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PROSPECTUS MARCH 15, 1994
DREYFUS BASIC MUNICIPAL FUND
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Dreyfus BASIC Municipal Fund (the "Fund") is an open-end, management
investment company, known as a mutual fund. The Fund permits you to invest in
three separate non-diversified series (each a "Series"): Dreyfus BASIC
Municipal Money Market Fund (the "Money Market Series"); Dreyfus BASIC
Intermediate Municipal Bond Fund (the "Intermediate Bond Series"); and
Dreyfus BASIC Municipal Bond Fund (the "Bond Series"). The goal of each
Series is to provide you with as high a level of current income exempt from
Federal income tax as is consistent with the preservation of capital and, for
the Money Market Series only, the maintenance of liquidity.
The Fund is designed to benefit investors who do not engage in frequent
transactions in Series' shares.
The Dreyfus Corporation professionally manages each Series.
AN INVESTMENT IN THE MONEY MARKET SERIES IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely information about the Fund that you
should know before investing. It should be read and retained for future
reference.
Part B (also known as the Statement of Additional Information), dated March
15, 1994, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be
of interest to some investors. It has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. For a free copy,
write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144, or call 1-800-645-6561. When telephoning, ask for Operator 666.
THE SERIES' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES
OF THE INTERMEDIATE BOND SERIES AND BOND SERIES INVOLVE CERTAIN INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE INTERMEDIATE BOND
SERIES' AND THE BOND SERIES' SHARE PRICE, YIELD AND INVESTMENT RETURN
FLUCTUATE AND ARE NOT GUARANTEED.
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TABLE OF CONTENTS
Page
Fee Table 2
Condensed Financial Information 3
Performance Information 3
Description of the Fund 4
Management of the Fund 16
How to Buy Fund Shares 17
Exchange Privilege 18
How to Redeem Fund Shares 19
Shareholder Services Plan 21
Dividends, Distributions and Taxes 21
General Information 23
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
FEE TABLE
MONEY INTERMEDIATE BOND
MARKET BOND SERIES
SERIES SERIES
------ ---------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Fee Exchange............................................. . $5.00 $5.00 $5.00
Account Closeout Fee..................................... $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees (after expense reimbursement)............. .29% .30% .30%
Shareholder Services Fees .06%.05% .05%
Other Expenses .10%.10% .10%
Total Fund Operating Expenses (after expense reimbursement)........ .45% .45% .45%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:
1 YEAR........................................................ $10 $10 $10
3 YEARS....................................................... $19 $19 $19
5 YEARS....................................................... $30 $30 $30
10 YEARS...................................................... $62 $62 $62
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, EACH SERIES' ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding the
various costs and expenses that investors will bear, directly or indirectly,
the payment of which will reduce investors' return on an annual basis. The
expenses noted above, without reimbursement, would be: Management Fees_.50%
with respect to the Money Market Series and .60% with respect to the
Intermediate Bond Series and Bond Series, and Total Fund Operating
Expenses_.66% with respect to the Money Market Series and .75% with respect
to the Intermediate Bond Series and Bond Series; and the amount of expenses
that an investor would pay, assuming redemption after one, three, five and
ten years, would be $12, $26, $42 and $87 with respect to the Money Market
Series and $13, $29, $47 and $97 with respect to the Intermediate Bond Series
and Bond Series, respectively. With respect to the Intermediate Bond Series
and the Bond Series, Other Expenses and Shareholder Services Fees are based
on estimated amounts for the current fiscal year. In addition, unlike certain
other funds in the Dreyfus Family of Funds, the Fund will charge your account
$2.00 for each redemption check you write; you also will be charged $5.00 for
each wire redemption you make and a $5.00 account closeout fee. These charges
will be paid to the Fund's transfer agent and will reduce the transfer agency
charges otherwise payable by the Fund. See "How to Buy Fund Shares" and "How
to Redeem Fund Shares." The Dreyfus Corporation has undertaken until June 30,
1996, in the case of the Money Market Series, and until June 30, 1998, in the
case of the Intermediate Bond Series or Bond Series, that if in any fiscal
year certain expenses of a Series, including the management fee, exceed .45%
of the value of such Series' average net assets for the fiscal year, the Fund
may deduct from the payment to be made to The Dreyfus Corporation under the
Management Agreement, or The Dreyfus Corporation will bear, such excess
expense. The foregoing table does not reflect any other fee waivers or
expense reimbursement arrangements that may be in effect. See "Management of
the Fund."
Page 2
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst & Young,
the Fund's independent auditors, whose report thereon appears in the
Statement of Additional Information. Further financial data and related notes
are included in the Statement of Additional Information, available upon
request. No financial data is available for the Intermediate Bond Series and
Bond Series which had not commenced operations as of the date of this
Prospectus.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated for the Money
Market Series. This information has been derived from information provided in
the Money Market Series' financial statements.
<TABLE>
<CAPTION>
MONEY MARKET SERIES
YEAR ENDED AUGUST 31,
PER SHARE DATA: 1992(1) 1993
_______ _______
<S> <C> <C>
Net asset value, beginning of year........................... $1.0000 $1.0000
_______ _______
INVESTMENT OPERATIONS:
Investment income - net...................................... .0240 .0270
Net realized (loss) on investments........................... --
_______ -------
TOTAL FROM INVESTMENT OPERATIONS............................ .0240 .0270
_______ _______
DISTRIBUTIONS:
Dividends from investment income - net....................... (.0240) (.0270)
_______ _______
Net asset value, end of year................................. $1.0000 $1.0000
======== ========
TOTAL INVESTMENT RETURN...................................... 3.41%(2) 2.73%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...................... -- .02%
Ratio of net investment income to average net assets......... 3.22%(2) 2.64%
Decrease reflected in above expense ratios due to undertakings
by The Dreyfus Corporation.................................. .77%(2) .64%
Net Assets, end of year (000's omitted)...................... $228,708 $685,540
- -------------------------
(1) From December 16, 1991 (commencement of operations) to August 31, 1992.
