DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MAY 31, 1995
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus Massachusetts Municipal Money Market Fund (the "Fund"), dated
May 31, 1995, as it may be revised from time to time. To obtain a copy of
the Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call toll free 1-800-645-
6561.
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . B-8
Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . B-11
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . B-13
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . . . . . B-15
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . B-15
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . B-20
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . . B-21
Yield Information . . . . . . . . . . . . . . . . . . . . . . . . . . . B-21
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . B-22
Information About the Fund. . . . . . . . . . . . . . . . . . . . . . . B-23
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . . . . . B-23
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . B-34
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . B-41
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Description
of the Fund."
The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended January 31, 1995,
computed on a monthly basis, was as follows:
Moody's Standard
Investors & Poor's
Service, Inc. or Corporation Percentage
("Moody's") ("S&P") of Value
MIG 1, P-1 SP-1, A-1 83.6%
Aaa/Aa AAA/AA 1.9%
Not rated not rated 14.5%
100.0%
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, industrial, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply,
gas, electricity, or sewage or solid waste disposal; the interest paid on
such obligations may be exempt from Federal income tax, although current
tax laws place substantial limitations on the size of such issues. Such
obligations are considered to be Municipal Obligations if the interest paid
thereon qualifies as exempt from Federal income tax in the opinion of bond
counsel to the issuer. There are, of course, variations in the security of
Municipal Obligations, both within a particular classification and between
classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding 13 months, in each case upon not more
than 30 days' notice. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending rate,
such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation
is adjusted automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation, and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, will have the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the
event of foreclosure might prove difficult. The Fund will seek to minimize
these risks by investing only in those lease obligations that (1) are rated
in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (or one
rating organization if the lease obligation was rated by only one such
organization); or (2) if unrated, are purchased principally from the issuer
or domestic banks or other responsible third parties, in each case only if
the seller shall have entered into an agreement with the Fund providing
that the seller or other responsible third party will either remarket or
repurchase the lease obligation within a short period after demand by the
Fund. The staff of the Securities and Exchange Commission currently
considers certain lease obligations to be illiquid. Accordingly, not more
than 10% of the value of the Fund's net assets will be invested in lease
obligations that are illiquid and in other illiquid securities. See
"Investment Restriction No. 6" below.
The Fund will not purchase tender option bonds unless (a) the demand
feature applicable thereto is exercisable by the Fund within 13 months of
the date of such purchase upon no more than 30 days' notice and thereafter
is exercisable by the Fund no less frequently than annually upon no more
than 30 days' notice and (b) at the time of such purchase, the Manager
reasonably expects (i) based upon its assessment of current and historical
interest rate trends, that prevailing short-term tax exempt rates will not
exceed the stated interest rate on the underlying Municipal Obligations at
the time of the next tender fee adjustment and (ii) that the circumstances
which might entitle the grantor of a tender option to terminate the tender
option would not occur prior to the time of the next tender opportunity.
At the time of each tender opportunity, the Fund will exercise the tender
option with respect to any tender option bonds unless the Manager
reasonably expects, (x) based upon its assessment of current and historical
interest rate trends, that prevailing short-term tax exempt rates will not
exceed the stated interest rate on the underlying Municipal Obligations at
the time of the next tender fee adjustment, and (y) that the circumstances
which might entitle the grantor of a tender option to terminate the tender
option would not occur prior to the time of the next tender opportunity.
The Fund will exercise the tender feature with respect to tender option
bonds, or otherwise dispose of its tender option bonds, prior to the time
the tender option is scheduled to expire pursuant to the terms of the
agreement under which the tender option is granted. The Fund otherwise
will comply with the provisions of Rule 2a-7 in connection with the
purchase of tender option bonds, including, without limitation, the
requisite determination by the Board of Trustees that the tender option
bonds in question meet the quality standards described in Rule 2a-7, which,
in the case of a tender option bond subject to a conditional demand
feature, would include a determination that the security has received both
the required short-term and long-term quality rating or is determined to be
of comparable quality. In the event of a default of the Municipal
Obligation underlying a tender option bond, or the termination of the
tender option agreement, the Fund would look to the maturity date of the
underlying security for purposes of compliance with Rule 2a-7 and, if its
remaining maturity was greater than 13 months, the Fund would sell the
security as soon as would be practicable. The Fund will purchase tender
option bonds only when it is satisfied that the custodial and tender option
arrangements, including the fee payment arrangements, will not adversely
affect the tax exempt status of the underlying Municipal Obligations and
that payment of any tender fees will not have the effect of creating
taxable income for the Fund. Based on the tender option bond agreement,
the Fund expects to be able to value the tender option bond at par;
however, the value of the instrument will be monitored to assure that it is
valued at fair value.
Ratings of Municipal Obligations. If, subsequent to its purchase by
the Fund, (a) an issue of rated Municipal Obligations ceases to be rated in
the highest rating category by at least two rating organizations (or one
rating organization if the instrument was rated by only one such
organization), or the Fund's Board determines that it is no longer of
comparable quality; or (b) the Manager becomes aware that any portfolio
security not so highly rated or any unrated security has been given a
rating by any rating organization below the rating organization's second
highest rating category, the Fund's Board will reassess promptly whether
such security presents minimal credit risk and will cause the Fund to take
such action as it determines is in the best interest of the Fund and its
shareholders, provided that the reassessment required by clause (b) is not
required if the portfolio security is disposed of or matures within five
business days of the Manager becoming aware of the new rating and the
Fund's Board is subsequently notified of the Manager's actions.
To the extent that the ratings given by Moody's, S&P or Fitch for
Municipal Obligations may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with the
investment policies contained in the Fund's Prospectus and this Statement
of Additional Information. The ratings of Moody's, S&P and Fitch represent
their opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
Although these ratings may be an initial criterion for selection of
portfolio investments, the Manager also will evaluate these securities and
the creditworthiness of the issuers of such securities.
Illiquid Securities. If a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities
Act of 1933, as amended, for certain restricted securities held by the
Fund, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board of Trustees.
Because it is not possible to predict with assurance how the market for
restricted securities pursuant to Rule 144A will develop, the Fund's Board
of Trustees has directed the Manager to monitor carefully the Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
To the extent that, for a period of time, qualified institutional buyers
cease purchasing restricted securities pursuant to Rule 144A, the Fund's
investing in such securities may have the effect of increasing the level of
illiquidity in the Fund's portfolio during such period.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the U.S. Treasury; others,
such as those issued by the Federal National Mortgage Association, by
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of the
agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Interest may fluctuate based on generally
recognized reference rates or the relationship of rates. While the U.S.
Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will
always do so, since it is not so obligated by law. The Fund will invest in
such securities only when it is satisfied that the credit risk with respect
to the issuer is minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of one billion dollars.
Time deposits which may be held by the Fund will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase agreements involve the acquisition by the Fund of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Fund to resell, the instrument at a fixed price usually
not more than one week after its purchase. The Fund's custodian or
subcustodian will have custody of, and will hold in a segregated account,
securities acquired by the Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Fund. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, the Fund will enter into
repurchase agreements only with domestic banks with total assets in excess
of one billion dollars or primary government securities dealers reporting
to the Federal Reserve Bank of New York, with respect to securities of the
type in which the Fund may invest, and will require that additional
securities be deposited with it if the value of the securities purchased
should decrease below resale price. The Manager will monitor on an ongoing
basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by the Fund in
connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
securities, realization on the securities by the Fund may be delayed or
limited. The Fund will consider on an ongoing basis the creditworthiness
of the institutions with which it enters into repurchase agreements.
