File No. 2-96709
811-4721
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 18 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 18 [X]
(Check appropriate box or boxes.)
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Mark N. Jacobs, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
----
on (date) pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(i)
----
X on October 1, 1999 pursuant to paragraph (a)(i)
----
75 days after filing pursuant to paragraph (a)(ii)
----
on (date) pursuant to paragraph (a)(ii) of Rule 485
----
If appropriate, check the following box:
this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
----
Dreyfus Massachusetts
Tax Exempt
Bond Fund
Investing for income exempt from
federal and Massachusetts state income taxes
Prospectus October 1, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus.
Any representation to the contrary is a criminal offense.
[Page]
Contents
The Fund
2 Goal/Approach
3 Main Risks
4 Past Performance
5 Expenses
6 Management
7 Financial Highlights
Your Investment
8 Account Policies
11 Distributions and Taxes
12 Services for Fund Investors
14 Instructions for Regular Accounts
For More Information
Back Cover
What every investor should know about
the fund
Information
for managing your fund account
Where to learn more about this and other Dreyfus funds
[Page]
The Fund
Dreyfus Massachusetts
Tax Exempt Bond Fund
Ticker Symbol: DMEBX
Goal/Approach
The fund seeks as high a level of current income exempt from federal and
Massachusetts state income taxes as is consistent with the preservation of
capital. To pursue this goal, the fund normally invests substantially all of
its assets in municipal bonds that provide income exempt from federal and
Massachusetts personal income taxes.
The fund will invest at least 80% of its assets in investment grade municipal
bonds or the unrated equivalent as determined by Dreyfus. The fund may invest
up to 20% of its assets in municipal bonds rated below investment grade
("high yield" or "junk" bonds) or the unrated equivalent as determined by
Dreyfus. The dollar-weighted average maturity of the fund normally exceeds
ten years, but the fund is not subject to any maturity restrictions.
Municipal bonds are typically divided into
two types:
* general obligation bonds, which are secured by the full faith and credit of
the issuer and its taxing power
* revenue bonds, which are payable from the revenues derived from a specific
revenue source, such as charges for water and sewer service or highway tolls
The fund is non-diversified, which means that a relatively high percentage of
the fund's assets may be invested in a limited number of issuers. Therefore,
its performance may be more vulnerable to changes in the market value of a
single issuer or a group of issuers.
Information on the fund's recent strategies and holdings can be found in the
current annual/semiannual report (see back cover).
Concepts to understand
Average maturity: an average of the stated maturities of the bonds held in
the fund, based on their dollar-weighted proportions in the fund.
Investment grade bonds:
independent rating organizations analyze and evaluate a bond issuer's credit
history and ability to repay debts. Based on their assessment, they assign
letter grades that reflect the issuer's creditworthiness. AAA or Aaa
represents the highest credit rating, AA/Aa the second highest, and so on
down to D, for defaulted debt. Bonds rated BBB or Baa and
above are considered investment grade.
[Page 2]
Main Risks
Prices of bonds tend to move inversely with changes in interest rates. While
a rise in rates may allow the fund to invest for higher yields, the most
immediate effect is usually a drop in bond prices and, therefore, in the
fund's share price as well. As a result, the value of your investment in the
fund could go up and down, which means that you could lose money.
Other risk factors could have an effect on the fund's performance:
* if an issuer fails to make timely interest or principal payments or there
is a decline in the credit quality of a bond or perception of a decline,
the bond's value could fall, potentially lowering the fund's share price
* Massachusetts's economy and revenues underlying its municipal bonds may
decline
* investing primarily in a single state may make the fund's portfolio
securities more sensitive to risks specific to the state
* lower-rated, higher-yielding municipal bonds are subject to greater credit
risk, including the risk of default, than investment grade obligations;
lower-rated bonds tend to be more volatile and less liquid
Although the fund's objective is to generate income exempt from federal and
Massachusetts personal income taxes, interest from some of its holdings may
be subject to the federal alternative minimum tax. In addition, the fund
occasionally may invest in municipal bonds that are only exempt from federal
personal income tax.
Other potential risks
The fund, at times, may invest in certain derivatives, such as futures,
options and inverse floaters. Derivatives can be highly sensitive to changes
in their underlying security, interest rate or index and as a result can be
highly volatile. A small investment in certain derivatives could have a
potentially large impact on the fund's performance. The fund may use
derivatives to:
* increase yield
* hedge against a decline in principal value
* invest with greater efficiency and lower cost than is possible through
direct investment
* adjust the fund's duration
* provide daily liquidity
The Fund
[Page 3]
Past Performance
The two tables below show some of the risks of investing in the fund. The
first table shows the changes in the fund's performance from year to year. The
second table compares the fund's performance over time to that of the Lehman
Brothers Municipal Bond Index, an unmanaged total-return performance
benchmark. Both tables assume reinvestment of dividends. Of course, past
performance is no guarantee of future results.
Year-by-year total return as of 12/31 each year (%)
7.70 6.06 12.70 7.50 12.45 -6.04 15.51 4.01 9.05 6.07
89 90 91 92 93 94 95 96 97 98
Best Quarter: Q1 '95 +6.09%
Worst Quarter: Q1 '94 -5.53%
The fund's year-to-date total return as of 6/30/99 was -1.53%.
Average annual total return as of 12/31/98
1 Year 5 Years 10 Years
- --------------------------------------------------------------------
Fund 6.07% 5.48% 7.35%
Lehman Brothers
Municipal
Bond Index 6.48% 6.22% 8.22%
Unlike the fund, the Lehman Index is not composed of bonds of a single state.
What this fund is -
and isn't
This fund is a mutual fund:
a pooled investment that is professionally managed and gives you the
opportunity to participate in financial markets. It strives to reach its
stated goal, although as with all mutual funds, it cannot offer guaranteed
results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
[Page 4]
Expenses
As an investor, you pay certain fees and expenses in connection with the
fund, which are described in the table below. Shareholder transaction fees
are paid from your account. Annual fund operating expenses are paid out of
fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
Shareholder transaction fees
% of transaction amount
Maximum redemption fee 1.00%
charged only when selling shares you
have owned for less than 15 days
Annual fund operating expenses
% of average daily net assets
Management fees 0.60%
Shareholder services fee x.xx%
Other expenses x.xx%
Total 0.82%
Expense example
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
$84 $262 $455 $1,014
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period
or kept them. Because actual return and expenses will be different, the example
is for comparison only.
Concepts to understand
Management fee: the fee paid to the investment adviser for managing the
fund's portfolio and assisting in all aspects of the fund's operations.
Shareholder services fee: a fee of up to 0.25% used to reimburse Dreyfus
Service Corporation for shareholder account service and maintenance.
Other expenses: fees paid by the fund for miscellaneous items such as
transfer agency, custody, professional and registration fees.
The Fund
[Page 5]
Management
The investment adviser for the fund is The Dreyfus Corporation,
200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages
more than $120 billion in over 160 mutual fund portfolios. For the past
fiscal year, the fund paid Dreyfus a management fee at the annual rate of
0.60% of the fund's average daily net assets. Dreyfus is the primary mutual
fund business of Mellon Bank Corporation, a broad-based financial services
company with a bank at its core. With more than $389 billion of assets under
management, and $1.9 trillion of assets under administration and custody,
Mellon provides a full range of banking, investment, and trust products and
services to individuals, businesses and institutions. Mellon is headquartered
in Pittsburgh, Pennsylvania.
Joseph P. Darcy has managed the fund since January 1996 and has been employed
by Dreyfus since May 1994.
Dreyfus has a personal securities trading policy (the "Policy") which
restricts the personal securities transactions of its employees. Its primary
purpose is to ensure that personal trading by Dreyfus employees does not
disadvantage any Dreyfus-managed fund. Dreyfus portfolio managers and other
investment personnel who comply with the Policy's preclearance and disclosure
procedures may be permitted to purchase, sell or hold certain types of
securities which also may be or are held in the fund(s) they advise.
Concepts to understand
Year 2000 issues: the fund could be adversely affected if the computer
systems used by Dreyfus and the fund's other service providers do not
properly process and calculate date-related information from and after
January 1, 2000.
Dreyfus is working to avoid year 2000-related problems
in its systems and to obtain assurances from other service providers that
they are taking similar steps. In addition, issuers of securities in which
the fund invests may be adversely affected by year 2000-related problems.
This could have an impact on the value of the fund's investments and its
share price.
[Page 6]
Financial Highlights
This table describes the fund's performance for the fiscal periods indicated.
"Total return" shows how much your investment in the fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been independently audited by
Ernst & Young LLP, whose report, along with the fund's financial statements,
is included in the annual report.
<TABLE>
<CAPTION>
Year Ended May 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period 17.01 16.31 15.86 16.25 16.03
Investment operations:
Investment income - net .82 .83 .85 .88 .91
Net realized and unrealized gain
(loss) on investments (.17) .70 .45 (.39) .22
Total from investment operations .65 1.53 1.30 .49 1.13
Distributions:
Dividends from investment
income - net (.82) (.83) (.85) (.88) (.91)
Dividends from net realized gain
on investments (.11) - - - -
Total distributions (.93) (.83) (.85) (.88) (.91)
Net asset value, end of period 16.73 17.01 16.31 15.86 16.25
Total return (%) 3.87 9.52 8.37 3.06 7.39
Ratios/Supplemental Data
Ratio of expenses
to average net assets (%) .82 .81 .79 .79 .80
Ratio of net investment income
to average net assets (%) 4.82 4.97 5.27 5.43 5.77
Portfolio turnover rate (%) 19.47 28.53 38.29 60.67 38.34
Net assets, end of period ($ x 1,000) 160,582 160,218 151,379 151,722 160,750
</TABLE>
The Fund
[Page 7]
Your Investment
Account Policies
Buying shares
You pay no sales charges to invest in this fund. Your price for fund shares
is the fund's net asset value per share (NAV), which is generally calculated
as of the close of trading on the New York Stock Exchange (usually 4:00 p.m.
Eastern time) every day the exchange is open.
Your order will be priced at the next NAV calculated after your order is
accepted by the fund's transfer agent or other authorized entity. Because the
fund seeks tax-exempt income, it is not recommended for purchase in IRAs or
other qualified retirement plans.
Minimum investments
Initial Additional
Regular accounts $2,500 $100
$500 for
TeleTransfer investments
Dreyfus automatic $100 $100
investment plans
All investments must be in U.S. dollars. Third-party
checks cannot be accepted. You may be charged a fee
for any check that does not clear. Maximum
TeleTransfer purchase is $150,000 per day.
Concepts to understand
Net asset value (NAV): a mutual fund's share price on
a given day. A fund's NAV is calculated by dividing the value of its net
assets by the number of existing shares.
When calculating its NAV, the fund's investments are priced at fair value by
an independent pricing service approved by the fund's board. The pricing
service's procedures are reviewed under the general supervision of the board.
[Page 8]
Selling shares
You may sell (redeem) shares at any time. Your shares will be sold at the
next NAV calculated after your order is accepted by the fund's transfer agent
or other authorized entity. Any certificates representing fund shares being
sold must be returned with your redemption request. Your order will be
processed promptly and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that:
* if the fund has not yet collected payment for the shares you are selling,
it may delay sending the proceeds for up to eight business days or until
it has collected payment
* if you are selling or exchanging shares you have owned for less than 15
days, the fund may deduct a 1% redemption fee (not charged on shares sold
through the Automatic Withdrawal Plan or Dreyfus Auto-Exchange Privilege,
or on shares acquired through dividend reinvestment)
Limitations on selling shares by phone
Proceeds
sent by Minimum Maximum
Check no minimum $150,000 per day
Wire $1,000 $250,000 for joint accounts
every 30 days
TeleTransfer $500 $250,000 for joint accounts
every 30 days
Written sell orders
Some circumstances require written sell orders along with signature
guarantees.
These include:
* amounts of $1,000 or more on accounts whose address has been changed within
the last 30 days
* requests to send the proceeds to a different payee or address
Written sell orders of $100,000 or more must also be signature guaranteed.
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public. For joint
accounts, each signature must be guaranteed. Please call us to ensure that
your signature guarantee will be processed correctly.
Your Investment
[Page 9]
Account Policies (continued)
General policies
Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.