(2) Annualized.
</TABLE>
PERFORMANCE INFORMATION
MONEY MARKET SERIES - From time to time, the Money Market Series advertises
its yield and effective yield. Both yield figures are based on historical
earnings and are not intended to indicate future performance. It can be
expected that these yields will fluctuate substantially. The yield of the
Money Market Series refers to the income generated by an investment in the
Series over a seven-day period (which period will be stated in the
advertisement). This income is then annualized. That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment.
The effective yield is calculated similarly, but, when annualized, the income
earned by an investment in the Series is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The Money Market Series'
yield and effective yield may reflect absorbed expenses pursuant to any undert
akings that may be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to a stated
yield or effective yield calculated as described above.
Yield information is useful in reviewing the Money Market Series'
performance, but because yields will fluctuate, such information under
certain conditions may not provide a basis for comparison with domestic bank
deposits, other investments which pay a fixed yield for a stated period of
time, or other investment companies which may use a different method of
computing yield.
Page 3
Comparative performance information may be used from time to time in
advertising or marketing the Money Market Series' shares, including data from
Lipper Analytical Services, Inc., Bank Rate Monitortrademark, N. Palm Beach,
Fla. 33408, IBC/Donoghue's Money Fund Report, Morningstar, Inc. and other
industry publications.
INTERMEDIATE BOND SERIES AND BOND SERIES-For purposes of advertising,
performance of the Intermediate Bond Series and the Bond Series (each, a
"Longer Term Series") may be calculated on several bases, including current
yield, tax equivalent yield, average annual total return and/or total return.
Current yield of a Longer Term Series refers to its annualized net
investment income per share over a 30-day period, expressed as a percentage
of the net asset value per share at the end of the period. For purposes of
calculating current yield, the amount of net investment income per share
during that 30-day period, computed in accordance with regulatory
requirements, is compounded by assuming it is reinvested at a constant rate
over a six-month period. An identical result is then assumed to have occurred
during a second six-month period which, when added to the result for the
first six months, provides an "annualized" yield for an entire one-year
period. Calculations of a Longer Term Series' current yield may reflect
absorbed expenses pursuant to any undertakings that may be in effect. See
"Management of the Fund."
Tax equivalent yield is calculated as described above.
Average annual total return for each Longer Term Series is calculated
pursuant to a standardized formula which assumes that an investment in such
Series was purchased with an initial payment of $1,000 and that the
investment was redeemed at the end of a stated period of time, after giving
effect to the reinvestment of dividends and distributions during the period.
The return is expressed as a percentage rate which, if applied on a
compounded annual basis, would result in the redeemable value of the investmen
t at the end of the period. Advertisements of a Longer Term Series'
performance will include its average annual total return for one, five and
ten year periods, or for shorter time periods depending upon the length of
time during which it has operated. Computations of average annual total
return for periods for less than one year represent an annualization of the
Series' actual total return for the applicable period.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Comparative performance information may be used from time to time in
advertising or marketing shares of each Longer Term Series, including data
from CDA Investment Technologies, Inc., Lipper Analytical Services, Inc.,
Moody's Bond Survey Bond Index, Lehman Brothers Municipal Bond Index,
Morningstar, Inc. and other industry publications.
ALL SERIES - Performance will vary from time to time and past results are
not necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
DESCRIPTION OF THE FUND
GENERAL - The Fund is a "series fund," which is a mutual fund divided into
separate portfolios. Each Series is treated as a separate entity for certain
matters under the Investment Company Act of 1940 and for other purposes, and
a shareholder of one Series is not deemed to be a shareholder of any other
Series. As described below, for certain matters Fund shareholders vote
together as a group; as to others they vote separately by Series.
INVESTMENT OBJECTIVE - Each Series' goal is to provide you with as high a
level of current income exempt from Federal income tax as is consistent with
the preservation of capital and, for the Money Market Series only, the
maintenance of liquidity. To accomplish this goal, each Series invests
primarily in Municipal Obligations (described below). The Money Market Series
invests primarily in high-quality, short-term instruments. These securities
may not earn as high a level of current income as long-term or lower quality
securities which generally
Page 4
have less liquidity, greater market risk and more
fluctuation in market value. The dollar-weighted average maturity of the
Intermediate Bond Series' portfolio will range between three and ten years.
The Bond Series' portfolio will be invested without regard to maturity. Each
Series' investment objective cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940) of
such Series' outstanding voting shares. There can be no assurance that a
Series' investment objective will be achieved.
MUNICIPAL OBLIGATIONS - Municipal Obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities, the interest from which is, in the
opinion of bond counsel to the issuer, exempt from Federal income tax.
Municipal Obligations generally include debt obligations issued to obtain
funds for various public purposes as well as certain industrial development
bonds issued by or on behalf of public authorities. Municipal Obligations are
classified as general obligation bonds, revenue bonds or notes. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax exempt
industrial development bonds, in most cases, are revenue bonds that generally
do not carry the pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities.
Municipal Obligations bear fixed, floating or variable rates of interest.
Each Longer Term Series may purchase Municipal Obligations with interest
rates that are determined by formulas under which the rate will change
directly or inversely to changes in interest rates or an index, or multiples
thereof, in many cases subject to a maximum and minimum. Certain Municipal
Obligations purchased by a Longer Term Series are subject to redemption at a
date earlier than their stated maturity pursuant to call options, which may
be separated from the related Municipal Obligation and purchased and sold
separately.
