PREMIER MUNICIPAL BOND FUND, 497, 1994-11-23

PREMIER MUNICIPAL BOND FUND
497, 1994-11-23

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PREMIER MUNICIPAL BOND FUND
(Lion Logo)
PROSPECTUS JUNE 24, 1994

AS REVISED NOVEMBER 18, 1994

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Premier Municipal Bond Fund (the "Fund") is an open-end,
diversified, management investment company, known as a
mutual fund. Its goal is to maximize current income exempt from Federal
income tax to the extent consistent with the preservation of capital.
By this Prospectus, Class A and Class B shares of the Fund
are being offered. Class A shares are subject to a sales charge imposed
at the time of purchase and Class B shares are subject to a contingent
deferred sales charge imposed on redemptions made within five years of
purchase. Other differences between the two Classes include the services
offered to and the expenses borne by each Class and certain voting
rights, as described herein. The Fund offers these alternatives to permit
an investor to choose the method of purchasing shares that is most
beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances.
The Fund provides free redemption checks with respect to
Class A, which you can use in amounts of $500 or more for cash or to pay
bills. You continue to earn income on the amount of the check until it
clears. You can purchase or redeem shares by telephone using the
TELETRANSFER Privilege.
The Dreyfus Corporation professionally manages the Fund's
portfolio.
This Prospectus sets forth concisely information about the
Fund that you should know before investing. It should be read and
retained for future reference.
Part B (also known as the Statement of Additional
Information), dated
June 24, 1994, which may be revised from time to time,
provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to some investors. It has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, write to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or call
1-800-554-4611. When telephoning, ask for Operator 666.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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November 18, 1994
PREMIER MUNICIPAL BOND FUND
SUPPLEMENT TO PROSPECTUS DATED JUNE 24, 1994
AS REVISED NOVEMBER 18, 1994
THE FOLLOWING ANTICIPATED CHANGES HAVE OCCURRED:
I. CONSUMMATION OF THE MERGER
THE FOLLOWING INFORMATION SUPPLEMENTS AND SUPERSEDES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS.
On August 24, 1994, the previously announced merger between The
Dreyfus Corporation ("Dreyfus") and a subsidiary of Mellon Bank Corporation
("Mellon") was completed, and as a result, Dreyfus now is a wholly-owned
subsidiary of Mellon Bank, N.A. instead of a publicly-owned corporation.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, Mellon managed more than $130 billion in assets as of July
31, 1994, including approximately $6 billion in mutual fund assets. As of
June 30, 1994, various subsidiaries of Mellon provided non-investment
services, such as custodial or administration services, for approximately
$747 billion in assets, including approximately $97 billion in mutual fund
assets.
II. NEW DISTRIBUTOR
THE FOLLOWING INFORMATION SUPERSEDES AND REPLACES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS AND SPECIFICALLY IN THE
SECTION ENTITLED "HOW TO BUY FUND SHARES."
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration services, the parent
company of which is Boston Institutional Group, Inc.
Accordingly, references in the Prospectus to Dreyfus Service
Corporation as the Fund's distributor should be substituted with Premier
Mutual Fund Services, Inc.
(Continued on Next Page)
III.NEW RULE 12B-1 PLAN ARRANGEMENTS IMPLEMENTED
THE FOLLOWING INFORMATION SUPERSEDES AND REPLACES THE INFORMATION
CONTAINED IN THE SECTION IN THE FUND'S PROSPECTUS
ENTITLED "DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN --DISTRIBUTION
PLAN."
Under the Distribution Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor for distributing
the Fund's Class B shares at an annual rate of .50 of 1% of the value of the
average daily net assets of Class B.
IV. RESULTS OF FUND SHAREHOLDER VOTE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SUPERSEDES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS.
On August 3, 1994, the Fund's shareholders voted to (a) approve (i) a
new investment advisory agreement with Dreyfus, and (ii) a new Distribution
Plan with respect to Class B, each of which became effective upon
consummation of the merger between Dreyfus and a subsidiary of Mellon, and
(b) change certain of the Fund's fundamental policies and investment
restrictions to permit the Fund to (i) borrow money to the extent permitted
under the Investment Company Act of 1940, as amended, and (ii) pledge its asse
ts to the extent necessary to secure borrowings and make such policy
non-fundamental.
V. REVISED MANAGEMENT POLICIES
BORROWING MONEY -- As a fundamental policy, the Fund is permitted to
borrow to the extent permitted under the Investment Company Act of 1940.
However, 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
the Fund's 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.
TABLE OF CONTENTS
Fee Table.......................................... 3
Condensed Financial Information.................... 4
Alternative Purchase Methods....................... 5
Description of the Fund............................ 5
Management of the Fund............................. 16
How to Buy Fund Shares............................. 17
Shareholder Services............................... 20
How to Redeem Fund Shares.......................... 24
Distribution Plan and Shareholder Services Plan.... 28
Dividends, Distributions and Taxes................. 28
Performance Information............................ 30
General Information................................ 32
Page 2
<TABLE>
<CAPTION>
FEE TABLE
CLASS A CLASS B
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................ 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)...... -- 3.00%
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
Management Fees....................................... .55% .55%
12b-1 Fees............................................ -- .50%
Other Expenses ....................................... .36% .36%
Total Fund Operating Expenses......................... .91% 1.41%
</TABLE>
<TABLE>
<CAPTION>
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) except where noted,
redemption at the end of each time period: CLASS A CLASS B CLASS B*
<S> <C> <C> <C>
1 Year...................................... $ 54 $ 44 $ 14
3 Years..................................... $ 73 $ 65 $ 45
5 Years..................................... $ 93 $ 87 $ 77
10 Years**.................................. $152 $143 $143
</TABLE>
*Assuming no redemption of Class B shares.
**Ten-year figures assume conversion of Class B shares to Class A
shares at the end of the sixth year following the date of purchase.
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The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be
greater or less than those indicated. Moreover, while the example assumes
a 5% annual return, the Fund's actual performance will vary and may
result in an actual return greater or less than 5%.
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The purpose of the foregoing table is to assist you in
understanding the various costs and expenses that investors will bear,
directly or indirectly, the payment of which will reduce investors'
return on an annual basis. Total Fund Operating Expenses are limited to
the expense limitation provision of the Management Agreement. Long-term
investors in Class B shares could pay more in 12b-1 fees than the
economic equivalent of paying a front-end sales charge. The information
in the foregoing table does not reflect any fee waivers or expense
reimbursement arrangements that may be in effect. Certain Service Agents
(as defined below) may charge their clients direct fees for effecting
transactions in Fund shares; such fees are not reflected in the foregoing
table. See "Management of the Fund," "How to Buy Fund Shares" and
"Distribution Plan and Shareholder Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by
Ernst & Young, the Fund's independent auditors, whose report thereon
appears in the Statement of Additional Information. Further financial
data and related notes are included in the Statement of Additional
Information, available upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data for each year
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------- ------------------
Year Ended April 30, Year Ended April 30,
-------------------------------------------------------------------------------- --------------
1987(1) 1988 1989 1990 1991 1992 1993 1994 1993(1) 1994
------ ------- ------ ------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of year... $14.00 $12.83 $12.30 $12.97 $12.77 $13.28 $13.75 $14.45 $14.02 $14.45
------ ------- ------ ------ ------ ------- ------ ------ ------- ------
Investment Operations:
Investment income-net... .43 .97 1.01 .99 .98 .94 .92 .89 .24 .80
Net realized and unrealized gain
(loss) on investments... (1.17) (.53) .67 (.20) .51 .49 .91 (.59) .43 (.59)
------ ------- ------ ------ ------ ------- ------ ------ ------- ------
Total from
Investment Operations... (.74) .44 1.68 .79 1.49 1.43 1.83 .30 .67 .21
------ ------- ------ ------ ------ ------- ------ ------ ------- ------
Distributions:
Dividends from
investment income-net... (.43) (.97) (1.01) (.99) (.98) (.94) (.92) (.89) (.24) (.80)
Dividends from net realized
gain on investments..... -- -- -- -- -- (.02) (.21) (.02) -- (.02)
Dividends from excess net realized
gain on investments..... -- -- -- -- -- -- -- (.03) -- (.03)
------ ------- ------ ------ ------ ------- ------ ------ ------- ------
Total Distributions..... (.43) (.97) (1.01) (.99) (.98) (.96) (1.13) (.94) (.24) (.85)
------ ------- ------ ------ ------ ------- ------ ------ ------- ------
Net asset value,
end of year......... $12.83 $12.30 $12.97 $12.77 $13.28 $13.75 $14.45 $13.81 $14.45 $13.81
====== ====== ====== ====== ====== ====== ======= ====== ====== ======
TOTAL INVESTMENT RETURN(2). (12.87%)(3) 3.64% 14.13% 6.25% 12.13% 11.08% 13.76% 15.27% 16.80%(3) 14.72%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets -- -- -- -- .22% .54% .74% .85% 1.15%(3) 1.40%
Ratio of net investment income
to average net assets.... 6.53% 7.81% 7.72% 7.51% 7.43% 6.90% 6.43% 6.01% 5.13%(3) 5.33%
Decrease reflected in above expense ratios due to
undertakings by
the Manager..... 1.50% 1.50% 1.50% 1.15% .82% .40% .20% .06% .10%(3) .05%
Portfolio Turnover Rate.. 36.62%(4) 33.25% 143.20% 63.53% 41.30% 50.72% 30.99% 22.15% 30.99% 22.15%
Net Assets, end of year
(000's omitted).... $1,290 $5,650 $26,342 $100,784 $247,195 $388,793 $526,606 $546,036 $19,855 $95,643
</TABLE>
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(1)From November 26, 1986 (commencement of operations) to April 30, 1987.
(2)From January 15, 1993 (commencement of initial offering)to April 30, 1993.
(3)Exclusive of sales charge.
(4)Annualized.
(5)Not annualized
Further information about the Fund's performance is contained
in the Fund's annual report which may be obtained without charge by
writing to the address or calling the number set forth on the cover page
of this Prospectus.
Page 4
ALTERNATIVE PURCHASE METHODS
The Fund offers you two methods of purchasing Fund shares;
you may choose the Class of shares that best suits your needs, given the
amount of your purchase, the length of time you expect to hold your
shares and any other relevant circumstances. Each Class A and Class B
share represents an identical pro rata interest in the Fund's investment
portfolio.
Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 4.50% of the public offering price
imposed at the time of purchase. The initial sales charge may be reduced
or waived for certain purchases. See "How to Buy Fund Shares - Class A
Shares." These shares are subject to an annual service fee at the rate of
.25 of 1% of the value of the average daily net assets of Class A. See
"Distribution Plan and Shareholder Services Plan - Shareholder Services
Plan."
Class B shares are sold at net asset value per share with no
initial sales charge at the time of purchase; as a result, the entire
purchase price is immediately invested in the Fund. Class B shares are
subject to a maximum 3% contingent deferred sales charge ("CDSC"), which
is assessed only if you redeem Class B shares within the first five years
of their purchase. See "How to Buy Fund Shares - Class B Shares" and "How
to Redeem Fund Shares _ Contingent Deferred Sales Charge--Class B
Shares." These shares also are subject to an annual service fee at the
rate of .25 of 1% of the value of the average daily net assets of Class
B. In addition, Class B shares are subject to an annual distribution fee
at the rate of .50 of 1% of the value of the average daily net assets of
Class B. See "Distribution Plan and Shareholder Services Plan." The
distribution fee paid by Class B will cause such Class to have a higher
expense ratio and to pay lower dividends than Class A. Approximately six
years after the date of purchase, Class B shares automatically will
convert to Class A shares, based on the relative net asset values for
shares of each Class, and will no longer be subject to the distribution
fee. Class B shares that have been acquired through the reinvestment of
dividends and distributions will be converted on a pro rata basis
together with other Class B shares, in the proportion that a
shareholder's Class B shares converting to Class A shares bears to the
total Class B shares not acquired through the reinvestment of dividends
and distributions.
You should consider whether, during the anticipated life of
your investment in the Fund, the accumulated distribution fee and CDSC on
Class B shares prior to conversion would be less than the initial sales
charge on Class A shares purchased at the same time, and to what extent,
if any, such differential would be offset by the return of Class A. In
this regard, generally, Class B shares may be more appropriate for
investors who invest less than $100,000 in Fund shares. Additionally,
investors qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
fees on Class B shares may exceed the initial sales charge on Class A
shares during the life of the investment. Generally, Class A shares may
be more appropriate for investors who invest $250,000 or more in Fund
shares.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's goal is to maximize current income exempt from
Federal income tax to the extent consistent with the preservation of
capital. To accomplish this goal, the Fund invests primarily in Municipal
Obligations (described below) rated at least Baa by Moody's Investors
Service, Inc. ("Moody's ") or BBB by Standard & Poor's Corporation
("S&P") or Fitch Investors Service, Inc. ("Fitch"). The Fund's investment
objective cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting shares. There can be no assurance that the Fund's
investment objective will be achieved.
Page 5
MUNICIPAL OBLIGATIONS
Municipal Obligations are debt securities 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 is, in the opinion of bond counsel to the issuer, exempt from
Federal income tax. Municipal Obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal Obligations are classified as general obligation