The fund reserves the right to:
* refuse any purchase or exchange request that could adversely affect the fund
or its operations, including those from any individual or group who, in the
fund's view, is likely to engage in excessive trading (usually defined as more
than four exchanges out of the fund within a calendar year)
* refuse any purchase or exchange request in excess of 1% of the fund's
total assets change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
* change its minimum investment amounts
* delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or during
unusual market conditions) The fund also reserves the right to make a
"redemption in kind" - payment in portfolio securities rather than cash - if
the amount you are redeeming is large enough to affect fund operations (for
example, if it represents more than 1% of the fund's assets).
Small account policies
To offset the relatively higher costs of servicing smaller accounts, the fund
charges regular accounts with balances below $2,000 an annual fee of $12. The
fee will be imposed during the fourth quarter of each calendar year.
The fee will be waived for:
any investor whose aggregate Dreyfus mutual fund investments total at least
$25,000; IRA accounts; accounts participating in automatic investment
programs; and accounts opened through a financial institution.
If your account falls below $500, the fund may ask you to increase your
balance. If it is still below $500 after 30 days, the fund may close your
account and send you the proceeds.
[Page 10]
Distributions and Taxes
The fund usually pays its shareholders dividends from its net investment
income once a month, and distributes any net capital gains it has realized
once a year. Your distributions will be reinvested in the fund unless you
instruct the fund otherwise. There are no fees or sales charges on
reinvestments.
The fund anticipates that virtually all of its income dividends will be
exempt from federal and Massachusetts state personal income taxes. However,
any dividends paid from interest on taxable investments or short-term capital
gains will be taxable as ordinary income. Any distributions of long-term
capital gains will be taxable as such. The tax status of any distribution is
the same regardless of how long you have been in the fund and whether you
reinvest your distributions or take them in cash. In general, distributions
are federally taxable as follows:
Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
- ---------------------------------------------------------------------------
Income Generally Generally
dividends tax exempt tax exempt
Short-term Ordinary Ordinary
capital gains income rate income rate
Long-term
capital gains 10% 20%
The tax status of your dividends and distributions will be detailed in your
annual tax statement from the fund.
Because everyone's tax situation is unique, always consult your tax
professional about federal, state and local tax consequences.
Taxes on transactions
Any sale or exchange of fund shares, including through the checkwriting
privilege, may generate a tax liability.
The table at right also can provide a guide for your potential tax liability
when selling or exchanging fund shares. "Short-term capital gains" applies to
fund shares sold or exchanged up to
12 months after buying them. "Long-term capital gains" applies to shares sold
or exchanged after 12 months.
[Page 11]
Services for fund Investors
Automatic services
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to
certain restrictions. You can set up most of these services with your
application or by calling 1-800-645-6561.
For investing
Dreyfus Automatic For making automatic investments
Asset BuilderRegistration Mark from a designated bank account.
Dreyfus Payroll For making automatic investments
Savings Plan through a payroll deduction.
Dreyfus Government For making automatic investments
Direct Deposit from your federal employment,
Privilege Social Security or other regular
federal government check.
Dreyfus Dividend For automatically reinvesting the
Sweep dividends and distributions from
one Dreyfus fund into another
(not available for IRAs).
For exchanging shares
Dreyfus Auto- For making regular exchanges
Exchange Privilege from one Dreyfus fund into
another.
For selling shares
Dreyfus Automatic For making regular withdrawals
Withdrawal Plan from most Dreyfus funds.
Dreyfus Financial Centers
Through a nationwide network of Dreyfus Financial Centers, Dreyfus offers a
full array of investment services and products. This includes information on
mutual funds, brokerage services, tax-advantaged products and retirement
planning.
Experienced financial consultants can help you make informed choices and
provide you with personalized attention in handling account transactions. The
Financial Centers also offer informative seminars and events. To find the
Financial Center nearest you, call 1-800-499-3327.
[Page 12]
Checkwriting privilege
You may write redemption checks against your account in amounts of $500 or
more. These checks are free; however, a fee will be charged if you request a
stop payment or if the transfer agent cannot honor a redemption check due to
insufficient funds or another valid reason. Please do not postdate your
checks or use them to close your account.
Exchange privilege
You can exchange $500 or more from one Dreyfus fund into another. You can
request your exchange in writing or by phone. Be sure to read the current
prospectus for any fund into which you are exchanging. Any new account
established through an exchange will have the same privileges as your
original account (as long as they are available). There is currently no fee
for exchanges, although you may be charged a sales load when exchanging into
any fund that has one.
Dreyfus TeleTransfer privilege
To move money between your bank account and your Dreyfus fund account with a
phone call, use the Dreyfus TeleTransfer privilege. You can set up
TeleTransfer on your account by providing bank account information and
following the instructions on your application.
24-hour automated account access
You can easily manage your Dreyfus accounts, check your account balances,
transfer money between your Dreyfus funds, get price and yield information
and much more - when it's convenient for you.
Third-party investments
If you invest through a third party (rather than directly with Dreyfus), the
policies and fees may be different than those described here. Banks, brokers,
financial advisers and financial supermarkets may charge transaction fees and
may set different minimum investments or limitations on buying or selling
shares. Consult a representative of your plan or financial institution if in
doubt.
Your Investment
[Page 13]
Instructions for regular accounts
TO OPEN AN ACCOUNT
In Writing
Complete the application.
Mail your application and a check to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your account number on your check.
Mail the slip and the check to:
The Dreyfus Family of Funds
P.O. Box 105, Newark, NJ 07101-0105
By Telephone
Wire Have your bank send your
investment to The Bank of New York,
with these instructions:
* ABA# 021000018
* DDA# 8900051981
* the fund name
* your Social Security or tax ID number
* name(s) of investor(s)
Call us to obtain an account number. Return your application.
Wire Have your bank send your
investment to The Bank of New York,
with these instructions:
* ABA# 021000018
* DDA# 8900051981
* the fund name
* your account number
* name(s) of investor(s)
Electronic check Same as wire, but insert "1111" before your account number.
TeleTransfer Request TeleTransfer on your application. Call us to request
your transaction.
Automatically
With an initial investment Indicate on your application which automatic
service(s) you want. Return your application with your investment.
Without any initial investment Check the Dreyfus Step Program option on
your application. Return your application, then complete the additional
materials when they are sent to you.
All services Call us to request a form to add any automatic investing
service (see "Services for Fund Investors"). Complete and return the forms
along with any other required materials.
Via the Internet
Computer Visit the Dreyfus Web site http://www.dreyfus.com and follow the
instructions to download an account
application.
[Page 14]
TO SELL SHARES
Write a redemption check or write a letter of instruction that includes:
* your name(s) and signature(s)
* your account number
* the fund name
* the dollar amount you want to sell
* how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see
"Account Policies - Selling Shares").
Mail your request to:
The Dreyfus Family of Funds
P.O. Box 9671, Providence, RI 02940-9671
To reach Dreyfus, call
toll free in the U.S.
1-800-645-6561
Outside the U.S. 516-794-5452
Make checks payable to:
The Dreyfus Family of Funds
You also can deliver requests to any Dreyfus Financial Center. Because
processing time may vary, please ask the representative when your account
will be credited or debited.
Wire Be sure the fund has your bank account information on file. Call us to
request your transaction. Proceeds will be wired to your bank.
TeleTransfer Be sure the fund has your bank account information on file.
Call us to request your transaction. Proceeds will be sent to your bank by
electronic check.
Check Call us to request your transaction. A check will be sent to the
address of record.
Dreyfus Automatic Withdrawal Plan Call us to request a form to add the plan.
Complete the form, specifying the amount and frequency of withdrawals you
would like.
Be sure to maintain an account balance of $5,000 or more.
Concepts to understand
Wire transfer: for transferring money from one financial institution to another.
Wiring is the fastest way to move money, although your bank may charge a fee to
send or receive wire transfers. Wire redemptions from the fund are subject to
a $1,000 minimum.
Electronic check: for transferring money out of a bank account. Your
transaction is entered electronically, but may take up to eight business days
to clear. Electronic checks usually are available without a fee at all
Automated Clearing House (ACH) banks.
Your Investment
[Page 15]
NOTES
[Page]
[Page]
For More Information
Dreyfus Massachusetts
Tax Exempt Bond Fund
SEC file number: 811-4271
More information on this fund is
available free upon request, including the following:
Annual/Semiannual Report
Describes the fund's performance, lists portfolio
holdings and contains a letter from the fund's manager
discussing recent market conditions, economic trends
and fund strategies that significantly affected the
fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the fund and its policies.
A current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is
legally considered part of this prospectus).
To obtain information:
By telephone
Call 1-800-645-6561
By mail Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
By E-mail Send your request to [email protected]
On the Internet Text-only versions of fund documents can be viewed online or
downloaded from:
SEC
http://www.sec.gov
Dreyfus
http://www.dreyfus.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
Copy Rights 1999 Dreyfus Service Corporation 267P1099
______________________________________________________________________________
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
__________________________________________________________________________
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Massachusetts Tax Exempt Bond Fund (the "Fund"), dated October 1, 1999,
as it may be revised from time to time. To obtain a copy of the Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or call one of the following numbers:
Call Toll Free 1-800-645-6561
In New York City--Call 1-718-895-1206
Outside the U.S. -- Call 516-794-5452
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
TABLE OF CONTENTS
Page
Description of the Fund B-2
Management of the Fund B-16
Management Arrangements B-20
How to Buy Shares B-23
Shareholder Services Plan B-25
How to Redeem Shares B-25
Shareholder Services B-28
Determination of Net Asset Value B-31
Dividends, Distributions and Taxes B-32
Portfolio Transactions B-34
Performance Information B-35
Information About the Fund B-36
Counsel and Independent Auditors B-38
Appendix A B-39
Appendix B B-41
DESCRIPTION OF THE FUND
The Fund is a Massachusetts business trust that commenced operations on
June 11, 1985. The Fund is an open-end, management investment company, known as
a municipal bond fund.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
Certain Portfolio Securities
The following information supplements and should be read in conjunction
with the Fund's Prospectus.
Municipal Obligations. The Fund invests primarily in the debt
securities of the Commonwealth of Massachusetts, its political subdivisions,
authorities and corporations, the interest from which, in the opinion of bond
counsel to the issuer, is exempt from Federal and Commonwealth of Massachusetts
personal income taxes (collectively, "Massachusetts Municipal Obligations"). To
the extent acceptable Massachusetts Municipal Obligations are at any time
unavailable for investment by the Fund, the Fund may invest temporarily in 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 will invest at least 80% of the value of its net assets (except
when maintaining a temporary defensive position) in Municipal Obligations.
Municipal Obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies
or authorities, the interest from which, in the opinion of bond counsel to the
issuer, is exempt from Federal income tax. Municipal Obligations generally
include debt obligations issued to obtain funds for various public purposes
as well as certain industrial development bonds issued by or on behalf of public
authorities. Municipal Obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general taxing
power. Tax exempt industrial development bonds, in most cases, are revenue
bonds that do not carry the pledge of the credit of the issuing municipality,
but generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations include
municipal lease/purchase agreements which are similar to installment purchase
contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from the
related Municipal Obligation and purchased and sold separately.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation and rating of the issue.
Certain Tax Exempt Obligations. The Fund may purchase floating and
variable rate demand notes and bonds, which are tax exempt obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Fund, as lender, and the
borrower. These obligations permit daily changes in the amount borrowed.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Each obligation purchased
by the Fund will meet the quality criteria established for the purchase of
Municipal Obligations.
Tax Exempt Participation Interests. The Fund may purchase from
financial institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears
to the total principal amount of the Municipal Obligation. These instruments
may have fixed, floating or variable rates of interest. If the participation
interest is unrated, it will be backed by an irrevocable letter of credit or
guarantee of a bank that the Fund's Board has determined meets prescribed
quality standards for banks, or the payment obligation otherwise will be
collateralized by U.S. Government securities. For certain participation
interests, the Fund will have the right to demand payment, on not more than
seven days' notice, for all or any part of the Fund's participation interest in
the Municipal Obligation, plus accrued interest. As to these instruments,
the Fund intends to exercise its right to demand payment only upon a default
under the terms of the Municipal Obligation, as needed to provide liquidity to
meet redemptions, or to maintain or improve the quality of its investment
portfolio.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation ordinarily is backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The staff of the Securities and Exchange
Commission currently considers certain lease obligations to be illiquid.