MANAGEMENT POLICIES - It is a fundamental policy of each Series that it will
invest at least 80% of the value of its respective net assets (except when
maintaining a temporary defensive position) in Municipal Obligations.
Additionally, with respect to each Longer Term Series, at least 65% of the
value of each Series' net assets (except when maintaining a temporary
defensive position) will be invested in bonds and debentures.
MONEY MARKET SERIES - The Money Market Series seeks to maintain a net asset
value of $1.00 per share for purchases and redemptions. To do so, the Money
Market Series uses the amortized cost method of valuing its securities
pursuant to Rule 2a-7 under the Investment Company Act of 1940, certain
requirements of which are summarized as follows. In accordance with Rule
2a-7, the Money Market Series is required to maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments
having remaining maturities of 13 months or less and invest only in U.S.
dollar denominated securities determined in accordance with procedures
established by the Fund's Board of Directors to present minimal credit risks
and which 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 instrument was rated only by
one such organization) or, if unrated, are of comparable quality as
determined in accordance with procedures established by the Fund's Board of
Directors. The nationally recognized statistical rating organizations
currently rating investments of the type the Money Market Series may purchase
are Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch") and their
rating criteria are described in the Appendix to the Statement of Additional
Information. For further information regarding the amortized cost method of
valuing securities, see "Determination of Net Asset Value" in the Statement
of Additional Information. There can be no assurance that the Money Market
Series will be able to maintain a stable net asset value of $1.00 per share.
Page 5
INTERMEDIATE BOND SERIES AND BOND SERIES-For each Longer Term Series, at
least 65% of the value of its net assets must consist of Municipal
Obligations which, in the case of bonds, are rated no lower than A by
Moody's, S&P or Fitch or, if unrated, deemed to be of comparable quality by
The Dreyfus Corporation. Each Longer Term Series may invest up to 35% of the
value of its net assets in Municipal Obligations which, in the case of bonds,
are rated lower than A by Moody's, S&P and Fitch and as low as the lowest
rating assigned by Moody's, S&P or Fitch. Each Longer Term Series may invest
in short-term Municipal Obligations which are rated in the two highest rating
categories by Moody's, S&P or Fitch. See the "Appendix" in the Statement of
Additional Information. Municipal Obligations rated BBB by S&P or Fitch or
Baa by Moody's are considered investment grade obligations; those rated BBB
by S&P and Fitch are regarded as having an adequate capacity to pay principal
and interest, while those rated Baa by Moody's are considered medium grade
obligations which lack outstanding investment characteristics and have
speculative characteristics. Investments rated Ba or lower by Moody's and BB
or lower by S&P and Fitch ordinarily provide higher yields but involve
greater risk because of their speculative characteristics. Each Longer Term
Series may invest in Municipal Obligations rated C by Moody's or D by S&P or
Fitch, which is the lowest rating assigned by such rating organizations and
indicates that the Municipal Obligation is in default and interest and/or
repayment of principal is in arrears. See "Risk Factors-Lower Rated Bonds"
below for a further discussion of certain risks. Each Longer Term Series also
may invest in Taxable Investments of the quality described below.
Each Longer Term Series may invest in zero coupon securities which are
debt securities issued or sold at a discount from their face value which do
not entitle the holder to any periodic payment of interest prior to maturity
or a specified redemption date (or cash payment date). The amount of the
discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may take
the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interest in such stripped debt obligations and coupons. The
market prices of zero coupon securities generally are more volatile than the
market prices of interest-bearing securities and are likely to respond to a
greater degree to changes in interest rates than interest-bearing securities
having similar maturities and credit qualities. Each Longer Term Series may
invest up to 5% of its assets in zero coupon bonds which are rated below
investment grade. See "Risk Factors-Lower Rated Bonds" and "Other Investment
Considerations" below, and "Investment Objective and Management Policies-Risk
Factors-Lower Rated Bonds" and "Dividends, Distributions and Taxes" in the
Statement of Additional Information.
Each Longer Term Series may purchase custodial receipts representing the
right to receive certain future principal and interest payments on Municipal
Obligations which underlie the custodial receipts. A number of different
arrangements are possible. In a typical custodial receipt arrangement, an
issuer or a third party owner of Municipal Obligations deposits such
obligations with a custodian in exchange for two classes of custodial
receipts. The two classes have different characteristics, but, in each case,
payments on the two classes are based on payments received on the underlying
Municipal Obligations. One class has the characteristics of a typical auction
rate security, where at specified intervals its interest rate is adjusted,
and ownership changes, based on an auction mechanism. This class's interest
rate generally is expected to be below the coupon rate of the underlying
Municipal Obligations and generally is at a level comparable to that of a
Municipal Obligation of similar quality and having a maturity equal to the
period between interest rate adjustments. The second class bears interest at
a rate that exceeds the interest rate typically borne by a security of
comparable quality and maturity; this rate also is adjusted, but in this case
inversely to changes in the rate of interest of the first class. If the
interest rate on the first class exceeds the coupon rate of the underlying
Municipal Obligations, its interest rate will exceed the rate paid on the
second class. In no event will the aggregate interest paid with respect to
the two classes exceed the interest paid by the underlying Municipal
Obligations. The value of the second class and similar securities should be
expected to fluctuate more than the value of a Municipal Obligation of
comparable quality and maturity and their purchase by a Longer Term Series
should increase the volatility of its net asset value and, thus, its price
per share. These custodial receipts are sold in private
Page 6
placements. Each
Longer Term Series also may purchase directly from issuers, and not in a
private placement, Municipal Obligations having characteristics similar to
custodial receipts. These securities may be issued as part of a multi-class
offering and the interest rate on certain classes may be subject to a cap or
a floor.
