- -----------------------------------------------------------------------------
PROSPECTUS SEPTEMBER 1, 1995
AS REVISED JUNE 28, 1996
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
- -----------------------------------------------------------------------------
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND (THE "FUND") IS AN
OPEN-END, NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A
MUNICIPAL BOND FUND. THE FUND'S INVESTMENT OBJECTIVE 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.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Annual Fund Operating Expenses.................... 3
Condensed Financial Information................... 4
Description of the Fund........................... 4
Management of the Fund............................ 8
How to Buy Shares................................. 10
Shareholder Services.............................. 11
How to Redeem Shares.............................. 14
Shareholder Services Plan......................... 17
Dividends, Distributions and Taxes................ 17
Performance Information........................... 19
General Information............................... 20
Appendix.......................................... 21
- -----------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------
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>
- -----------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
- -----------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund, 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
(1)From June 11, 1985 (commencement of operations) to May 31, 1986.
(2)Annualized.
(3)Not annualized.
</TABLE>
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 investment objective 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 its investment
objective, 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
Page 4
Massachusetts Municipal Obligations are at any time unavailable for
investment by the Fund, the Fund may invest temporarily in other debt
securities the interest from which is, in the opinion of bond counsel to the
issuer, exempt from Federal, but not 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,
as amended (the "1940 Act")) 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 "Investment Considerations and
Risks _ 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 Ratings Group, a division of The McGraw-Hill Companies, Inc. ("S&P"),
or Fitch Investors Service, L.P. ("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
Page 5
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 speculative
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. Although it currently has no
intention of doing so, the Fund may invest in Municipal Obligations rated
C by 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
"Investment Considerations and Risks _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 under "Appendix -- Certain
Portfolio Securities -- Taxable Investments."
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 annual portfolio turnover rate for the Fund is not expected to
exceed 100%. The Fund may engage in, as permitted by applicable law, various
investment techniques, such as options and futures transactions and lending
portfolio securities. Use of certain of these techniques may give rise to
taxable income. See also "Investment Considerations and Risks," "Appendix --
Investment Techniques" and "Dividends, Distributions and Taxes" below and
"Investment Objective and Management Policies -- Management Policies" in the
Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- Even though interest-bearing securities are investments which
promise a stable stream of income, the prices of such securities are
inversely affected by changes in interest rates and, therefore, are subject
to the risk of market price fluctuations. Certain securities that may be
purchased by the Fund, such as those with interest rates that fluctuate
directly or indirectly based on multiples of a stated index, are designed to
be highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and possibly loss of principal. The
values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating
of a portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security. The Fund's net asset value generally will not be stable and should
Page 6
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.
INVESTING IN MASSACHUSETTS MUNICIPAL OBLIGATIONS -- You should consider
carefully the special risks inherent in the Fund's investment in
Massachusetts Municipal Obligations. Since 1989, Massachusetts has
experienced growth rates significantly below the national average and an
economic recession in 1990 and 1991 caused negative growth rates in
Massachusetts. 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' operating losses in
fiscal 1989 and 1990, which totalled $672 million and $1.25 billion,
respectively, were covered primarily through deficit borrowings, and a fiscal
1991 operating loss of $21 million was covered by drawing on the adjusted
1990 fund balance of $258 million. The budgeted operating funds of
Massachusetts ended fiscal years 1992 through 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 1995 is
estimated to have ended with a positive budgeted operating fund balance. You
should obtain and review a copy of the Statement of Additional Information
which more fully sets forth these and other risk factors.
INVESTING IN MUNICIPAL OBLIGATIONS -- The Fund may invest more than 25% of
the value of its total assets in Municipal Obligations which are related in
such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for
example, securities the interest upon which is paid from revenues of similar
types of projects. As a result, the Fund may be subject to greater risk as
compared to a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, The Dreyfus Corporation will
consider, on an ongoing basis, a number of factors including the likelihood
that the issuing municipality will discontinue appropriating funding for the
leased property.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase
the cost of the Municipal Obligations available for purchase by the Fund and
thus reduce available yield. Shareholders should consult their tax advisers
concerning the effect of these provisions on an investment in the Fund.