Determination as to the liquidity of such securities is made in accordance with
guidelines established by the Fund's Board. Pursuant to such guidelines, the
Board has directed the Manager to monitor carefully the Fund's investment in
such securities with particular regard to (1) the frequency of trades and quotes
for the lease obligation; (2) the number of dealers willing to purchase or sell
the lease obligation and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the lease obligation;
(4) the nature of the marketplace trades including the time needed to dispose of
the lease obligation, the method of soliciting offers and the mechanics of
transfer; and (5) such other factors concerning the trading market for the lease
obligation as the Manager may deem relevant. In addition, in evaluating the
liquidity and credit quality of a lease obligation that is unrated, the Fund's
Board has directed the Manager to consider (a) whether the lease can be
canceled; (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 lease
obligations that are illiquid and in other illiquid securities. See "Investment
Restriction No. 11" below.
Tender Option Bonds. The Fund may purchase tender option bonds. A
tender option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal Obligation's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination.
Thus, after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt rate.
The Manager, on behalf of the Fund, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal 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.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the underlying
Municipal Obligations and that payment of any tender fees will not have the
effect of creating taxable income for the Fund. Based on the tender option bond
agreement, the Fund expects to be able to value the tender option bond at par;
however, the value of the instrument will be monitored to assure that it is
valued at fair value.
Custodial Receipts. The Fund may purchase custodial receipts
representing the right to receive certain future principal and interest payments
on Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt
arrangement, an issuer or a third party owner of Municipal Obligations deposits
such obligations with a custodian in exchange for two classes of custodial
receipts. The two classes have different characteristics, but, in each case,
payments on the two classes are based on payments received on the underlying
Municipal Obligations. One class has the characteristics of a typical auction
rate security, where at specified intervals its interest rate is adjusted, and
ownership changes, based on an auction mechanism. This class's interest rate
generally is expected to be below the coupon rate of the underlying Municipal
Obligations and generally is at a level comparable to that of a Municipal
Obligation of similar quality and having a maturity equal to the period between
interest rate adjustments. The second class bears interest at a rate
that exceeds the interest rate typically borne by a security of comparable
quality and maturity; this rate also is adjusted, but in this case inversely to
changes in the rate of interest of the first class. In no event will the
aggregate interest paid with respect to the two classes exceed the interest paid
by the underlying Municipal Obligations. The 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 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) and pay-in-kind
bonds (bonds which pay interest through the issuance of additional bonds).
The amount of the discount varies depending on the time remaining until maturity
or cash payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may take
the form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves and receipts or certificates representing
interests in such stripped debt obligations and coupons. The market prices of
zero coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are likely to respond to a greater
degree to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualities.
Ratings of Municipal Obligations. The Fund will invest at least 80% of
the value of its net assets in Municipal Obligations which, in the case of
bonds, are rated no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch IBCA,
Inc. ("Fitch" and, together with Moody's and S&P, the "Rating Agencies"). The
Fund may invest up to 20% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated lower than Baa by Moody's and
BBB by S&P and Fitch and as low as the lowest rating assigned by the Rating
Agencies, but it currently is the intention of the Fund that this portion of the
Fund's portfolio be invested primarily in Municipal Obligations rated no lower
than Baa by Moody's or BBB by S&P or Fitch. The Fund may invest in short-term
Municipal Obligations which are rated in the two highest rating categories by a
Rating Agency. The Fund also may invest in securities which, while not rated,
are determined by the Manager to be of comparable quality to the rated
securities in which the Fund may invest; for purposes of the 80% requirement
described in this paragraph, such unrated securities will be considered to have
the rating so determined.
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended May 31, 1999,
computed on a monthly basis, was as follows:
Percentage of
Fitch or Moody's or S&P Value
AAA Aaa AAA 64.0%
AA Aa AA 11.9%
A A A 10.2%
BBB Baa BBB 4.8%
F-1 VMIG-1/MIG-1,P-1 SP-1,A-1 1.7% (1)
Not Rated Not Rated Not Rated 7.4% (2)
100.0%
(1) Included in these categories are tax exempt notes rated within the two
highest rating grades by a Rating Agency. 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 above.
(2) Included in the Not Rated category are securities comprising 7.4% of the
Fund's market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities rated Baa/BBB.
Subsequent to its purchase by the Fund, an issue of rated Municipal
Obligations may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require the sale of such
Municipal Obligations by the Fund, but the Manager will consider such event in
determining whether the Fund should continue to hold the Municipal Obligations.
To the extent that the ratings given by the Rating Agencies for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
Prospectus and this Statement of Additional Information. The ratings of the
Rating Agencies represent their opinions as to the quality of the Municipal
Obligations which they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are not absolute standards of
quality. Although these ratings may be an initial criterion for selection of
portfolio investments, the Manager also will evaluate these securities and the
creditworthiness of the issuers of such securities.
Illiquid Securities. The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment objective.
These securities may include securities that are not readily marketable, such as
securities that are subject to legal or contractual restrictions on resale, and
repurchase agreements providing for settlement in more than seven days after
notice. As to these securities, the Fund is subject to a risk that should the
Fund desire to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected.
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 a Rating Agency; 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 $1 billion 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. 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 alternate 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 assets may be invested in securities that are not
exempt from Massachusetts personal 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.
Investment Techniques
The following information supplements and should be read in conjunction
with the Fund's Prospectus. The Fund's use of certain of the investment
techniques described below may give rise to taxable income.
Borrowing Money. The Fund is permitted to borrow to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940 Act"),
which permits an investment company to borrow in an amount up to 33-1/3% of the
value of its total assets. The Fund currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 15% of the
value of its total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While borrowings exceed 5% of the Fund's total
assets, the Fund will not make any additional investments.
Lending Portfolio Securities. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund continues to be entitled
to payments in amounts equal to the interest or other distributions payable on
the loaned securities which affords the Fund an opportunity to earn interest on
the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities may not exceed 33-1/3% of the value of the Fund's total
assets, and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund. In connection with its securities lending transactions, the Fund
may return to the borrower or a third party which is unaffiliated with the Fund,
and which is acting as a "placing broker," a part of the interest earned from
the investment of collateral received for securities loaned.
Derivatives. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Fund's
performance.
If the Fund invests in derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
Although the Fund will not be a commodity pool, certain derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission which
limit the extent to which the Fund can invest in such derivatives. The Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Fund may not invest in such contracts and
options for other purposes if the sum of the amount of initial margin deposits
and premiums paid for unexpired options with respect to such contracts, other
than for bona fide hedging purposes, exceeds 5% of the liquidation value of the
Fund's assets, after taking into account unrealized profits and unrealized
losses on such contracts and options; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5% limitation.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily variation margin system operated by the clearing agency
in order to reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated with
derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter derivatives. Therefore, each party to an over-the-
counter derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of counterparties to
over-the-counter derivatives in the same manner as it would review the credit
quality of a security to be purchased by the Fund. Over-the-counter derivatives
are less liquid than exchange-traded derivatives since the other party to the
transaction may be the only investor with sufficient understanding of the
derivative to be interested in bidding for it.
Futures Transactions--In General. The Fund may enter into futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade. Engaging in these
transactions involves risk of loss to the Fund which could adversely affect the
value of the Fund's net assets. Although the Fund intends to purchase or sell
futures contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or trading
may be suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the securities being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may
be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, the Fund may be required to segregate permissible liquid
assets to cover its obligations relating to its transactions in derivatives. To
maintain this required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price. In addition, the segregation of
such assets will have the effect of limiting the Fund's ability otherwise to
invest those assets.
Specific Futures Transactions. The Fund may purchase and sell interest rate
futures contracts. An interest rate future obligates the Fund to purchase or
sell an amount of a specific debt security at a future date at a specific price.
Options--In General. The Fund may invest up to 5% of its assets, represented by
the premium paid, in the purchase of call and put options with respect to
specific securities and interest rate futures contracts. The Fund may write
(i.e., sell) covered call and put option contracts to the extent of 20% of the
value of its net assets at the time such option contracts are written. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security or securities at the exercise price at
any time during the option period, or at a specific date. Conversely, a put
option gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price at
any time during the option period, or at a specific date.
A covered call option written by the Fund is a call option with respect
to which the Fund owns the underlying security or otherwise covers the
transaction by segregating permissible liquid assets. A put option written by
the Fund is covered when, among other things, the Fund segregates permissible
liquid assets having a value equal to or greater than the exercise price of
the option to fulfill the obligation undertaken. The principal reason for
writing covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying securities
alone. The Fund receives a premium from writing covered call or put options
which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times have rendered
certain of the clearing facilities inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts and
any other derivatives which are not presently contemplated for use by the Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund will provide appropriate disclosure in its
Prospectus or Statement of Additional Information.
Forward Commitments. The Fund may purchase 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 counterparty. The Fund will commit to purchase such
securities only with the intention of actually acquiring the securities, but the
Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund will segregate permissible liquid assets at least equal at
all times to the amount of the Fund's purchase commitments.
Municipal Obligations and other securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e. appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Securities purchased on a forward commitment or when-issued
basis may expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a forward commitment
or when-issued basis can involve the additional risk that the yield available in
the market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully invested
may result in greater potential fluctuation in the value of the Fund's net
assets and its net asset value per share.
Investment Considerations and Risks
Investing in Municipal Obligations. The Fund may invest more than 25%
of the value of its total assets in Municipal Obligations which are related in
such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types of
projects. As a result, the Fund may be subject to greater risk as compared to a
fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease/purchase obligations are secured by the leased property,
disposition of the leased property in the event of foreclosure might prove
difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Manager will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended (the
"Code"), relating to the issuance of Municipal Obligations may reduce the volume
of Municipal Obligations qualifying for Federal tax exemption. One effect of
these provisions could be to increase the cost of the Municipal Obligations
available for purchase by the Fund and thus reduce available yield.
Shareholders should consult their tax advisers concerning the effect of these
provisions on an investment in the Fund. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations may be
introduced in the future. If any such proposal were enacted that would reduce
the availability of Municipal Obligations for investment by the Fund so as to
adversely affect Fund shareholders, the Fund would reevaluate its investment
objective and policies and submit possible changes in the Fund's structure to
shareholders for their consideration. If legislation were enacted that would
treat a type of Municipal Obligation as taxable, the Fund would treat such
security as a permissible Taxable Investment within the applicable limits set
forth herein.
Investing in Massachusetts Municipal Obligations. You should review the
information in "Appendix A," which provides a brief summary of special
investment considerations and risk factors relating to investing in
Massachusetts Municipal Obligations.
Lower Rated Bonds. The Fund may invest up to 20% of the value of its
net assets in higher yielding (and, therefore, higher risk) debt securities such
as those rated below investment grade by the Rating Agencies (commonly known as
junk bonds). They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated Municipal Obligations. See "Appendix B" for a general description of the
Rating Agencies' ratings of Municipal Obligations. Although ratings may be
useful in evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of these bonds. The Fund will rely on the
Manager's judgment, analysis and experience in evaluating the creditworthiness
of an issuer.
You should be aware that the market values of many of these bonds tend
to be more sensitive to economic conditions than are higher rated securities and
will fluctuate over time. These bonds generally are considered by the Rating
Agencies to be, on balance, predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation and generally will involve more credit risk than securities in the
higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these bonds does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a
liquid secondary market may have an adverse impact on market price and yield and
the Fund's ability to dispose of particular issues when necessary to meet the
Fund's liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These bonds may be particularly susceptible to economic downturns. It is
likely that any economic recession would disrupt severely the market for such
securities and may have an adverse impact on the value of such securities, and
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would increase the incidence of default
for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any person concerning the acquisition of such securities,
and the Manager will review carefully the credit and other characteristics
pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon bonds and pay-in-kind bonds, in which the Fund may
invest up to 5% of its total assets. Zero coupon bonds and pay-in-kind 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."
Zero Coupon Securities. The Fund may invest in zero coupon securities
and pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds). Federal income tax law requires the holder of a zero coupon
security or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for Federal income taxes,
the Fund may be required to distribute such income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
Simultaneous Investments. Investment decisions for the Fund are made
independently from those of other investment companies advised by the Manager.
If, however, such other investment companies desire to invest in, or dispose of,
the same securities as the Fund, available investments or opportunities for
sales will be allocated equitably to each investment company. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by the Fund or the price paid or received by the Fund.
Investment Restrictions
The Fund's investment objective is a fundamental policy, which cannot be
changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, the Fund has adopted
investment restrictions numbered 1 through 7 as fundamental policies.
