or the Manager will bear, such excess
expense. Such deduction or payment, if any, will be estimated daily, and
reconciled and effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services Plan."
The Fund has adopted a Shareholder Services Plan (the "Plan")
pursuant to which the Fund reimburses Dreyfus Service Corporation for
certain allocated expenses of providing personal services and/or
maintaining shareholder accounts. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder
accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Trustees for their review. In addition, the Plan provides that material
amendments of the Plan must be approved by the Board of Trustees and by
the Trustees who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in the
operation of the Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Plan is subject to annual
approval by such vote of the Trustees cast in person at a meeting called
for the purpose of voting on the Plan. The Plan was so approved on April
26, 1995. The Plan is terminable at any time by vote of a majority of the
Trustees who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Plan.
For the fiscal year ended May 31, 1995, the Fund was charged an
aggregate $79,272 pursuant to the Plan.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor
also acts as distributor for the other funds in the Dreyfus Family of
Funds and for certain other investment companies. In some states, banks
or other financial institutions effecting transactions in Fund shares may
be required to register as dealers pursuant to state law.
Service Charges. There is no sales or service charge by the Fund or
the Distributor although investment dealers, banks and other institutions
may make reasonable charges to investors for their services. The services
provided and the applicable fees are established by each dealer or other
institution acting independently of the Fund. The Fund has been given to
understand that these fees may be charged for customer services including,
but not limited to: same-day investment of client funds; same-day access
to client funds; advice to customers about the status of their accounts,
yield currently being paid, or income earned to date; providing periodic
account statements showing security and money market positions; other
services available from the dealer, bank or other institution; and
assistance with inquiries related to their investments. Any such fees
will be deducted monthly from the investor's account, which on smaller
accounts could constitute a substantial portion of distributions. Small,
inactive, long-term accounts involving monthly service charges may not be
in the best interest of investors. Investors should be aware that they
may purchase Fund shares directly from the Fund without imposition of any
maintenance or service charges, other than those already described herein.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made between the hours of 8:00 a.m. and 4:00 p.m., New York time,
on any business day that The Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), and the New
York Stock Exchange are open. Such purchases will be credited to the
shareholder's Fund account on the next bank business day. To qualify to
use the Dreyfus TeleTransfer Privilege, the initial payment for purchase
of Fund shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or
Shareholder Services Form on file. If the proceeds of a particular
redemption are to be wired to an account at any other bank, the request
must be in writing and signature-guaranteed. See "Redemption of Fund
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year in which the account is closed or during the following
calendar year, provided the information on the old Account Application is
still applicable.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only
to the registered owner(s) of the account and only to the address of
record. The Account Application or later written request must be manually
signed by the registered owner(s). Checks may be made payable to the
order of any person in an amount of $500 or more. When a Check is
presented to the Transfer Agent for payment, the Transfer Agent, as the
investor's agent, will cause the Fund to redeem a sufficient number of
shares in the investor's account to cover the amount of the Check.
Dividends are earned until the Check clears. After clearance, a copy of
the Check will be returned to the investor. Investors generally will be
subject to the same rules and regulations that apply to checking accounts,
although election of this Privilege creates only a shareholder-transfer
agent relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
the investor's account, the Check will be returned marked insufficient
funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Fund will initiate payment for shares redeemed pursuant to
this Privilege on the next business day after receipt by the Transfer
Agent of the redemption request in proper form. Redemption proceeds
will be transferred by Federal Reserve wire only to the commercial bank
account specified by the investor on the Account Application or
Shareholder Services Form. Redemption proceeds, if wired, must be in the
amount of $1,000 or more and will be wired to the investor's account at
the bank of record designated in the investor's file at the Transfer
Agent, if the investor's bank is a member of the Federal Reserve System,
or to a correspondent bank if the investor's bank is not a member. Fees
ordinarily are imposed by such bank and usually are borne by the investor.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmission:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at
1-800-654-7171, toll free. Investors should advise the operator that the
above transmittal code must be used and should also inform the operator of
the Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have also selected the Dreyfus TeleTransfer Privilege, any request
for a wire redemption will be effected as a Dreyfus TeleTransfer
transaction through the Automated Clearing House ("ACH") system unless
more prompt transmittal specifically is requested. Redemption proceeds
will be on deposit in the investor's account at an ACH member bank
ordinarily two business days after receipt of the redemption request. See
"Purchase of Fund Shares--Dreyfus TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. Guarantees must be signed by an authorized signatory of the
guarantor and "Signature-Guaranteed" must appear with the signature. The
Transfer Agent may request additional documentation from corporations,
executors, administrators, trustees or guardians and may accept other
suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to signature-
guarantees, please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Board of Trustees reserves the right to make payments in whole
or in part in securities or other assets of the Fund in case of an
emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In such event,
the securities would be valued in the same manner as the Fund's portfolio
is valued. If the recipient sold such securities, brokerage charges would
be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable or
(c) for such other periods as the Securities and Exchange Commission by
order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares") provided that, if the sales load applicable
to the Offered Shares exceeds the maximum sales load that could
have been imposed in connection with the Purchased Shares (at
the time the Purchased Shares were acquired), without giving
effect to any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must
notify the Transfer Agent of their prior ownership of fund shares and
their account number.