Each Longer Term Series may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Series' investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale and repurchase agreements providing for
settlement in more than seven days after notice. However, if a substantial
market of qualified institutional buyers develops pursuant to Rule 144A under
the Securities Act of 1933, as amended, for certain of these securities held
by a Longer Term Series, the Series intend to treat such securities as liquid
securities in accordance with procedures approved by the Fund's Board of
Directors. 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 Directors has directed The Dreyfus Corporation to monitor
carefully the Series' 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, a Longer Term Series investing in such securities may have the effect
of increasing the level of illiquidity in its portfolio during such period.
ALL SERIES (EXCEPT AS INDICATED BELOW) - Each Series may invest more than
25% of the value of its total assets in Municipal Obligations which are
related in such a way that an economic, business or political development or
change affecting one such security also would affect the other securities;
for example, securities the interest upon which is paid from revenues of
similar types of projects, or securities whose issuers are located in the
same state. As a result, each Series may be subject to greater risk as
compared to a fund that does not follow this practice.
From time to time, a Series may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users. Interest on Municipal Obligations
(including certain industrial development bonds) which are specified private
activity bonds, as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), issued after August 7, 1986, while exempt from Federal income
tax, is a preference item for the purpose of the alternative minimum tax.
Where a regulated investment company receives such interest, a proportionate
share of any exempt-interest dividend paid by the investment company may be
treated as such a preference item to shareholders. Each Series may invest
without limitation in such Municipal Obligations if The Dreyfus Corporation
determines that their purchase is consistent with such Series' investment
objective.
Each Series may purchase floating or variable rate demand notes, which
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, which for the Money Market Series will not
exceed 13 months, and in each case will be upon not more than 30 days'
notice. Variable rate demand notes include master demand notes which are
obligations that permit each Series to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
Series, as lender, and the borrower. The interest rates on these obligations
fluctuate from time to time. Frequently, such obligations are secured by
letters of credit or other credit support arrangements provided by banks. Use
of letters of credit or other credit support arrangements will not adversely
affect the tax exempt status of these obligations. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Series' right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by a Series will
meet the quality criteria established for its purchase of Municipal
Obligations. The Dreyfus Corporation, on behalf of each Series, will consider
on an ongoing basis the creditworthiness of the issuers of the floating and
variable
Page 7
rate demand obligations in the Series' portfolio. No Series will
invest more than 15% (10% in the case of the Money Market Series) of the
value of its net assets in floating or variable rate demand obligations as to
which such Series cannot exercise the demand feature on not more than seven
days' notice if there is no secondary market available for these obligations,
and in other illiquid securities.
Each Series may purchase from financial institutions participation
interests in Municipal Obligations (such as industrial development bonds and
municipal lease/purchase agreements). A participation interest gives a Series
an undivided interest in the Municipal Obligation in the proportion that the
Series' participation bears to the total principal amount of the Municipal
Obligation. These instruments may have fixed, floating or variable rates of
interest and, in the case of the Money Market Series, will have remaining
maturities of 13 months or less. If the participation interest is unrated, it
will be backed by an irrevocable letter of credit or guarantee of a bank that
the Fund's Board of Directors has determined meets the prescribed quality
standards for banks set forth below, or the payment obligation otherwise will
be collateralized by U.S. Government securities. For certain participation
interests, a Series will have the right to demand payment, on not more than
seven days' notice, for all or any part of the Series' participation interest
in the Municipal Obligation, plus accrued interest. As to these instruments,
each Series intends to exercise its right to demand payment only upon a
default under the terms of the Municipal Obligation, as needed to provide
liquidity to meet redemptions, or to maintain or improve the quality of its
investment portfolio. No Series will invest more than 15% (10% in the case of
the Money Market Series) of the value of its net assets in participation
interests that do not have this demand feature if there is no secondary
market available for these instruments, and in other illiquid securities.
Each Series may purchase tender option bonds. A tender option bond is a
Municipal Obligation (generally held pursuant to a custodial arrangement)
having a relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax exempt rates, that has
been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing
or similar agent at or near the commencement of such period, that would cause
the securities, coupled with the tender option, to trade at par on the date
of such determination. Thus, after payment of this fee, the security holder
effectively holds a demand obligation that bears interest at the prevailing
short-term tax exempt rate. The Dreyfus Corporation, on behalf of each
Series, will consider on an ongoing basis the creditworthiness of the issuer
of the underlying Municipal Obligation, of any custodian and of the third
party provider of the tender option. In certain instances and for certain
tender option bonds, the option may be terminable in the event of a default
in payment of principal or interest on the underlying Municipal Obligations
and for other reasons. No Series will invest more than 15% (10% in the case
of the Money Market Series) of the value of its net assets in securities that
are illiquid, which could include tender option bonds as to which it cannot
exercise the tender feature on not more than seven days' notice if there is
no secondary market available for these obligations.
Each Series may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a Series
obligates a broker, dealer or bank to repurchase, at such Series' option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment therefore is subject to the ability of the seller to make payment
on demand. Each Series will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise any such rights
thereunder for trading purposes. Each Series may pay for stand-by commitments
if such action is deemed necessary, thus increasing to a degree the cost of
the underlying Municipal Obligation and similarly decreasing such security's
yield to investors. The Longer Term Series also may acquire call options on
specific Municipal Obligations. A Longer Term Series generally would purchase
these call options to protect it from the issuer of the related Municipal
Obligation redeeming, or other holder of the call option from calling away,
the Municipal Obligation before maturity. The sale by a Longer Term Series of
a call
Page 8
option that it owns on a specific Municipal Obligation could result in
the receipt of taxable income by the Series.