bonds, revenue bonds and notes. General obligation bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue
source, but not from the general taxing power. Tax exempt industrial
development bonds, in most cases, are revenue bonds that do not carry the
pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes
are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment issued by
municipalities. Municipal Obligations bear fixed, floating or variable
rates of interest which are determined in some instances by formulas
under which the Municipal Obligation's interest rate will change directly
or inversely to changes in interest rates or an index, or multiples
thereof, in many cases subject to a maximum and minimum. Certain
Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated
from the related Municipal Obligation and purchased and sold separately.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that it will invest at
least 80% of the value of its net assets (except when maintaining a
temporary defensive position) in Municipal Obligations. Generally, at
least 65% of the value of the Fund's net assets (except when maintaining
a temporary defensive position) will be invested in bonds and debentures.
At least 70% of the value of the Fund's net assets must
consist of Municipal Obligations which, in the case of bonds, are rated
no lower than Baa by Moody's or BBB by S&P or Fitch. The Fund may invest
up to 30% of the value of its net assets in Municipal Obligations which,
in the case of bonds, are rated lower than Baa by Moody's and BBB by S&P
and Fitch and as low as the lowest rating assigned by Moody's, S&P or
Fitch. The Fund may invest in short-term Municipal Obligations which are
rated in the two highest rating categories by Moody's, S&P or Fitch. See
"Appendix" in the Statement of Additional Information. Municipal
Obligations rated BBB by S&P or Fitch or Baa by Moody's are considered
investment grade obligations; those rated BBB by S&P and Fitch are
regarded as having an adequate capacity to pay principal and interest,
while those rated Baa by Moody's are considered medium grade obligations
which lack outstanding investment characteristics and have speculative
characteristics. Investments rated Ba or lower by Moody's and BB or lower
by S&P and Fitch ordinarily provide higher yields but involve greater
risk because of their speculative characteristics. The Fund may invest in
Municipal Obligations rated C by Moody's or D by S&P or Fitch, which is
the lowest rating assigned by such rating organizations and indicates
that the Municipal Obligation is in default and interest and/or repayment
of principal is in arrears. See "Risk Factors _ Lower Rated Bonds" below
for a further discussion of certain risks. The Fund also may invest in
securities which, while not rated, are determined by The Dreyfus
Corporation to be of comparable quality to the rated securities in which
the Fund may invest; for purposes of the 70% requirement described in
this paragraph, such unrated securities shall be deemed to have the
rating so determined. The Fund also may invest in Taxable Investments of
the quality
Page 6
described below. Under normal market conditions, the weighted
average maturity of the Fund's portfolio is expected to exceed ten years.
In addition to usual investment practices, the Fund may use
speculative investment techniques such as short-selling and lending its
portfolio securities. The Fund also may purchase, hold or deal in futures
contracts and options on futures contracts for non-speculative purposes.
See "Investment Techniques" below.
The Fund may invest more than 25% of the value of its total
assets in Municipal Obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities
the interest upon which is paid from revenues of similar types of
projects, or securities whose issuers are located in the same state. As a
result, the Fund may be subject to greater risk as compared to a fund
that does not follow this practice.
From time to time, the Fund may invest more than 25% of the
value of its total assets in industrial development bonds which, although
issued by industrial development authorities, may be backed only by the
assets and revenues of the non-governmental users. Interest on Municipal
Obligations (including certain industrial development bonds) which are
specified private activity bonds as defined in the Internal Revenue Code
of 1986, as amended (the "Code"), issued after August 7, 1986, while
exempt from Federal income tax, is a preference item for the purpose of
the alternative minimum tax. Where a regulated investment company
receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a
preference item to shareholders. The Fund may invest without limitation
in such Municipal Obligations if The Dreyfus Corporation determines that
their purchase is consistent with the Fund's investment objective. See
"Risk Factors - Other Investment Considerations. "
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, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as
lender, and the borrower. The interest rates on these obligations
fluctuate from time to time. Frequently, such obligations are secured by
letters of credit or other credit support arrangements provided by banks.
Use of letters of credit or other credit support arrangements will not
adversely affect the tax exempt status of these obligations. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other
credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Each
obligation purchased by the Fund will meet the quality criteria
established for the purchase of Municipal Obligations. The Dreyfus
Corporation, on behalf of the Fund, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations in the Fund's portfolio. The Fund will not invest more than
15% of the value of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on
not more than seven days' notice if there is no secondary market
available for these obligations, and in other illiquid securities.
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
Page 7
rates of interest. If the participation interest is unrated, the
participation interest will be backed by an irrevocable letter of credit
or guarantee of a bank that the Board of Trustees has determined meets the
prescribed quality standards for banks set forth below, or the payment
obligation otherwise will be collateralized by U.S. Government securities.
For certain participation 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. The
Fund will not invest more than 15% of the value of its net assets in
participation interests that do not have this demand feature if there is
no secondary market available for these instruments, and in other
illiquid securities.
The Fund may purchase tender option bonds. A tender option
bond is a Municipal Obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a
fixed rate substantially higher than prevailing short-term tax exempt
rates, that has been coupled with the agreement of a third party, such as
a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the
face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference
between the Municipal Obligation's fixed coupon rate and the rate, as
determined by a remarketing or similar agent at or near the commencement
of such period, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt
rate. The Dreyfus Corporation, on behalf of the Fund, will consider on an
ongoing basis the creditworthiness of the issuer of the underlying
Municipal Obligations, of any custodian and of the third party provider
of the tender option. In certain instances and for certain tender option
bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying Municipal Obligations and for
other reasons. The Fund will not invest more than 15% of the value of its
net assets in securities that are illiquid, which could include tender
option bonds as to which it cannot exercise the tender feature on not
more than seven days' notice if there is no secondary market available
for these obligations.
The Fund may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment,
the Fund obligates a broker, dealer or bank to repurchase at the Fund's
option specified securities at a specified price and, in this respect,
stand-by commitments are comparable to put options. The exercise of a
stand-by commitment, therefore, is subject to the ability of the seller
to make payment on demand. The Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise
its rights thereunder for trading purposes. The Fund may pay for stand-by
commitments if such action is deemed necessary, thus increasing to a
degree the cost of the underlying Municipal Obligation and similarly
decreasing such security's yield to investors. 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.
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
Page 8
different characteristics, but, in each case, payments on the two classes
are based on payments received on the underlying Municipal Obligations.
One class has the characteristics of a typical auction rate security,
where at specified intervals its interest rate is adjusted, and ownership
changes, based on an auction mechanism. This class's interest rate
generally is expected to be below the coupon rate of the underlying
Municipal Obligations and generally is at a level comparable to that of a
Municipal Obligation of similar quality and having a maturity equal to the
period between interest rate adjustments. The second class bears interest
at a rate that exceeds the interest rate typically borne by a security of
comparable quality and maturity; this rate also is adjusted, but in this
case inversely to changes in the rate of interest of the first class.
If the interest rate on the first class exceeds the coupon rate of the
underlying Municipal Obligations, its interest rate will exceed the rate
paid on the second class. In no event will the aggregate interest paid
with respect to the two classes exceed the interest paid by the
underlying Municipal Obligations. The value of the second class and
similar securities should be expected to fluctuate more than the value of
a Municipal Obligation of comparable quality and maturity and their
purchase by the Fund should increase the volatility of its net asset
value and, thus, its price per share. These custodial receipts are sold
in private placements. The Fund also may purchase directly from issuers,
and not in a private placement, Municipal Obligations having
characteristics similar to custodial receipts. These securities may be
issued as part of a multi-class offering and the interest rate on certain
classes may be subject to a cap or floor.
The Fund may invest up to 15% of the value of its net assets
in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, and repurchase agreements providing
for settlement in more than seven days after notice. As to these
securities, the Fund is subject to a risk that should the Fund desire to
sell them when a ready buyer is not available at a price that the Fund
deems representative of their value, the value of the Fund's net assets
could be adversely affected. However, if a substantial market of
qualified institutional buyers develops pursuant to Rule 144A under the
Securities Act of 1933, as amended, for certain of these securities held
by the Fund, the Fund intends to treat such securities as liquid
securities in accordance with procedures approved by the Fund's Board of
Trustees. Because it is not possible to predict with assurance how the
market for restricted securities pursuant to Rule 144A will develop, the
Fund's Board of Trustees has directed The Dreyfus Corporation to monitor
carefully the Fund's investments in such securities with particular
regard to trading activity, availability of reliable price information
and other relevant information. To the extent that for a period of time,
qualified institutional buyers cease purchasing restricted securities
pursuant to Rule 144A, the Fund's investing in such securities may have
the effect of increasing the level of illiquidity in the Fund's portfolio
during such period.
The Fund may invest in zero coupon securities which are debt
securities issued or sold at a discount from their face value which do
not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The
amount of the discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of
the security and perceived credit quality of the issuer. Zero coupon
securities also may take the form of debt securities that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. The market prices of zero coupon securities
generally are more volatile than the market prices of interest-bearing
securities and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar maturities
and credit qualities. The Fund may invest up to 5% of its assets in zero
coupon bonds which are rated below investment grade. See "Risk Factors -
Lower Rated Bonds" and "Other Investment Considerations" below, and
"Investment
Page 9
Objective and Management Policies - Risk Factors - Lower
Rated Bonds" and "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
From time to time, on a temporary basis other than for
temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may
invest in taxable short-term investments ("Taxable Investments")
consisting of: notes of issuers having, at the time of purchase, a
quality rating within the two highest grades of Moody's, S&P or Fitch;
obligations of the U.S. Government, its agencies or instrumentalities;
commercial paper rated not lower than P-l by Moody's, A-l by S&P or F-l
by Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of one billion dollars or
more; time deposits; bankers' acceptances and other short-term bank
obligations; and repurchase agreements in respect of any of the
foregoing. Dividends paid by the Fund that are attributable to income
earned by the Fund from Taxable Investments will be taxable to investors.
See "Dividends, Distributions and Taxes." Except for temporary defensive
purposes, at no time will more than 20% of the value of the Fund's net
assets be invested in Taxable Investments. Under normal market
conditions, the Fund anticipates that not more than 5% of its total
assets will be invested in any one category of Taxable Investments.
Taxable Investments are more fully described in the Statement of
Additional Information, to which reference hereby is made.
INVESTMENT TECHNIQUES
The Fund may employ, among others, the investment techniques
described below. Use of certain of these techniques may give rise to
taxable income.
WHEN-ISSUED SECURITIES
New issues of Municipal Obligations usually are offered on a
when-issued basis, which means that delivery and payment for such
Municipal Obligations ordinarily take place within 45 days after the date
of the commitment to purchase. The payment obligation and the interest
rate that will be received on the Municipal Obligations are fixed at the
time the Fund enters into the commitment. The Fund will make commitments
to purchase such Municipal Obligations only with the intention of
actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable, although any gain
realized on such sale would be taxable. The Fund will not accrue income
in respect of a when-issued security prior to its stated delivery date.
No additional when-issued commitments will be made if more than 20% of
the value of the Fund's net assets would be so committed.
Municipal Obligations purchased on a when-issued basis and