Investment restrictions numbered 8 through 12 are not fundamental policies and
may be changed by a vote of a majority of the Fund's 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 interests (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.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of
the Fund. The Board approves all significant agreements between the Fund and
those companies that furnish services to the Fund. These companies are as
follows:
The Dreyfus Corporation Investment Adviser
Premier Mutual Fund Services, Inc. Distributor
Dreyfus Transfer, Inc. Transfer Agent
The Bank of New York Custodian
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below.
Board Members of the Fund
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of the
Board of various funds in the Dreyfus Family of Funds. He also is a
director of The Noel Group, Inc., a venture capital company (for which,
from February 1995 until November 1997, he was Chairman of the Board),
The Muscular Dystrophy Association, HealthPlan Services Corporation, a
provider of marketing, administrative and risk management services to
health and other benefit programs, Carlyle Industries, Inc. (formerly,
Belding Heminway Company, Inc.), a button packager and distributor,
Career Blazers, Inc. (formerly, Staffing Resources, Inc.), a temporary
placement agency, and Century Business Services, Inc. (formerly,
International Alliance Services, Inc.), a provider of various
outsourcing functions for small and medium sized companies. For more
than five years prior to January 1995, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and Executive
Vice President and a director of Dreyfus Service Corporation, a wholly-
owned subsidiary of the Manager and, until August 24, 1994, the Fund's
distributor. From August 1994 until December 31, 1994, he was a
director of Mellon Bank Corporation. He is 55 years old and his address
is 200 Park Avenue, New York, New York 10166.
DAVID W. BURKE, Board Member. Board member of various funds in the Dreyfus
Family of Funds. Chairman of the Broadcasting Board of Governors, an
independent board within the United States Information Agency, from
August 1994 to November 1998. From August 1994 to December 1994, Mr.
Burke was a Consultant to the Manager, and from October 1990 to August
1994, he was Vice President and Chief Administrative Officer of the
Manager. From 1977 to 1990, Mr. Burke was involved in the management of
national television news, as Vice President and Executive Vice President
of ABC News, and subsequently as President of CBS News. He is 62 years
old and his address is Box 654, Eastham, Massachusetts 02642.
SAMUEL CHASE, Board Member. Retired. From 1982 to 1996, Mr. Chase was
President of Samuel Chase & Company, Ltd., an economic consulting firm.
He is 67 years old and his address is 10380 Springhill Road, Belgrade,
Montana 59714.
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 57 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 56 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 71 years old and his address is 400
Atlantic Avenue, Boston, Massachusetts 02110.
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 48 years old and his address is 18 East 64th
Street, New York, New York 10021.
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. Emeritus Board members are
entitled to receive an annual retainer and a per meeting fee of one-half the
amount paid to them as Board members. The aggregate amount of compensation paid
by the Fund to each Board member for the fiscal year ended May 31, 1999,
and by all funds in the Dreyfus Family of Funds for which such person was a
Board member (the number of which is set forth in parenthesis next to each Board
member's total compensation)* for the year ended December 31, 1998, was as
follows:
Total Compensation
Aggregate From Fund and
Name of Board Compensation Fund Complex
Member From Fund** Paid to Board Member
Joseph S. DiMartino $8,750 $619,660 (187)
David W. Burke $7,000 $233,500 (62)
Samuel Chase $6,500 $45,000 (12)
Gordon J. Davis $7,000 $83,500 (29)
Joni Evans $6,500 $45,000 (12)
Arnold S. Hiatt $6,000 $37,500 (12)
Burton N. Wallack $7,000 $45,000 (12)
_____________________
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Fund, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $869 for all Board members as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive Officer,
Chief Compliance Officer and a director of the Distributor and Funds
Distributor, Inc., the ultimate parent of which is Boston Institutional
Group, Inc., and an officer of other investment companies advised or
administered by the Manager. She is 41 years old.
MARGARET W. CHAMBERS, Vice President and Secretary. Senior Vice President and
General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
August 1996 to March 1998, she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July
1996, she was an associate with the law firm of Ropes & Gray. She is 38
years old.
*FREDERICK C. DEY, Vice President and Assistant Treasurer and Assistant
Secretary. Vice President, New Business Development of Funds
Distributor, Inc., since September 1994, and an officer of other
investment companies advised or administered by the Manager. He is 37
years old.
STEPHANIE D. PIERCE, Vice President, Assistant Secretary and Assistant
Treasurer. Vice President of the Distributor and Funds Distributor,
Inc., and an officer of other investment companies advised or
administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August
1995 to April 1997, she was an Assistant Vice President with Hudson
Valley Bank, and from September 1990 to August 1995, she was Second Vice
President with Chase Manhattan Bank. She is 30 years old.
*JOHN P. COVINO, Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of Funds
Distributor, Inc., since December 1998. From December 1995 to November
1998, he was employed by Fidelity Investments where he held multiple
positions in their Institutional Brokerage Group. Prior to joining
Fidelity, he was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product
group. He is 35 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. She is 34
years old.
*GEORGE A. RIO, Vice President and Assistant Treasurer. Executive Vice
President and Client Service Director of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From June 1995 to March 1998, he was Senior Vice President and
Senior Key Account Manager for Putnam Mutual Funds. From May 1994 to
June 1995, he was Director of Business Development for First Data
Corporation. He is 43 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. He is 36
years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other investment
companies advised or administered by the Manager. From April 1993 to
January 1995, he was a Senior Fund Accountant for Investors Bank & Trust
Company. He is 29 years old.
*KAREN JACOPPO-WOOD, Vice President and Assistant Secretary. Vice President and
Senior Counsel of Funds Distributor, Inc., since February 1997, and an
officer of other investment companies advised or administered by the
Manager. From June 1994 to January 1996, she was Manager of SEC
Registration at Scudder, Stevens & Clark, Inc. She is 32 years old.
CHRISTOPHER J. KELLEY, Vice President and Assistant Secretary. Vice President
and Senior Associate General Counsel of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From April 1994 to July 1996, he was Assistant Counsel at
Forum Financial Group. He is 33 years old.
KATHLEEN K. MORRISEY, Vice President and Assistant Secretary. Manager of
Treasury Services Administration of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From July 1994 to November 1995, she was a Fund Accountant for
Investors Bank & Trust Company. She is 26 years old.
ELBA VASQUEZ, Vice President and Assistant Secretary. Assistant Vice President
of Funds Distributor, Inc., and an officer of other investment companies
advised or administered by the Manager. From March 1990 to May 1996,
she was employed by U.S. Trust Company of New York where she held
various sales and marketing positions. She is 37 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166, except those officers indicated by an (*), whose address is 60
State Street, Boston, Massachusetts 02109.
The Fund's Board members and officers, as a group, owned less than 1% of
the Fund's shares outstanding on July 20, 1999.
MANAGEMENT ARRANGEMENTS
Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in the
United States based on total assets.
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the Fund,
provided that in either event the continuance also is approved by a majority of
the Board members who are not "interested persons" (as defined in the 1940 Act)
of the Fund or the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Agreement was approved by shareholders
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 21, 1999. 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:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer
and a director; Lawrence S. Kash, Vice Chairman and a director; J. David
Officer, Vice Chairman and a director; Thomas F. Eggers, Vice Chairman--
Institutional and a director; Ronald P. O'Hanley III, Vice Chairman; William T.
Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice President, General
Counsel and Secretary; Diane P. Durnin, Vice President--Product Development;
Patrice M. Kozlowski, Vice President--Corporate Communications; Mary Beth
Leibig, Vice President--Human Resources; Andrew S. Wasser, Vice President--
Information Systems; Theodore A. Schachar, Vice President; Wendy Strutt, Vice
President; Richard Terres, Vice President; William H. Maresca, Controller;
James Bitetto, Assistant Secretary; Steven F. Newman, Assistant Secretary; and
Mandell L. Berman, Burton C. Borgelt, Steven G. Elliot, Martin C. McGuinn,
Richard W. Sabo and Richard F. Syron, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions and provides the
Fund with portfolio managers who are authorized by the Fund's Board to execute
purchases and sales of securities. The Fund's portfolio managers are Joseph P.
Darcy, A. Paul Disdier, Douglas J. Gaylor, Stephen C. Kris, Richard J.
Moynihan, W. Michael Petty, Jill C. Shaffro, Samuel J. Weinstock and Monica S.
Wieboldt. The Manager also maintains a research department with a professional
staff of portfolio managers and securities analysts who provide research
services for the Fund and for other funds advised by the Manager.
The Manager has a personal securities trading policy (the "Policy")
which restricts the personal securities transactions of its employees. Its
primary purpose is to ensure that personal trading by the Manager's employees
does not disadvantage any fund managed by the Manager. Under the Policy, the
Manager's employees must preclear personal transactions in securities not
exempt under the Policy. In addition, the Manager's employees must report their
personal securities transactions and holdings, which are reviewed for compliance
with the Policy. In that regard, the Manager's portfolio managers and other
investment personnel also are subject to the oversight of Mellon's Investment
Ethics Committee. Portfolio managers and other investment personnel of the
Manager who comply with the Policy's preclearance and disclosure procedures and
the requirements of the Committee may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
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 may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not including
the management fee paid by the Fund. The Distributor may use part or all of
such payments to pay certain financial institutions (which may include banks),
securities dealers and other industry professionals in respect of these
services. The Manager also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60% of the value of
the Fund's average daily net assets. All fees and expenses are accrued daily
and deducted before declaration of dividends to investors. The management fees
paid to the Manager for the fiscal years ended May 31, 1997, 1998 and 1999
amounted to $914,511, $928,443 and $976,018, 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.
Distributor. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the Fund's distributor on a best efforts basis
pursuant to an agreement which is renewable annually.
Transfer and Dividend Disbursing Agent and Custodian. Dreyfus Transfer,
Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the Manager, P.O. Box
9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and dividend
disbursing agent. Under a transfer agency agreement with the Fund, the Transfer
Agent arranges for the maintenance of shareholder account records for the Fund,
the handling of certain communications between shareholders and the Fund and the
payment of dividends and distributions payable by the Fund. For these services,
the Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Fund during the month, and is
reimbursed for certain out-of-pocket expenses.
The Bank of New York (the "Custodian"), 90 Washington Street, New York,
New York 10286, is the Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund. Under a custody agreement with the Fund, the
Custodian holds the Fund's securities and keeps all necessary accounts and
records. For its custody services, the Custodian receives a monthly fee based
on the market value of the Fund's assets held in custody and receives certain
securities transactions charges.
HOW TO BUY SHARES
General. Fund shares are sold without a sales charge. You may be
charged a fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution. Stock certificates are issued only
upon your written request. No certificates are issued for fractional shares.
It is not recommended that the Fund be used as a vehicle for Keogh, IRA or other
qualified plans. The Fund reserves the right to reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a client
of a securities dealer, bank or other financial institution which maintains an
omnibus account in the Fund and has made an aggregate minimum initial purchase
for its customers of $2,500. Subsequent investments must be at least $100. The
initial investment must be accompanied by the Account Application. For full-
time or part-time employees of the Manager or any of its affiliates or
subsidiaries, directors of the Manager, Board members of a fund advised by the
Manager, including members of the Fund's Board, or the spouse or minor child of
any of the foregoing, the minimum initial investment is $1,000. For full-time
or part-time employees of the Manager or any of its affiliates or subsidiaries
who elect to have a portion of their pay directly deposited into their Fund
accounts, the minimum initial investment is $50. The Fund reserves the right to
vary 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 Builderr, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant to
the Dreyfus Step Program described under "Shareholder Services." These services
enable you to make regularly scheduled investments and may provide you with a
convenient way to invest for long-term financial goals. You should be aware,
however, that periodic investment plans do not guarantee a profit and will not
protect you against loss in a declining market.
Shares are sold on a continuous basis at the net asset value per share
next determined after an order in proper form is received by the Transfer Agent
or other entity authorized to receive orders on behalf of the Fund. Net asset
value per share is determined as of the close of trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time), on each day the New
York Stock Exchange is open for business. For purposes of 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 Fund's Board and are valued at fair value as determined
by the pricing service. The pricing service's procedures are reviewed under the
general supervision of the Board. For further information regarding the methods
employed in valuing Fund investments, see "Determination of Net Asset Value."
Dreyfus TeleTransfer Privilege. You may purchase shares by telephone if
you have checked the appropriate box and supplied the necessary information on
the Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your fund account. Only a bank account
maintained in a domestic financial institution which is an Automated Clearing
House ("ACH") member may be so designated.