Proposals that may restrict or eliminate the income tax exemption for
interest on Municipal Obligations may be introduced in the future. If any
such proposal were enacted that would reduce the availability of Municipal
Obligations for investment by the Fund so as to adversely affect Fund
shareholders, the Fund would reevaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a type of
Municipal Obligation as taxable, the Fund would treat such security as a
permissible Taxable Investment within the applicable limits set forth herein.
ZERO COUPON SECURITIES -- 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
Page 7
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.
LOWER RATED BONDS _ The Fund may invest up to 20% of the value of its net
assets in higher yielding (and, therefore, higher risk) debt securities such
as those rated 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 (commonly known as junk bonds). 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. 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. See
"Appendix _ Certain Portfolio Securities _ Ratings."
USE OF DERIVATIVES -- The Fund may invest, to a limited extent, in
derivatives ("Derivatives"). These are financial instruments which derive
their performance, at least in part, from the performance of an underlying
asset, index or interest rate. The Derivatives the Fund may use include
options and futures. While Derivatives can be used effectively in furtherance
of the Fund's investment objective, under certain market conditions, they can
increase the volatility of the Fund's net asset value, can decrease the
liquidity of the Fund's portfolio and make more difficult the accurate
pricing of the Fund's portfolio. See "Appendix -- Investment Techniques --
Use of Derivatives" below, and "Investment Objective and Management Policies
- -- Management Policies -- Derivatives"in the Statement of Additional
Information.
NON-DIVERSIFIED STATUS -- The classification of the Fund 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 1940 Act. A "diversified" investment company is required by
the 1940 Act generally, with respect to 75% of its total assets, to invest
not more than 5% of such assets in the securities of a single issuer. Since a
relatively high percentage of the Fund's assets may be invested in the
obligations of a limited number of issuers, the Fund's portfolio may be more
sensitive to changes in the market value of a single issuer. However, to meet
Federal tax requirements, at the close of each quarter the Fund may not have
more than 25% of its total assets invested in any one issuer and, with
respect to 50% of total assets, not more than 5% of its total assets invested
in any one issuer. These limitations do not apply to U.S. Government
securities.
SIMULTANEOUS INVESTMENTS -- Investment decisions for the Fund are made
independently from those of other investment companies advised by The Dreyfus
Corporation. If, however, such other investment companies desire to invest
in, or dispose of, the same securities as the Fund, available investments or
opportunities for sales will be allocated equitably to each investment
company. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or
received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- 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 May 31, 1996, The Dreyfus Corporation managed
or administered approximately $80 billion in assets for more than 1.7 million
investor accounts nationwide.
Page 8
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 authority of the Fund's Board in accordance with Massachusetts
law. The Fund's primary portfolio manager is Joseph P. Darcy. He has held
that position since January 1996, and has been employed by The Dreyfus
Corporation since May 1994. From October 1989 to May 1994, Mr. Darcy was Vice
President and a Portfolio Manager for Merrill Lynch Asset Management. The
Fund's other portfolio managers are identified in the Statement of Additional
Information. The Dreyfus Corporation also provides research services for the
Fund and 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
$237 billion in assets as of March 31, 1996, including approximately $83
billion in proprietary mutual fund assets. As of March 31, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $886 billion in assets,
including approximately $61 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. The Fund will
not pay The Dreyfus Corporation at a later time for any amounts it may waive,
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
In allocating brokerage transactions for the Fund, TheDreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay securities
dealers, banks or other financial institutions in respect of these services.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus 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.
Page 9
HOW TO BUY 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 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 BuilderRegistration Mark, 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."
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
Page 10
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. For
purposes of determining net asset value per share, options and futures
contracts will be valued 15 minutes after the close of trading on the floor
of the New York Stock Exchange. Net asset value per share is computed by
dividing the value of the Fund's net assets (i.e., the value of its assets
less liabilities) by the total number of shares outstanding. The Fund's
investments are valued by an independent pricing service approved by the
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 Fund's 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 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 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
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
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 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
Page 11
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 1-800-645-6561 or, if you are
calling from overseas, call 516-794-5452. See "How to Redeem 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 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. See
"Dividends, Distributions and Taxes."