Risk Factors--Investing in Massachusetts Municipal Obligations.
Investors should consider carefully the special risks inherent in the
Fund's investment in Massachusetts Municipal Obligations. Massachusetts'
economic difficulties and fiscal problems in the late 1980s and early 1990s
caused several rating agencies to lower their ratings of Massachusetts
Municipal Obligations. A return of persistent serious financial
difficulties could adversely affect the market values and marketability of,
or result in default in payment on, outstanding Massachusetts Municipal
Obligations. Massachusetts' expenditures for State programs and services
in each of the fiscal years 1987 through 1991 exceeded such year's current
revenues. For the budgeted funds, operating losses in fiscal 1987 and 1988
were covered largely by drawing on fund balances from prior fiscal years.
Massachusetts' operating losses in fiscal 1989 and 1990, which totalled
$672 million and $1.25 billion, respectively, were covered primarily
through deficit borrowings, and the fiscal 1991 operating loss of $21
million was covered by drawing on the adjusted 1990 fund balance of $258
million. The budgeted operating funds of Massachusetts ended fiscal years
1992 through 1994, however, with an excess of revenues and other sources
over expenditures and other uses of $312.3 million, $13.1 million and $26.8
million, respectfully. Fiscal 1994 ended with positive budgeted operating
fund balances of $589.3 million. Investors should review Appendix A which
more fully sets forth these and other risk factors.
Investment Restrictions. The Fund has adopted investment restrictions
numbered 1 through 10 below as fundamental policies. These restrictions
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "Act")) of the
Fund's outstanding voting shares. Investment restriction number 11 is not
a fundamental policy and may be changed by vote of a majority of the
Trustees at any time. The Fund may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus.
2. Borrow money, except from banks 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) based on 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.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin.
5. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available.
6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests,
but this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein.
7. Make loans to others except through the purchase of qualified debt
obligations and the entry into repurchase agreements referred to above and
in the Fund's Prospectus.
8. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
9. Invest in companies for the purpose of exercising control.
10. Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 10% of its net assets would be so invested.
For purposes of Investment Restriction No. 8, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry." If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. Each Trustee who is deemed to be an "interested person"
of the Fund, as defined in the Act, is indicated by an asterisk.
Trustees of the Fund
**JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of The Dreyfus Corporation
("Dreyfus"), each Fund's investment adviser, and Executive Vice
President and a director of Dreyfus Service Corporation, a wholly
owned subsidiary of Dreyfus. From August 1994 until December 31,
1994, he was a director of Mellon Bank Corporation ("Mellon"). He is
Chairman of the Board of Noel Group, Inc., a director of The Muscular
Dystrophy Association, a trustee of Bucknell University, and a
director of HealthPlan Services Corporation, Belding Heminway, Inc.,
and Curtis Industries, Inc. He is also a Board member of 91 other
funds in the Dreyfus Family of Funds. His address is 200 Park Avenue,
New York, New York 10166.
*DAVID W. BURKE, Trustee. Consultant to the Manager since August 1994.
From October 1990 to August 1994, Vice President and Chief
Administrative Officer of the Manager. From 1977 to 1990, Mr. Burke
was involved in the management of national television news, as Vice
President and Executive Vice President of ABC News, and subsequently
as President of CBS News. Mr. Burke is also a Board member of 51
other funds in the Dreyfus Family of Funds. He is 59 years old and
his address is 200 Park Avenue, New York, New York 10166.
SAMUEL CHASE, Trustee. Since 1982, President of Samuel Chase & Company,
Ltd., and from 1983 to 1990, Chairman of Chase, Brown & Blaxall, Inc.,
economic consulting firms. Mr. Chase is also a Board member of 13
other funds in the Dreyfus Family of Funds. He is 63 years old and
his address is 4410 Massachusetts Avenue, N.W., Suite 408, Washington,
D.C. 20016.
GORDON J. DAVIS, Trustee. Since October 1994, Mr. Davis has been a senior
partner with the firm of LeBoeuf, Lamb, Greene & MacRae. From 1983 to
September 1994, Mr. Davis was a senior partner with the law firm of
Lord Day & Lord, Barrett Smith. Former Commissioner of Parks and
Recreation for the City of New York from 1978-1983. He is also a
director of Consolidated Edison, a utility company, and Phoenix Home
Life Insurance Company and a member of various other corporate and
not-for-profit boards. Mr. Davis is also a Board member of 24 other
funds in the Dreyfus Family of Funds. He is 53 years old and his
address is 241 Central Park West, New York, New York 10023.
JONI EVANS, Trustee. Senior Vice President of the William Morris Agency.
From September 1987 to May 1993, Executive Vice President of Random
House, Inc. and, from January 1991 to May 1993, President and
Publisher of Turtle Bay Books; from January 1987 to December 1990,
Publisher of Random House--Adult Trade Division; and from 1985 to
1987, President of Simon & Schuster--Trade Division. Ms. Evans is
also a Board member of 13 other funds in the Dreyfus Family of Funds.
She is 53 years old and her address is 1325 Avenue of the Americas,
16th Floor, New York, New York 10019.
ARNOLD S. HIATT, Trustee. Chairman of the Stride Rite Foundation. From
1969 to June 1992, Chairman of the Board, President or Chief Executive
Officer of The Stride Rite Corporation, a multidivisional footwear
manufacturing and retailing company. Mr. Hiatt is also a Director of
the Cabot Corporation. Mr. Hiatt is also a Board member of 13 other
funds in the Dreyfus Family of Funds. He is 68 years old and his
address is 400 Atlantic Avenue, Boston, Massachusetts 02110.
DAVID J. MAHONEY, Trustee. President of David Mahoney Ventures since 1983.
From 1968 to 1983, he was Chairman and Chief Executive Officer of
Norton Simon, Inc., a producer of consumer products and services. Mr.
Mahoney is also a director of National Health Laboratories, Inc.,
Bionaire Inc. and Good Samaritan Health Systems, Inc. Mr. Mahoney is
also a Board member of 13 other funds in the Dreyfus Family of Funds.
He is 72 years old and his address is 745 Fifth Avenue, Suite 700, New
York, New York 10151.
BURTON N. WALLACK, Trustee. President and co-owner of Wallack Management
Company, a real estate management company managing real estate in the
New York City area. Mr. Wallack is also a Board member of 13 other
funds in the Dreyfus Family of Funds. He is 44 years old and his
address is 18 East 64th Street, Suite 3D, New York, New York 10021.
For so long as the Fund's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Trustees of the Fund who
are not "interested persons" of the Fund, as defined in the Act, will be
selected and nominated by the Trustees who are not "interested persons' of
the Fund.
The Fund typically pays its Trustees an annual retainer and a per
meeting fee and reimburses them for their expenses. The aggregate amount
of compensation paid to each Trustee by the Fund for the fiscal year ended
January 31, 1995, and all other funds in the Dreyfus Family of Funds for
which such person is a Board member for the year ended December 31, 1994,
were as follows:
<TABLE>
<CAPTION>
(5)
(3) Total Compensation
(2) Pension or (4) From Fund and
(1) Aggregate Retirement Benefits Estimated Annual From Fund Complex
Name of Board Compensation from Accrued as Part of Benefits Upon Paid to Board
Member Fund* Fund's Expenses Retirement Member
------------ ----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Joseph S. DiMartino** $1,250 none none $445,000
David W. Burke $ 438 none none $ 27,898
Samuel Chase $1,000 none none $ 46,250
Gordon J. Davis** $1,000 none none $ 89,000
Joni Evans $1,000 none none $ 46,250
Arnold S. Hiatt $1,000 none none $ 42,750
David J. Mahoney $1,000 none none $ 43,000
Burton N. Wallack $1,000 none none $ 46,250
_____________________
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $4,364 for all Trustees as a group.