Dreyfus TeleTransfer purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day the Transfer Agent and
the New York Stock Exchange are open for business will be credited to the
shareholder's Fund account on the next bank business day following such purchase
order. Purchase orders made after 4:00 p.m., New York time, on any day the
Transfer Agent and the New York Stock Exchange are open for business, or orders
made on Saturday, Sunday or any 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 "How to Redeem Shares--Dreyfus TeleTransfer
Privilege."
Reopening an Account. You may reopen an account with a minimum
investment of $100 without filing a new Account Application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation an amount not to exceed
an annual rate of .25% of the value of the Fund's average daily net assets for
certain allocated expenses of providing personal services and/or maintaining
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Fund's
Board for its review. In addition, the Plan provides that material amendments
of the Plan must be approved by the 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 last so approved on July 14, 1999. 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, 1999, $139,461 was chargeable to the
Fund under the Plan.
HOW TO REDEEM SHARES
Redemption Fee. The Fund will deduct a redemption fee equal to 1% of
the net asset value of Fund shares redeemed (including redemptions through the
use of the Fund Exchanges service) less than 15 days following the issuance of
such shares. The redemption fee will be deducted from the redemption proceeds
and retained by the Fund. For the fiscal year ended May 31, 1999, the Fund
retained $4,981 in redemption fees.
No redemption fee will be charged on the redemption or exchange of
shares (1) through the Fund's Check Redemption Privilege, Automatic Withdrawal
Plan, or Dreyfus Auto-Exchange Privilege, (2) through accounts that are
reflected on the records of the Transfer Agent as omnibus accounts approved by
Dreyfus Service Corporation, (3) through accounts established by securities
dealers, banks or other financial institutions approved by Dreyfus Service
Corporation that utilize the National Securities Clearing Corporation's
networking system, or (4) acquired through the reinvestment of dividends or
capital gains distributions. The redemption fee may be waived, modified or
terminated at any time, or from time to time.
Check Redemption Privilege. The Fund provides Redemption Checks
("Checks") automatically upon opening an account, unless you specifically refuse
the Check Redemption Privilege by checking the applicable "No" box on the
Account Application. The Check Redemption Privilege may be established for an
existing account by a separate signed Shareholder Services Form. Checks will be
sent only to the registered owner(s) of the account and only to the address of
record. The Account Application or Shareholder Services Form must be manually
signed by the registered owner(s). Checks may be made payable to the order of
any person in an amount of $500 or more. When a Check is presented to the
Transfer Agent for payment, the Transfer Agent, as your agent, will cause the
Fund to redeem a sufficient number of shares in your account to cover the amount
of the Check. Dividends are earned until the Check clears. After clearance, a
copy of the Check will be returned to you. You generally will be subject to the
same rules and regulations that apply to checking accounts, although the
election of this Privilege creates only a shareholder-transfer agent
relationship with the Transfer Agent.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the Check, all postdated
Checks which are dated within six months of presentment for payment, if they are
otherwise in good order.
Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the shares in your account, the Check will be
returned marked insufficient funds. Checks should not be used to close an
account.
This Privilege will be terminated immediately, without notice, with
respect to any account which is, or becomes, subject to backup withholding on
redemptions. Any Check written on an account which has become subject to backup
withholding on redemptions will not be honored by the Transfer Agent.
Wire Redemption Privilege. By using this Privilege, you authorize the
Transfer Agent to act on wire, telephone or letter redemption instructions from
any person representing himself or herself to be you, and reasonably believed by
the Transfer Agent to be genuine. Ordinarily, the Fund will initiate payment
for shares redeemed pursuant to this Privilege on the next business day after
receipt by the Transfer Agent of a redemption request in proper form.
Redemption proceeds ($1,000 minimum ) will be transferred by Federal Reserve
wire only to the commercial bank account specified by you on the Account
Application or Shareholder Services Form, or to a correspondent bank if your
bank is not a member of the Federal Reserve System. Fees ordinarily are imposed
by such bank and borne by the investor. Immediate notification by the
correspondent bank to your bank is necessary to avoid a delay in crediting the
funds to your bank account.
If you have access to telegraphic equipment, you may wire redemption
requests to the Transfer Agent by employing the following transmittal code which
may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
If you do not have direct access to telegraphic equipment, you may have
the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171, toll
free. You should advise the operator that the above transmittal code must be
used and should also inform the operator of the Transfer Agent's answer back
sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed as
described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Holders of jointly registered Fund or
bank accounts may redeem through the Dreyfus TeleTransfer Privilege for transfer
to their bank account not more than $250,000 within any 30-day period. You
should be aware that if you have selected the Dreyfus TeleTransfer Privilege,
any request for a wire redemption will be effected as a Dreyfus TeleTransfer
transaction through the ACH system unless more prompt transmittal specifically
is requested. Redemption proceeds will be on deposit in the your account at an
ACH member bank ordinarily two business days after receipt of the redemption
request. See "How to Buy Shares--Dreyfus TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder of
a joint account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which signature-
guarantees in proper form generally will be accepted from domestic banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, as well as
from participants in the New York Stock Exchange Medallion Signature Program,
the Securities Transfer Agents Medallion Program ("STAMP") and the Stock
Exchanges Medallion Program. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature-Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, executors, administrators, trustees or guardians and may accept
other suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to signature-
guarantees, please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% 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 and is a
fundamental policy of the Fund which may not be changed without shareholder
approval. In the case of requests for redemption in excess of such amount, the
Fund's Board reserves the right to make payments in whole or in part in
securities or other assets of the Fund in case of an emergency or any time a
cash distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the
same manner as the Fund's portfolio is valued. If the recipient sells such
securities, brokerage charges might be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b) when
trading in the markets the Fund ordinarily utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
Fund Exchanges. You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by the Manager, to the
extent such shares are offered for sale in your state of residence. The Fund
will deduct a redemption fee equal to .10% of the net asset value of Fund shares
exchanged out of the Fund where the exchange is made less than 15 days after the
issuance of such shares. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds offered without a sales load will
be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load, and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), but if the sales load applicable to the
Offered Shares exceeds the maximum sales load that could have
been imposed in connection with the Purchased Shares (at the
time the Purchased Shares were acquired), without giving effect
to any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, you must notify the
Transfer Agent of your prior ownership of fund shares and your account number.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless you check the applicable "No" box on the Account Application, indicating
that you specifically refuse this Privilege. By using the Telephone Exchange
Privilege, you authorize the Transfer Agent to act on telephonic instructions
(including over The Dreyfus TouchO automated telephone system) from any person
representing himself or herself to be you and reasonably believed by the
Transfer Agent to be genuine. Telephone exchanges may be subject to limitations
as to the amount involved or the number of telephone exchanges permitted.
Shares issued in certificate form are not eligible for telephone exchange. No
fees currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance with
rules promulgated by the Securities and Exchange Commission.
To establish a personal retirement plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for shares of the Fund, shares of another
fund in the Dreyfus Family of Funds of which you are a shareholder. This
Privilege is available only for existing accounts. Shares will be exchanged on
the basis of relative net asset value as described above under "Fund Exchanges."
Enrollment in or modification or cancellation of this Privilege is effective
three business days following notification by the investor. You will be
notified if your account falls below the amount designated to be exchanged under
this Privilege. In this case, your account will fall to zero unless additional
investments are made in excess of the designated amount prior to the next Auto-
Exchange transaction. Shares held under IRA and other retirement plans are
eligible for this Privilege. Exchanges of IRA shares may be made between IRA
accounts and from regular accounts to IRA accounts, but not from IRA accounts to
regular accounts. With respect to all other retirement accounts, exchanges may
be made only among those accounts.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject any
exchange request in whole or in part. Shares may be exchanged only between
accounts having identical names and other identifying designations. The Fund
Exchanges service or Dreyfus Auto-Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
Dreyfus-Automatic Asset Builderr. Dreyfus-Automatic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased by
transferring funds from the bank account designated by you.
Dreyfus Government Direct Deposit Privilege. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social Security,
or certain veterans', military or other payments from the U.S. Government
automatically deposited into your fund account. You may deposit as much of such
payments as you elect.
Dreyfus Payroll Savings Plan. Dreyfus Payroll Savings Plan permits you
to purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus account
electronically through the ACH system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form with
your employer's payroll department. It is the sole responsibility of your
employer to arrange for transactions under the Dreyfus Payroll Savings Plan.
Dreyfus Step Program. The Dreyfus Step Program enables you to purchase
Fund shares without regard to the Fund's minimum initial investment requirements
through Dreyfus-Automatic Asset Builderr, Dreyfus Government Direct Deposit
Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step Program
account, you must supply the necessary information on the Account Application
and file the required authorization form(s) with the Transfer Agent. For more
information concerning this Program, or to request the necessary authorization
form(s), please call toll free 1-800-782-6620. 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.
Dreyfus Dividend Options. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of other funds purchased pursuant to this
privilege will be purchased on the basis of relative net asset value per share
as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds
offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with
a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund that charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), but if the sales
load applicable to the Offered Shares exceeds the maximum sales
load charged by the fund from which dividends or distributions
are being swept (without giving effect to any reduced loads),
the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
Dreyfus Dividend ACH permits you to transfer electronically dividends or
dividends and capital gain distributions, if any, from the Fund to a designated
bank account. Only an account maintained at a domestic financial institution
which is an ACH member may be so designated. Banks may charge a fee for this
service.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. Withdrawal
payments are the proceeds from sales of Fund shares, not the yield on the
shares. If withdrawal payments exceed reinvested dividends and distributions,
your shares will be reduced and eventually may be depleted. Automatic
Withdrawal may be terminated at any time by you, the Fund or the Transfer Agent.
Shares for which certificates have been issued may not be redeemed through the
Automatic Withdrawal Plan.
DETERMINATION OF NET ASSET VALUE
Valuation of Portfolio Securities. The Fund's investments are valued
each business day by an independent pricing service (the "Service") approved by
the Fund's Board. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for such
securities). Other investments (which constitute a majority of the portfolio
securities) are carried at fair value as determined by the Service, based on
methods which include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the Fund's officers under the general
supervision of the Fund's Board. Expenses and fees, including the management
fee (reduced by the expense limitation, if any), are accrued daily and are taken
into account for the purpose of determining the net asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that the Fund has qualified as a "regulated
investment company" under the Code, for the fiscal year ended May 31, 1999 and
the Fund intends to continue to so qualify, if such qualification is in the best
interests of its shareholders. To qualify as a regulated investment company,
the Fund must distribute at least 90% of its net income (consisting of net
investment income from tax exempt obligations and net short-term capital gains)
to its shareholders, and must meet certain asset diversification and other
requirements. Accordingly, the Fund may be restricted in the selling of
securities held for less than three months. If the Fund did not qualify as a
regulated investment company, it would be treated for tax purposes as an
ordinary corporation subject to Federal income tax. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
The Fund ordinarily declares dividends from its net investment income on
each day the New York Stock Exchange is open for business. Fund shares begin
earning dividends on the day following the date of purchase. The Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
next business day. Dividends usually are paid on the last business day of each
month and are automatically reinvested in additional Fund shares at net asset
value or, at your option, paid in cash. If you redeem all shares in your
account at any time during the month, all dividends to which you are entitled
will be paid to you along with the proceeds of the redemption. If you are an
omnibus accountholder and indicate in a partial redemption request that a
portion of any accrued dividends to which such account is entitled belongs to an
underlying accountholder who has redeemed all shares in his or her account, such
portion of the accrued dividends will be paid to you along with the proceeds of
the redemption. 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.
If you elect to receive dividends and distributions in cash and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest such
dividend or distribution and all future dividends and distributions payable to
you in additional Fund shares at net asset value. No interest will accrue
on amounts represented by uncashed distribution or redemption checks. All
expenses are accrued daily and deducted before declaration of dividends to
investors.
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 investment in an
economic sense although taxable as stated under " Distributions and Taxes" in
the Prospectus. In addition, the Code provides that if a shareholder has not
held his Fund shares for more than six months (or such shorter period as the
Internal Revenue Service may prescribe by regulation) and has received an
exempt-interest dividend with respect to such shares, any loss incurred on the
sale of such shares will be disallowed to the extent of the exempt-interest
dividend received.