From time to time, on a temporary basis other than for temporary
defensive purposes (but not to exceed 20% of the value of its net assets) or
for temporary defensive purposes, a Series may invest in taxable short-term
investments ("Taxable Investments") consisting of: notes of issuers having,
at the time of purchase, a quality rating within the two highest grades of
Moody's, S&P or Fitch; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated not lower than P-2 by Moody's, A-2
by S&P or F-2 by Fitch; certificates of deposit of U.S. domestic banks,
including foreign branches of domestic banks, with assets of one billion
dollars or more; time deposits; bankers' acceptances and other short-term
bank obligations; and repurchase agreements in respect of any of the
foregoing. Dividends paid by a Series that are attributable to income earned
by such Series from Taxable Investments will be taxable to investors. See
"Dividends, Distributions and Taxes." Except for temporary defensive
purposes, at no time will more than 20% of the value of a Series' net assets
be invested in Taxable Investments. If the Money Market Series purchases
Taxable Investments, it will value them using the amortized cost method and
comply with Rule 2a-7 relating to purchases of taxable instruments. Under
normal market conditions, each Series anticipates that not more than 5% of
the value of its total assets will be invested in any one category of Taxable
Investments. Taxable Investments are more fully described in the Statement of
Additional Information, to which reference hereby is made.
INVESTMENT TECHNIQUES - Each Longer Term Series may employ, among others,
the investment techniques described below. Use of these techniques may give
rise to taxable income.
FUTURES TRANSACTIONS - IN GENERAL - Neither Longer Term Series is a
commodity pool. However, as a substitute for a comparable market position in
the underlying securities and for hedging purposes, each Longer Term Series
may engage in futures and options on futures transactions as described below.
Each Longer Term Series' commodities transactions must constitute bona
fide hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, each
Longer Term Series may not engage in such transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5% of
the liquidation value of such Series' assets, after taking into account
unrealized profits and unrealized losses on such contracts it has entered
into; provided, however, that in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. Pursuant to regulations and/or published positions of the
Securities and Exchange Commission, each Longer Term Series may be required
to segregate cash or high quality money market instruments in connection with
its commodities transactions in an amount generally equal to the value of the
underlying commodity.
Initially, when purchasing or selling futures contracts each Longer Term
Series will be required to deposit with its custodian in the broker's name an
amount of cash or cash equivalents up to approximately 10% of the contract
amount. This amount is subject to change by the exchange or board of trade on
which the contract is traded and members of such exchange or board of trade
may impose their own higher requirements. This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on
the contract which is returned to such Series upon termination of the futures
position, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and from the broker will
be made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking-to-market." At
any time prior to the expiration of a futures contract, a Longer Term Series
may elect to close the position by taking an opposite position at the then
prevailing price, which will operate to terminate such Series' existing
position in the contract.
Although each Longer Term Series intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance
can be given that a liquid market will exist for any particular contract at
any particular time. Many futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond the limit or trading may be
suspended for specified
Page 9
periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting a Longer Term Series to a substantial
loss. If it is not possible, or such Series determines not, to close a
futures position in anticipation of adverse price movements, such Series will
be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract
and thus provide an offset to losses on the futures contract.
In addition, to the extent a Longer Term Series is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect correlation
between securities in the Longer Term Series' portfolio that are the subject
of a hedging transaction and the futures contract used as a hedging device,
it is possible that the hedge will not be fully effective in that, for
example, losses on the portfolio securities may be in excess of gains on the
futures contract or losses on the futures contract may be in excess of gains
on the portfolio securities that were the subject of the hedge. In futures
contracts based on indexes, the risk of imperfect correlation increases as
the composition of such Series' portfolio varies from the composition of the
index. In an effort to compensate for the imperfect correlation of movements
in the price of the securities being hedged and movements in the price of
futures contracts, such Series may buy or sell futures contracts in a greater
or lesser dollar amount than the dollar amount of the securities being hedged
if the historical volatility of the futures contract has been less or greater
than that of the securities. Such "over hedging" or "under hedging" may
adversely affect a Longer Term Series' net investment results if market
movements are not as anticipated when the hedge is established.
Successful use of futures by each Longer Term Series is also subject to
The Dreyfus Corporation's ability to predict correctly movements in the
direction of the market or interest rates. For example, if a Longer Term
Series has hedged against the possibility of a decline in the market
adversely affecting the value of securities held in its portfolio and prices
increase instead, such Fund will lose part or all of the benefit of the
increased value of securities which it has hedged because it will have offsett
ing losses in its futures positions. In addition, in such situations, if a
Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. Each
Longer Term Series may have to sell securities at a time when it may be
disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by the writer and holder of the option will
be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account which represents the amount by which the market price
of the futures contract, at exercise, exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the
futures contract.
Call options sold by each Longer Term Series with respect to futures
contracts will be covered by, among other things, entering into a long
position in the same contract at a price no higher than the strike price of
the call option, or by ownership of the instruments underlying, or
instruments the prices of which are expected to move relatively consistently
with the instruments underlying, the futures contract. Put options sold by
each Longer Term Series with respect to futures contracts will be covered
when, among other things, cash or liquid securities are placed in a
segregated account to fulfill the obligation undertaken.
Each Longer Term Series may utilize municipal bond index futures to
protect against changes in the market value of the Municipal Obligations in
its portfolio or which it intends to acquire. Municipal bond index futures
contracts are based on an index of long-term Municipal Obligations. The index
assigns relative values to the Municipal Obligations included in an index,
and fluctuates with changes in the market value of such Municipal
Obligations. The contract is an agreement pursuant to which two parties agree
to take or make delivery of an amount of cash based upon the difference
between the value of the index at the close of the last
Page 10
trading day of the
contract and the price at which the index contract was originally written.
The acquisition or sale of a municipal bond index futures contract enables a
Longer Term Series to protect its assets from fluctuations in rates on tax
exempt securities without actually buying or selling such securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS-Each Longer Term Series may purchase and sell interest rate
futures contracts and options on interest rate futures contracts as a
substitute for a comparable market position and to hedge against adverse
movements in interest rates.