the securities held in the Fund's portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and
changes, real or anticipated, in the level of interest rates. Municipal
Obligations purchased on a when-issued basis may expose the Fund to risk
because they may experience such fluctuations prior to their actual
delivery. Purchasing Municipal Obligations on a when-issued basis can
involve the additional risk that the yield available in the market when
the delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash,
cash equivalents or U.S. Government securities or other high quality
liquid debt securities at least equal at all times to the amount of the
when-issued commitments will be established and maintained at the Fund's
custodian bank. Purchasing Municipal Obligations on a when-issued basis
when the Fund is fully or almost fully invested may result in greater
potential fluctuation in the value of the Fund's net assets and its net
asset value per share.
FUTURES TRANSACTIONS -- IN GENERAL
The Fund is not a commodity pool. However, as a substitute
for a comparable market position in the underlying securities and for
hedging purposes, the Fund may engage in futures and options on futures
transactions as described below.
Page 10
The Fund's commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, the
Fund may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on such contracts it has entered
into; 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%. Pursuant to regulations and/or published
positions of the Securities and Exchange Commission, the Fund may be
required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally equal
to the value of the underlying commodity. To the extent the Fund engages
in the use of futures and options on futures for other than bona fide
hedging purposes, the Fund may be subject to additional risk.
Initially, when purchasing or selling futures contracts the
Fund will be required to deposit with its custodian in the broker's name
an amount of cash or cash equivalents up to approximately 10% of the
contract amount. This amount is subject to change by the exchange or
board of trade on which the contract is traded and members of such
exchange or board of trade may impose their own higher requirements. This
amount is known as "initial margin" and is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund
upon termination of the futures position, assuming all contractual
obligations have been satisfied. Subsequent payments, known as "variation
margin," to and from the broker will be made daily as the price of the
index or securities underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to
the expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position at the then-prevailing price,
which will operate to terminate the Fund's existing position in the
contract.
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 the 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. If it is not possible or the
Fund determines not to close a futures position in anticipation of
adverse price movements, the Fund will be required to make daily cash
payments of variation margin. In such circumstances, an increase in the
value of the portion of the Fund's portfolio being hedged, if any, may
offset partially or completely losses on the futures contract. However,
no assurance can be given that the price of the securities being hedged
will correlate with the price movements in a futures contract and thus
provide an offset to losses on the futures contract.
In addition, to the extent the Fund is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect
correlation between securities in the Fund's portfolio that are the
subject of a hedging transaction and the futures contract used as a
hedging device, it is possible that the hedge will not be fully effective
in that, for example, losses on the portfolio securities may be in excess
of gains on the futures contract or losses on the futures contract may be
in excess of gains on the portfolio securities that were the subject of
the hedge. In futures contracts based on indexes, the risk of imperfect
correlation increases as the composition of the Fund's portfolio varies
from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being
hedged and
Page 11
movements in the price of futures contracts, the Fund may buy
or sell futures contracts in a greater or lesser dollar amount than the
dollar amount of the securities being hedged if the historical volatility
of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect
the Fund's net investment results if market movements are not as
anticipated when the hedge is established.
An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if
the option is a call and a long position if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by
the writer and holder of the option will be accompanied by delivery of
the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract.
Call options sold by the Fund with respect to futures
contracts will be covered by, among other things, entering into a long
position in the same contract at a price no higher than the strike price
of the call option, or by ownership of the instruments underlying, or
instruments the prices of which are expected to move relatively
consistently with the instruments underlying, the futures contract. Put
options sold by the Fund with respect to futures contracts will be
covered when, among other things, cash or liquid securities are placed in
a segregated account to fulfill the obligation undertaken.
The Fund may utilize municipal bond index futures to protect
against changes in the market value of the Municipal Obligations in its
portfolio or which it intends to acquire. Municipal bond index futures
contracts are based on an index of long-term Municipal Obligations. The
index assigns relative values to the Municipal Obligations included in
the index, and fluctuates with changes in the market value of such
Municipal Obligations. The contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash based upon
the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. The acquisition or sale of a municipal bond index
futures contract enables the Fund to protect its assets from fluctuations
in rates on tax exempt securities without actually buying or selling such
securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS
The Fund may purchase and sell interest rate futures
contracts and options on interest rate futures contracts as a substitute
for a comparable market position and to hedge against adverse movements
in interest rates.
To the extent the Fund has invested in interest rate futures
contracts or options on interest rate futures contracts as a substitute
for a comparable market position, the Fund will be subject to the
investment risks of having purchased the securities underlying the
contract.
The Fund may purchase call options on interest rate futures
contracts to hedge against a decline in interest rates and may purchase
put options on interest rate futures contracts to hedge its portfolio
securities against the risk of rising interest rates.
If the Fund has hedged against the possibility of an increase
in interest rates adversely affecting the value of securities held in its
portfolio and rates decrease instead, 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. In
addition, in such situations, if the Fund has insufficient cash, it may
have to sell securities to meet daily variation margin requirements at a
time when it may be disadvantageous to do so. These sales of securities
may, but will not necessarily, be at increased prices which reflect the
decline in interest rates.
The Fund may sell call options on interest rate futures
contracts to partially hedge against declining prices of its portfolio
securities. If the futures price at expiration of the option is
Page 12
below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings. The Fund may sell put
options on interest rate futures contracts to hedge against increasing
prices of the securities which are deliverable upon exercise of the
futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Fund will retain the full amount of
the option premium which provides a partial hedge against any increase in
the price of securities which the Fund intends to purchase. If a put or
call option sold by the Fund is exercised, the Fund will incur a loss
which will be reduced by the amount of the premium it receives. Depending
on the degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the Fund's
losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of its portfolio securities.
The Fund also may sell options on interest rate futures
contracts as part of closing purchase transactions to terminate its
options positions. No assurance can be given that such closing
transactions can be effected or that there will be a correlation between
price movements in the options on interest rate futures and price
movements in the Fund's portfolio securities which are the subject of the
hedge. In addition, the Fund's purchase of such options will be based
upon predictions as to anticipated interest rate trends, which could
prove to be inaccurate.
SHORT-SELLING
The Fund may make short sales of securities, which are
transactions in which the Fund sells a security it does not own in
anticipation of a decline in the market value of that security. To
complete such a transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund. Until the security is replaced, the Fund
is required to pay to the lender amounts equal to any interest which
accrues during the period of the loan. To borrow the security, the Fund
also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the
short position is closed out.
Until the Fund replaces a borrowed security in connection
with a short sale, the Fund will: (a) maintain daily a segregated
account, containing cash or U.S. Government securities, at such a level
that (i) the amount deposited in the account plus the amount deposited
with the broker as collateral will equal the current value of the
securities sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not
be less than the market value of the security at the time it was sold
short; or (b) otherwise cover its short position.
The Fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security. The Fund
will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash
purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any
premium or amounts in lieu of interest the Fund may be required to pay in
connection with a short sale.
The Fund anticipates that the frequency of short sales will
vary substantially in different periods, and it does not intend that any
specified portion of its assets, as a matter of practice, will be
invested in short sales. However, no securities will be sold short if,
after effect is given to any such short sale, the total market value of
all securities sold short would exceed 25% of the value of the Fund's net
assets. The Fund may not sell short the securities of any single issuer
listed on a national securities exchange to the extent of more than 5% of
the value of the Fund's net assets. The Fund may not sell short the
securities of any class of an issuer to the extent, at the time of the
transaction, of more than 5% of the outstanding securities of that class.
Page 13
In addition to the short sales discussed above, the Fund may
make short sales "against the box," a transaction in which the Fund
enters into a short sale of a security which the Fund owns. The proceeds
of the short sale will be held by a broker until the settlement date at
which time the Fund delivers the security to close the short position.
The Fund receives the net proceeds from the short sale. At no time will
the Fund have more than 15% of the value of its net assets in deposits on
short sales against the box.
LENDING PORTFOLIO SECURITIES
From time to time, the Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. Such loans may not
exceed 331/3 % of the value of the Fund's total assets. In connection
with such loans, the Fund will receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit which will be
maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The Fund can increase its
income through the investment of such collateral. The Fund continues to
be entitled to payments in amounts equal to the interest or other
distributions payable on the loaned security and receives interest on the
amount of the loan. Such loans will be terminable at any time upon
specified notice. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
CERTAIN FUNDAMENTAL POLICIES
The Fund may (i) borrow money from banks, but only for
temporary or emergency (not leveraging) purposes in an amount up to 15%
of the value of the Fund's 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 value of the Fund's total assets, the Fund will not make
any additional investments; (ii) pledge, hypothecate, mortgage or
otherwise encumber its assets, but only to secure borrowings for
temporary or emergency purposes; and (iii) invest up to 25% of its assets
in the securities of issuers in any industry, provided that there is no
such limitation on investments in Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940)
of the Fund's outstanding voting shares. See "Investment Objective and
Management Policies _ Investment Restrictions" in the Statement of
Additional Information.
ADDITIONAL NON-FUNDAMENTAL POLICY
The Fund may invest up to 15% of the value of its net assets
in repurchase agreements providing for settlement in more than seven days
after notice and in other illiquid securities (which securities could
include participation interests (including municipal lease/purchase
agreements) that are not subject to the demand feature described above,
and floating and variable rate demand obligations as to which the Fund
cannot exercise the related demand feature described above and as to
which there is no secondary market). See "Investment Objective and
Management Policies _ Investment Restrictions" in the Statement of
Additional Information.
RISK FACTORS
LOWER RATED BONDS
You should carefully consider the relative risks of investing
in the higher yielding (and, therefore, higher risk) debt securities in
which the Fund may invest up to 30% of the value of its net assets. These
are securities such as those rated Ba by Moody's or BB by S&P or Fitch or
as low as the lowest rating assigned by Moody's, S&P or Fitch. They
generally are not meant for short-term investing and may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income
securities. Bonds rated Ba by Moody's are judged to have speculative
elements; their future cannot
Page 14
be considered as well assured and often the protection of interest and
principal payments may be very moderate. Bonds rated BB by S&P are
regarded as having predominantly speculative characteristics and, while
such obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Bonds
rated BB by Fitch are considered speculative and the payment of principal
and interest may be affected at any time by adverse economic changes.
Bonds rated C by Moody's are regarded as having extremely poor prospects
of ever attaining any real investment standing. Bonds rated D by S&P are
in default and the payment of interest and/or repayment of principal is
in arrears. Bonds rated DDD, DD or D by Fitch are in actual or imminent
default, are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
issuer; DDD represents the highest potential for recovery of such bonds;