If, at the close of each quarter of its taxable year, at least 50% of
the value of the Fund's total assets consists of Federal tax exempt obligations,
the Fund may designate and pay Federal exempt-interest dividends from interest
earned on all such tax exempt obligations. Such exempt-interest dividends may
be excluded by shareholders of the Fund from their gross income for Federal
income tax purposes. Dividends derived from taxable investments, together with
distributions from any net realized short-term securities gains, generally are
taxable as ordinary income for Federal income tax purposes whether or not
reinvested. Distributions from net realized long-term securities gains
generally are taxable as long-term capital gains to a shareholder who is a
citizen or resident of the United States, whether or not reinvested and
regardless of the length of time the shareholder has held his shares.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of the gain
realized from the disposition of certain market discount bonds will be treated
as ordinary income under Section 1276 of the Code. In addition, all or a
portion of the gain realized from engaging in "conversion transactions" may be
treated as ordinary income under Section 1258 of the Code. "Conversion
transactions" are defined to include certain forward, futures, option and
"straddle" transactions, transactions marketed or sold to produce capital gains,
or transactions described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss realized by the Fund from
certain financial futures and options transactions will be treated as 60% long-
term capital gain or loss and 40% short-term capital gain or loss. Gain or loss
will arise upon exercise or lapse of such futures and options as well as from
closing transactions. In addition, any such futures or options remaining
unexercised at the end of the Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to the Fund
characterized as described above.
Offsetting positions held by the Fund involving certain financial
futures contracts or options transactions may be considered, for tax purposes,
to constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 1256 and 988 of the
Code. As such, all or a portion of any short or long-term capital gain from
certain "straddle" and/or conversion transactions may be recharacterized as
ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in financial futures contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the futures or
options comprising a part of such "straddles" were governed by Section 1256 of
the Code. The Fund may make one or more elections with respect to "mixed
straddles." Depending on which election is made, if any, the results to the
Fund may differ. If no election is made, to the extent the straddle and
conversion transaction rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in the
offsetting position. Moreover, as a result of the straddle and the conversion
transaction rules, short-term capital losses on straddle positions may be
recharacterized as long-term capital losses, and long-term capital gains on
straddle positions may be recharacterized as short-term capital gains or
ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial positions") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified as hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion in
order to maintain its qualification as a regulated investment company. In such
case, the Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as such,
are paid by the Fund for such purchases and sales, although the price paid
usually includes an undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers ordinarily are executed at a price between the bid and
asked price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and analysis
with the views and information of other securities firms and may be selected
based upon their sales of shares of the Fund or other funds advised by the
Manager or its affiliates.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds it
advises and, conversely, research services furnished to the Manager by brokers
in connection with other funds the Manager advises may be used by the Manager in
advising the Fund. Although it is not possible to place a dollar value on these
services, it is the opinion of the Manager that the receipt and study of such
services should not reduce the overall expenses of its research department.
PERFORMANCE INFORMATION
The Fund's current yield for the 30-day period ended May 31, 1999 was
4.24%. 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
distributions, and (b) the net asset value per share on the last day of the
period less any undistributed earned income per share reasonably expected to be
declared as a dividend shortly thereafter. The quotient is then added to 1, and
that sum is raised to the 6th power, after which 1 is subtracted. The current
yield is then arrived at by multiplying the result by 2.
Based upon a combined 1999 Federal and Massachusetts personal income tax
rate of 43.19%, the Fund's tax equivalent yield for the 30-day period ended May
31, 1999 was 7.46%. Tax equivalent yield is computed by dividing that portion
of the current yield (calculated as described above) which is tax exempt by 1
minus a stated tax rate and adding the quotient to that portion, if any, of the
yield of the Fund that is not tax exempt.
The tax equivalent yield quoted above represents the application of the
highest Federal and Commonwealth of Massachusetts marginal personal income tax
rates presently in effect. For Federal personal income tax purposes, the
highest 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, 5 and 10 year periods
ended May 31, 1999 was 3.87%, 6.41% and 6.95%, 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 aggregate total return for the period June 11, 1985
(commencement of operations) through May 31, 1999 was 163.09%. 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.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from CDA Investment
Technologies, Inc., Lipper Analytical Services, Inc., Moody's Bond Survey Bond
Index, Lehman Brothers Municipal Bond Index, Morningstar, Inc. and other
industry publications. From time to time, advertising materials for the Fund
may refer to or discuss then-current or past economic conditions, developments
and/or events, actual or proposed tax legislation, or to statistical or other
information concerning trends relating to investment companies, as compiled by
industry associations such as the Investment Company Institute. From time to
time, advertising materials for the Fund also may refer to Morningstar ratings
and related analyses supporting the ratings.
From time to time, advertising material for the Fund may include
biographical information relating to its portfolio manager and may refer to, or
include commentary by the portfolio manager relating to investment strategy,
asset growth, current or past business, political, economic or financial
conditions and other matters of general interest to investors.
INFORMATION ABOUT THE FUND
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and 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.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Board member from office. Fund
shareholders may remove a Board member by the affirmative vote of two-thirds of
the Fund's outstanding voting shares. In addition, the Board will call a
meeting of shareholders for the purpose of electing Board members if, at any
time, less than a majority of the Board members then holding office have been
elected by shareholders.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Fund's Agreement and Declaration of Trust (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.
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to the
Fund's performance and its shareholders. Accordingly, if the Fund's management
determines that an investor is following a market-timing strategy or is
otherwise engaging in excessive trading, the Fund, with or without prior notice,
may temporarily or permanently terminate the availability of Fund Exchanges, or
reject in whole or part any purchase or exchange request, with respect to such
investor's account. Such investors also may be barred from purchasing other
funds in the Dreyfus Family of Funds. Generally, an investor who makes more
than four exchanges out of the Fund during any calendar year or who makes
exchanges that appear to coincide with a market-timing strategy may be deemed to
be engaged in excessive trading. Accounts under common ownership or control
will be considered as one account for purposes of determining a pattern of
excessive trading. In addition, the Fund may refuse or restrict purchase or
exchange requests by any person or group if, in the judgment of the Fund's
management, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies or could otherwise be
adversely affected or if the Fund receives or anticipates receiving simultaneous
orders that may significantly affect the Fund (e.g., amounts equal to 1% or more
of the Fund's total assets). If an exchange request is refused, the Fund will
take no other action with respect to the shares until it receives further
instructions from the investor. The Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would be
disruptive to efficient portfolio management or would adversely affect the Fund.
The Fund's policy on excessive trading applies to investors who invest in the
Fund directly or through financial intermediaries, but does not apply to the
Dreyfus Auto-Exchange Privilege, to any automatic investment or withdrawal
privilege described herein, or to participants in employer-sponsored retirement
plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components--redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but the
purchase order would be effective only at the net asset value next determined
after the fund being purchased receives the proceeds of the redemption, which
may result in the purchase being delayed.
To offset the relatively higher costs of servicing smaller accounts, the
Fund charges regular accounts with balances below $2,000 an annual fee of $12.
The valuation of accounts and the deductions are expected to take place during
the last four months of each year. The fee will be waived for any investor
whose aggregate Dreyfus mutual fund investments total at least $25,000, and will
not apply to IRA accounts or to accounts participating in automatic investment
programs or opened through a securities dealer, bank or other financial
institution, or to other fiduciary accounts.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, 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.
The economy of The Commonwealth of Massachusetts is experiencing
recovery following a slowdown that began in mid-1988. Massachusetts had
benefited from an annual job growth rate of approximately 2% since the early
1980's, but by 1989 employment started to decline. Between 1988 and 1992, total
employment in Massachusetts declined 10.7%. With the economic recovery that
began in 1993, however, employment levels have increased. Since 1994, total
employment levels have increased at yearly rates greater than or equal to 2.0%.
In 1995, 1996 and 1997, total employment increased by 2.5%, 2.0% and 2.7%,
respectively. Employment levels increased in all sectors, including
manufacturing. Between 1990 and 1992, the Commonwealth's unemployment rate was
considerably higher than the national average. However, unemployment rates in
Massachusetts since 1993 have declined faster than the national average (4.0%
compared to 4.9% in 1997) and the employment population ratio in Massachusetts
in 1996 and 1997 was slightly above the national average (66.4% compared to
63.2% for 1996 and 66.2% compared with 63.8% for 1997).
Massachusetts ended each of the fiscal years 1994 to 1998 with a
positive closing fund balance in its budgeted operating funds, and expects to do
so again at the close of fiscal 1999.
In recent years, health 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. However, the rate of increase has abated in recent years,
due to a number of savings and cost-cutting initiatives, such as managed care
and utilization review. During fiscal years 1994, 1995, 1996, 1997 and 1998,
Medicaid expenditures were $3.313 billion, $3.398 billion, $3.416 billion,
$3.456 billion, and $3.666 billion, respectively. The average annual growth
rate from fiscal 1994 to fiscal 1998 was 2.1%. It is estimated that in fiscal
1999, Medicaid expenditures will be $3.892.7 billion, an increase of 6.2% from
fiscal 1998.
Massachusetts' pension costs have risen 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 rate of 3.54% from
$908.9 million in fiscal 1994 to $1.07 billion in fiscal 1998. The pension
costs in 1999 are estimated to be $990.8 billion.
Payments for debt service on Massachusetts general obligation bonds and
notes have risen at an average annual rate of 1.11% from $1.15 billion in fiscal
1994 to $1.21 billion in fiscal 1998. State law generally imposes a 10% limit
on the total appropriations in any fiscal year that may be expended for payment
of interest and principal on general obligation debt. As of April 1, 1999 the
State had approximately $15.5 billion of long-term general obligation debt
outstanding and short-term direct obligations of the Commonwealth totaled $464.2
million.
Certain independent authorities and agencies within the State are
statutorily authorized to use debt for which Massachusetts is directly, in whole
or in part, or indirectly liable. 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 a moral obligation
to maintain the funding of reserve funds which are pledged as security for the
authorities' debt.
In November 1980, voters in the Commonwealth approved a State-wide tax
limitation initiative petition, commonly known as Proposition 22, 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 22 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 22 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. Propositions 22 also limits any annual increase in the total
assessments on cities and towns by any county, district, authority, the
Commonwealth, or any other governmental entity except regional school districts
and regional water and sewer districts whose budgets are approved by 2/3 of
their member cities and towns. During the 1980s, Massachusetts increased
payments to the cities, towns and regional school districts ("Local Aid") to
mitigate the impact of Proposition 22 on local programs and services. In fiscal
1999, approximately 21.2% of Massachusetts' budgeted expenditures were allocated
to Local Aid.
Many factors affect the financial condition of the Commonwealth and its
cities, towns and public bodies, such as social, environmental, and economic
conditions, many of which are not within the control of such entities. As is
the case with most urban States, the continuation of many of Massachusetts'
programs, particularly its human services programs, is in significant part
dependent upon continuing federal reimbursements which have been steadily
declining. The loss of grants to Massachusetts and its cities and towns could
further slow economic development. To the extent that such factors may exist,
they could have an adverse effect on economic conditions in Massachusetts,
although what effects, if any, such factors would have on Massachusetts'
Municipal Obligations cannot be predicted.
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 an A and BBB rating is that the latter shows
more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC or C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or payment of
principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus designation to show relative standing within the
major rating categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Issues assigned an A rating are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers 1, 2
and 3 to indicate the relative degree of safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
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 present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for the bonds in the generic rating category Aa.
Moody's also provides numerical modifiers of 2 and 3 in this category for bond
issues in the health care, higher education and other not-for-profit sectors;
the modifier 1 indicates that the issue ranks in the higher end of that generic
rating category; the modifier 2 indicates that the issue is in the mid-range of
that generic category; and the modifier 3 indicates that the issue is in the low
end of that generic category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
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 designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and 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.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months or the
DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Demand Bond or Notes Ratings
Certain demand securities empower the holder at his option to require
the issuer, usually through a remarketing agent, to repurchase the security upon
notice at par with accrued interest. This is also referred to as a put option.
The ratings of the demand provision may be changed or withdrawn at any time if,
in Fitch's judgment, changing circumstances warrant such action.
Fitch demand provision ratings carry the same symbols and related
definitions as its short-term ratings.
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
PART C. OTHER INFORMATION
_________________________
Item 23. Exhibits.
_______ _____________________________________________________
(a) Registrant's Agreement and Declaration of Trust is incorporated by
reference to Exhibit (1) of Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A, filed on August 16, 1995.
(b) Registrant's By-Laws is incorporated by reference to Exhibit (2) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on August 16, 1995.