To request an exchange, an investor must give exchange instructions
to the Transfer Agent in writing or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "No" box on the
Account Application, indicating that the investor specifically refuses
this Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor, 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.
To establish a personal retirement plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in corporate plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in
personal retirement plans, the shares exchanged must have a current value
of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund,
shares of another fund in the Dreyfus Family of Funds. This Privilege is
available only for existing accounts. Shares will be exchanged on the
basis of relative net asset value 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 his account falls below the
amount designated under this Privilege. In this case, an investor's
account will fall to zero unless additional investments are made in excess
of the designated amount prior to the next Auto-Exchange transaction.
Shares held under IRA and other retirement plans are eligible for this
Privilege. Exchanges of IRA shares may be made between IRA accounts and
from regular accounts to IRA accounts, but not from IRA accounts to
regular accounts. With respect to all other retirement accounts,
exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available
to shareholders resident in any state in which shares of the fund being
acquired legally may be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or
the Dreyfus Auto-Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. There is a service charge of $.50 for each
withdrawal check. Automatic Withdrawal may be terminated at any time by
the investor, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the
basis of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds that
are offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with
a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. The Fund's investments are valued
by an independent pricing service (the "Service") approved by the Board of
Trustees. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side
of the market, these investments are valued at the mean between the quoted
bid prices (as obtained by the Service from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation
of the market for such securities). Other investments (which constitute a
majority of the portfolio securities) are carried at fair value as
determined by the Service, based on methods which include consideration
of: yields or prices of municipal bonds of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. The Service's
procedures are reviewed by the Fund's officers under the general
supervision of the Board of Trustees. Expenses and fees, including the
management fee (reduced by the expense limitation, if any), are accrued
daily and are taken into account for the purpose of determining the net
asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on
which the New York Stock Exchange is closed currently are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly-issued securities
ordinarily are purchased directly from the issuer or from an underwriter;
other purchases and sales usually are placed with those dealers from which
it appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases
and sales, although the price paid usually includes an undisclosed
compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid
by the issuer to the underwriter, and purchases of after-market securities
from dealers ordinarily are executed at a price between the bid and asked
price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to
that primary consideration, dealers may be selected for research,
statistical or other services to enable the Manager to supplement its own
research and analysis with the views and information of other securities
firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses
of its research department.
The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 100%, but the turnover rate will not be a
limiting factor when the Fund deems it desirable to sell or purchase
securities. Therefore, depending upon market conditions, the Fund's
annual portfolio turnover rate may exceed 100% in particular years.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
The Internal Revenue Code of 1986, as amended, (the "Code"), provides
that if a shareholder has not held his Fund shares for more than six
months (or such shorter period as the Internal Revenue Service may
prescribe by regulation) and has received an exempt-interest dividend with
respect to such shares, any loss incurred on the sale of such shares shall
be disallowed to the extent of the exempt-interest dividend received. In
addition, any dividend or distribution paid shortly after an investor's
purchase may have the effect of reducing the net asset value of his shares
below the cost of his investment. Such a distribution would be a return
on the investment in an economic sense although taxable as stated in
"Dividends, Distributions and Taxes" in the Prospectus.
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gain or loss. However, all or a portion of any
gains realized from the sale or other disposition of certain market
discount bonds will be treated as ordinary income under Section 1276 of
the Code.