and D represents the lowest potential for recovery. Such bonds, though
high yielding, are characterized by great risk. See "Appendix" in the
Statement of Additional Information for a general description of Moody's,
S&P and Fitch ratings of Municipal Obligations. The ratings of Moody's,
S&P and Fitch represent their opinions as to the quality of the Municipal
Obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and, although ratings
may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of these bonds.
Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, The Dreyfus Corporation also will
evaluate these securities and the ability of the issuers of such
securities to pay interest and principal. The Fund's ability to achieve
its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that
invested in higher rated securities. Once the rating of a portfolio
security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security.
The market price and yield of bonds rated Ba or lower by
Moody's and BB or lower by S&P are more volatile than those of higher
rated bonds. Factors adversely affecting the market price and yield of
these securities will adversely affect the Fund's net asset value. In
addition, the retail secondary market for these bonds may be less liquid
than that of higher rated bonds; adverse market conditions could make it
difficult at times for the Fund to sell certain securities or could
result in lower prices than those used in calculating the Fund's net
asset value.
The Fund may invest up to 5% of the value of its net assets
in zero coupon securities and pay-in-kind bonds (bonds which pay interest
through the issuance of additional bonds) rated Ba or lower by Moody's
and BB or lower by S&P and Fitch. These securities may be subject to
greater fluctuations in value due to changes in interest rates than
interest-bearing securities and thus may be considered more speculative
than comparably rated interest-bearing securities. See "Other Investment
Considerations" below, and "Investment Objective and Management Policies
_ Risk Factors _ Lower Rated Bonds" and "Dividends, Distributions and
Taxes" in the Statement of Additional Information.
OTHER INVESTMENT CONSIDERATIONS
Even though interest-bearing securities are investments which
promise a stable stream of income, the prices of such securities are
inversely affected by changes in interest rates and, therefore, are
subject to the risk of market price fluctuations. Certain securities that
may be purchased by the Fund, such as those with interest rates that
fluctuate directly or indirectly based on multiples of a stated index,
are designed to be highly sensitive to changes in interest rates and can
subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The value of fixed-income securities also may be
affected by changes in the credit rating or financial condition of the
issuing entities. The Fund's net asset value generally will not be stable
and should fluctuate based upon changes in the value of the Fund's
portfolio securities. Securities in which the Fund invests may earn a
higher level of current income than
Page 15
certain shorter-term or higher quality securities which generally have
greater liquidity, less market risk and less fluctuation in market value.
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 income
accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
Certain municipal lease/purchase obligations in which the
Fund may invest may contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease payments in future
years unless money is appropriated for such purpose on a yearly basis.
Although "non-appropriation" lease/purchase obligations are secured by
the leased property, disposition of the leased property in the event of
foreclosure might prove difficult. In evaluating the credit quality of a
municipal lease/purchase obligation that is unrated, The Dreyfus
Corporation will consider, on an ongoing basis, a number of factors
including the likelihood that the issuing municipality will discontinue
appropriating funding for the leased property.
Certain provisions in the Code, relating to the issuance of
Municipal Obligations may reduce the volume of Municipal Obligations
qualifying for Federal tax exemption. One effect of these provisions
could be to increase the cost of the Municipal Obligations available for
purchase by the Fund and thus reduce the available yield. Shareholders
should consult their tax advisers concerning the effect of these
provisions on an investment in the Fund. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations
may be introduced in the future. If any such proposal were enacted that
would reduce the availability of Municipal Obligations for investment by
the Fund so as to adversely affect Fund shareholders, the Fund would
reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration.
If legislation were enacted that would treat a type of Municipal
Obligation as taxable, the Fund would treat such security as a
permissible Taxable Investment within the applicable limits set forth
herein.
Investment decisions for the Fund are made independently from
those of other investment companies advised by The Dreyfus Corporation.
However, if such other investment companies are prepared to invest in, or
desire to dispose of, Municipal Obligations or Taxable Investments at the
same time as the Fund, available investments or opportunities for sales
will be allocated equitably to each investment company. In some cases,
this procedure may adversely affect the size of the position obtained for
or disposed of by the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. As of May 31, 1994, The Dreyfus Corporation managed
or administered approximately $72 billion in assets for more than 1.9
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Fund, subject to the overall authority of the Fund's Board of Trustees in
accordance with Massachusetts law. The Fund's primary investment officer
is Samuel J. Weinstock. He has held that position since August 1987 and
has been employed by The Dreyfus Corporation since March 1987. The Fund's
other investment officers are identified under "Management of the Fund"
in the Fund's Statement of Additional Information. The Dreyfus
Corporation also provides research services for the Fund as well as for
other funds advised by The Dreyfus Corporation through a professional
staff of portfolio managers and security analysts.
Under the terms of the Management Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of
.55 of 1% of the value of the Fund's average
Page 16
daily net assets. From time to time, The Dreyfus Corporation may waive
receipt of its fees and/or voluntarily assume certain expenses of the
Fund, which would have the effect of lowering the overall expense ratio of
the Fund and increasing yield to investors at the time such amounts are
waived or assumed, as the case may be. The Fund will not pay The Dreyfus
Corporation at a later time for any amounts it may waive, nor will the
Fund reimburse The Dreyfus Corporation for any amounts it may assume. For
the fiscal year ended April 30, 1994, the Fund paid The Dreyfus
Corporation a management fee at the effective annual rate of .49 of 1% of
the value of the Fund's average daily net assets pursuant to undertakings
in effect.
The Dreyfus Corporation may pay Dreyfus Service Corporation
for shareholder and distribution services from The Dreyfus Corporation's
own assets, including past profits but not including the management fee
paid by the Fund. Dreyfus Service Corporation may use part or all of such
payments to pay Service Agents in respect of these services.
The Shareholder Services Group, Inc., a subsidiary of First
Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is
the Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent").
The Bank of New York, 110 Washington Street, New York, New York 10286, is
the Fund's Custodian.
HOW TO BUY FUND SHARES
The Fund's distributor is Dreyfus Service Corporation, a
wholly-owned subsidiary of The Dreyfus Corporation, located at 200 Park
Avenue, New York, New York 10166. The shares it distributes are not
deposits or obligations of The Dreyfus Security Savings Bank, F.S.B. and
therefore are not insured by the Federal Deposit Insurance Corporation.
Fund shares may be purchased only by clients of certain
financial institutions (which may include banks), securities dealers
("Selected Dealers") and other industry professionals (collectively,
"Service Agents"), except that full-time or part-time employees of The
Dreyfus Corporation or any of its affiliates or subsidiaries, directors
of The Dreyfus Corporation, Board members of a fund advised by The
Dreyfus Corporation, including members of the Fund's Board, or the spouse
or minor child of any of the foregoing may purchase Class A shares
directly through Dreyfus Service Corporation. Subsequent purchases may be
sent directly to the Transfer Agent or your Service Agent. Service Agents
may receive different levels of compensation for selling different Classes
of shares. Management understands that some Service Agents may impose
certain conditions on their clients which are different from those
described in this Prospectus, and, to the extent permitted by applicable
regulatory authority, may charge their clients direct fees which would be
in addition to any amounts which might be received under the Shareholder
Services Plan. Each Service Agent has agreed to transmit to its clients a
schedule of such fees. You should consult your Service Agent in this
regard.
When purchasing Fund shares, you must specify whether the
purchase is for Class A or Class B shares. Share certificates are issued
only upon your written request. No certificates are issued for fractional
shares. It is not recommended that the Fund be used as a vehicle for
Keogh, IRA or other qualified retirement plans. The Fund reserves the
right to reject any purchase order.
The minimum initial investment is $1,000. Subsequent
investments must be at least $100. The initial investment must be
accompanied by the Fund's Account Application.
You may purchase Fund shares by check or wire, or through the
TELETRANSFER Privilege described below. Checks should be made payable to
"Premier Municipal Bond Fund." Payments to open new accounts which are
mailed should be sent to Premier Municipal Bond Fund, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account
Application indicating which Class of shares is being purchased. For
subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent to Premier
Municipal Bond Fund, P.O. Box 105, Newark, New Jersey 07101-0105. Neither
initial nor subsequent investments should be made by third party check.
Wire payments may be made if your bank account is in a commercial bank
that is a member of the
Page 17
Federal Reserve System or any other bank having a correspondent bank in
New York City. Immediately available funds may be transmitted by wire to
The Bank of New York, DDA#8900119292/Premier Municipal Bond Fund-Class A
shares, or DDA#8900115017/Premier Municipal Bond Fund-Class B shares, as
the case may be, for purchase of Fund shares in your name. The wire must
include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your
wire payment to obtain your Fund account number. Please include your Fund
account number on the Fund's Account Application and promptly mail the
Account Application to the Fund, as no redemptions will be permitted until
the Account Application is received. You may obtain further information
about remitting funds in this manner from your bank. All payments should
be made in U.S. dollars and, to avoid fees and delays, should be drawn
only on U.S. banks. A charge will be imposed if any check used for
investment in your account does not clear. The Fund makes available to
certain large institutions the ability to issue purchase instructions
through compatible computer facilities.
Subsequent investments also may be made by electronic
transfer of funds from an account maintained in a bank or other domestic
financial institution that is an Automated Clearing House member. You
must direct the institution to transmit immediately available funds
through the Automated Clearing House to The Bank of New York with
instructions to credit your Fund account. The instructions must specify
your Fund account registration and your Fund account number PRECEDED BY
THE DIGITS "1111."
Fund shares are sold on a continuous basis. 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, 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 of each Class is computed by dividing
the value of the Fund's net assets represented by such Class (i.e., the
value of its assets less liabilities) by the total number of shares of
such Class outstanding. The Fund's investments are valued each business
day by an independent pricing service approved by the Board of Trustees
and are valued at fair value as determined by the pricing service. The
pricing service's procedures are reviewed under the general supervision
of the Board of Trustees. For further information regarding the methods
employed in valuing Fund investments, see "Determination of Net Asset
Value" in the Fund's Statement of Additional Information.
Federal regulations require that you provide a certified TIN
upon opening or reopening an account. See "Dividends, Distributions and
Taxes" and the Fund's Account Application for further information
concerning this requirement. Failure to furnish a certified TIN to the
Fund could subject you to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").
If an order is received by the Transfer Agent by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m.,
New York time) on any business day, Fund shares will be purchased at the
public offering price determined as of the close of trading on the floor
of the New York Stock Exchange on that day. Otherwise, Fund shares will
be purchased at the public offering price determined as of the close of
trading on the floor of the New York Stock Exchange, on the next business
day, except where shares are purchased through a dealer as provided
below.
Orders for the purchase of Fund shares received by dealers by
the close of trading on the floor of the New York Stock Exchange on a
business day and transmitted to Dreyfus Service Corporation by the close
of its business day (normally 5:15 p.m., New York time) will be based on
the public offering price per share determined as of the close of trading
on the floor of the New York Stock Exchange on that day. Otherwise, the
orders will be based on the next deter-
Page 18
mined public offering price. It is the dealers' responsibility to transmit
orders so that they will be received by Dreyfus Service Corporation before
the close of its business day.
CLASS A SHARES
The public offering price for Class A shares is the net asset
value per share of that Class plus a sales load as shown below:
<TABLE>
<CAPTION>
Total Sales Load
--------------------------------------
As a % of As a % of Dealers' Reallowance
offering price net asset value as a % of
Amount of Transaction per share per share offering price
-------------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
Less than $50,000................. 4.50 4.70 4.25
$50,000 to less than $100,000..... 4.00 4.20 3.75
$100,000 to less than $250,000..... 3.00 3.10 2.75
$250,000 to less than $500,000..... 2.50 2.60 2.25
$500,000 to less than $1,000,000... 2.00 2.00 1.75
</TABLE>