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 a shareholder. 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 contemplated. For more information concerning this Privilege and the funds
in the Dreyfus Family of Funds eligible to participate in this Privilege, or
to obtain a Dreyfus Auto-Exchange Authorization Form, please call toll free
1-800-645-6561. See "Dividends, Distributions and Taxes."
Page 12
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 BuilderRegistration Mark, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a
Dreyfus Step Program account, you must supply the necessary information on
the Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-782-6620.
You may terminate your participation in this Program at any time by
discontinuing your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time.
Page 13
DREYFUS DIVIDEND OPTIONS -- Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share price
s which do not include the sales load or which reflect a reduced sales load.
If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be subject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits you to transfer electronically dividends or dividends
and capital gain distributions, if any, from the Fund to a designated bank
account. Only an account maintained at a domestic financial institution which
is an 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. 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 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 BUILDERRegistration
Mark 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 PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE
OR TELEPHONE OR PURSUANT TO THE
Page 14
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, or, if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent, through the 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. The Fund reserves the right to refuse
any request made by wire or telephone, including requests made shortly after
a change of address, and may limit the amount involved or the number of
telephone redemption requests. The Fund may modify or terminate any
redemption Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated. Shares for which
certificates have been issued are not eligible for the Check Redemption, Wire
Redemption, Telephone Redemption or DreyfusTELETRANSFER Privilege.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select 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 proce-
Page 15
dures 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 write Redemption Checks drawn on your Fund
account. 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. This Privilege will be
terminated immediately, without notice, with respect to any account which is,
or becomes, subject to backup withholding on redemptions (see "Dividends,
Distributions and Taxes"). Any redemption check written on an account which
has become subject to backup withholding on redemptions will not be honored
by the Transfer Agent.
WIRE REDEMPTION PRIVILEGE -- You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. You also 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
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE -- You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
DREYFUS TELETRANSFER PRIVILEGE -- You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be
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.
Page 16
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by telephoning
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
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. The
Fund's earnings for Saturdays, Sundays and holidays are declared as dividends
on the next business day. Dividends usually are paid on the last business day
of each month and are automatically reinvested in additional Fund shares at
net asset value or, at your option, paid in cash. If you redeem all shares in
your account at any time during the month, 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 1940 Act. 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. Dividends and
distributions attributable to income or gain derived from securities
transactions and from the use of certain of the investment techniques
described under "Appendix -- Investment Techniques" will be subject to
Federal income tax. 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
Page 17
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 are
properly designated as such. Dividends or distributions paid 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 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.
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.
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.
Page 18
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.
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.
Page 19
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 Board members 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 Board member. The Trust Agreement provides for indemnification from
the Fund's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder'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
Fund intends to conduct its operations 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
Board members.
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.
Page 20
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY -- The Fund is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value of its total assets. The Fund currently
intends to borrow money only for temporary or emergency (not
leveraging)purposes, in an amount up to 15% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time borrowing is
made. While borrowings exceed 5% of the Fund's total assets, the Fund will
not make any additional investments.
USE OF DERIVATIVES -- The Fund may invest in the types of Derivatives
enumerated under "Description of the Fund -- Investment Considerations and
Risks -- Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objective and Management
Policies -- Management Policies -- Derivatives" in the Statement of
Additional Information.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in certain Derivatives. The Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Fund may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceed 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Fund will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its purchase of Derivatives. To maintain this require
d cover, the Fund may have to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a Derivative
position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- TheFund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest or other distributions
payable on the loaned securities which affords the Fund an opportunity to
earn interest on the amount of the loan and on the loaned securities'
collateral. Loans of portfolio securities may not exceed 331/3% of the value
of the Fund's total assets, and the Fund will receive collateral consisting
of cash, U.S. Government
Page 21
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
FORWARD COMMITMENTS -- The Fund may purchase Municipal Obligations and other
securities on a forward commitment or when-issued basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate
receivable on a forward commitment or when-issued security are fixed when the
Fund enters into the commitment, but the Fund does not make payment until it
receives delivery from the counter- party. The Fund will commit to purchase
such securities only with the intention of actually acquiring the securities,
but the Fund may sell these securities before the settlement date if it is
deemed advisable. 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 commitments will
be established and maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CERTAIN TAX EXEMPT OBLIGATIONS -- The Fund may purchase floating and variable
rate demand notes and bonds, which are tax exempt obligations ordinarily
having stated maturities in excess of one year, but which permit the holder
to demand payment of principal at any time or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Fund, as lender, and
the borrower. These obligations permit daily changes in the amount borrowed.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued
interest. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Each obligation purchased by the Fund will meet the quality criteria
established for the purchase of Municipal Obligations.