To the extent a Longer Term Series has invested in interest rate futures
contracts or options on interest rate futures contracts as a substitute for a
comparable market position, the Series will be subject to the investment
risks of having purchased the securities underlying the contract.
Each Longer Term Series may purchase call options on interest rate
futures contracts to hedge against a decline in interest rates and may
purchase put options on interest rate futures contracts to hedge its
portfolio securities against the risk of rising interest rates.
If a Longer Term Series has hedged against the possibility of an increase
in interest rates adversely affecting the value of securities held in such
Series' portfolio and rates decrease instead, such Series will lose part or
all of the benefit of the increased value of the securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if such Series has insufficient cash, it may
have to sell securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices which reflect the decline in
interest rates.
Each Longer Term Series may sell call options on interest rate futures
contracts to partially hedge against declining prices of its portfolio
securities. If the futures price at expiration of the option is below the
exercise price, such Series will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in
that Series' portfolio holdings. Each Longer Term Series may sell put options
on interest rate futures contracts to hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is higher than the exercise
price, such Series will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities
which that Series intends to purchase. If a put or call option sold by such
Series is exercised, that Series will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, such Series' losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
its portfolio securities.
Each Longer Term Series also may sell options on interest rate futures
contracts as part of closing purchase transactions to terminate its options
positions. No assurance can be given that such closing transactions can be
effected or that there will be a correlation between price movements in the
options on interest rate futures and price movements in such Series'
portfolio securities which are the subject of the hedge. In addition, such
Series' purchase of such options will be based upon predictions as to
anticipated interest rate trends, which could prove to be inaccurate.
SHORT-SELLING - Each Longer Term Series may make short sales, which are
transactions in which a Series sells a security it does not own in
anticipation of a decline in the market value of that security. To complete
such a transaction, such Series must borrow the security to make delivery to
the buyer. That Series then is obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The price at
such time may be more or less than the price at which the security was sold by
such Series. Until the security is replaced, the Series is required to pay
to the lender amounts equal to any interest which accrue during the period of
that loan. To borrow the security, such Series also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out.
Until either Longer Term Series replaces a borrowed security in
connection with a short sale, such Series will: (a) maintain daily a
segregated account, containing cash or U.S. Government securities, at such a
level that (i) the amount deposited in the account plus the amount deposited
with the broker as collateral will
Page 11
equal the current value of the security
sold short and (ii) the amount deposited in the segregated account plus the
amount deposited with the broker as collateral will not be less than the
market value of the security at the time it was sold short; or (b) otherwise
cover its short position.
A Longer Term Series will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale and
the date on which such Series replaces the borrowed security. A Longer Term
Series will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash
purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium
or amounts in lieu of dividends or interest the Longer Term Series may be
required to pay in connection with a short sale.
Each Longer Term Series may purchase call options to provide a hedge
against an increase in the price of a security sold short by such Series.
When a Series purchases a call option it has to pay a premium to the person
writing the option and a commission to the broker selling the option. If the
option is exercised by that Series, the premium and the commission paid may
be more than the amount of the brokerage commission charged if the security
were to be purchased directly.
Each Longer Term Series anticipates that the frequency of short sales
will vary substantially in different periods, and it does not intend that any
specified portion of its assets, as a matter of practice, will be invested in
short sales. However, no securities will be sold short if, after effect is
given to any such short sale, the total market value of all securities sold
short would exceed 25% of the value of such Series' net assets. Each Longer
Term Series may not sell short the securities of any class of an issuer to
the extent, at the time of the transaction, of more than 5% of the
outstanding securities of that class.
In addition to the short sales discussed above, each Longer Term Series
may make short sales "against the box," a transaction in which such Series
enters into a short sale of a security which the Series owns. The proceeds of
the short sale will be held by a broker until the settlement date at which
time such Series delivers the security to close the short position. Such
Series receives the net proceeds from the short sale. Each Longer Term Series
will at no time have more than 15% of the value of its net assets in deposits
on short sales against the box. It currently is anticipated that each Longer
Term Series will make short sales against the box for purposes of protecting
the value of such Series' net assets.
FUTURE DEVELOPMENTS - Each Longer Term Series may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivative investments which are not
presently contemplated for use by either Longer Term Series or which are not
currently available but which may be developed, to the extent such
opportunities are both consistent with its investment objective and legally
permissible. Before entering into such transactions or making any such
investment, a Longer Term Series will provide appropriate disclosure in its
prospectus.
LENDING PORTFOLIO SECURITIES - From time to time, each Longer Term Series
may lend securities from its portfolio to brokers, dealers and other
financial institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33-1/3% of the value of such Series'
total assets. In connection with such loans, such Series will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Each
Longer Term Series can increase its income through the investment of such
collateral. Each Longer Term Series continues to be entitled to payments in
amounts equal to the interest or other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. Each Longer Term Series might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with such Series.
BORROWING MONEY - As a fundamental policy, each Longer Term Series is
permitted to borrow to the extent permitted under the Investment Company Act
of 1940. However, each Longer Term Series currently intends to borrow money
only for temporary or emergency (not leveraging) purposes, in an amount up to
15% of the value of such Series' total assets (including the amount borrowed)
valued at the lesser of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made. While borrowings exceed
5% of a Longer Term Series' total assets, such Series will not make any
additional investments.