There is no initial sales charge on purchases of $1,000,000 or
more of Class A shares. However, if you purchase Class A shares without
an initial sales charge as part of an investment of at least $1,000,000
and redeem those shares within two years after purchase, a CDSC of 1% will
be imposed at the time of redemption. The terms contained in the section of
the Fund's Prospectus entitled "How to Redeem Fund Shares--Contingent
Deferred Sales Charge--Class B" (other than the amount of the CDSC and
its time periods) are applicable to the Class A shares subject to a CDSC.
Letter of Intent and Right of Accumulation apply to such purchases of Class
A shares.

Full-time employees of NASD member firms and full-time
employees of other financial institutions which have entered into an
agreement with Dreyfus Service Corporation pertaining to the sale of Fund
shares (or which otherwise have a brokerage-related or clearing
arrangement with an NASD member firm or other financial institution with
respect to sales of Fund shares) may purchase Class A shares for
themselves directly or pursuant to an employee benefit plan or other
program, or for their spouses or minor children at net asset value,
provided that they have furnished Dreyfus Service Corporation with such
information as it may request from time to time in order to verify
eligibility for this privilege. This privilege also applies to full-time
employees of financial institutions affiliated with NASD member firms
whose full-time employees are eligible to purchase Class A shares at net
asset value. In addition, Class A shares are offered at net asset value
to full-time or part-time employees of The Dreyfus Corporation or any of
its affiliates or subsidiaries, directors of The Dreyfus Corporation,
Board members of a fund advised by The Dreyfus Corporation, including
members of the Fund's Board, or the spouse or minor child of any of the
foregoing.
In fiscal 1994, Dreyfus Service Corporation retained $213,752
from sales loads on Class A shares. The dealer reallowance may be changed
from time to time but will remain the same for all dealers. Dreyfus
Service Corporation, at its own expense, may provide additional
promotional incentives to dealers that sell shares of funds advised by
The Dreyfus Corporation which are sold with a sales load, such as the
Fund. In some instances, these incentives may be offered only to certain
dealers who have sold or may sell significant amounts of such shares.
CLASS B SHARES
The public offering price for Class B shares is the net asset
value per share of that Class. No initial sales charge is imposed at the
time of purchase. A CDSC is imposed, however, on certain redemptions of
Class B shares as described under "How to Redeem Fund Shares." Dreyfus
Service Corporation compensates certain Service Agents for selling Class
B shares at the time of purchase from Dreyfus Service Corporation's own
assets. The proceeds of the CDSC and the distribution fee, in part, are
used to defray these expenses. In fiscal 1994, $91,986 was retained by
Dreyfus Service Corporation from the CDSC on Class B shares.
Page 19
RIGHT OF ACCUMULATION -- CLASS A SHARES
Reduced sales loads apply to any purchase of Class A shares,
shares of other funds in the Premier Family of Funds, shares of certain
other funds advised by The Dreyfus Corporation which are sold with a
sales load and shares of certain other funds acquired by a previous
exchange of such shares (hereinafter referred to as "Eligible Funds"), by
you and any related "purchaser" as defined in the Statement of Additional
Information, where the aggregate investment, including such purchase, is
$50,000 or more. If, for example, you have previously purchased and still
hold Class A shares of the Fund, or of any other Eligible Fund or
combination thereof, with an aggregate current market value of $40,000
and subsequently purchase Class A shares of the Fund or an Eligible Fund
having a current value of $20,000, the sales load applicable to the
subsequent purchase would be reduced to 4% of the offering price. All
present holdings of Eligible Funds may be combined to determine the
current offering price of the aggregate investment in ascertaining the
sales load applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of a purchase
you or your Service Agent must notify Dreyfus Service Corporation if
orders are made by wire, or the Transfer Agent if orders are made by
mail. The reduced sales load is subject to confirmation of your holdings
through a check of appropriate records.
TELETRANSFER PRIVILEGE
You may purchase Fund shares (minimum $500, maximum $150,000
per day) by telephone if you have checked the appropriate box and
supplied the necessary information on the Fund's Account Application or
have filed a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one
of these documents and your Fund account. Only a bank account maintained
in a domestic financial institution which is an Automated Clearing House
member may be so designated. The Fund may modify or terminate this
Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the TELETRANSFER Privilege, you may
request a TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may
not be available to clients of certain Service Agents and some Service
Agents may impose certain conditions on their clients which are different
from those described in this Prospectus. You should consult your Service
Agent in this regard.

FUND EXCHANGES
Clients of certain Service Agents may purchase, in exchange
for Class A or Class B shares of the Fund, shares of the same Class in
certain other funds managed or administered by The Dreyfus Corporation,
to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be
of interest to you. You also may exchange your Fund shares that are
subject to a CDSC for shares of Dreyfus Worldwide Dollar Money Market
Fund, Inc. The shares so purchased will be held in a special account
created solely for this purpose (the "Exchange Account"). Exchanges of
shares from an Exchange Account only can be made into certain other funds
managed or administered by The Dreyfus Corporation. No CDSC is charged
when an investor exchanges into an Exchange Account; however, the
applicable CDSC will be imposed when shares are redeemed from an Exchange
Account or other applicable Fund account. Upon redemption, the applicable
CDSC will be calculated without regard to the time such shares were held
in an Exchange Account. See "How to Redeem Fund Shares." In addition to
the limited Exchange and Auto-Exchange Privileges noted herein, Exchange
Account shares are eligible for the Dividend Sweep Privilege and the
Automatic Withdrawal Plan, and may receive redemption proceeds only by
Federal wire or
Page 20
by check. If you desire to use this service, please call 1-800-645-6561 to
determine if it is available and whether any conditions are imposed on
its use.