TAX EXEMPT PARTICIPATION INTERESTS -- The Fund may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to
the total principal amount of the Municipal Obligation. These instruments may
have fixed, floating or variable rates of interest. If the participation
interest is unrated, it will be backed by an irrevocable letter of credit or
guarantee of a bank that the Fund's Board has determined meets the prescribed
quality standards for banks set forth below, or the payment obligation
otherwise will be collateralized by U.S. Government securities. For certain
participation interests, the Fund will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest. As
to these instruments, the Fund intends to exercise its right to demand
payment only upon a default under the terms of the Municipal Obligation, as
needed to provide liquidity to meet redemptions, or to maintain or improve
the quality of its investment portfolio.
TENDER OPTION BONDS -- The Fund may purchase tender option bonds. A tender
option bond is a Municipal Obligation (generally held pursuant to a custodial
arrangement) having a relatively long matu-
Page 22
rity 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
issuer 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
Obligation and for other reasons.
CUSTODIAL RECEIPTS -- The Fund may purchase custodial receipts representing
the right to receive certain future principal and interest payments on
Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt
arrangement, an issuer or a third party owner of Municipal Obligations
deposits such obligations with a custodian in exchange for two classes of
custodial receipts. The two classes have different characteristics, but, in
each case, payments on the two classes are based on payments received on the
underlying Municipal Obligations. One class has the characteristics of a
typical auction rate security, where at specified intervals its interest rate
is adjusted, and ownership changes, based on an auction mechanism. This
class's interest rate generally is expected to be below the coupon rate of
the underlying Municipal Obligations and generally is at a level comparable
to that of a Municipal Obligation of similar quality and having a maturity
equal to the period between interest rate adjustments. The second class bears
interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but
in this case inversely to changes in the rate of interest of the first class.
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 multi-class offering and the interest
rate on certain classes may be subject to a cap or floor.
STAND-BY COMMITMENTS -- The Fund may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Fund obligates a broker, dealer or bank to repurchase, at the
Fund's option, specified securities at a specified price and, in this
respect, stand-by commitments are comparable to put options. The exercise of
a stand-by commitment, therefore, is subject to the ability of the seller to
make payment on demand. The Fund will acquire stand-by commitments solely to
facilitate its portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Fund may pay for stand-by commitments if
such action is deemed
Page 23
necessary, thus increasing to a degree the cost of the underlying Municipal
Obligation and similarly decreasing such security's yield to investors. Gains
realized in connection with stand-by commitments will be taxable. The Fund
also may acquire call options on specific Municipal Obligations. The Fund
generally would purchase these call options to protect the Fund from the
issuer of the related Municipal Obligation redeeming, or other holder of the
call option from calling away, the Municipal Obligation before maturity. The
sale by the Fund of a call option that it owns on a specific Municipal
Obligation could result in the receipt of taxable income by the Fund.
ZERO COUPON SECURITIES -- The Fund may invest in zero coupon securities which
are debt securities issued or sold at a discount from their face value which
do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may take
the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interest in such stripped debt obligations and coupons. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
ILLIQUID SECURITIES -- The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. 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 that the Fund deems representative of
their value, the value of the Fund's net assets could be adversely affected.
TAXABLE INVESTMENTS -- From time to time, on a temporary basis other than for
temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest
in taxable short-term investments ("Taxable Investments") consisting of:
notes of issuers having, at the time of purchase, a quality rating within the
two highest grades of 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 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 taxes. Under normal market conditions, the Fund
anticipates that not more than 5% of the value of its total assets will be
invested in any one category of Taxable Investments. Taxable Investments are
more fully described in the Statement of Additional Information, to which
reference hereby is made.