** Estimated amounts for the current fiscal year ended January 31, 1996.
</TABLE>
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc. She is 37 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992
to July 1994, he served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, he was employed as an
Associate at Ropes & Gray, and prior to August 1990, he was employed as
an Associate at Sidley & Austin. He is 30 years old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From September 1992
to August 1994, he was an attorney with the Board of Governors of the
Federal Reserve System. He is 30 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to August
1994, he was Manager of the High Performance Fabric Division of Springs
Industries Inc. He is 33 years old.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President Treasurer
and Chief Financial Officer of the Distributor and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 32 years old.
JOHN J. PYBURN, Assistant Treasurer. Vice President of the Distributor and
an officer of other investment companies advised or administered by
the Manager. From 1984 to July 1994, he was Assistant Vice President
in the Mutual Fund Accounting Department of the Manager. He is 59
years old.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From January 1992 to July 1994, he was
a Senior Legal Product Manager, and from January 1990 to January 1992,
he was mutual fund accountant, for The Boston Company Advisors, Inc.
He is 28 years old.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised
or administered by the Manager. From March 1992 to July 1994, she
was a Compliance Officer for The Managers Funds, a registered
investment company. From March 1990 until September 1991, she was
Development Director of The Rockland Center for the Arts and, prior
thereto, was employed as a Research Assistant for the Bureau of
National Affairs. She is 50 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Trustees and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of Common Stock outstanding as of March 10, 1995.
The following shareholder is known by the Fund to be the holder of
record of 5% or more of the Fund's shares of beneficial interest
outstanding as of March 10, 1995: Saturn & Co., c/o Investment Bank & Trust
Co., Attn: Income Collection, P.O. Box 1537, Boston, MA 02205-1537,
29,677,938.410 shares (19.50%).
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board of Trustees or (ii) vote
of a majority (as defined in the Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Trustees who are not "interested persons" (as defined
in the Act) of the Fund or the Manager, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Agreement was
approved by shareholders on August 2, 1994, and was last approved by the
Fund's Board of Trustees, including a majority of the Trustees who are not
"interested persons" of any party to the Agreement, at a meeting held on
January 24, 1995. The Agreement is terminable without penalty, on 60 days'
notice, by the Fund's Board of Trustees or by vote of the holders of a
majority of the Fund's shares, or, on not less than 90 days' notice, by the
Manager. The Agreement will terminate automatically in the event of its
assignment (as defined in the Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board of Directors; Robert E. Riley, President,
Chief Operating Officer and a director; Lawrence S. Kash, Vice Chairman--
Distribution and a director; Philip L. Toia, Vice Chairman--Operations and
Administration; Paul H. Snyder, Vice President and Chief Financial Officer;
Daniel C. Maclean, Vice President and General Counsel; Barbara E. Casey,
Vice President--Retirement Services; Henry D. Gottmann, Vice President--
Retail; Elie M. Genadry, Vice President--Wholesale; Mark N. Jacobs, Vice
President--Fund Legal and Compliance and Secretary; Jeffrey N. Nachman,
Vice President--Mutual Fund Accounting; Diane Coffey, Vice President--
Corporate Communications; Katherine C. Wickham, Vice President--Human
Resources; William F. Glavin, Jr., Vice President--Product Management;
Andrew S. Wasser, Vice President--Information Services; Maurice Bendrihem,
Controller; and Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman,
Lawrence M. Greene, Julian Smerling and David B. Truman, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board of Trustees. The Manager is responsible for investment decisions,
and provides the Fund with portfolio managers who are authorized by the
Board of Trustees to execute purchases and sales of securities. The Fund's
portfolio managers are Richard J. Moynihan, Joseph P. Darcy, A. Paul
Disdier, Karen M. Hand, Stephen C. Kris, Jill C. Shaffro, L. Lawrence
Troutman, Samuel J. Weinstock and Monica S. Wieboldt. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the Fund
as well as for other funds advised by the Manager. All purchases and sales
are reported for the Trustees' review at the meeting subsequent to such
transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: organizational costs, taxes, interest,
brokerage fees and commissions, if any, fees of Trustees who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of the Manager, Securities and Exchange Commission fees,
state Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
maintaining the Fund's existence, costs of independent pricing services,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of shareholders' reports and
meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders, and any extraordinary expenses.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .50 of 1% of the
value of the Fund's average daily net assets. All fees and expenses are
accrued daily and deducted before the declaration of dividends to
shareholders. For the fiscal years ended January 31, 1993 and 1994, no
management fees were paid by the Fund pursuant to an undertaking by the
Manager. The management fee paid by the Fund for the fiscal year ended
January 31, 1995 was $50,709, which amount reflects the reduction of
$531,751, pursuant to undertakings by the Manager.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings
and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee,
exceed the expense limitation of any state having jurisdiction over the
Fund, the Fund may deduct from the payment to be made to the Manager under
the Agreement, or the Manager will bear, such excess expense to the extent
required by state law. Such deduction or payment, if any, will be
estimated daily, and reconciled and effected or paid, as the case may be,
on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and
for certain other investment companies.
Using Federal Funds. The Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), or the Fund
may attempt to notify the investor upon receipt of checks drawn on banks
that are not members of the Federal Reserve System as to the possible delay
in conversion into Federal Funds and may attempt to arrange for a better
means of transmitting the money. If the investor is a customer of a
securities dealer, bank or other financial institution and his order to
purchase Fund shares is paid for other than in Federal Funds, the
securities dealer, bank or other financial institution acting on behalf of
its customer, will complete the conversion into, or itself advance, Federal
Funds generally on the business day following receipt of the customer
order. The order is effective only when so converted and received by the
Transfer Agent. An order for the purchase of Fund shares placed by an
investor with sufficient Federal Funds or cash balance in his brokerage
account with a securities dealer, bank or other financial institution will
become effective on the day that the order, including Federal Funds, is
received by the Transfer Agent.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made between the hours of 8:00 a.m. and 4:00 p.m., New York time, on
any business day that the Transfer Agent and the New York Stock Exchange
are open. Such purchases will be credited to the shareholder's Fund
account on the next bank business day. To qualify to use the Dreyfus
TeleTransfer Privilege, the initial payment for purchase of Fund shares
must be drawn on, and redemption proceeds paid to, the same bank and
account as are designated on the Account Application or Shareholder
Services Form on file. If the proceeds of a particular redemption are to
be wired to an account at any other bank, the request must be in writing
and signature-guaranteed. See "Redemption of Fund Shares--Dreyfus
TeleTransfer Privilege."
Transactions Through Securities Dealers. Fund shares may be purchased
and redeemed through securities dealers which may charge a nominal
transaction fee for such services. Some dealers will place the Fund's
shares in an account with their firm. Dealers also may require that the
customer invest more than the $1,000 minimum investment; the customer not
take physical delivery of share certificates; the customer not request
redemption checks to be issued in the customer's name; fractional shares
not be purchased; monthly income distributions be taken in cash; or other
conditions.
There is no sales or service charge by the Fund or the Distributor,
although investment dealers, banks and other institutions may make
reasonable charges to investors for their services. The services provided
and the applicable fees are established by each dealer or other institution
acting independently of the Fund. The Fund has been given to understand
that these fees may be charged for customer services including, but not
limited to, same-day investment of client funds; same-day access to client
funds; advice to customers about the status of their accounts, yield
currently being paid or income earned to date; provision of periodic
account statements showing security and money market positions; other
services available from the dealer, bank or other institution; and
assistance with inquiries related to their investment. Any such fees will
be deducted monthly from the investor's account which on smaller accounts
could constitute a substantial portion of distributions. Small, inactive,
long-term accounts involving monthly service charges may not be in the best
interest of investors. Investors should be aware that they may purchase
shares of the Fund directly from the Fund without imposition of any
maintenance or service charges, other than those already described herein.