To request an exchange, your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing
or by telephone. Before any exchange, you must obtain and should review a
copy of the current prospectus of the fund into which the exchange is
being made. Prospectuses may be obtained by calling 1-800-645-6561.
Except in the case of Personal Retirement Plans, the shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must
have a value of at least the minimum initial investment required for the
fund into which the exchange is being made. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless you check the relevant "NO" box on the Account Applicaton,
indicating that you specifically refuse this Privilege. The Telephone
Exchange Privilege may be established for an existing account by written
request, signed by all shareholders on the account, or by a separate
signed Shareholder Services Form, also available by calling
1-800-645-6561. If you have established the Telephone Exchange Privilege,
you may telephone exchange instructions by calling 1-800-221-4060 or, if
you are calling from overseas, call 1-401-455-3306. See "How to Redeem
Fund Shares _ Procedures." Upon an exchange into a new account, the
following shareholder services and privileges, as applicable and where
available, will be automatically carried over to the fund into which the
exchange is made: Telephone Exchange Privilege, Check Redemption
Privilege, TELETRANSFER Privilege and the dividend/capital gain
distribution option (except for Dividend Sweep) selected by the investor.

Shares will be exchanged at the next determined net asset
value; however, a sales load may be charged with respect to exchanges of
Class A shares into funds sold with a sales load. No CDSC will be imposed
on Class B shares at the time of an exchange; however, Class B shares
acquired through an exchange will be subject on redemption to the higher
CDSC applicable to the exchanged or acquired shares. The CDSC applicable
on redemption of the acquired Class B shares will be calculated from the
date of the initial purchase of the Class B shares exchanged. If you are
exchanging Class A shares into a fund that charges a sales load, you may
qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares of the fund from which you are
exchanging were: (a) purchased with a sales load, (b) acquired by a previous
exchange from shares purchased with a sales load, or (c) acquired through
reinvestment of dividends or distributions paid with respect to the
foregoing categories of shares. To qualify, at the time of your exchange
your Service Agent must notify Dreyfus Service Corporation. Any such
qualification is subject to confirmation of your holdings through a check
of appropriate records. See "Shareholder Services" in the Statement of
Additional Information. No fees currently are charged shareholders
directly in connection with exchanges, although the Fund reserves the right,
upon not less than 60 days' written notice, to charge shareholders a nominal
fee in accordance with the rules promulgated by the Securities and Exchange
Commission. The Fund reserves the right to reject any exchange request in
whole or in part. The availability of Fund Exchanges may be modified or
terminated at any time upon notice to shareholders.
The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.
AUTO-EXCHANGE PRIVILEGE
Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for Class
A or Class B shares of the Fund, in shares of the same Class of other
funds in the Premier Family of Funds or certain other funds in the
Dreyfus Family of Funds of which you are currently an investor. The
amount you designate, which can be expressed either in terms of a
specific dollar or share amount ($100 minimum), will be exchanged
automatically on the first and/or fifteenth of the month according to the
Page 21
schedule you have selected. Shares will be exchanged at the then-current
net asset value; however, a sales load may be charged with respect to
exchanges of Class A shares into funds sold with a sales charge. No CDSC
will be imposed on Class B shares at the time of an exchange; however,
Class B shares acquired through an exchange will be subject on redemption
to the higher CDSC applicable to the exchanged or acquired shares.
The CDSC applicable on redemption of the acquired Class B shares will be
calculated from the date of the initial purchase of the Class B shares
exchanged. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel
your exercise of this Privilege at any time by writing to Premier
Municipal Bond Fund, P.O. Box 6587, Providence, Rhode Island 02940-6587.
The Fund may charge a service fee for the use of this Privilege. No such
fee currently is contemplated. The exchange of shares of one fund for
shares of another is treated for Federal income tax purposes as a sale of
the shares given in exchange by the shareholder and, therefore, an
exchanging shareholder may realize a taxable gain or loss. For more
information concerning this Privilege and the funds in the Premier Family
of Funds or Dreyfus Family of Funds eligible to participate in this
Privilege, or to obtain an Auto-Exchange Authorization Form, please call
toll free 1-800-645-6561.
AUTOMATIC ASSET BUILDER

AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring
funds from the bank account designated by you. At your option, the bank
account designated by you will be debited in the specified amount, and
Fund shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. To establish an Automatic Asset Builder
account, you must file an authorization form with the Transfer Agent. You
may obtain the necessary authorization form by calling 1-800-645-6561.
You may cancel your participation in this Privilege or change the amount
of purchase at any time by mailing written notification to Premier
Municipal Bond Fund, P.O. Box 6587, Providence, Rhode Island 02940-6587,
and the notification will be effective three business days following
receipt. The Fund may modify or terminate this Privilege at any time or
charge a service fee. No such fee currently is contemplated.

GOVERNMENT DIRECT DEPOSIT PRIVILEGE

Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into
your Fund account. You may deposit as much of such payments as you elect.
To enroll in Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment
that you desire to include in this Privilege. The appropriate form may be
obtained from your Service Agent or by calling 1-800-645-6561. Death or
legal incapacity will terminate your participation in this Privilege. You
may elect at any time to terminate your participation by notifying in
writing the appropriate Federal agency. Further, the Fund may terminate
your participation upon 30 days' notice to you.

DIVIDEND OPTIONS

Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of the same Class of another fund in the Premier Family of Funds
or the Dreyfus Family of Funds of which you are a shareholder. Shares of
the other fund will be purchased at the then-current net asset value;
however, a sales load may be charged with respect to investments in
shares of a fund sold with a sales load. If you are investing in a fund
Page 22
that charges a sales load, you may qualify for share prices which do not
include the sales load or which reflect a reduced sales load. If you are
investing in a fund that charges a CDSC, the shares purchased will be
subject on redemption to the CDSC, if any, applicable to the purchased
shares. See "Shareholder Services" in the Statement of Additional
Information. Dividend ACHpermits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be
so designated. Banks may charge a fee for this service.

For more information concerning these privileges, or to
request a Dividend Options Form, please call toll free 1-800-645-6561.
You may cancel these privileges by mailing written notification to
Premier Municipal Bond Fund, P.O. Box 6587, Providence, Rhode Island
02940-6587. To select a new fund after cancellation, you must submit a
new Dividend Options Form. Enrollment in or cancellation of these
privileges is effective three business days following receipt. These
privileges are available only for existing accounts and may not be used
to open new accounts. Minimum subsequent investments do not apply for
Dividend Sweep. The Fund may modify or terminate these privileges at any
time or charge a service fee. No such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN

The Automatic Withdrawal Plan permits you to request
withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.