Investment by the Fund in securities issued at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could, under special tax rules, affect the amount,
timing and character of distributions to shareholders. For example, the
Fund could be required to take into account annually a portion of the
discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a
regulated investment company. In such case, the Fund may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Performance Information."
The Fund's current yield for the 30-day period ended May 31, 1995 was
5.07%. Current yield is computed pursuant to a formula which operates as
follows: The amount of the Fund's expenses accrued for the 30-day period
is subtracted from the amount of the dividends and interest earned
(computed in accordance with regulatory requirements) by the Fund during
the period. That result is then divided by the product of: (a) the
average daily number of shares outstanding during the period that were
entitled to receive dividends, and (b) the net asset value per share on
the last day of the period less any undistributed earned income per share
reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power,
after which 1 is subtracted. The current yield is then arrived at by
multiplying the result by 2.
Based upon a combined 1995 Federal and Massachusetts tax rate of
46.85%, the Fund's tax equivalent yield for the 30-day period ended May
31, 1995 was 9.54%. Tax equivalent yield is computed by dividing that
portion of the current yield (calculated as described above) which is tax
exempt by 1 minus a stated tax rate and adding the quotient to that
portion, if any, of the yield of the Fund that is not tax exempt.
The tax equivalent yield noted above represents the application of
the highest Federal and Commonwealth of Massachusetts marginal personal
income tax rates presently in effect. For Federal personal income tax
purposes, a 39.6% tax rate has been used. For Massachusetts personal
income tax purposes, a 12% tax rate has been used. The tax equivalent
figure, however, does not include the potential effect of any local
(including, but not limited to, county, district or city) taxes, including
applicable surcharges. In addition, there may be pending legislation
which could affect such stated tax rates or yield. Each investor should
consult its tax adviser, and consider its own factual circumstances and
applicable tax laws, in order to ascertain the relevant tax equivalent
yield.
The Fund's average annual total return for the 1 and 5 year periods
ended May 31, 1995 and for the period from June 11, 1985 (commencement of
operations) through May 31, 1995, was 7.39%, 7.86% and 7.57%,
respectively. Average annual total return is calculated by determining
the ending redeemable value of an investment purchased with a hypothetical
$1,000 payment made at the beginning of the period (assuming the
reinvestment of dividends and distributions), dividing by the amount of
the initial investment, taking the "n"th root of the quotient (where "n"
is the number of years in the period) and subtracting 1 from the result.
The Fund's total return for the period June 11, 1985 (commencement of
operations) through May 31, 1995 was 107.09%. Total return is calculated
by subtracting the amount of the Fund's net asset value per share at the
beginning of a stated period from the net asset value per share at the end
of the period (after giving effect to the reinvestment of dividends and
distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.
From time to time, the Fund may use hypothetical tax equivalent
yields or charts in its advertising. These hypothetical yields or charts
will be used for illustrative purposes only and are not representative of
the Fund's past or future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or
events, and actual or proposed tax legislation. From time to time,
advertising materials for the Fund also may refer to statistical or other
information concerning trends relating to investment companies, as
compiled by industry associations such as the Investment Company
Institute. From time to time, advertising materials for the Fund also may
refer to Morningstar ratings and related analyses supporting the rating.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
nonassessable. Fund shares are of one class and have equal rights as to
dividends and in liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286,
is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
portfolio securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares of beneficial interest being sold pursuant to the Fund's
Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as independent auditors of the
Fund.
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 Statement
of Additional Information. While the Fund has not independently verified
this information, it has no reason to believe that such information is not
correct in all material aspects.
At the present time, the Commonwealth of Massachusetts' economy is
experiencing a modest recovery following a slow down that began in mid-
1988. Massachusetts has nonetheless undergone serious financial
difficulties in recent years that have adversely affected the
Commonwealth's credit standing. While Massachusetts had benefitted from
an annual job growth rate of approximately 2% since the early 1980s, by
1989 employment started to decline. Between 1988 and 1992, total
employment in Massachusetts declined 10.7 percent. In 1993 and 1994,
however, total employment increased by 1.6 percent and 2.2 percent,
respectively. Employment levels increased in all sectors except
manufacturing. Between 1990 and 1992, the Commonwealth's unemployment
rate was considerably higher than the national average, although
unemployment rates in Massachusetts since 1993 have declined faster than
the national average. As a result, the average monthly unemployment rate
in Massachusetts for 1993 was only slightly higher than the national
average (6.9 percent compared to 6.8 percent) and the unemployment rate in
Massachusetts in 1994 was slightly below the national average (6.0 percent
compared to 6.1 percent).