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Shareholder
Services Plan."
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation, a wholly-owned
subsidiary of the Manager, for certain allocated expenses of providing
personal services and/or maintaining shareholder accounts. The services
provided may include personal services relating to shareholder accounts,
such as answering shareholder inquiries regarding the Fund and providing
reports and other information, and services related to the maintenance of
shareholder accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Trustees for their review. In addition, the Plan provides that material
amendments of the Plan must be approved by the Board of Trustees, and by
the Trustees who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in the operation
of the Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Plan is subject to annual approval by
such vote of the Trustees cast in person at a meeting called for the
purpose of voting on the Plan. The Plan was so approved on October 19,
1994. The Plan is terminable at any time by vote of a majority of the
Trustees who are not "interested persons" and who have no direct or
indirect financial interest in the operation of the Plan.
For the fiscal year ended January 31, 1995, $92,868 was chargeable to
the Fund under the Plan.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record.
The Account Application or later written request must be manually signed by
the registered owner(s). Checks may be made payable to the order of any
person in an amount of $500 or more. When a Check is presented to the
Transfer Agent for payment, the Transfer Agent, as the investor's agent,
will cause the Fund to redeem a sufficient number of shares in the
investor's account to cover the amount of the Check. Dividends are earned
until the Check clears. After clearance, a copy of the Check will be
returned to the investor. Investors generally will be subject to the same
rules and regulations that apply to checking accounts, although election of
this Privilege creates only a shareholder-transfer agent relationship with
the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient
funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Fund will initiate payment for shares redeemed pursuant to
this Privilege on the same business day if the Transfer Agent receives the
redemption request in proper form prior to Noon on such day; otherwise the
Fund will initiate payment on the next business day. Redemption proceeds
will be transferred by Federal Reserve wire only to the commercial bank
account specified by the investor on the Account Application or Shareholder
Services Form. Redemption proceeds, if wired, must be in the amount of
$1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees ordinarily
are imposed by such bank and usually are borne by the investor. Immediate
notification by the correspondent bank to the investor's bank is necessary
to avoid a delay in crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Fund Shares--Dreyfus TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
Guarantees must be signed by an authorized signatory of the guarantor and
"Signature Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call the telephone number listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Board of Trustees reserves the right to make payments in whole
or in part in securities or other assets in case of an emergency or any
time a cash distribution would impair the liquidity of the Fund to the
detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Fund's portfolio is valued. If
the recipient sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Shareholder
Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to
herein as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales
load that could have been imposed in connection with the
Purchased Shares (at the time the Purchased Shares were
acquired), without giving effect to any reduced loads, the
difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their
account number.
To request an exchange, an investor must give exchange instructions to
the Transfer Agent in writing or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "NO" box on the
Account Application, indicated that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor, and reasonably
believed by the Transfer Agent to be genuine. Telephone exchanges may be
subject to limitations as to the amount involved or the number of telephone
exchanges permitted. Shares issued in certificate form are not eligible
for telephone exchange.
To establish a Personal Retirement Plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in Corporate Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in
Personal Retirement Plans, the shares exchanged must have a current value
of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares
of another fund in the Dreyfus Family of Funds. This Privilege is
available only for existing accounts. Shares will be exchanged on the
basis of relative net asset value as described above under "Fund
Exchanges." Enrollment in or modification or cancellation of this
Privilege is effective three business days following notification by the
investor. An investor will be notified if his account falls below the
amount designated to be exchanged under this Privilege. In this case, an
investor's account will fall to zero unless additional investments are made
in excess of the designated amount prior to the next Auto-Exchange
Privilege. Shares held under IRA and other retirement plans are eligible
for this Privilege. Exchanges of IRA shares may be made between IRA
accounts and from regular accounts to IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available
to shareholders residing in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges services or
the Dreyfus Auto-Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends
and distributions, the investor's shares will be reduced and eventually may
be depleted. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the
Fund or the Transfer Agent. Shares for which stock certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, paid by the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the
basis of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds
that are offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with
a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that,
if the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be
imposed upon the redemption of such shares.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Amortized Cost Pricing. The valuation of the Fund's portfolio
securities is based upon their amortized cost which does not take into
account unrealized capital gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument.
The Board of Trustees has established, as a particular responsibility
within the overall duty of care owed to the Fund's investors, procedures
reasonably designed to stabilize the Fund's price per share as computed for
purposes of sales and redemptions at $1.00. Such procedures include review
of the Fund's portfolio holdings by the Board of Trustees, at such
intervals as it deems appropriate, to determine whether the Fund's net
asset value calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost. Market
quotations and market equivalents used in such review are obtained from an
independent pricing service (the "Service") approved by the Board of
Trustees. The Service values the Fund's investments based on methods which
include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications of values from
dealers; and general market conditions. The Service also may employ
electronic data processing techniques and/or a matrix system to determine
valuations.
The extent of any deviation between the Fund's net asset value based
upon available market quotations or market equivalents and $1.00 per share
based on amortized cost will be examined by the Board of Trustees. If such
deviation exceeds 1/2 of 1%, the Board of Trustees will consider what
actions, if any, will be initiated. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, it has agreed
to take such corrective action as it regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital
gains; redeeming shares in kind; or establishing a net asset value per
share by using available market quotations or market equivalents.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or portion of any gain
realized from the sale or other disposition of certain market discount
bonds will be treated as ordinary income under Section 1276 of the Internal
Revenue Code of 1986, as amended.
YIELD INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Yield
Information."
For the seven-day period ended January 31, 1995, the Fund's yield was
3.27% and effective yield was 3.32%. These yields reflect the then current
waiver of a portion of the management fee, without which the Fund's yield
and effective yield for the seven-day period ended January 31, 1995 would
have been 2.90% and 2.94%, respectively. See "Management of the Fund" in
the Prospectus. Yield is computed in accordance with a standardized method
which involves determining the net change in the value of a hypothetical
pre-existing Fund account having a balance of one share at the beginning of
a seven calendar day period for which yield is to be quoted, dividing the
net change by the value of the account at the beginning of the period to
obtain the base period return, and annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with div-
idends declared on the original share and any such additional shares and
fees that may be charged to shareholder accounts, in proportion to the
length of the base period and the Fund's average account size, but does not
include realized gains and losses or unrealized appreciation and
depreciation. Effective yield is computed by adding 1 to the base period
return (calculated as described above), raising that sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
Based upon a combined 1995 Federal and Massachusetts tax rate of
46.85%, the Fund's tax equivalent yield for the seven-day period ended
January 31, 1995 was 6.15%. Without the waiver of a portion of the
management fee discussed above then in effect, the Fund's tax equivalent
yield for the seven-day period ended January 31, 1995 would have been
5.46%. See "Management of the Fund" in the Prospectus. Tax equivalent
yield is computed by dividing that portion of the yield or effective yield
(calculated as described above) which is tax exempt, by 1 minus a stated
tax rate and adding the quotient to that portion, if any, of the yield of
the Fund that is not tax exempt.