Page 24
RATINGS _ 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 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 bonds, 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. 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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 25
[This Page Intentionally Left Blank]
Page 26
[This Page Intentionally Left Blank]
Page 27
DREYFUS
Massachusetts
Tax Exempt
Bond Fund
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
267p062896
__________________________________________________________________________
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SEPTEMBER 1, 1995
AS REVISED, JUNE 28, 1996
__________________________________________________________________________
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-11
Management Agreement. . . . . . . . . . . . . . . . . . . . . . . B-15
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . B-17
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . . B-18
Redemption of Shares. . . . . . . . . . . . . . . . . . . . . . . B-19
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . B-21
Determination of Net Asset Value. . . . . . . . . . . . . . . . . B-23
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . B-24
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . B-24
Performance Information . . . . . . . . . . . . . . . . . . . . . B-25
Information About the Fund. . . . . . . . . . . . . . . . . . . . B-26
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors. . . . . . . . . . . . . . B-27
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . B-39
Report of Independent Auditors. . . . . . . . . . . . . . . . . . B-48
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled
"Description of the Fund" and "Appendix."
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, L.P. Service, Inc. Ratings Group 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 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. Where a substantial market of qualified
institutional buyers develops for certain restricted securities purchased
by the Fund, pursuant to Rule 144A under the Securities Act of 1933, as
amended, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board. 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 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 its investment 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 are supported by the full faith and credit
of the U.S. Treasury; others by the right of the issuer to borrow from the
U.S. Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others
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.
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 (in no event longer than seven
days) 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.
In a repurchase agreement, the Fund buys, and the seller agrees to
repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. The Fund's
custodian or subcustodian 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 $1 billion, 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. Repurchase agreements could
involve risks in the event of a default or insolvency of the other party
to the agreement, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
Management Policies
Derivatives. The Fund may invest in Derivatives (as defined in the
Fund's Prospectus) for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide
a cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contrast, no clearing
agency guarantees over-the-counter Derivatives. Therefore, each party to
an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the Derivative to be interested
in bidding for it.
Futures Transactions--In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once
the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended
for specified periods during the trading day. Futures contract prices
could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions
and potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the
Manager's ability to predict correctly movements in the direction of the
relevant market and, to the extent the transaction is entered into for
hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract.
For example, if the Fund uses futures to hedge against the possibility of
a decline in the market value of securities held in its portfolio and the
prices of such securities instead increase, the Fund will lose part or all
of the benefit of the increased value of securities which it has hedged
because it will have offsetting losses in its futures positions.
Furthermore, if in such circumstances the Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements.
The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of
limiting the Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at
a specific price.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities and interest rate futures
contracts. A call option gives the purchaser of the option the right to
buy, and obligates the writer to sell, the underlying security or
securities at the exercise price at any time during the option period, or
at a specific date. Conversely, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy, the underlying
security or securities at the exercise price at any time during the option
period.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance
that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular
options. Successful use by the Fund of options will be subject to the
Manager's ability to predict correctly movements in interest rates. To
the extent the Manager's predictions are incorrect, the Fund may incur
losses.
Successful use of options by the Fund will be subject to the
Manager's ability to correctly predict movements in interest rates. To
the extent the Manager's predictions are incorrect, the Fund may incur
losses.
Future Developments. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before
entering into such transactions or making any such investment, appropriate
disclosure will be provided in the Fund's Prospectus or this Statement of
Additional Information.
Lending Portfolio Securities. In connection with its securities
lending transactions, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received from 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 dividends, 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.
Forward Commitments. Municipal Obligations and other securities
purchased on a forward commitment or when-issued basis are subject to
changes in value (generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise)
based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may
expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.