Massachusetts' economic and fiscal difficulties of recent years
appear to have abated. While the Commonwealth's expenditures for State
programs and services in each of the fiscal years 1987 through 1991
exceeded each year's current revenues, Massachusetts ended each of the
fiscal years 1991 to 1994 and expects to end fiscal 1995 with a positive
closing fund balance in its budgeted operating funds.
Massachusetts expenditures for State government programs and services
in each of the fiscal years 1987 through 1991, inclusive, exceeded each
fiscal year's current revenues. In fiscal years 1987 and 1988, largely by
drawing on fund balances from prior years, Massachusetts ended each fiscal
year with budgetary surpluses. However, fiscal years 1989 and 1990 ended
with operating deficits of $672.5 million and $1.25 billion, respectively.
In fiscal 1991, total revenues and other sources of the budgeted
operating funds increased by 13.8% over the prior year, to $13.913
billion. This increase was due chiefly to State tax rate increases
enacted in 1990 and to a substantial federal reimbursement under the
Medicaid program for uncompensated patient care payments, as well as other
factors. The Commonwealth ended fiscal 1991 with an operating loss of
$21.2 million, but with positive closing fund balances of $237.1 million.
Budgeted revenues and other sources for fiscal 1992 were $13.728
billion, including tax revenues of $9.484 billion. Budgeted revenues and
other sources increased by approximately 0.7% from fiscal 1991 to fiscal
1992, while tax revenues increased by 5.4% for the same period.
Commonwealth expenditures and other uses were approximately $13.420
billion for fiscal 1992, which is $238.7 million or 1.7% lower than fiscal
1991 budgeted expenditures and other uses. Final fiscal 1992 budgeted
expenditures were approximately $300 million higher than the initial July
1991 estimates of budgetary expenditures. A large portion of the increase
in spending resulted from increases in certain human services programs,
including an increase of $268.7 million for the Medicaid program and $50.0
million for mental retardation consent decree requirements. Fiscal 1992
expenditures for Medicaid were $2.818 billion, or 1.9% higher than fiscal
1991. This increase compares favorably with the 19.25% average annual
growth rate of Medicaid expenditures for fiscal years 1988 through 1991.
Overall, the budgeted operating funds ended fiscal 1992 with an excess of
revenues and other sources over expenditures and other uses of $312.3
million.
The budgeted operating funds of the Commonwealth ended fiscal 1993
with a surplus of revenues and other sources over expenditures and other
uses of $13.1 million. Budgeted revenues and other sources for fiscal
1993 totaled approximately $14.710 billion, including tax revenues of
$9.40 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues
increased by 4.7% for the same period.
Budgeted operating funds of the Commonwealth ended fiscal 1994 with a
surplus of revenues and other sources over expenditures and other uses of
$26.8 million and the aggregate ending fund balance in the budgeted
operating funds of the Commonwealth was approximately $589.3 million.
Budgeted revenues and other sources for fiscal 1994 totaled approximately
$15.55 billion, including tax revenues of $10.607 billion. Budgeted
expenditures and other uses in fiscal 1994 totaled $15.52 billion,
approximately 5.6% higher than budgeted expenditures and other uses in
fiscal 1993.
In recent years, health care related costs have risen dramatically in
Massachusetts and across the nation and the increase in the State's
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. During fiscal years 1989, 1990,
1991 and 1992, Medicaid expenditures were $1.83 billion, $2.12 billion,
$2.77 billion and $2.82 billion, respectively, representing an average
annual increase of 15.4%. Expenditures for fiscal 1993 were $3.15
billion, an 11.8% increase over fiscal 1992. Medicaid expenses in fiscal
1994 were $3.31 billion.
Massachusetts' pension costs have risen dramatically as the State has
appropriated funds to address in part the unfunded liabilities that had
accumulated over several decades. Total pension costs increased at an
average annual rate of 7.1% from $659.7 million in fiscal 1989 to $868.2
million in fiscal 1993. Pension costs (inclusive of current benefits and
pension reserves) for fiscal 1994 were $908.9 million, an increase of 4.7%
over fiscal 1993 expenditures.