(d) Management Agreement is incorporated by reference to Exhibit (5) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on August 16, 1995.
(e) Distribution Agreement is incorporated by reference to Exhibit (6) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on August 16, 1995.
(f) Amended and Restated Custody Agreement is incorporated by reference to
Exhibit (8)(a) of Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A, filed on August 16, 1995. Sub-Custodian
Agreements are incorporated by reference to Exhibit (8)(b) of Post-
Effective Amendment No. 15 to the Registration Statement on Form N-1A,
filed on July 25, 1996.
(i) Opinion and Consent of Counsel is incorporated by reference to Exhibit
(10) of Post-Effective Amendment No. 15 to the Registration Statement
on Form N-1A, filed on July 25, 1996.
(j) Consent of Ernst & Young LLP, Independent Auditors.
(m) Registrant's Shareholder Services Plan is incorporated by reference to
Exhibit (9) of Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A, filed on August 16, 1995.
Item 24. Persons Controlled by or under Common Control with Registrant.
_______ ______________________________________________________________
Not Applicable
Item 25. Indemnification
_______ _______________
Reference is made to Article VIII of the Registrant's Declaration of
Trust incorporated by reference to Exhibit (1) to the Registration
Statement on Form N-1A, filed on March 28, 1995. The application of
these provisions is limited by the following undertaking set forth in
the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such
Act and will be governed by the final adjudication of such issue.
Reference is also made to the Distribution Agreement which is
incorporated by reference to Exhibit (6) of Post-Effective Amendment No.
12 to the Registration Statement on Form N-1A, filed on August 16, 1995.
Item 26. Business and Other Connections of Investment Adviser.
_______ ____________________________________________________
The Dreyfus Corporation ("Dreyfus") and subsidiary companies
comprise a financial service organization whose business consists
primarily of providing investment management services as the
investment adviser, manager and distributor for sponsored
investment companies registered under the Investment Company Act of
1940 and as an investment adviser to institutional and individual
accounts. Dreyfus also serves as sub-investment adviser to and/or
administrator of other investment companies. Dreyfus Service
Corporation, is a registered broker-dealer. Dreyfus Management,
Inc., another wholly-owned subsidiary, provides investment
management services to various pension plans, institutions and
individuals.
<TABLE>
<CAPTION>
ITEM 26. Business and Other Connections of Investment Adviser (continued)
Officers and Directors of Investment Adviser
<S> <C> <C> <C>
Name and Position
With Dreyfus Other Businesses Position Held Dates
Christopher M. Condron Franklin Portfolio Associates, LLC* Director 1/97 - Present
Chairman of the Board and
Chief Executive Officer
TBCAM Holdings, Inc.* Director 10/97 - Present
President 10/97 - 6/98
Chairman 10/97 - 6/98
The Boston Company Director 1/98 - Present
Asset Management, LLC* Chairman 1/98 - 6/98
President 1/98 - 6/98
The Boston Company President 9/95 - 1/98
Asset Management, Inc.* Chairman 4/95 - 1/98
Pareto Partners Partner Representative 11/95 - 5/97
271 Regent Street
London, England W1R 8PP
Franklin Portfolio Holdings, Inc.* Director 1/97 - Present
Certus Asset Advisors Corp.** Director 6/95 -Present
Mellon Capital Management Director 5/95 -Present
Corporation***
Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Bond Associates+ Trustee 5/95 -1/98
Mellon Equity Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Equity Associates+ Trustee 5/95 - 1/98
Boston Safe Advisors, Inc.* Director 5/95 - Present
President 5/95 - Present
Mellon Bank, N.A. + Director 1/99 - Present
Chief Operating Officer 3/98 - Present
President 3/98 - Present
Vice Chairman 11/94 - 3/98
Mellon Bank Corporation+ Chief Operating Officer 1/99 - Present
President 1/99 - Present
Director 1/98 - Present
Vice Chairman 11/94 - 1/99
Christopher M. Condron The Boston Company, Inc.* Vice Chairman 1/94 - Present
Chairman and Chief Director 5/93 - Present
Executive Officer
(Continued) Laurel Capital Advisors, LLP+ Exec. Committee 1/98 - 8/98
Member
Laurel Capital Advisors+ Trustee 10/93 - 1/98
Boston Safe Deposit and Trust Director 5/93 -Present
Company*
The Boston Company Financial President 6/89 - Present
Strategies, Inc. * Director 6/89 - Present
Mandell L. Berman Self-Employed Real Estate Consultant, 11/74 - Present
Director 29100 Northwestern Highway Residential Builder and
Suite 370 Private Investor
Southfield, MI 48034
Burton C. Borgelt DeVlieg Bullard, Inc. Director 1/93 - Present
Director 1 Gorham Island
Westport, CT 06880
Mellon Bank Corporation+ Director 6/91 - Present
Mellon Bank, N.A. + Director 6/91 - Present
Dentsply International, Inc. Director 2/81 - Present
570 West College Avenue
York, PA
Quill Corporation Director 3/93 - Present
Lincolnshire, IL
Stephen E. Canter Dreyfus Investment Chairman of the Board 1/97 - Present
President, Chief Operating Advisors, Inc.++ Director 5/95 - Present
Officer, Chief Investment President 5/95 - Present
Officer, and Director
Newton Management Limited Director 2/99 - Present
London, England
Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present
Member
Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present
Member
Franklin Portfolio Associates, LLC* Director 2/99 - Present
Franklin Portfolio Holdings, Inc.* Director 2/99 - Present
The Boston Company Asset Director 2/99 - Present
Management, LLC*
TBCAM Holdings, Inc.* Director 2/99 - Present
Mellon Capital Management Director 1/99 - Present
Corporation***
Stephen E. Canter Founders Asset Management, LLC Member, Board of 12/97 - Present
President, Chief Operating 2930 East Third Ave. Managers
Officer, Chief Investment Denver, CO 80206 Acting Chief Executive 7/98 - 12/98
Officer, and Director Officer
(Continued)
The Dreyfus Trust Company+++ Director 6/ 95 - Present
Thomas F. Eggers Dreyfus Service Corporation++ Executive Vice President 4/96 - Present
Vice Chairman - Institutional Director 9/96 - Present
and Director
Founders Asset Management, LLC Member, Board of 2/99 - Present
2930 East Third Avenue Managers
Denver, CO 80206
Steven G. Elliott Mellon Bank Corporation+ Senior Vice Chairman 1/99 - Present
Director Chief Financial Officer 1/90 - Present
Vice Chairman 6/92 - 1/99
Treasurer 1/90 - 5/98
Mellon Bank, N.A.+ Senior Vice Chairman 3/98 - Present
Vice Chairman 6/92 - 3/98
Chief Financial Officer 1/90 - Present
Mellon EFT Services Corporation Director 10/98 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Mellon Financial Services Director 1/96 - Present
Corporation #1 Vice President 1/96 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Boston Group Holdings, Inc.* Vice President 5/93 - Present
APT Holdings Corporation Treasurer 12/87 - Present
Pike Creek Operations Center
4500 New Linden Hill Road
Wilmington, DE 19808
Allomon Corporation Director 12/87 - Present
Two Mellon Bank Center
Pittsburgh, PA 15259
Collection Services Corporation Controller 10/90 - 2/99
500 Grant Street Director 9/88 - 2/99
Pittsburgh, PA 15258 Vice President 9/88 - 2/99
Treasurer 9/88 - 2/99
Mellon Financial Company+ Principal Exec. Officer 1/88 - Present
Chief Financial Officer 8/87 - Present
Director 8/87 - Present
President 8/87 - Present
Mellon Overseas Investments Director 4/88 - Present
Corporation+ Chairman 7/89 - 11/97
President 4/88 - 11/97
Chief Executive Officer 4/88 - 11/97
Mellon International Investment Director 9/89 - 8/97
Corporation+
Steven G. Elliott Mellon Financial Services Treasurer 12/87 - Present
Director (Continued) Corporation # 5+
Mellon Financial Markets, Inc.+ Director 1/99 - Present
Mellon Financial Services Director 1/99 - Present
Corporation #17
Fort Lee, NJ
Mellon Mortgage Company Director 1/99 - Present
Houston, TX
Mellon Ventures, Inc. + Director 1/99 - Present
Lawrence S. Kash Dreyfus Investment Director 4/97 - Present
Vice Chairman Advisors, Inc.++
And Director
Dreyfus Brokerage Services, Inc. Chairman 11/97 - Present
401 North Maple Ave. Chief Executive Officer 11/97 - Present
Beverly Hills, CA
Dreyfus Service Corporation++ Director 1/95 - 2/99
President 9/96 - 3/99
Dreyfus Precious Metals, Inc.++ + Director 3/96 - 12/98
President 10/96 - 12/98
Dreyfus Service Director 12/94 - Present
Organization, Inc.++ President 1/97 - Present
Seven Six Seven Agency, Inc. ++ Director 1/97 - Present
Dreyfus Insurance Agency of Chairman 5/97 - Present
Massachusetts, Inc.++++ President 5/97 - Present
Director 5/97 - Present
The Dreyfus Trust Company+++ Chairman 1/97 - 1/99
President 2/97 - 1/99
Chief Executive Officer 2/97 - 1/99
Director 12/94 - Present
The Dreyfus Consumer Credit Chairman 5/97 - Present
Corporation++ President 5/97 - Present
Director 12/94 - Present
Founders Asset Management, LLC Member, Board of 12/97 - Present
2930 East Third Avenue Managers
Denver, CO. 80206
The Boston Company Advisors, Chairman 12/95 - Present
Inc. Chief Executive Officer 12/95 - Present
Wilmington, DE President 12/95 - Present
The Boston Company, Inc.* Director 5/93 - Present
President 5/93 - Present
Mellon Bank, N.A.+ Executive Vice President 6/92 - Present
Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98
Executive Committee 1/98 - 8/98
Member
Chief Executive Officer 1/98 - 8/98
President 1/98 - 8/98
Lawrence S. Kash Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98
Vice Chairman Chairman 9/93 - 1/98
And Director (Continued) President and CEO 12/91 - 1/98
Boston Group Holdings, Inc.* Director 5/93 - Present
President 5/93 - Present
Martin G. McGuinn Mellon Bank Corporation+ Chairman 1/99 - Present
Director Chief Executive Officer 1/99 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 1/99
Mellon Bank, N. A. + Chairman 3/98 - Present
Chief Executive Officer 3/98 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 3/98
Mellon Leasing Corporation+ Vice Chairman 12/96 - Present
Mellon Bank (DE) National Director 4/89 - 12/98
Association
Wilmington, DE
Mellon Bank (MD) National Director 1/96 - 4/98
Association
Rockville, Maryland
Mellon Financial Vice President 9/86 - 10/97
Corporation (MD)
Rockville, Maryland
J. David Officer Dreyfus Service Corporation++ Executive Vice President 5/98 - Present
Vice Chairman Director 3/99 - Present
And Director
Dreyfus Insurance Agency of Director 5/98 - Present
Massachusetts, Inc.++++
Seven Six Seven Agency, Inc.++ Director 10/98 - Present
Mellon Residential Funding Corp. + Director 4/97 - Present
Mellon Trust of Florida, N.A. Director 8/97 - Present
2875 Northeast 191st Street
North Miami Beach, FL 33180
Mellon Bank, NA+ Executive Vice President 7/96 - Present
The Boston Company, Inc.* Vice Chairman 1/97 - Present
Director 7/96 - Present
Mellon Preferred Capital Director 11/96 - Present
Corporation*
RECO, Inc.* President 11/96 - Present
Director 11/96 - Present
The Boston Company Financial President 8/96 - Present
Services, Inc.* Director 8/96 - Present
Boston Safe Deposit and Trust Director 7/96 - Present
Company* President 7/96 - 1/99
J. David Officer Mellon Trust of New York Director 6/96 - Present
Vice Chairman and 1301 Avenue of the Americas
Director (Continued) New York, NY 10019
Mellon Trust of California Director 6/96 - Present
400 South Hope Street
Suite 400
Los Angeles, CA 90071
Mellon Bank, N.A.+ Executive Vice President 2/94 - Present
Mellon United National Bank Director 3/98 - Present
1399 SW 1st Ave., Suite 400
Miami, Florida
Boston Group Holdings, Inc.* Director 12/97 - Present
Dreyfus Financial Services Corp. + Director 9/96 - Present
Dreyfus Investment Services Director 4/96 - Present
Corporation+
Richard W. Sabo Founders Asset Management LLC President 12/98 - Present