Investment Considerations and Risks
Investing in Massachusetts Municipal Obligations. Investors should
consider carefully the special risks inherent in the Fund's investment in
Massachusetts Municipal Obligations. Since 1989, Massachusetts has
experienced growth rates significantly below the national average and an
economic recession in 1990 and 1991 caused negative growth rates in
Massachusetts. 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' operating
losses in fiscal 1989 and 1990, which totalled $672 million and $1.25
billion, respectively, were covered primarily through deficit borrowings,
and the fiscal 1991 operating loss of $21 million was covered by drawing
on the adjusted 1990 fund balance of $258 million. The budgeted operating
funds of Massachusetts ended fiscal years 1992 through 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. 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 Ba by Moody's and BB by S&P and Fitch, and as low as the lowest
rating assigned by Moody's S&P or Fitch. Such bonds, though higher
yielding, are characterized by risk. See "Description of the
Fund--Investment Considerations and Risks--Lower Rated Bonds" in the
Prospectus 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.
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 generally are
considered by S&P, Moody's and Fitch to be on balance, predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation and generally will involve
more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market
price and yield and the Fund's ability to dispose of particular issues
when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of
the issuer. The lack of a liquid secondary market for certain securities
also may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating
its net asset value. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values and
liquidity of these securities. In such cases, judgment may play a greater
role in valuation because less reliable, objective data may be available.
These bonds may be particularly susceptible to economic 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.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon bonds, in which the Fund may invest up to
5% of its assets. 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 (the "1940 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 Board members 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 1940 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.
6. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent that the activities permitted
in Investment 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 1940 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
Board members and officers of the Fund, together with information as
to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Fund, as defined in the 1940 Act, is indicated
by an asterisk.
Board Members of the Fund
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. 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 yarns and home furnishings and fabrics,
Curtis Industries, Inc., a national distributor of security products,
chemicals, and automotive and other hardware, and Staffing Resources,
Inc. He is 52 years old and his address is 200 Park Avenue, New
York, New York 10166.
*DAVID W. BURKE, Board Member. Chairman of the Broadcasting Board of
Governors, an independent board within the United States Information
Agency, since August 1995. From August 1994 to August 1995, Mr.
Burke was a Consultant to the Manager, and from October 1990 to
August 1994, he was Vice President and Chief Administrative Officer
of the Manager. From 1977 to 1990, Mr. Burke was involved in the
management of national television news, as Vice President and
Executive Vice President of ABC News, and subsequently as President
of CBS News. He is 60 years old and his address is Box 654, Eastham,
Massachusetts 02642.
SAMUEL CHASE, Board Member. Since 1982, President of Samuel Chase &
Company, Ltd., an economic consulting firm. He is 64 years old and
his address is 4410 Massachusetts Avenue, N.W., Suite 408,
Washington, D.C. 20016.
GORDON J. DAVIS, Board Member. 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 54 years old and his
address is 241 Central Park West, New York, New York 10023.
JONI EVANS, Board Member. Senior Vice President of the William Morris
Agency since September 1993. 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; from September 1985 to September 1987, President of Simon
and Schuster-Trade Division. She is 54 years old and her address is
1325 Avenue of the Americas, New York, New York 10019.
ARNOLD S. HIATT, Board Member. 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 69 years old and his
address is 400 Atlantic Avenue, Boston, Massachusetts 02110.
DAVID J. MAHONEY, Board Member. 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 Bionaire, Inc. and Intracoastal
Health Systems, Inc. He is 73 years old and his address is 745 Fifth
Avenue, Suite 700, New York, New York 10151.
BURTON N. WALLACK, Board Member. President and co-owner of Wallack
Management Company, a real estate management company managing real
estate in the New York City area. He is 45 years old and his address
is 18 East 64th Street, New York, New York 10021.
Ordinarily, no meetings of shareholders will be held for the purpose
of electing Board members unless and until such time as less than a
majority of the Board members holding office have been elected by
shareholders, at which time the Board members then in office will call a
shareholders' meeting for the election of Board members. Under the 1940
Act, shareholders of record of not less than two-thirds of the Fund's
outstanding shares may remove a Board member through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. The Board members are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any such Board
member 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 Board members of the Fund who are
not "interested persons" of the Fund, as defined in the 1940 Act, will be
selected and nominated by the Board members who are not "interested
persons" of the Fund.