Payments for debt service on Massachusetts general obligation bonds
and notes have risen at an average annual rate of 11.6% from $649.8
million in fiscal 1989 to $1.15 billion in fiscal 1994. Debt service
payments were $898.3 million in fiscal 1992, $1.14 billion in fiscal 1993
and $1.15 billion in fiscal 1994. In 1990, legislation was enacted which
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, 1995, the State had approximately
$9,595 billion of long-term general obligation debt outstanding and short-
term direct obligations of the Commonwealth totalled $264 million.
Certain independent authorities and agencies within the State are
statutorily authorized to issue debt for which Massachusetts is either
directly, in whole or in part, or indirectly liable. The State's
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. The State is indirectly liable for the debt of
certain authorities through 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 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. During the 1980s, 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 1994, approximately 17.59% of Massachusetts' budget was
allocated to Local Aid. Direct Local Aid has dropped from a high of
$2.961 billion in fiscal 1989 to $2.727 billion in fiscal 1994.
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 effect, if any, such factors
would have on Massachusetts' Municipal Obligations cannot be predicted.
APPENDIX B
Description of certain S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will
include: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature and provisions of
the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small
degree.
A
Principal and interest payments on bonds in this category are
regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management
performance appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of
debt service. The difference between A and BBB rating is that the latter
shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the
pledged revenues could show substantial variations with the revenue flow
possibly being subject to erosion over time. Basic security provisions
are no more than adequate. Management performance could be stronger.
BB, B, CCC, CC
Debt rated BB, B, CCC or CC is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.
C
The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are idefault, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or
minus sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) sign
designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
The rating A is the highest rating and is assigned by S&P to issues
that are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety. Paper rated A-1 indicates that
the degree of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major ratings categories, except in the Aaa category
and in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower
end of a rating category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings
recognize the difference between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower and short-term
cyclical elements are critical in short-term ratings, while other factors
of major importance in bond risk, long-term secular trends for example,
may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand
feature is not rated, as NR. Short-term ratings on issues with demand
features are differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to
the external liquidity with no or limited legal recourse to the issuer in
the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when
Moody's assigns a MIG or VMIG rating, all categories define an investment
grade situation.
MIG 1/VMIG 1
This description denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins
in earnings coverage of fixed financial charges and high internal cash
generation and well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations.
This ordinarily will be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of
interest and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the highest
potential for recovery on these bonds and D represents lowest potential
for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category covering
12-36 months or the DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF INVESTMENTS MAY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-99.4% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
MASSACHUSETTS-95.0%
Boston:
6.75%, 7/1/2011 (Insured; MBIA, Prerefunded 7/1/2001) (a)............... $ 2,500,000 $ 2,815,925
6.50%, 7/1/2012 (Insured; AMBAC)........................................ 3,000,000 3,255,270
Revenue, Refunding (Boston City Hospital):
5.75%, 2/15/2013 (Insured; FHA)....................................... 2,000,000 1,954,220
5.75%, 2/15/2023 (Insured; FHA)....................................... 5,750,000 5,526,383
5.75%, 2/15/2023 (Insured; MBIA)...................................... 3,950,000 3,911,764