Page 12
CERTAIN FUNDAMENTAL POLICIES - Each Series may invest up to 25% of its total
assets in the securities of issuers in any single industry, provided that
there is no such limitation on investments in Municipal Obligations and, for
temporary defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. In addition, each Longer Term
Series may borrow money to the extent permitted under the Investment Company
Act of 1940 and the Money Market Series may: (i) borrow money from banks, but
only for temporary or emergency (not leveraging) purposes, in an amount up to
15% of the value of its total assets (including the amount borrowed) valued
at the lesser of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. While borrowings exceed 5% of
the value of the Money Market Series' total assets, the Money Market Series
will not make any additional investments; (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, but only to secure borrowings for temporary
or emergency purposes; and (iii) invest up to 10% of its net assets in
repurchase agreements providing for settlement in more than seven days after
notice and in illiquid securities (which securities could include
participation interests (including municipal lease/purchase agreements) that
are not subject to the demand feature described above and floating and
variable rate demand obligations as to which the Series cannot exercise the
related demand feature described above and as to which there is no secondary
market). This paragraph describes fundamental policies that cannot be
changed, as to a Series, without approval by the holders of a majority (as
defined in the Investment Company Act of 1940) of such Series' outstanding vot
ing shares. See "Investment Objective and Management Policies_Investment
Restrictions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES (APPLICABLE TO EACH LONGER TERM
SERIES ONLY)-Each Longer Term Series may (i) pledge, hypothecate, mortgage
or otherwise encumber its assets, but only to secure permitted borrowings;
and (ii) invest up to 15% of the value of its net assets in repurchase
agreements providing for settlement in more than seven days after notice and
in other illiquid securities (which securities could include participation
interests (including municipal lease/purchase agreements) and floating and
variable rate demand obligations as to which the Fund cannot exercise the
demand feature described above and as to which there is no secondary market).
See "Investment Objective and Management Policies_Investment Restrictions" in
the Statement of Additional Information.
RISK FACTORS
LOWER RATED BONDS (APPLICABLE TO EACH LONGER TERM SERIES ONLY)-You should
carefully consider the relative risks of investing in the higher yielding
(and, therefore, higher risk) securities in which a Longer Term Series may
invest up to 35% of the value of its net assets. Lower rated bonds as
discussed herein are not eligible investments for the Money Market Series.
These are bonds such as those rated Ba by Moody's or BB by S&P or Fitch, or
as low as the lowest rating assigned by Moody's, S&P or Fitch. They generally
are not meant for short-term investing and may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Bonds rated Ba
by Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Bonds rated BB by S&P are regarded as having
predominantly speculative characteristics and, while such obligations have
less near-term vulnerability to default than other speculative grade debt,
they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. Bonds rated BB by Fitch are
considered speculative and the payment of principal and interest may be
affected at any time by adverse economic changes. Bonds rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Bonds rated D by S&P are in default and the payment of
interest and/or repayment of principal is in arrears. Bonds rated DDD, DD or
D by Fitch are in actual or imminent default, are extremely speculative and
should be valued on the basis of their ultimate recovery value in liquidation
or reorganization of the issues; DDD represents the highest potential for
recovery of such bonds; and D represents the lowest potential for recovery.
Such bonds, though high yielding, are characterized by great risk. See the
"Appendix" in the Statement of Additional Information for a general
description of Moody's, S&P and Fitch ratings of Municipal Obligations. The
ratings
Page 13
of Moody's, S&P and Fitch represent their opinions as to the quality
of the Municipal Obligations which they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and, although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of these bonds.
Therefore, although these ratings may be an initial criterion for selection
of portfolio investments, The Dreyfus Corporation also will evaluate these
securities and the ability of the issuers of such securities to pay interest
and principal. The ability of a Longer Term Series to achieve its investment
objective may be more dependent on The Dreyfus Corporation's credit analysis
than might be the case for a fund that invested in higher rated securities.
Once the rating of a portfolio security held by a Longer Term Series has been
changed, such Series will consider all circumstances deemed relevant in
determining whether to continue to hold the security.
The market price and yield of bonds rated Ba or lower by Moody's and BB
or lower by S&P and Fitch are more volatile than those of higher rated bonds.
Factors adversely affecting the market price and yield of these securities
will adversely affect each Longer Term Series' net asset value. In addition,
the retail secondary market for these bonds may be less liquid than that of
higher rated bonds; adverse market conditions could make it difficult at
times for a Longer Term Series to sell certain securities or could result in
lower prices than those used in calculating the net asset value of each
Longer Term Series.
Each Longer Term Series may invest up to 5% of the value of its total
assets in zero coupon securities and pay-in-kind bonds (bonds which pay
interest through the issuance of additional bonds) rated Ba or lower by
Moody's and BB or lower by S&P and Fitch. These securities may be subject to
greater fluctuations in value due to changes in interest rates than
interest-bearing securities and thus may be considered more speculative than
comparably rated interest-bearing securities. See "Other Investment Considerat
ions" below and "Investment Objective and Management Policies-Risk
Factors-Lower Rated Bonds" and "Dividends, Distributions and Taxes" in the
Statement of Additional Information.
OTHER INVESTMENT CONSIDERATIONS - The Fund is designed to benefit investors
who do not engage in frequent redemptions or exchanges of Series shares.
Because charges may apply to redemptions and exchanges of Series shares, the
Fund may not be an appropriate investment for an investor who intends to
engage frequently in such transactions.
Even though interest-bearing securities are investments which promise a
stable stream of income, the prices of such securities are inversely affected
by changes in interest rates and, therefore, are subject to the risk of
market price fluctuations. Certain securities that may be purchased by a
Longer Term Series, such as those with interest rates that fluctuate directly
or indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal. The values of
fixed-income securities also may be affected by changes in the credit rating
or financial condition of the issuing entities. The Money Market Series seeks
to maintain a stable $ 1.00 share price, while the net asset value of each
Longer Term Series generally will not be stable and should fluctuate based
upon changes in the value of its respective portfolio securities. Securities
in which a Longer Term Series invests may earn a higher level of current
income than certain shorter-term or higher quality securities which generally
have greater liquidity, less market risk and less fluctuation in market
value.