The tax equivalent yield noted above represents the application of the
highest Federal and Massachusetts marginal personal income tax rates
presently in effect. For Federal personal income tax purposes, a 39.60%
tax rate has been used. For Massachusetts personal income tax purposes, a
12% tax rate has been used. The tax equivalent figure, however, does not
include the potential effect of any local (including, but not limited to,
county, district or city) taxes, including applicable surcharges. In
addition, there may be pending legislation which could affect such stated
tax rates or yield. Each investor should consult its tax adviser, and
consider its own factual circumstances and applicable tax laws, in order to
ascertain the relevant tax equivalent yield.
Yields fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type
and quality of the instruments in the portfolio, portfolio maturity and
operating expenses. An investor's principal in the Fund is not guaranteed.
See "Determination of Net Asset Value" for a discussion of the manner in
which the Fund's price per share is determined.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and not as representative of the Fund's
past or future performance.
Advertising materials for the Fund also may refer to or discuss then-
current or past economic conditions, developments, and/or events, and
actual or proposed tax legislation. From time to time, advertising
materials for the Fund may also refer to statistical or other information
concerning trends relating to investment companies, as compiled by industry
associations such as the Investment Company Institute.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily
are purchased directly from the issuer or from an underwriter; other
purchases and sales usually are placed with those dealers from which it
appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases and
sales, although the price paid usually includes an undisclosed compensation
to the dealer acting as agent. The prices paid to underwriters of newly-
issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses
of its research department.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-
assessable. Fund shares are of one class and have equal rights as to
dividends and in liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286,
is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, acts as transfer and dividend disbursing agent. Neither
The Bank of New York nor The Shareholder Services Group, Inc. has any part
in determining the investment policies of the Fund or which portfolio
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, Seven Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS - INVESTING
IN MASSACHUSETTS MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn
from official statements relating to securities offerings of the
Commonwealth of Massachusetts available as of the date of this Statement of
Additional Information. While the Fund has not independently verified this
information, it has no reason to believe that such information is not
correct in all material aspects.
Massachusetts recently has undergone serious financial difficulties
that adversely affected the Commonwealth's credit standing. Massachusetts'
economic difficulties and fiscal problems could adversely affect the market
values and marketability of, or result in default in payment of,
outstanding Massachusetts Municipal Obligations. While Massachusetts had
benefitted from an annual job growth rate of approximately 2% since the
early 1980s, by 1989, employment started to decline. Nonagricultural
employment declined 0.7% in 1989, 4.0% in 1990, 5.5% in 1991 and 0.9% in
1992. During the economic downturn that ended in 1992, the construction,
manufacturing, and trade sectors experienced the greatest decreases, with
more modest declines taking place in the government, finance, insurance and
real estate, and services sectors over the same period. The most recent
yearly figures, however, show that employment levels increased in all these
sectors except manufacturing in 1993. The only employment sector that did
not grow in 1993 was the manufacturing sector, which has experienced
employment declines since 1985. All other employment sectors experienced
various degrees of growth in 1993, with the construction and services
sectors growing most rapidly at rates of 9.9% and 4.2%, respectively.
Total non-agricultural employment increased by 1.7% between 1992 and 1993.
The Commonwealth's unemployment rate in 1992 and 1993 averaged 8.5% and
6.9%, respectively, which exceeded the national unemployment rate. The
unemployment rate in Massachusetts was 5.7% in December 1994, which also
exceeded the national unemployment rate. Per capita personal income growth
began to slow as well in 1989, after several years during which the per
capita personal income growth rate in Massachusetts was among the highest
in the nation.
Massachusetts' expenditures for state government programs and services
in each of the fiscal years 1987 through 1991, inclusive, exceeded each
fiscal year's current revenues. In fiscal years 1987 and 1988, largely by
drawing on fund balances from prior years, Massachusetts ended each fiscal
year with budgetary surpluses. However, fiscal years 1989 and 1990 ended
with operating deficits of $672.5 million and $1.25 billion, respectively.
The fiscal 1989 deficit was covered primarily through the issuance of
$466.4 million of notes and $244 million of Medicaid-related notes, all of
which matured and were paid on or before January 15, 1991, and by delaying
payments of local aid to cities, towns and regional school districts. The
fiscal 1990 deficit was financed in arrears in the following year by the
issuance of approximately $1.4 billion of Fiscal Recovery Bonds (see
below). Fiscal 1990 ended with a budgetary deficit of $1.104 billion.
Using proceeds of $1.363 billion generated from deficit financings, the
adjusted fiscal 1990 closing balance was $259 million.
In fiscal 1991, total revenues and other sources of the budgeted
operating funds increased by 13.8% over the prior year, to $13.913 billion.
This increase was due chiefly to state tax rate increases enacted in July
1990 and to a substantial Federal reimbursement under the Medicaid program
for uncompensated patient care payments, as well as other factors. The
Commonwealth ended fiscal 1991 with an operating loss of $21.2 million, but
with positive closing fund balances of $237.1 million, after applying the
opening fund balances created from proceeds of the fiscal 1990 deficit
borrowing. No deficit borrowing was required to close out fiscal 1991.
Budgeted revenues and other sources for fiscal 1992 were $13.728
billion, including tax revenues of $9.484 billion. Budgeted revenues and
other sources increased by approximately 0.7% from fiscal 1991 to fiscal
1992, while tax revenues increased by 5.4% for the same period.
Commonwealth expenditures and other uses were approximately $13.420
billion in fiscal 1992, which was $238.7 million, or 1.7% lower than fiscal
1991 budgeted expenditures and other uses. Final fiscal 1992 budgeted
expenditures were approximately $300 million higher than the initial July
1991 estimates of budgetary expenditures. A large portion of the increase
in spending was the result of increases in certain human services programs,
including an increase of $268.7 million for the Medicaid program and $50.0
million for mental retardation consent decree requirements. Fiscal 1992
expenditures for Medicaid were $2.818 billion, or 1.9% higher than fiscal
1991. This increase compared favorably with the 19% average annual growth
rate of Medicaid expenditures for fiscal years 1988 through 1991.
Overall, the budgeted operating funds ended fiscal 1992 with an excess
of revenues and other sources over expenditures and other uses of $312.3
million, and with positive fund balances of approximately $549.4 million,
when such excess was added to the fund balances of $237.1 million carried
forward from fiscal 1991. Total fiscal 1992 spending authority continued
into fiscal 1993 was $231 million.
The budgeted operating funds of the Commonwealth ended fiscal 1993
with a surplus of revenues and other sources over expenditures and other
uses of $13.1 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $562.5 million.
Budgeted revenues and other sources for fiscal 1993 totalled approximately
$14.710 billion, including tax revenues of $9.930 billion. Total revenues
and other sources increased by approximately 6.9% from fiscal 1992 to
fiscal 1993, while tax revenues increased by 4.7% for the same period. In
July 1992, tax revenues had been estimated to be approximately $9.685
billion for fiscal 1993. This amount was subsequently revised during
fiscal 1993 to $9.940 billion.
Commonwealth budgeted expenditures and other uses in fiscal 1993
totalled approximately $14.696 billion, which is $1.280 billion or
approximately 9.6% higher than fiscal 1992 expenditures and other uses.
Fiscal 1993 budgeted expenditures were $23 million lower than the initial
July 1992 estimates of fiscal 1993 budgeted expenditures.
The budgeted operating funds of the Commonwealth ended fiscal 1994
with a surplus of revenues and other sources over expenditures and other
uses of $26.8 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $589.3 million.
Budgeted revenues and other sources for fiscal 1994 totalled approximately
$15.550 billion, including tax revenues of $10.607 billion, $87 million
below the Department of Revenue's fiscal 1994 tax revenue estimate of
$10.694 billion. Total revenues and other sources increased by
approximately 5.7% from fiscal 1993 to fiscal 1994 while tax revenues
increased by 6.8% for the same period.