Boston-Mount Pleasant Housing Development Corp., MFHR, Refunding
6.75%, 8/1/2023 (Insured; FHA).......................................... 1,700,000 1,768,051
Massachusetts Bay Transportation Authority:
6.40%, 3/1/2015
(Guaranteed; Massachusetts Commonwealth, Prerefunded 3/1/1997) (a).... 3,000,000 3,164,730
General Transportation System 5.875%, 3/1/2019.......................... 3,000,000 2,997,750
Refunding 6.20%, 3/1/2016............................................... 4,225,000 4,506,385
Massachusetts Commonwealth:
Consolidated Loan:
6%, 6/1/2011.......................................................... 3,500,000 3,536,785
6%, 7/1/2012.......................................................... 2,000,000 2,024,220
Refunding:
5.25%, 2/1/2008....................................................... 1,500,000 1,482,810
6%, Series A, 8/1/2012................................................ 2,000,000 2,024,420
6%, Series B, 8/1/2012 (Insured; FGIC)................................ 1,755,000 1,785,519
Massachusetts Convention Center Authority (Boston Common Parking Garage)
5.375%, 9/1/2013........................................................ 2,250,000 2,160,090
Massachusetts Education Loan Authority, Education Loan Revenue
8%, 6/1/2002 (LOC; Rabobank Nederland) (b).............................. 760,000 802,492
Massachusetts Health and Educational Facilities Authority, Revenue:
(Amherst College) 6.375%, 11/1/2019..................................... 1,000,000 1,034,390
(Berklee College of Music) 6.875%, 10/1/2021 (Insured; MBIA)............ 4,380,000 4,757,644
(Boston University) 6%, 10/1/2022 (Insured; MBIA)....................... 1,175,000 1,189,452
(Jordan Hospital) 7.85%, 8/15/2028 (Insured; FHA, Prerefunded 8/15/1998) (a). 3,295,000 3,630,991
(Lahey Clinic Medical Center):
5.625%, 7/1/2015 (Insured; MBIA)...................................... 3,085,000 3,039,219
5.375%, 7/1/2023 (Insured; MBIA)...................................... 1,000,000 949,330
(Massachusetts General Hospital):
6.25%, 7/1/2020 (Insured; AMBAC)...................................... 3,500,000 3,624,145
Refunding:
6%, 7/1/2015 (Insured; AMBAC)..................................... 2,000,000 2,040,800
5.25%, 7/1/2023 (Insured; AMBAC).................................. 2,000,000 1,866,640
(Mclean Hospital) 6.50%, 7/1/2010 (Insured; FGIC)....................... 1,000,000 1,076,460
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF INVESTMENTS MAY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- --------------
MASSACHUSETTS (CONTINUED)
Massachusetts Health and Educational Facilities Authority, Revenue
(continued):
(Medical Academic & Scientific) 6.625%, 1/1/2015........................ $ 3,000,000 $ 3,056,850
(Mount Auburn Hospital) 6.30%, 8/15/2024 (Insured; MBIA)................ 5,000,000 5,186,650
(New England Medical Center Hospitals) 6.50%, 7/1/2012 (Insured; FGIC).. 1,000,000 1,071,420
(Refunding - Baystate Medical Center) 6%, 7/1/2015 (Insured; FGIC)...... 1,140,000 1,159,756
(Refunding - Milton Hospital) 7%, 7/1/2016 (Insured; MBIA).............. 1,000,000 1,098,140
(Youville Hospital):
8.875%, 8/1/2004 (Insured; FHA, Prerefunded 2/1/1996) (a)............. 1,295,000 1,363,441
9.10%, 8/1/2015 (Insured; FHA, Prerefunded 2/1/1996) (a).............. 2,030,000 2,137,610
Massachusetts Housing Finance Agency, Revenue:
Housing Projects, Refunding:
6.30%, 10/1/2013 (Insured; AMBAC)..................................... 1,000,000 1,037,730
6.375%, 4/1/2021...................................................... 4,385,000 4,443,584
Multi-Family Residential Housing 9.60%, 8/1/2022........................ 1,795,000 1,834,598
Rental, Refunding:
6.65%, 7/1/2019 (Insured; AMBAC)...................................... 2,475,000 2,578,257
6.75%, 7/1/2028 (Insured; AMBAC)...................................... 2,870,000 2,994,960
Single-Family Housing:
6.60%, Series 32, 12/1/2026........................................... 2,000,000 2,033,840
6.60%, Series 36, 12/1/2026........................................... 1,000,000 1,021,000
Massachusetts Industrial Finance Agency, Revenue:
Electrical Utility (Nantucket Electric Co.) 8.50%, 3/1/2016............. 3,000,000 3,244,800
(Refunding-Harvard Community Health) 8.125%, 10/1/2017.................. 4,000,000 4,429,920
(Refunding-Holy Cross College):
6%, 11/1/2002......................................................... 400,000 425,788
6.375%, 11/1/2015..................................................... 2,000,000 2,092,740
Massachusetts Municipal Wholesale Electric Co., Power Supply System Revenue,
Refunding:
6.40%, 7/1/2002....................................................... 400,000 429,092
6.625%, 7/1/2018...................................................... 3,500,000 3,653,720
6.125%, 7/1/2019...................................................... 2,500,000 2,502,400
6.125%, 7/1/2019 (Insured; MBIA)...................................... 2,975,000 3,042,324