The Fund typically pays its Board members an annual retainer and a
per meeting fee and reimburses them for their expenses. The Chairman of
the Board receives an additional 25% of such compensation. The aggregate
amount of compensation paid by the Fund to each Board member 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, 1995, was as follows:
Total Compensation
Aggregate From Fund and
Name of Board Compensation From Fund Complex
Member Fund* Paid to Board Member
- ------------- ----------------- --------------------
Joseph S. DiMartino** $3,125** $448,618 (93)
David W. Burke $2,245 $253,654 (51)
Samuel Chase $2,700 $ 54,250 (13)
Gordon J. Davis $ 505 $ 76,575 (24)
Joni Evans $2,750 $ 46,750 (13)
Arnold S. Hiatt $2,750 $ 50,500 (13)
David J. Mahoney $2,250 $ 47,250 (13)
Burton N. Wallack $2,750 $ 54,250 (13)
_____________________
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $457 for all Board members as a group.
** Estimated amount for the current fiscal year ending May 31, 1996.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer and a director 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 38 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 32 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 34 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 31 years old.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Assistant
Vice President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years
old.
JOSEPH F. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The Boston
Company, Inc. where he held various management positions in the
Corporate Finance and Treasury areas. He is 34 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, was Assistant
Vice President in the Mutual Fund Accounting Department of the
Manager. He is 60 years old.
MARGARET M. PARDO, Assistant Secretary. Legal Assistant with the
Distributor and an officer of other investment companies advised or
administered by the Manager. From June 1992 to April 1995, she was a
Medical Coordination Officer of ORBIS International. Prior to June
1992, she worked as Program Coordinator at Physicians World
Communications Group. She is 27 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Board members 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 or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is
approved by a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund or the Manager, by vote
cast in person at a meeting called for the purpose of voting on such
approval. The Agreement was approved by shareholders of the Fund on
August 2, 1994, and was last approved by the Fund's Board, including a
majority of the Board members who are not "interested persons" of any
party to the Agreement, at a meeting held on April 26, 1995. The
Agreement is terminable without penalty, on not more than 60 days' notice,
by the Fund's Board 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 1940 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; Christopher M. Condron, President,
Chief Operating Officer and a director; Stephen E. Canter, Vice Chairman,
Chief Investment Officer and a director; Lawrence S. Kash, Vice Chairman--
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration and a director; William T. Sandalls, Jr., Senior Vice
President and Chief Financial Officer; Elie M. Genadry, Vice President-
Institutional Sales; William F. Glavin, Jr., Vice President-Corporate
Development; Mark N. Jacobs, Vice President, General Counsel and
Secretary; Patrice M. Kozlowski, Vice President-Corporate Communications;
Mary Beth Leibig, Vice President-Human Resources; Jeffrey N. Nachman, Vice
President-Mutual Fund Accounting; Andrew S. Wasser, Vice President-
Information Systems; Elvira Oslapas, Assistant Secretary; and Mandell L.
Berman, Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene and Julian
Smerling, directors.
The Manager manages the Fund's portfolio of investments in
accordance with the stated policies of the Fund, subject to the approval
of the Fund's Board members. The Manager is responsible for investment
decisions, and provides the Fund with portfolio managers who are
authorized by the Fund's Board to execute purchases and sales of
securities. The Fund's portfolio managers are Joseph P. Darcy, A. Paul
Disdier, Douglas Gaylor, 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 Board
members 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 Board members who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of the Manager, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
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 1-1/2% of the value of the Fund's average net
assets for the fiscal year, the Fund may deduct from the payment to be
made to the Manager under the Agreement, or the Manager will bear, such
excess expense. Such deduction or payment, if any, will be estimated
daily, and reconciled and effected or paid, as the case may be, on a
monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
For the fiscal year ended May 31, 1995, the Fund was charged an
aggregate $79,272 pursuant to the Plan.
PURCHASE OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Shares."
The Distributor. The Distributor serves as the Fund's distributor on
a best efforts basis 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, certain financial institutions effecting transactions in Fund
shares may be required to register as dealers pursuant to state law.
Transactions Through Securities Dealers. Fund shares may be
purchased and redeemed through securities dealers which may charge a
nominal transaction fee for such services. Some dealers will place Fund
shares in an account with their firm. Dealers also may require that the
customer not take physical delivery of stock certificates; the customer
not request redemption checks to be issued in the customer's name;
fractional shares not be purchased; monthly income distributions be taken
in cash; or other conditions.