Commonwealth budgeted expenditures and other uses in fiscal 1994
totalled $15.523 billion, which is $826.5 million or approximately 5.6%
higher than fiscal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position
of approximately $757 million, as compared to a projected position of $599
million.
In June 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base
spending of $1.288 billion of approximately $175 million in fiscal 1994.
The Executive Office for Administration and Finance expects the annual
increases in expenditures above the fiscal 1993 base spending of $1.288
billion to be approximately $396 million in fiscal 1995, $625 million in
fiscal 1996 and $868 million in fiscal 1997. Additional annual increases
are also expected in later fiscal years. The fiscal 1995 budget as signed
by the Governor includes $396 million in appropriations to satisfy this
legislation.
On July 10, 1994 the Governor signed the Commonwealth's budget for
fiscal 1995. As signed by the Governor, the budget authorizes
approximately $16.482 billion in fiscal 1995 expenditures. The Governor
exercised his authority to veto and reduce individual line-items and
reduced total expenditures by approximately $298.2 million in the fiscal
1995 budget.
Budgeted revenues and other sources to be collected in fiscal 1995 are
estimated by the Executive Office for Administration and Finance to be
approximately $16.360 billion. This amount includes estimated fiscal 1995
tax revenues of approximately $11.179 billion, which is approximately $572
million higher than fiscal 1994 tax revenues of approximately $10.607
billion.
The most recent cash flow projection prepared by the office of the
State Treasurer in December 1994 estimated the fiscal 1995 year-end cash
position to be approximately $447 million, based on the fiscal 1995 budget.
The cash flow projection reflected actual results through October 1994 and
revenue and spending estimates as of December 1994. On November 22, 1994,
the Commonwealth issued $240 million of general obligation notes to fund
payments to the MBTA for its net cost of service. The notes mature on June
15, 1995 (rather than later in fiscal 1996 as had been assumed in earlier
cash flow projections). The cash flow projection does not assume the
issuance of any additional notes in June 1995 to refinance such notes,
although additional notes may be issued depending upon circumstances at
that time. This cash flow projection assumes that the Commonwealth will
issue approximately $600 million of long-term general obligation during the
remainder of fiscal 1995 to finance capital projects and that no more than
approximately $145 million of short-term operating borrowings under the
commercial paper program will be outstanding at any time during the
remainder of fiscal 1995. The cash flow projection had assumed such
commercial paper would have been issued in December 1994. However, no
commercial paper was issued, and as of February 22, 1995, no Commonwealth
commercial paper was outstanding. The Commonwealth's practice is to use
available cash for capital expenditures pending the issuance of long-term
bonds and, in the event the amount of long-term debt is reduced or its
issuance delayed due to market conditions or other circumstances,
additional amounts of commercial paper may be outstanding from time to
time.
On January 25, 1995, the governor submitted his fiscal 1996 budget
recommendations to the Legislature. The proposal calls for budgeted
expenditures of approximately $16.737 billion. After adjusting for
approximately $147.9 million in higher education revenues and expenditures
that the Governor's budget recommendation proposes moving to an off-budget
trust fund for fiscal 1996, the recommended fiscal 1996 spending level is
approximately $436 million, or 2.6%, above currently estimated fiscal 1995
expenditures of $16.449 billion. Proposed budgeted revenues for fiscal
1996 are approximately $16.741 billion. The Governor's recommendation
projects a fiscal 1996 ending balance of approximately $505 million, of
which approximately $419 million will be in the Stabilization Fund. The
Governor's budget recommendation is based on a fiscal 1996 tax revenue
estimate of $11.720 billion, an increase of approximately $542 million, or
approximately 4.8%, as compared to currently estimated fiscal 1995 tax
revenues of $11.179 billion.
In November 1980, voters in the Commonwealth approved a state-wide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees
imposed on cities and town by certain government entities, including county
governments. The law is not a constitutional provision and accordingly is
subject to amendment or repeal by the legislature. Proposition 2 1/2 limits
the property taxes which a Massachusetts city or town may assess in any
fiscal year to the lesser of (i) 2.5% of the full and fair cash value of
real estate and personal property therein and (ii) 2.5% over the previous
year's levy limit plus any growth in the tax base from certain new
construction and parcel subdivisions. In addition, Proposition 2 1/2 limits
any increase in the charges and fees assessed by certain governmental
entities, including county governments, on cities and towns to the sum of
(i) 2.5% of the total charges and fees imposed in the preceding fiscal
year, and (ii) any increase in charges for services customarily provided
locally or services obtained by the city or town at its option. The law
contains certain override provisions which require a majority vote, or
higher, for approval at a general or special election. Proposition 2 1/2 also
limits any annual increase in the total assessments on cities and towns by
any county, district, authority, the Commonwealth, or any other
governmental entity.
During the 1980s, Massachusetts increased payments to its cities,
towns and regional school districts ("Local Aid") to mitigate the impact of
Proposition 2 1/2 on local programs and services. In fiscal 1995
approximately 31.1% of Massachusetts' budget is to be allocated to Local
Aid.
Direct Local Aid decreased from $2.937 billion in fiscal 1990 to
$2.360 billion in fiscal 1992 and increased to $2.547 billion in fiscal
1993 and to $2.727 billion in fiscal 1994. It is estimated that fiscal
1995 expenditures for direct Local Aid will be $9.84 billion, which is an
increase of approximately 9.4% above the fiscal 1994 level. The additional
amount of indirect Local Aid provided over the above direct Local Aid was
approximately $2.069 billion in fiscal 1994. It is estimated that in
fiscal 1995 approximately $2.318 billion of indirect Local Aid will also be
paid.
Voters approved in November 1990 a petition which regulates the
distribution of Local Aid by requiring, subject to appropriation,
distribution to cities and towns of no less than 40% of collections from
personal income taxes, sales and use taxes, corporate excise taxes, and
lottery fund proceeds. The Local Aid distribution to each city or town
would equal no less than 100% of the total Local Aid received for fiscal
1989. Distributions in excess of fiscal 1989 levels would be based on new
formulas that would replace the current Local Aid distribution formulas.
By its terms, the new formula would have called for a substantial increase
in direct Local Aid in fiscal 1992, and would call for such an increase in
fiscal 1993 and in subsequent years. However, Local Aid payments expressly
remain subject to annual appropriation, and fiscal 1992, 1993 and 1994
appropriations for Local Aid did not meet and fiscal 1995 appropriations
for Local Aid do not meet, the levels set forth in the initiative law.
In recent years, health care related costs have risen dramatically in
Massachusetts and across the nation and the increase in the State's
Medicaid and group health insurance costs reflects this trend. In fiscal
1992, Medicaid was the largest item in Massachusetts' budget and has been
one of the fastest growing budget items. During fiscal years 1990, 1991,
1992 and 1993, Medicaid expenditures were $2.12 billion, $2.77 billion,
$2.82 billion and $3.15 billion, respectively, representing an average
annual increase of 14.1%. Expenditures for fiscal 1994 were $3.313
billion, a 5.1% increase over fiscal 1993. The Executive Office for
Administration and Finance estimates that fiscal 1995 Medicaid expenditures
will total approximately $3.41 billion, an increase of 3.0% over fiscal
1994 expenditures.