Massachusetts Port Authority, Revenue:
6%, 7/1/2013............................................................ 2,050,000 2,063,735
9.375%, 7/1/2015 (Prerefunded 7/1/1995) (a)............................. 325,000 333,027
9.375%, 7/1/2015 (Prerefunded 7/1/1995) (a)............................. 675,000 691,497
6%, 7/1/2023............................................................ 3,000,000 2,991,720
Special Project (Harborside Hyatt) 10%, 3/1/2026........................ 8,000,000 8,865,280
New Bedford 5.75%, 3/1/2006................................................. 1,565,000 1,568,302
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF INVESTMENTS MAY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- --------------
MASSACHUSETTS (CONTINUED)
New England Education Loan Marketing Corp., Student Loan Revenue
6.90%, 11/1/2009........................................................ $ 3,000,000 $ 3,209,880
Quincy, Revenue, Refunding (Quincy City Hospital):
5%, 1/15/2005 (Insured; FSA)............................................ 2,000,000 1,983,320
5.25%, 1/15/2016 (Insured; FSA)......................................... 2,000,000 1,893,820
Southbridge 6.375%, 1/1/2012 (Insured; AMBAC)............................... 1,000,000 1,052,880
Worcester, IDR (National Envelope Corp. Project)
8%, 12/1/2004 (LOC; Manufacturers Hanover Trust Co.) (b)................ 4,000,000 4,250,440
U.S. RELATED-4.4%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 3,000,000 3,087,480
Virgin Islands Water and Power Authority, Electric System Revenue 7.40%, 7/1/2011 3,450,000 3,691,776
--------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $145,287,768)................... $153,447,662
==============
SHORT-TERM MUNICIPAL INVESTMENTS-.6%
MASSACHUSETTS;
Massachusetts Health and Educational Facilities Authority, Revenue, VRDN
(Capital Asset Program) 3.80% (Insured; MBIA) (c)
(cost $1,000,000)....................................................... $ 1,000,000 $ 1,000,000
==============
TOTAL INVESTMENTS-100.0%
(cost $146,287,768)..................................................... $154,447,662
==============
</TABLE>
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
FGIC Financial Guaranty Insurance Company MBIA Municipal Bond Investors
FHA Federal Housing Administration Assurance Insurance Corporation
FSA Financial Security Assurance MFHR Multi-Family Housing Revenue
IDR Industrial Development Revenue VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
-------- -------- ------------------ --------------------
<S> <C> <C> <C>
AAA Aaa AAA 39.7%
AA Aa AA 13.1
A A A 31.1
BBB Baa BBB 5.4
F1+ & F1 MIG1, VMG1 & P1 SP1 & A1 .6
Not Rated (e) Not Rated (e) Not Rated (e) 10.1
-------
100.0%
=======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Bonds which are prerefunded are collateralized by U.S. Government
Securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(b) Secured by letters of credit.
(c) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(d) Fitch currently provides creditworthiness information for a limited
number of investments.
(e) Securites which, while not rated by Fitch, Moody's or Standard &
Poor's, have been determined by the Manager to be of comparable quality
to those rated securities in which the Fund may invest.
(f) At May 31, 1995, the Fund had $48,944,028 (30.4% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from health care projects.
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $146,287,768)-see statement..................................... $154,447,662
Cash.................................................................... 614,584
Receivable for investment securities sold............................... 5,663,150
Interest receivable..................................................... 3,292,587
Prepaid expenses........................................................ 8,001
-------------
164,025,984
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 88,003
Payable for investment securities purchased............................. 3,076,480
Accrued expenses........................................................ 111,832 3,276,315
--------------- -------------
NET ASSETS ................................................................ $160,749,669
=============
REPRESENTED BY:
Paid-in capital......................................................... $157,162,614
Accumulated net realized capital losses and distributions in excess of
net realized gain on investments...................................... (4,572,839)
Accumulated net unrealized appreciation on investments-Note 3........... 8,159,894
-------------
NET ASSETS at value applicable to 9,893,424 shares outstanding
(unlimited number of $.01 par value shares of Beneficial Interest authorized)
$160,749,669
=============
NET ASSET VALUE, offering and redemption price per share
($160,749,669 / 9,893,424 shares)....................................... $16.25
=======
</TABLE>
<TABLE>
<CAPTION>
See notes to financial statements.