Class B shares withdrawn pursuant to the Automatic Withdrawal
Plan will be subject to any applicable CDSC. Purchases of additional
Class A shares where the sales load is imposed concurrently with
withdrawals of Class A shares generally are undesirable.
LETTER OF INTENT -- CLASS A SHARES
By signing a Letter of Intent form, available from Dreyfus
Service Corporation, you become eligible for the reduced sales load
applicable to the total number of Eligible Fund shares purchased in a
13-month period pursuant to the terms and conditions set forth in the
Letter of Intent. A minimum initial purchase of $5,000 is required. To
compute the applicable sales load, the offering price of shares you hold
(on the date of submission of the Letter of Intent) in any Eligible Fund
that may be used toward "Right of Accumulation" benefits described above
may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount
indicated in the Letter of Intent for payment of a higher sales load if
you do not purchase the full amount indicated in the Letter of Intent.
The escrow will be released when you fulfill the terms of the Letter of
Intent by purchasing the specified amount. If your purchases qualify for
a further sales load reduction, the sales load will be adjusted to
reflect your total purchase at the end of 13 months. If total purchases
are less than the amount specified, you will be requested to remit an
amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If
such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will
redeem an appropriate number of Class A shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind you to purchase,
or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but you must complete the intended
purchase to obtain the reduced sales load. At the time you purchase Class
A shares, you must indicate your intention to do so under a Letter of
Intent. Purchases pursuant to a Letter of Intent will be made at the
then-current net asset value plus the applicable sales load in effect at
the time such Letter of Intent was executed.
Page 23
HOW TO REDEEM FUND SHARES
GENERAL
You may request redemption of your Class A or Class B shares
at any time. Redemption requests should be transmitted to the Transfer
Agent as described below. When a request is received in proper form, the
Fund will redeem the shares at the next determined net asset value as
described below. If you hold Fund shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed.
If you fail to specify the Class of shares to be redeemed or if you own
fewer shares of the Class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further
instructions from you or your Service Agent.
The Fund imposes no charges (other than any applicable CDSC
with respect to Class B shares) when shares are redeemed directly through
Dreyfus Service Corporation. Service Agents may charge a nominal fee for
effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request. The
value of the shares redeemed may be more or less than their original
cost, depending on the Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed
within seven days after receipt by the Transfer Agent of a redemption
request in proper form, except as provided by the rules of the Securities
and Exchange Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY
CHECK, BY THE TELETRANSFER PRIVILEGE OR THROUGH AUTOMATIC ASSET BUILDER
AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER
AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON
BANK CLEARANCE OF YOUR PURCHASE CHECK, TELETRANSFER PURCHASE OR AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES PURSUANT
TO THE TELETRANSFER PRIVILEGE, FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE TELETRANSFER
PURCHASE OR THE AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH
REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES
WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT
COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR
TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER
RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until
the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its
option upon not less than 30 days' written notice if your account's net
asset value is $500 or less and remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Dreyfus Service Corporation is imposed on
any redemption of Class B shares which reduces the current net asset
value of your Class B shares to an amount which is lower than the dollar
amount of all payments by you for the purchase of Class B shares of the
Fund held by you at the time of redemption. No CDSC will be imposed to
the extent that the net asset value of the Class B shares redeemed does
not exceed (i) the current net asset value of Class B shares acquired
through reinvestment of dividends or capital gain distributions, plus
(ii) increases in the net asset value of Class B shares above the dollar
amount of all your payments for the purchase of Class B shares of the
Fund held by you at the time of redemption.
If the aggregate value of the Class B shares redeemed has
declined below their original cost as a result of the Fund's performance,
a CDSC may be applied to the then-current net asset value rather than the
purchase price.
In circumstances where the CDSC is imposed, the amount of the
charge will depend on the number of years from the time you purchased the
Class B shares until the time of redemption
Page 24
of such shares. Solely for purposes of determining the number of years
from the time of any payment for the purchase of Class B shares, all
payments during a month will be aggregated and deemed to have been made
on the first day of the month. The following table sets forth the rates of
the CDSC:
<TABLE>
<CAPTION>
Year Since CDSC as a % of Amount
Purchase Payment Invested or Redemption
Was Made Proceeds
----------------- ------------------------
<S> <C>
First.................................................... 3.00
Second................................................... 3.00
Third.................................................... 2.00
Fourth................................................... 2.00
Fifth.................................................... 1.00
Sixth.................................................... 0.00
</TABLE>
In determining whether a CDSC is applicable to a redemption,
the calculation will be made in a manner that results in the lowest
possible rate. It will be assumed that the redemption is made first of
amounts representing shares acquired pursuant to the reinvestment of
dividends and distributions; then of amounts representing the increase in
net asset value of Class B shares above the total amount of payments for
the purchase of Class B shares made during the preceding five years; then
of amounts representing the cost of shares purchased five years prior to
the redemption; and finally, of amounts representing the cost of shares
held for the longest period of time within the applicable five-year
period.
For example, assume an investor purchased 100 shares at $10
per share for a cost of $1,000. Subsequently, the shareholder acquired
five additional shares through dividend reinvestment. During the second
year after the purchase the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value
has appreciated to $12 per share, the value of the investor's shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount
which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 3%
(the applicable rate in the second year after purchase) for a total CDSC
of $7.20.
WAIVER OF CDSC
The CDSC will be waived in connection with (a) redemptions
made within one year after the death or disability, as defined in Section
72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in qualified or non-qualified employee benefit plans or
other programs where (i) the employers or affiliated employers
maintaining such plans or programs have a minimum of 250 employees
eligible for participation in such plans or programs, or (ii) such plan's
or program's aggregate investment in the Dreyfus Family of Funds or
certain other products made available by Dreyfus Service Corporation
exceeds one million dollars, (c) redemptions as a result of a combination
of any investment company with the Fund by merger, acquisition of assets
or otherwise, (d) a distribution following retirement under a tax-deferred
retirement plan or upon attaining age 701/2 in the case of an IRA or
Keogh plan or custodial account pursuant to Section 403(b) of the Code,
and (e) redemptions by such shareholders as the Securities and Exchange
Commission or its staff may permit. If the Fund's Trustees determine to
discontinue the waiver of the CDSC, the disclosure in the Fund's
prospectus will be revised appropriately. Any Fund shares subject to a
CDSC which were purchased prior to the termination of such waiver will
have the CDSC waived as provided in the Fund's prospectus at the time of
the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of
redemption you must notify the Transfer Agent or your Service Agent must
notify Dreyfus Service Corporation. Any such qualification is subject to
confirmation of your entitlement.
Page 25
PROCEDURES
You may redeem Fund shares by using the regular redemption
procedure through the Transfer Agent, using the Check Redemption
Privilege with respect to Class A shares only, through the TELETRANSFER
Privilege or, if you are a client of a Selected Dealer, through the
Selected Dealer. If you have given your Service Agent authority to
instruct the Transfer Agent to redeem shares and to credit the proceeds
of such redemptions to a designated account at your Service Agent, you
may redeem shares only in this manner and in accordance with the regular
redemption procedure described below. If you wish to use the other
redemption methods described below, you must arrange with your Service
Agent for delivery of the required application(s) to the Transfer Agent.
Other redemption procedures may be in effect for clients of certain
Service Agents. The Fund makes available to certain large institutions
the ability to issue redemption instructions through compatible computer
facilities.
Your redemption request may direct that the redemption
proceeds be used to purchase shares of other funds advised or
administered by The Dreyfus Corporation that are not available through
the Exchange Privilege. The applicable CDSC will be charged upon the
redemption of Class B shares. Your redemption proceeds will be invested
in shares of the other fund on the next business day. Before you make
such a request, you must obtain and should review a copy of the current
prospectus of the fund being purchased. Prospectuses may be obtained from
Dreyfus Service Corporation. The prospectus will contain information
concerning minimum investment requirements and other conditions that may
apply to your purchase.
You may redeem Fund shares by telephone if you have checked
the appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If you select the
TELETRANSFER Privilege or telephone exchange privilege (which is granted
automatically unless you refuse it), you authorize the Transfer Agent to
act on telephone instructions from any person representing himself or
herself to be you, or a representative of your Service Agent, and
reasonably believed by the Transfer Agent to be genuine. The Fund will
require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions
are genuine and, if it does not follow such procedures, the Fund or the
Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you
may experience difficulty in contacting the Transfer Agent by telephone
to request a TELETRANSFER redemption or an exchange of Fund shares. In
such cases, you should consider using the other redemption procedures
described herein. Use of these other redemption procedures may result in
your redemption request being processed at a later time than it would
have been if TELETRANSFER redemption had been used. During the delay, the
Fund's net asset value may fluctuate.
REGULAR REDEMPTION
Under the regular redemption procedure, you may redeem shares
by written request mailed to Premier Municipal Bond Fund, P.O. Box 6527,
Providence, Rhode Island 02940-6527. Written redemption requests must
specify the Class of shares being redeemed. Redemption requests must be
signed by each shareholder, including each owner of a joint account, and
each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program,
the Securities Transfer Agents Medallion Program ("STAMP") and the Stock
Exchanges Medallion Program. If you have any questions with respect to
signature-guarantees, please contact your Service Agent or call the
telephone number listed on the cover of this Prospectus.
Page 26
Redemption proceeds of at least $1,000 will be wired to any
member bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE -- CLASS A SHARES
If you hold Class A shares, you may request on the Account
Application, Shareholder Services Form or by later written request that
the Fund provide Redemption Checks drawn on the Fund's account.
Redemption Checks may be made payable to the order of any person in the
amount of $500 or more. Potential fluctuations in the net asset value of
Class A shares should be considered in determining the amount of the
check. Redemption Checks should not be used to close your account.
Redemption Checks are free, but the Transfer Agent will impose a fee for
stopping payment of a Redemption Check upon your request or if the
Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. You should date your Redemption Checks with
the current date when you write them. Please do not postdate your
Redemption Checks. If you do, the Transfer Agent will honor, upon
presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of
presentment for payment, if they are otherwise in good order. Class A
shares for which certificates have been issued may not be redeemed by
Redemption Check. This Privilege may be modified or terminated at any
time by the Fund or the Transfer Agent upon notice to holders of Class A
shares.
TELETRANSFER PRIVILEGE
You may redeem Fund shares (minimum $500 per day) without
charge by telephone if you have checked the appropriate box and supplied
the necessary information on the Fund's Account Application or have filed
a Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in
one of these documents. Only such an account maintained in a domestic
financial institution which is an Automated Clearing House member may be
so designated. Redemption proceeds will be on deposit in your account at
an Automated Clearing House member bank ordinarily two days after receipt
of the redemption request or, at your request, paid by check (maximum
$150,000 per day) and mailed to your address. Holders of jointly
registered Fund or bank accounts may redeem through the TELETRANSFER
Privilege for transfer to their bank account only up to $250,000 within
any 30-day period. The Fund reserves the right to refuse any request made
by telephone, including requests made shortly after a change of address,
and may limit the amount involved or the number of such requests. The
Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the TELETRANSFER Privilege, you may
request a TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares issued in certificate form are not eligible for this Privilege.
REDEMPTION THROUGH A SELECTED DEALER
If you are a customer of a Selected Dealer, you may make
redemption requests to your Selected Dealer. If the Selected Dealer
transmits the redemption request so that it is received by the Transfer
Agent prior to the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), the redemption request
will be effective on that day. If a redemption request is received by the
Transfer Agent after the close of trading on the floor of the New York
Stock Exchange, the redemption request will be effective on the next
business day. It is the responsibility of the Selected Dealer to transmit
a request so that it is received in a timely manner. The proceeds of the
redemption are credited to your account with the Selected Dealer. See
"How to Buy Fund Shares" for a discussion of additional conditions or
fees that may be imposed upon redemption.
In addition, Dreyfus Service Corporation will accept orders
from Selected Dealers with which it has sales agreements for the
repurchase of shares held by shareholders. Repurchase orders received by
the dealer by the close of trading on the floor of the New York Stock
Page 27
Exchange on any business day and transmitted to Dreyfus Service
Corporation prior to the close of its business day (normally 5:15 p.m.,
New York time) are effected at the price determined as of the close of
trading on the floor of the New York Stock Exchange on that day.
Otherwise, the shares will be redeemed at the next determined net asset
value. It is the responsibility of the Selected Dealer to transmit orders
on a timely basis. The Selected Dealer may charge the shareholder a fee
for executing the order. This repurchase arrangement is discretionary and
may be withdrawn at any time.