Massachusetts' pension costs have risen dramatically as the State has
appropriated funds to address in part the unfunded liabilities that had
accumulated over several decades. Total pension costs increased at an
average annual rate of 7.8% from $671.9 million in fiscal 1990 to $908.9
million in 1994. The estimated pension costs (inclusive of current
benefits and pension reserves) for fiscal 1995 are $994.3 million, an
increase of 9.4% over fiscal 1994 expenditures.
Payments for debt service on Massachusetts general obligation bonds
and notes have increased approximately 22.2%, from $770.9 million in fiscal
1990 to $942.3 million in fiscal 1991. Debt service payments in fiscal
1992 were $898.3 million, representing a 4.7% decrease from fiscal 1991.
Debt service expenditures for fiscal 1993 and 1994 were $1.139 billion and
$1.149 billion, respectively, and are projected to be $1.242 billion in
fiscal 1995. In January 1990, legislation was enacted which imposes a 10%
limit on the total appropriations in any fiscal year that may be expended
for payment of interest and principal on general obligations debt
(excluding Fiscal Recovery Bonds) of Massachusetts.
Massachusetts currently has three types of bond and note liabilities:
general obligation debt, dedicated income tax debt, and special obligation
debt. As of January 1, 1995, the State had approximately $8.360 billion of
long-term general obligation debt outstanding and short-term direct
obligations of the Commonwealth totalled $264 million. In October and
December 1990 Massachusetts issued Fiscal Recovery Bonds in the aggregate
principal amount of $1.416 billion to be repaid no later than December 31,
1997 from funds deposited in a State trust fund.
Certain independent authorities and agencies within the State are
statutorily authorized to issue debt for which Massachusetts is either
directly, in whole or in part, or indirectly liable. The State's
liabilities are either in the form of (i) a direct guaranty, (ii) State
support through contract assistance payments for debt service, or (iii)
indirect obligations. The State is indirectly liable for the debt of
certain authorities through the funding of reserve funds which are pledged
as security for the authorities' debt.
Many factors affect the financial condition of the Commonwealth of
Massachusetts and its cities, towns, and public bodies, such as social,
environmental, and economic conditions, many of which are not within the
control of such entities. As in the case with most urban states, the
continuation of many of Massachusetts' programs, particularly its human
services programs, is in significant part dependent upon continuing Federal
reimbursements which have been steadily declining. The loss of grants to
Massachusetts and its cities and towns could further slow economic
development. To the extent that such factors may exist, they could have an
adverse effect on economic conditions in Massachusetts, although what
effect, if any, such factors would have on Massachusetts Municipal
Obligations cannot be predicted.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will
include: (1) likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature and provisions of
the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
The AA rating may be modified by the addition of a plus (+) or a minus (-)
sign, which is used to show relative standing within the category.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2
The issues of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation. Capacity for timely payment on
issues with an A-2 designation is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities. Moody's applies the numerical modifiers 1,
2 and 3 to show relative standing within the Aa rating category. The
modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings
recognize the difference between short-term credit risk and long-term risk.
Factors affecting the liquidity of the borrower and short-term cyclical
elements are critical in short-term ratings, while other factors of major
importance in bond risk, long-term secular trends for example, may be less
important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature
is not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to
the external liquidity with no or limited legal recourse to the issuer in
the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity. Issuers rated Prime-2 (P-2) have a
strong ability for repayment of senior short-term debt obligations.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+. Plus (+) and minus (-) signs are used with the AA
rating symbol to indicate the relative position of a credit within the
rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS JANUARY 31, 1995
PRINCIPAL
TAX EXEMPT INVESTMENTS--100.0% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
MASSACHUSETTS--92.6%
City of Boston, Water and Sewer Commission Revenue, VRDN
3.65%, Series A (LOC; State Street Bank) (a,b).......................... $ 5,000,000 $ 5,000,000
Commonwealth of Massachusetts:
Notes 5%, Series A, 6/15/95............................................. 5,000,000 5,014,675
VRDN:
4.05%, Series B (LOC; National Westminster Bank) (a,b)................ 5,400,000 5,400,000
4.05%, Series D (LOC; ABN-Amro Bank) (a,b)............................ 8,000,000 8,000,000
Massachusetts Bay Transportation Authority, General Transportation System,
Revenue
3.75%, Series 1984 A, 3/1/95 (LOC; State Street Bank) (b)............... 5,000,000 5,000,000
Massachusetts Education Loan Authority, Education Loan Revenue, VRDN (Issue
E)
3.35%, Series A (Insured; FGIC) (a)..................................... 3,000,000 3,000,000
Massachusetts Health and Education Facilities Authority, Revenue:
(Boston University) 3.20%, Series H, 2/15/95
(Line of Credit; First National Bank of Chicago)...................... 5,000,000 5,000,000
CP (Harvard University) 3.90%, Series I, 3/10/95 (Guaranteed by; Harvard University) 6,000,000 6,000,000
VRDN:
(Brigham and Woman's Hospital) 3.25%, Series A (LOC; Sanwa Bank) (a,b) 4,000,000 4,000,000
(Capital Asset Program):
3.20%, Series G-1 (Insured; MBIA and SBPA; Credit Suisse) (a)..... 4,000,000 4,000,000
3.30%, Series D (Insured; MBIA) (a)............................... 8,000,000 8,000,000
3.35%, Series E (LOC; Sanwa Bank) (a,b)........................... 7,550,000 7,550,000
3.95%, Series B (Insured; MBIA) (a)............................... 5,900,000 5,900,000
(Williams College) 3.50%, Series E (a)................................ 5,200,000 5,200,000
Massachusetts Housing Finance Agency:
Revenue, Refunding (Insured Rental) 4.15%, Series A, 7/1/95 (Insured; AMBAC) 1,340,000 1,340,000
SFHR:
4.10%, Series 25, 6/1/95 (GIC; Bayerische Landesbank)................. 8,000,000 8,000,000
3.85%, Series 34, 6/1/95 (GIC; Barclays Bank)......................... 4,400,000 4,400,000
Massachusetts Industrial Finance Agency:
Industrial Revenue (Ocean Spray Cranberries Inc. Project) 4.30%, 10/15/95 3,500,000 3,500,000
PCR, Refunding:
CP (New England Power Co. Project) 4.25%, 2/8/95...................... 4,300,000 4,300,000
VRDN (Holyoke Water Power Co.) 3.35%, Series A
(LOC; Canadian Imperial Bank of Commerce) (a,b)................... 1,700,000 1,700,000
Revenue:
(Saint Mark's School-Southborough) 5.25%, 1/9/96 (LOC; Barclay's Bank) (b) 1,500,000 1,500,000
VRDN:
(Berkshire Project) 3.60% (LOC; National Westminster Bank) (a,b).. 3,700,000 3,700,000
(Groton School Project) 3.60% (LOC; National Westminster Bank) (a,b) 4,800,000 4,800,000
(New England Deaconess Project) 3.30%, Series B (LOC; Banque Paribas) (a,b) 5,900,000 5,900,000
Refunding (Showa Woman's Institute Inc.) 3.65% (LOC; Fuji Bank) (a,b) 5,200,000 5,200,000
RRR, VRDN (Ogden Haverhill):
Refunding 3.25%, Series A (LOC; Union Bank of Switzerland) (a,b)...... 4,600,000 4,600,000
3.30%, Series B (LOC; Union Bank of Switzerland) (a,b)................ 2,500,000 2,500,000
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1995
PRINCIPAL
TAX EXEMPT INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- --------------
MASSACHUSETTS (CONTINUED)
City of Northampton, BAN 4%, 6/29/95........................................ $ 1,858,000 $ 1,860,538
Pioneer Valley Transportation Authority, RAN:
4%, 8/11/95............................................................. 1,000,000 1,000,756
4.10%, 8/11/95.......................................................... 1,700,000 1,702,141
4.25%, 8/11/95.......................................................... 550,000 551,108
City of Salem, BAN:
4%, 7/3/95.............................................................. 1,000,000 1,002,009
4.25%, 7/3/95........................................................... 2,000,000 2,005,624
Town of Watertown, BAN 4.30%, 10/12/95...................................... 1,141,000 1,141,751
U.S. RELATED--7.4%
Commonwealth of Puerto Rico, Government Development Bank, Refunding, VRDN
2.95% (LOC: Credit Suisse) (a,b)........................................ 10,950,000 10,950,000
------------
TOTAL INVESTMENTS (cost $148,718,602)....................................... $148,718,602
============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation PCR Pollution Control Revenue
BAN Bond Anticipation Notes RAN Revenue Anticipation Notes
CP Commercial Paper RRR Resources Recovery Revenue
FGIC Financial Guaranty Insurance Company SBPA Standby Bond Purchase Agreement
GIC Guaranteed Investment Contract SFHR Single Family Housing Revenue
LOC Letter of Credit VRDN Variable Rate Demand Notes
MBIA Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
--------- -------------------- ----------------------
<S> <C> <C>
VMIG1/MIG1, P1 (c) SP1+/SP1, A1+/A1 (c) 90.5%
Aaa/Aa (d) AAA/AA (d) .9
Not Rated (e) Not Rated (e) 8.6
------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENT:
(a) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(b) Secured by letters of credit. At January 31, 1995, 50.3% of the
Fund's net assets are backed by letters of credit issued by domestic
banks and foreign banks.