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 10,334,220
EXPENSES:
Management fee-Note 2(a).............................................. $ 943,634
Shareholder servicing costs-Note 2(b)................................. 205,473
Professional fees..................................................... 35,649
Custodian fees........................................................ 16,934
Trustees' fees and expenses-Note 2(c)................................. 16,224
Prospectus and shareholders' reports.................................. 14,252
Registration fees..................................................... 13,606
Miscellaneous......................................................... 8,798
-----------
TOTAL EXPENSES.................................................. 1,254,570
--------------
INVESTMENT INCOME-NET........................................... 9,079,650
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $(1,987,488)
Net unrealized appreciation on investments.............................. 4,202,720
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 2,215,232
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 11,294,882
==============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31,
--------------------------------
1994 1995
-------------- -------------
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 9,841,803 $ 9,079,650
Net realized (loss) on investments...................................... (1,956,469) (1,987,488)
Net unrealized appreciation (depreciation) on investments for the year.. (3,680,332) 4,202,720
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 4,205,002 11,294,882
-------------- --------------
DIVIDENDS TO SHAREHOLDERS:
From investment income-net.............................................. (9,922,292) (9,079,650)
From net realized gain on investments................................... (2,229,211) (1,973)
In excess of net realized gain on investments........................... (2,583,378) ---
-------------- --------------
TOTAL DIVIDENDS....................................................... (14,734,881) (9,081,623)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 47,458,511 57,695,559
Dividends reinvested.................................................... 11,443,149 6,757,358
Cost of shares redeemed................................................. (63,499,837) (74,389,458)
-------------- --------------
(DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS........ (4,598,177) (9,936,541)
-------------- --------------
TOTAL (DECREASE) IN NET ASSETS.................................... (15,128,056) (7,723,282)
NET ASSETS:
Beginning of year....................................................... 183,601,007 168,472,951
-------------- --------------
End of year............................................................. $168,472,951 $160,749,669
============== ==============
SHARES SHARES
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 2,815,211 3,687,475
Shares issued for dividends reinvested.................................. 673,634 430,673
Shares redeemed......................................................... (3,772,878) (4,733,211)
============== ==============
NET (DECREASE) IN SHARES OUTSTANDING.................................. (284,033) (615,063)
============== ==============
See notes to financial statements.
</TABLE>
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
Condensed Financial Information:
Reference is made to Page 4 of the Prospectus dated Septmber 1, 1995.
See notes to financial statements.
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Dreyfus Service
Corporation, until August 24, 1994, acted as the exclusive distributor of the
Fund's shares, which are sold to the public without a sales charge. Dreyfus
Service Corporation is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager"). Effective August 24, 1994, the Manager became a direct
subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
(A) PORTFOLIO VALUATION: The Fund's investments are valued each business
day by an independent pricing service ("Service") approved by the Board of
Trustees. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of municipal securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Fund may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
The Fund has an unused capital loss carryover of $3,440,000 available for
Federal income tax purposes to be applied against future net securities
profit, if any, realized subsequent to May 31, 1995. The carryover does not
include net realized securities losses from November 1, 1994 through May 31,
1995 which are treated, for Federal income tax purposes, as arising in fiscal
1996. If not applied, the carryover expires in fiscal 2003.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Fund for any full fiscal year. The most stringent state
expense limitation applicable to the Fund presently requires reimbursement of
expenses in any full fiscal year that such expenses (exclusive of certain
expenses as described above) exceed 21\2% of the first $30 million, 2% of the
next $70 million and 11\2% of the excess over $100 million of the average
value of the Fund's net assets in accordance with California "blue sky"
regulations. There was no expense reimbursement for the year ended May 31,
1995.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation an amount not to exceed an annual rate of .25 of
1% of the value of the Fund's average daily net assets for servicing
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. During the year ended May
31, 1995, the Fund was charged an aggregate of $79,272 pursuant to the
Shareholder Services Plan.
(C) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives an annual fee of $1,500 and an attendance fee of $250 per meeting.
The Chairman of the Board receives an additional 25% of such compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $134,160,020 and $146,186,793, respectively, for the year ended
May 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At May 31, 1995, accumulated net unrealized appreciation on investments
was $8,159,894, consisting of $8,397,152 gross unrealized appreciation and
$237,258 gross unrealized depreciation.
At May 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus Massachusetts Tax Exempt Bond Fund, as of May 31, 1995, including the
statement of investments, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 1995 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Massachusetts Tax Exempt Bond Fund at May 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with generally
accepted accounting principles.
(Ernst & Young LLP Signature Logo
New York, New York
June 28, 1995