REINVESTMENT PRIVILEGE -- CLASS A SHARES
Upon written request, you may reinvest up to the number of
Class A shares you have redeemed, within 30 days of redemption, at the
then-prevailing net asset value without a sales load, or reinstate your
account for the purpose of exercising the Exchange Privilege. The
Reinvestment Privilege may be exercised only once.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class A and Class B shares are subject to a Shareholder
Services Plan and only Class B shares are subject to a Distribution Plan.
DISTRIBUTION PLAN
Under the Distribution Plan, adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund pays Dreyfus Service
Corporation for advertising, marketing and distributing Class B shares at
an annual rate of .50 of 1% of the value of the average daily net assets
of Class B. Under the Distribution Plan, Dreyfus Service Corporation may
make payments to Service Agents in respect of these services. Dreyfus
Service Corporation determines the amounts to be paid to Service Agents.
Service Agents receive such fees in respect of the average daily value of
the Class B shares owned by their clients. From time to time, Dreyfus
Service Corporation may defer or waive receipt of fees under the
Distribution Plan while retaining the ability to be paid by the Fund
under the Distribution Plan thereafter. The fees payable to Dreyfus
Service Corporation under the Distribution Plan for advertising,
marketing and distributing Class B shares and payments to Service Agents
are payable without regard to actual expenses incurred.
SHAREHOLDER SERVICES PLAN
Under the Shareholder Services Plan, the Fund pays Dreyfus
Service Corporation for the provision of certain services to the holders
of Class A and Class B shares a fee at the annual rate of .25 of 1% of
the value of the average daily net assets of Class A and Class B. 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. Dreyfus Service Corporation may make
payments to Service Agents in respect of these services. Dreyfus Service
Corporation determines the amounts to be paid to Service Agents. Each
Service Agent is required to disclose to its clients any compensation
payable to it by the Fund pursuant to the Shareholder Services Plan and
any other compensation payable by their clients in connection with the
investment of their assets in Class A or Class B shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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 income dividends on the day
immediately available funds ("Federal Funds" (monies of member banks
within the Federal Reserve System which are held on deposit at a Federal
Reserve Bank)) are received by the Transfer Agent in written or
telegraphic form. If a purchase order is not accompanied by remittance in
Federal Funds, there may be a delay between the time the purchase order
becomes effective and the time the shares purchased start earning
dividends. If your payment is not made in Federal Funds, it must be
converted into Federal Funds. This usually occurs
Page 28
within one business day of receipt of a bank wire and within two business
days of receipt of a check drawn on a member bank of the Federal Reserve
System. Checks drawn on banks which are not members of the Federal
Reserve System may take considerably longer to convert into Federal Funds.
Dividends usually are paid on the last calendar day of each
month and are automatically reinvested in additional shares of the same
Class from which they were paid at net asset value without a sales load
or, at your option, paid in cash. The Fund's earnings for Saturdays,
Sundays and holidays are declared as dividends on the preceding business
day. 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. Distributions from net realized
securities gains, if any, generally are declared and paid once a year,
but the Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the Investment Company Act of 1940. The
Fund will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized or have
expired. You may choose whether to receive distributions in cash or to
reinvest in additional shares of the same Class from which they were paid
at net asset value. All expenses are accrued daily and deducted before
declaration of dividends to investors. Dividends paid by each Class will
be calculated at the same time and in the same manner and will be of the
same amount, except that the expenses attributable solely to Class A or
Class B will be borne exclusively by such Class. Class B shares will
receive lower per share dividends than Class A shares because of the
higher expenses borne by Class B. See "Fee Table."
Except for dividends from Taxable Investments, the Fund
anticipates that substantially all dividends paid by the Fund will not be
subject to Federal income tax. No dividend paid by the Fund will qualify
for the dividends received deduction allowable to certain U.S.
corporations. Dividends derived from Taxable Investments, together with
distributions from any net realized short-term securities gains and all
or a portion of any gains realized from the sale or other disposition of
certain market discount bonds, paid by the Fund are subject to Federal
income tax as ordinary income whether or not reinvested. Distributions
from net realized long-term securities gains of the Fund generally are
subject to Federal income tax as long-term capital gains, if you are a
citizen or resident of the United States. Dividends and distributions
attributable to income or gain derived from securities transactions and
from the use of certain of the investment techniques described under
"Description of the Fund _ Investment Techniques," will be subject to
Federal income tax. The Code provides that the net capital gain of an
individual generally will not be subject to Federal income tax at a rate
in excess of 28%. Under the Code, interest on indebtedness incurred or
continued to purchase or carry Fund shares which is deemed to relate to
exempt-interest dividends is not deductible. Dividends and distributions
may be subject to state and local taxes.
The Code provides for the "carryover" of some or all of the
sales load imposed on Class A shares if you exchange your Class A shares
for shares of another fund advised by The Dreyfus Corporation within 91
days of purchase and such other fund reduces or eliminates its otherwise
applicable sales load for the purpose of the exchange. In this case, the
amount of the sales load charge for Class A shares, up to the amount of
the reduction of the sales load charge on the exchange, is not included
in the basis of your Class A shares for purposes of computing gain or
loss on the exchange, and instead is added to the basis of the fund
shares received on the exchange.
Although all or a substantial portion of the dividends paid
by the Fund may be excluded by shareholders of the Fund from their gross
income for Federal income tax purposes, the Fund may purchase specified
private activity bonds, the interest from which may be (i) a preference
item for purposes of the alternative minimum tax, (ii) a component of the
"adjusted current earnings" preference item for purposes of the corporate
alternative minimum tax as well as a component in computing the corporate
environmental tax or (iii) a factor in deter-
Page 29
mining the extent to which a shareholder's Social Security benefits are
taxable. If the Fund purchases such securities, the portion of the
dividends related thereto will not necessarily be tax exempt to an
investor who is subject to the alternative minimum tax and/or tax on
Social Security benefits and may cause an investor to be subject to such
taxes.
Taxable dividends derived from net investment income,
together with distributions from net realized short-term securities gains
and all or a portion of any gains realized from the sale or other
disposition of certain market discount bonds, paid by the Fund to a
foreign investor generally are subject to U.S. nonresident withholding
taxes at the rate of 30%, unless the foreign investor claims the benefit
of a lower rate specified in a tax treaty. Distributions from net
realized long-term securities gains paid by the Fund to a foreign
investor as well as the proceeds of any redemptions from a foreign
investor's account, regardless of the extent to which gain or loss may be
realized, generally will not be subject to U.S. nonresident withholding
tax. However, such distributions may be subject to backup withholding, as
described below, unless the foreign investor certifies his non-U.S.
residency status.
Notice as to the tax status of your dividends and
distributions will be mailed to you annually. You also will receive
periodic summaries of your account which will include information as to
dividends and distributions from securities gains, if any, paid during
the year. These statements set forth the dollar amount of income exempt
from Federal tax and the dollar amount, if any, subject to Federal tax.
These dollar amounts will vary depending on the size and length of time
of your investment in the Fund. If the Fund pays dividends derived from
taxable income, it intends to designate as taxable the same percentage of
the day's dividends as the actual taxable income earned on that day bears
to total income earned on that day. Thus, the percentage of the dividend
designated as taxable, if any, may vary from day to day.
Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of taxable
dividends, distributions from net realized securities gains and the
proceeds of any redemption, regardless of the extent to which gain or
loss may be realized, paid to a shareholder if such shareholder fails to
certify either that the TIN furnished in connection with opening an
account is correct or that such shareholder has not received notice from
the IRS of being subject to backup withholding as a result of a failure
to properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect
or if a shareholder has failed to properly report taxable dividend and
interest income on a Federal income tax return.
A TIN is either the Social Security number or employer
identification number of the record owner of the account. Any tax
withheld as a result of backup withholding does not constitute an
additional tax imposed on the record owner of the account, and may be
claimed as a credit on the record owner's Federal income tax return.
Management of the Fund believes that the Fund has qualified
for the fiscal year ended April 30, 1994 as a "regulated investment
company" under the Code. The Fund intends to continue to so qualify, if
such qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income taxes
to the extent its earnings are distributed in accordance with applicable
provisions of the Code. In addition, the Fund is subject to a
non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains, if
any.
You should consult your tax adviser regarding specific
questions as to Federal, state or local income taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class of
shares may be calculated on several bases, including current yield, tax
equivalent yield, average annual total return and/or total return. These
total return figures reflect changes in the price of the shares and
assume
Page 30
that any income dividends and/or capital gains distributions made
by the Fund during the measuring period were reinvested in shares of the
same Class. Class A total return figures include the maximum initial
sales charge and Class B total return figures include any applicable
CDSC. These figures also take into account any applicable service and
distribution fees. As a result, at any given time, the performance of
Class B should be expected to be lower than that of Class A. Performance
for each Class will be calculated separately.
Current yield refers to the Fund's annualized net investment
income per share over a 30-day period, expressed as a percentage of the
maximum offering price per share in the case of Class A or the net asset
value per share in the case of Class B at the end of the period. For
purposes of calculating current yield, the amount of net investment
income per share during that 30-day period, computed in accordance with
regulatory requirements, is compounded by assuming that it is reinvested
at a constant rate over a six-month period. An identical result is then
assumed to have occurred during a second six-month period which, when
added to the result for the first six months, provides an "annualized"
yield for an entire one-year period. Calculations of the Fund's current
yield may reflect absorbed expenses pursuant to any undertaking that may
be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax
yield which, after being taxed at a stated rate, would be equivalent to a
stated current yield calculated as described above.
Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in the Fund was
purchased with an initial payment of $1,000 and that the investment was
redeemed at the end of a stated period of time, after giving effect to
the reinvestment of dividends and distributions during the period. The
return is expressed as a percentage rate which, if applied on a
compounded annual basis, would result in the redeemable value of the
investment at the end of the period. Advertisements of the Fund's
performance will include the Fund's average annual total return for Class
A and Class B for one, five and ten year periods, or for shorter periods
depending upon the length of time during which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the
income and principal changes for a specified period and dividing by the
maximum offering price per share in the case of Class A or the net asset
value per share in the case of Class B at the beginning of the period.
Advertisements may include the percentage rate of total return or may
include the value of a hypothetical investment at the end of the period
which assumes the application of the percentage rate of total return.
Total return may also be calculated by using the net asset value per
share at the beginning of the period instead of the maximum offering
price per share at the beginning of the period for Class A shares or
without giving effect to any applicable CDSC at the end of the period for
Class B shares. Calculations based on the net asset value per share do
not reflect the deduction of the applicable sales charge which, if
reflected, would reduce the performance quoted.
Performance will vary from time to time and past results are
not necessarily representative of future results. Investors should
remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. Performance information, such as that described
above, may not provide a basis for comparison with other investments or
other investment companies using a different method of calculating
performance.
Comparative performance information may be used from time to
time in advertising the Fund's shares, including data from Lipper
Analytical Services, Inc., Moody's Bond Survey Bond Index, Lehman
Brothers Municipal Bond Index, Morningstar, Inc. and other industry
publications.
Page 31
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust
under the laws of the Commonwealth of Massachusetts pursuant to an
Agreement and Declaration of Trust (the "Trust Agreement") dated June 4,
1986, and commenced operations on November 26, 1986. On July 2, 1990, the
Fund's name was changed from Premier Tax Exempt Bond Fund to Premier
Municipal Bond Fund. The Fund is authorized to issue an unlimited number
of shares of beneficial interest, par value $.001 per share. The Fund's
shares are classified into two classes _ Class A and Class B. Each share
has one vote and shareholders will vote in the aggregate and not by class
except as otherwise required by law or when class voting is permitted by
the Board of Trustees. Holders of Class A and Class B shares will be
entitled to vote on matters submitted to shareholders pertaining to the
Shareholder Services Plan and only holders of Class B shares will be
entitled to vote on matters submitted to shareholders pertaining to the
Distribution Plan.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or
executed by the Fund or a Trustee. The Trust Agreement provides for
indemnification from the Fund's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by
the Fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Trustees intend
to conduct the operations of the Fund in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities
of the Fund. As discussed under "Management of the Fund" in the Statement
of Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to
remove Trustees.
The Transfer Agent maintains a record of your ownership and
sends you confirmations and statements of account.
Shareholder inquiries may be made to your Service Agent or by
writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND IN THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER
OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH,
OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
022/612P12111894
Page 32