(c) P1 and A1 are the highest ratings assigned tax-exempt commercial
paper by Moody's and Standard & Poor's, respectively.
(d) Notes which are not MIG or SP rated are represented by bond ratings
of the issuers.
(e) Securities which, while not rated by Moody's and Standard & Poor's,
respectively, have been determined by the Fund's Board of Trustees to be
of comparable quality to those rated securities in which the Fund may
invest.
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value_Note 1(a)........................... $148,718,602
Cash.................................................................... 1,307,328
Interest receivable..................................................... 830,391
Prepaid expenses........................................................ 42,108
--------------
150,898,429
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $13,606
Accrued expenses and other liabilities.................................. 73,350 86,956
-------- -----------
NET ASSETS ................................................................ $150,811,473
============
REPRESENTED BY:
Paid-in capital......................................................... $150,842,001
Accumulated net realized (loss) on investments.......................... (30,528)
--------------
NET ASSETS at value applicable to 150,842,001 shares outstanding
(unlimited number of $.001 par value shares of Beneficial Interest
authorized)............................................................. $150,811,473
============
NET ASSET VALUE, offering and redemption price per share
($150,811,473 / 150,842,001 shares)..................................... $1.00
=====
See notes to financial statements.
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
STATEMENT OF OPERATIONS YEAR ENDED JANUARY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $3,500,277
EXPENSES:
Management fee_Note 2(a).............................................. $582,460
Shareholder servicing costs_Note 2(b)................................. 171,958
Auditing fees......................................................... 25,057
Registration fees..................................................... 22,880
Prospectus and shareholders' reports.................................. 13,305
Legal fees............................................................ 11,223
Custodian fees........................................................ 9,202
Trustees' fees and expenses_Note 2(c)................................. 5,878
Miscellaneous......................................................... 15,584
----------
857,547
Less_reduction in management fee due to
undertakings_Note 2(a)............................................ 531,751
----------
TOTAL EXPENSES.................................................. 325,796
------------
INVESTMENT INCOME--NET...................................................... 3,174,481
NET REALIZED (LOSS) ON INVESTMENTS--Note 1(b)............................... (30,528)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $3,143,953
============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JANUARY 31,
--------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
OPERATIONS:
Investment income_net................................................... $ 1,737,127 $ 3,174,481
Net realized (loss) on investments...................................... -- (30,528)
-------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 1,737,127 3,143,953
-------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income_net................................................... (1,737,127) (3,174,481)
Net realized gain on investments........................................ (2,117) --
-------------- ------------
TOTAL DIVIDENDS....................................................... (1,739,244) (3,174,481)
-------------- ------------
BENEFICIAL INTEREST TRANSACTIONS ($1.00 per share):
Net proceeds from shares sold........................................... 208,736,420 335,930,188
Dividends reinvested.................................................... 1,420,547 2,377,003
Cost of shares redeemed................................................. (194,673,332) (275,329,515)
-------------- ------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS.......... 15,483,635 62,977,676
-------------- ------------
TOTAL INCREASE IN NET ASSETS...................................... 15,481,518 62,947,148
-------------- ------------
NET ASSETS:
Beginning of year....................................................... 72,382,807 87,864,325
-------------- ------------
End of year............................................................. $ 87,864,325 $150,811,473
============= ============
</TABLE>
See notes to financial statements.
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Reference is made to page of the Fund's Prospectus dated May 31, 1995.
See notes to financial statements.
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Dreyfus Service
Corporation, until August 24, 1994, acted as the exclusive distributor of the
Fund's shares, which are sold to the public without a sales charge. Dreyfus
Service Corporation is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager"). Effective August 24, 1994, the Manager became a direct
subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. ("the
Distributor") was engaged as the Fund's distributor. The Distributor, located
at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of Institutional Administration Services, Inc., a provider of
mutual fund administration services, the parent company of which is Boston
Institutional Group, Inc.
It is the Fund's policy to maintain a continuous net asset value per
share of $1.00; the Fund has adopted certain investment, portfolio valuation
and dividend and distribution policies to enable it to do so. There is no
assurance, however, that the Fund will be able to maintain a stable net asset
value of $1.00.
(A) PORTFOLIO VALUATION: Investments are valued at amortized cost, which
has been determined by the Fund's Board of Trustees to represent the fair
value of the Fund's investments.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Interest income, adjusted
for amortization of premiums and original issue discounts on investments, is
earned from settlement date and recognized on the accrual basis. Realized
gain and loss from securities transactions are recorded on the identified
cost basis.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Fund may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
The Fund has an unused capital loss carryover of approximately $30,500
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to January 31, 1995. If not
applied, the carryover expires in fiscal 2003.
At January 31, 1995, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .50 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, interest on borrowings, brokerage and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Fund for any full fiscal year.
However, the Manager had undertaken from February 1, 1994 through January
30, 1995 to waive receipt of the management fee payable to it by the Fund to
the extent that the Fund's aggregate expenses (excluding certain expenses as
described above) exceeded specified annual percentages of the Fund's average
daily net assets. The Manager has currently undertaken from January 31, 1995
through March 31, 1995 or until such time as the net assets of the Fund
exceed $200 million, regardless of whether they remain at that level, to
waive receipt of the management fee payable to it by the Fund in excess of
.15 of 1% of the value of the Fund's average daily net assets. The reduction
in management fee, pursuant to the undertakings, amounted to $531,751 for the
year ended January 31, 1995.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
the Distributor an amount not to exceed an annual rate of .25 of 1% of the
value of the Fund's average daily net assets for servicing shareholder
accounts. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts. During the year ended January 31, 1995,
the Fund was charged an aggregate of $92,868 pursuant to the Shareholder
Services Plan.
(C) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives an annual fee of $1,000.
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus Massachusetts Municipal Money Market Fund, including the statement of
investments, as of January 31, 1995 and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and financial highlights for each of
the years indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of January 31, 1995 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Massachusetts Municipal Money Market Fund, at January 31,
1995, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
New York, New York
March 2, 1995