Director 2930 East Third Avenue Chief Executive Officer 12/98 - Present
Denver, CO. 80206
Prudential Securities Senior Vice President 07/91 - 11/98
New York, NY Regional Director 07/91 - 11/98
Richard F. Syron American Stock Exchange Chairman 4/94 - Present
Director 86 Trinity Place Chief Executive Officer 4/94 - Present
New York, NY 10006
Ronald P. O'Hanley Franklin Portfolio Holdings, Inc.* Director 3/97 - Present
Vice Chairman
TBCAM Holdings, Inc.* Chairman 6/98 - Present
Director 10/97 - Present
The Boston Company Asset Chairman 6/98 - Present
Management, LLC* Director 1/98 - 6/98
The Boston Company Asset Director 2/97 - 12/97
Management, Inc. *
Boston Safe Advisors, Inc.* Chairman 6/97 - Present
Director 2/97 - Present
Pareto Partners Partner Representative 5/97 - Present
271 Regent Street
London, England W1R 8PP
Mellon Capital Management Director 5/97 -Present
Corporation***
Certus Asset Advisors Corp.** Director 2/97 - Present
Mellon Bond Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon Equity Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon-France Corporation+ Director 3/97 - Present
Ronald P. O'Hanley Laurel Capital Advisors+ Trustee 3/97 - Present
Vice Chairman (Continued)
Mark N. Jacobs Dreyfus Investment Director 4/97 - Present
General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98
Vice President, and
Secretary The Dreyfus Trust Company+++ Director 3/96 - Present
The TruePenny Corporation++ President 10/98 - Present
Director 3/96 - Present
Dreyfus Service Director 3/97 - Present
Organization, Inc.++
William H. Maresca The Dreyfus Trust Company+++ Director 3/97 - Present
Controller
Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present
Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 -Present
Dreyfus Investment Treasurer 10/98 - Present
Advisors, Inc. ++
Dreyfus-Lincoln, Inc. Vice President 10/98 - Present
4500 New Linden Hill Road
Wilmington, DE 19808
The TruePenny Corporation++ Vice President 10/98 - Present
Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98
The Trotwood Corporation++ Vice President 10/98 - Present
Trotwood Hunters Corporation++ Vice President 10/98 - Present
Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present
Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present
One American Express Plaza,
Providence, RI 02903
Dreyfus Service Assistant Treasurer 3/93 - Present
Organization, Inc.++
Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present
Massachusetts, Inc.++++
William T. Sandalls, Jr. Dreyfus Transfer, Inc. Chairman 2/97 - Present
Executive Vice President One American Express Plaza,
Providence, RI 02903
Dreyfus Service Corporation++ Director 1/96 - Present
Executive Vice President 2/97 - Present
Chief Financial Officer 2/97-12/98
Dreyfus Investment Director 1/96 - Present
Advisors, Inc.++ Treasurer 1/96 - 10/98
William T. Sandalls, Jr. Dreyfus-Lincoln, Inc. Director 12/96 - Present
Executive Vice President 4500 New Linden Hill Road President 1/97 - Present
(Continued) Wilmington, DE 19808
Seven Six Seven Agency, Inc.++ Director 1/96 - 10/98
Treasurer 10/96 - 10/98
The Dreyfus Consumer Director 1/96 - Present
Credit Corp.++ Vice President 1/96 - Present
Treasurer 1/97 - 10/98
Dreyfus Partnership President 1/97 - 6/97
Management, Inc.++ Director 1/96 - 6/97
Dreyfus Service Organization, Director 1/96 - 6/97
Inc.++ Executive Vice President 1/96 - 6/97
Treasurer 10/96- Present
Dreyfus Insurance Agency of Director 5/97 - Present
Massachusetts, Inc.++++ Treasurer 5/97- Present
Executive Vice President 5/97 - Present
Diane P. Durnin Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99
Vice President - Product Marketing and Advertising
Development Division
Patrice M. Kozlowski None
Vice President - Corporate
Communications
Mary Beth Leibig None
Vice President -
Human Resources
Theodore A. Schachar Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present
Vice President - Tax
Dreyfus Investment Advisors, Inc.++ Vice President - Tax 10/96 - Present
Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98
Dreyfus Service Organization, Inc.++ Vice President - Tax 10/96 - Present
Wendy Strutt None
Vice President
Richard Terres None
Vice President
Andrew S. Wasser Mellon Bank Corporation+ Vice President 1/95 - Present
Vice-President -
Information Systems
James Bitetto The TruePenny Corporation++ Secretary 9/98 - Present
Assistant Secretary
Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present
Dreyfus Investment Assistant Secretary 7/98 - Present
Advisors, Inc.++
Dreyfus Service Assistant Secretary 7/98 - Present
Organization, Inc.++
Steven F. Newman Dreyfus Transfer, Inc. Vice President 2/97 - Present
Assistant Secretary One American Express Plaza Director 2/97 - Present
Providence, RI 02903 Secretary 2/97 - Present
Dreyfus Service Secretary 7/98 - Present
Organization, Inc.++ Assistant Secretary 5/98 - 7/98
_______________________________
* The address of the business so indicated is One Boston Place, Boston, Massachusetts, 02108.
** The address of the business so indicated is One Bush Street, Suite 450, San Francisco, California 94104.
*** The address of the business so indicated is 595 Market Street, Suite 3000, San Francisco, California 94105.
+ The address of the business so indicated is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258.
++ The address of the business so indicated is 200 Park Avenue, New York, New York 10166.
+++ The address of the business so indicated is 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144.
++++ The address of the business so indicated is 53 State Street, Boston, Massachusetts 02109.
</TABLE>
Item 27. Principal Underwriters
________ ______________________
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or
exclusive distributor:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management Funds
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Debt and Equity Funds
28) Dreyfus Index Funds, Inc.
29) Dreyfus Institutional Money Market Fund
30) Dreyfus Institutional Preferred Money Market Fund
31) Dreyfus Institutional Short Term Treasury Fund
32) Dreyfus Insured Municipal Bond Fund, Inc.
33) Dreyfus Intermediate Municipal Bond Fund, Inc.
34) Dreyfus International Funds, Inc.
35) Dreyfus Investment Grade Bond Funds, Inc.
36) Dreyfus Investment Portfolios
37) The Dreyfus/Laurel Funds, Inc.
38) The Dreyfus/Laurel Funds Trust
39) The Dreyfus/Laurel Tax-Free Municipal Funds
40) Dreyfus LifeTime Portfolios, Inc.
41) Dreyfus Liquid Assets, Inc.
42) Dreyfus Massachusetts Intermediate Municipal Bond Fund
43) Dreyfus Massachusetts Municipal Money Market Fund
44) Dreyfus Massachusetts Tax Exempt Bond Fund
45) Dreyfus MidCap Index Fund
46) Dreyfus Money Market Instruments, Inc.
47) Dreyfus Municipal Bond Fund, Inc.
48) Dreyfus Municipal Cash Management Plus
49) Dreyfus Municipal Money Market Fund, Inc.
50) Dreyfus New Jersey Intermediate Municipal Bond Fund
51) Dreyfus New Jersey Municipal Bond Fund, Inc.
52) Dreyfus New Jersey Municipal Money Market Fund, Inc.
53) Dreyfus New Leaders Fund, Inc.
54) Dreyfus New York Insured Tax Exempt Bond Fund
55) Dreyfus New York Municipal Cash Management
56) Dreyfus New York Tax Exempt Bond Fund, Inc.
57) Dreyfus New York Tax Exempt Intermediate Bond Fund
58) Dreyfus New York Tax Exempt Money Market Fund
59) Dreyfus U.S. Treasury Intermediate Term Fund
60) Dreyfus U.S. Treasury Long Term Fund
61) Dreyfus 100% U.S. Treasury Money Market Fund
62) Dreyfus U.S. Treasury Short Term Fund
63) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
64) Dreyfus Pennsylvania Municipal Money Market Fund
65) Dreyfus Premier California Municipal Bond Fund
66) Dreyfus Premier Equity Funds, Inc.
67) Dreyfus Premier International Funds, Inc.
68) Dreyfus Premier GNMA Fund
69) Dreyfus Premier Worldwide Growth Fund, Inc.
70) Dreyfus Premier Municipal Bond Fund
71) Dreyfus Premier New York Municipal Bond Fund
72) Dreyfus Premier State Municipal Bond Fund
73) Dreyfus Premier Value Equity Funds
74) Dreyfus Short-Intermediate Government Fund
75) Dreyfus Short-Intermediate Municipal Bond Fund
76) The Dreyfus Socially Responsible Growth Fund, Inc.
77) Dreyfus Stock Index Fund, Inc.
78) Dreyfus Tax Exempt Cash Management
79) The Dreyfus Third Century Fund, Inc.
80) Dreyfus Treasury Cash Management
81) Dreyfus Treasury Prime Cash Management
82) Dreyfus Variable Investment Fund
83) Dreyfus Worldwide Dollar Money Market Fund, Inc.
84) Founders Funds, Inc.
85) General California Municipal Bond Fund, Inc.
86) General California Municipal Money Market Fund
87) General Government Securities Money Market Fund, Inc.
88) General Money Market Fund, Inc.
89) General Municipal Bond Fund, Inc.
90) General Municipal Money Market Funds, Inc.
91) General New York Municipal Bond Fund, Inc.
92) General New York Municipal Money Market Fund
(b)
Positions and
Name and principal Positions and offices with offices with
business address the Distributor Registrant
__________________ ___________________________ _____________
Marie E. Connolly+ Director, President, Chief President and
Executive Officer and Chief Treasurer
Compliance Officer
Joseph F. Tower, III+ Director, Senior Vice President, Vice President
Treasurer and Chief Financial and Assistant
Officer Treasurer
Mary A. Nelson+ Vice President Vice President
and Assistant
Treasurer
Jean M. O'Leary+ Assistant Vice President, None
Assistant Secretary and
Assistant Clerk
William J. Nutt+ Chairman of the Board None
Stephanie D. Pierce++ Vice President Vice President,
Assistant Secretary
and Assistant
Treasurer
Patrick W. McKeon+ Vice President None
Joseph A. Vignone+ Vice President None
________________________________
+ Principal business address is 60 State Street, Boston, Massachusetts 02109.
++ Principal business address is 200 Park Avenue, New York, New York 10166.
Item 28. Location of Accounts and Records
_______ ________________________________
1. First Data Investor Services Group, Inc.,
a subsidiary of First Data Corporation
P.O. Box 9671
Providence, Rhode Island 02940-9671
2. The Bank of New York
90 Washington Street
New York, New York 10286
3. Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, Rhode Island 02940-9671
4. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Item 29. Management Services
_______ ___________________
Not Applicable
Item 30. Undertakings
_______ ____________
None
SIGNATURES
---------------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State
of New York on the 28th day of July, 1999.
DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND
BY: /s/Marie E. Connolly*
MARIE E. CONNOLLY, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signatures Title Date
__________________________ _______________________________ _________
/s/Marie E. Connolly* President and Treasurer 7/28/99
Marie E Connolly (Principal Executive, Financial
and Accounting Officer)
/s/Joseph Tower* Vice President and Assistant 7/28/99
Joseph Tower Treasurer (Principal Accounting
Officer)
/s/David W. Burke* Board Member 7/28/99
David W. Burke
/s/Samuel Chase* Board Member 7/28/99
Samuel Chase
/s/Gordon J. Davis* Board Member 7/28/99
Gordon J. Davis
/s/Joseph S. DiMartino* Chairman of the Board 7/28/99
Joseph S. DiMartino
/s/Joni Evans* Board Member 7/28/99
Joni Evans
/s/Arnold S. Hiatt* Board Member 7/28/99
Arnold S. Hiatt
/s/Burton N. Wallack* Board Member 7/28/99
Burton N. Wallack
*BY: /s/Stephanie Pierce*
Stephanie Pierce
Attorney-in-Fact
INDEX OF EXHIBITS
Exhibit Item No. Exhibit
23 (j) Consent of Ernst & Young LLP, Independent Auditors
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and Counsel and Independent Auditors" and to the use of report
dated July 8, 1999, which is incorporated by reference, in this Registration
Statement (Form N-1A No. 2-96709) of Dreyfus Massachusetts Tax Exempt Bond
Fund.
ERNST & YOUNG LLP
New York, New York
July 26, 1999