There is no sales charge by the Fund or the Distributor, although
securities 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; provision of 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 investment. 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 at any time. Purchase orders received by 4:00 P.M.,
New York time, on any business day that the Transfer Agent and the New York
Stock Exchange are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 P.M., New York time, on any business day
the Transfer Agent and the New York Stock Exchange are open for business,
or orders made on Saturday, Sunday or any Fund holiday (e.g., when the New
York Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of Fund shares must be drawn on, and
redemption proceeds paid to, the same bank and account as are designated
on the Account Application or Shareholder Services Form on file. If the
proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"Redemption of Shares--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.
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
Board members for their review. In addition, the Plan provides that
material amendments of the Plan must be approved by the Fund's Board and
by the Board members who are not "interested persons" (as defined in the
1940 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 Board members 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 Board members who are not "interested persons" and have no direct
or indirect financial interest in the operation of the Plan.
For the fiscal year ended May 31, 1995, the Fund was charged an
aggregate $79,272 pursuant to the Plan.
REDEMPTION OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem 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 investor's Fund account. Checks will be
sent only to the registered owner(s) of the account and only to the
address of record. The Account Application, Shareholder Services Form or
later written request must be manually signed by the registered owner(s).
Checks may be made payable to the order of any person in an amount of $500
or more. When a Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund to redeem a
sufficient number of shares in the investor's account to cover the amount
of the Check. 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 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 Fund's Board reserves the right to make payments in whole or
in part in securities (which may include non-marketable 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. 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
Shares."
Valuation of Portfolio Securities. The Fund's investments are valued
by an independent pricing service (the "Service") approved by the Fund's
Board. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side
of the market, these investments are valued at the mean between the quoted
bid prices (as obtained by the Service from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation
of the market for such securities). Other investments (which constitute a
majority of the portfolio securities) are carried at fair value as
determined by the Service, based on methods which include consideration
of: yields or prices of municipal bonds of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. The Service's
procedures are reviewed by the Fund's officers under the general
supervision of the Fund's Board. Expenses and fees, including the
management fee (reduced by the expense limitation, if any), are accrued
daily and are taken into account for the purpose of determining the net
asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on
which the New York Stock Exchange is closed currently are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
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.
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.
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.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN,
COUNSEL AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager,
P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer
and dividend disbursing agent. Under a transfer agency agreement with the
Fund, the Transfer Agent arranges for the maintenance of shareholder
account records for the Fund, the handling of certain communications
between shareholders and the Fund and the payment of dividends and
distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month, and is reimbursed for
certain out-of-pocket expenses. The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's custodian. Neither the
Transfer Agent nor The Bank of New York 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 in default, 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
=======
See notes to financial statements.
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 1995
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
==============
See notes to financial statements.
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31,
--------------------------------
1994 1995
-------------- --------------
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>
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
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.
YEAR ENDED MAY 31,
------------------------------------------------------------
PER SHARE DATA: 1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $15.43 $15.59 $16.20 $17.01 $16.03
------- ------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income-net........................ 1.06 1.01 .97 .91 .91
Net realized and unrealized gain (loss) on investments .16 .60 .81 (.52) .22
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS........... 1.22 1.61 1.78 .39 1.13
------- ------- ------- ------- -------
DISTRIBUTIONS:
Dividends from investment income-net......... (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........................ (1.06) (1.00) (.97) (1.37) (.91)
------- ------- ------- ------- -------
Net asset value, end of year................. $15.59 $16.20 $17.01 $16.03 $16.25
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN.......................... 8.20% 10.62% 11.27% 2.07% 7.39%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... .81% .84% .81% .80% .80%
Ratio of net investment income to average net assets 6.87% 6.30% 5.83% 5.30% 5.77%
Portfolio Turnover Rate...................... 49.73% 68.07% 85.29% 29.73% 38.34%
Net Assets, end of year (000's Omitted)...... $120,540 $157,061 $183,601 $168,473 $160,750
See notes to financial statements.
</TABLE>
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