New issues of Municipal Obligations usually are offered on a when-issued
basis, which means that delivery and payment for such Municipal Obligations
ordinarily take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received
on the Municipal Obligations are fixed at the time the Series enters into the
commitment. A Series will make commitments to purchase such Municipal
Obligations only with the intention of actually acquiring the securities, but
a Series may sell these securities before the settlement date if it is deemed
advisable, although any gain realized on such sale would be taxable. The
Series will not accrue income in respect of a when-issued security prior to
its stated delivery date. No additional when-issued commitments will be made
by a Series if more than 20% of the value of its net assets would be so
committed.
Page 14
Municipal Obligations purchased on a when-issued basis and the securities
held in a Series' portfolio are subject to changes in value (both generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of
the creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. Municipal Obligations purchased by a Series on a
when-issued basis may expose the Series to risk because they may experience
such fluctuations prior to their actual delivery. Purchasing Municipal
Obligations on a when-issued basis can involve the additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Each Series will
establish and maintain at the Fund's custodian bank a segregated account
consisting of cash, cash equivalents or U.S. Government securities or other
high quality liquid debt securities at least equal at all times to the amount
of the when-issued commitment. Purchasing Municipal Obligations on a
when-issued basis when a Series is fully or almost fully invested may result
in greater potential fluctuation in the value of such Series' net assets and
its net asset value per share.
Certain municipal lease/purchase obligations in which a Series may invest
may contain "non-appropriation" clauses which provide that the municipality
has no obligation to make lease payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease/purchase obligations are secured by the leased property, disposition of
the leased property in the event of foreclosure might prove difficult. In
evaluating the credit quality of a municipal lease/purchase obligation that
is unrated, The Dreyfus Corporation will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, a Longer Term Series may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase
the cost of the Municipal Obligations available for purchase by each Series
and thus reduce the available yield. Shareholders should consult their tax
advisers concerning the effect of these provisions on an investment in a
Series. Proposals that may restrict or eliminate the income tax exemption for
interest on Municipal Obligations may be introduced in the future. If any
such proposal were enacted that would reduce the availability of Municipal
Obligations for investment by a Series so as to adversely affect its
shareholders, such Series would reevaluate its investment objective and
policies and submit possible changes in its structure to shareholders for
their consideration. If legislation were enacted that would treat a type of
Municipal Obligation as taxable, each Series would treat such security as a
permissible Taxable Investment within the applicable limits set forth herein.
Classification of each Series as a "non-diversified" investment company
means that the proportion of the Series' assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified" investment company is required by the Investment
Company Act of 1940 generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a single issuer.
However, each Series intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Code which requires that,
at the end of each quarter of its taxable year, (i) at least 50% of the
market value of the Series' total assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Series' total assets, and (ii) not more than 25% of the value of the
Series' total assets be invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated
investment companies). Since a relatively high percentage of each Series'
assets may be invested in the obligations of a limited number of issuers, a
Series' portfolio securities may be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of a
diversified investment company.
Page 15
Investment decisions for each Series are made independently from those of
other investment companies advised by The Dreyfus Corporation. However, if
such other investment companies or one or more of the Series are prepared to
invest in, or desire to dispose of, Municipal Obligations or Taxable
Investments at the same time as such Series, available investments or
opportunities for sales will be allocated equitably to each investment
company or Series, as the case may be. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by a
Series or the price paid or received by it.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, was formed in 1947 and serves as the Fund's investment adviser. As of
February 28, 1994, The Dreyfus Corporation managed or administered
approximately $77 billion in assets for more than 1.9 million investor
accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall management
of the Fund's affairs under a Management Agreement with the Fund, subject to
the overall authority of the Fund's Board of Directors in accordance with
Maryland law. Investment decisions for the Intermediate Bond Series and the
Bond Series are made by an investment committee composed of the Fund's
investment officers. The Series' investment officers are identified under
"Management of the Fund" in the Statement of Additional Information. The
Dreyfus Corporation also provides research services for the Fund as well as
for other funds advised by The Dreyfus Corporation through a professional
staff of portfolio managers and security analysts.
Under the terms of the Management Agreement, the Fund has agreed to pay
The Dreyfus Corporation: (i) a monthly fee at the annual rate of .50 of 1% of
the value of the Money Market Series' average daily net assets and (ii) a
monthly fee at the annual rate of .60 of 1% of the value of each Longer Term
Series' average daily net assets. From time to time, The Dreyfus Corporation
may waive receipt of its fees and/or voluntarily assume certain expenses of a
Series, which would have the effect of lowering the overall expense ratio of
that Series and increasing yield to investors at the time such amounts are
waived or assumed, as the case may be. The Fund will not pay The Dreyfus
Corporation at a later time for any amounts it may waive, nor will the Fund
reimburse The Dreyfus Corporation for any amounts it may assume. For the
fiscal year ended August 31, 1993, no management fee was paid by the Fund
with respect to the Money Market Series pursuant to an undertaking by The
Dreyfus Corporation.
The Dreyfus Corporation has undertaken until June 30, 1996, in the case
of the Money Market Series, and until June 30, 1998, in the case of each
Longer Term Series, that if in any fiscal year the aggregate expenses of a
Series, 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 .45% of the
value of such Series' average daily net assets for the fiscal year, the Fund
may deduct from the payment to be made to The Dreyfus Corporation under the
Management Agreement, or The Dreyfus Corporation will bear, such excess
expense.
The Dreyfus Corporation may pay Dreyfus Service Corporation for
shareholder and distribution services from The Dreyfus Corporation's own
assets, including past profits but not including the management fee paid by
the Fund. Dreyfus Service Corporation may use part or all of such payments to
pay securities dealers or others in respect of these services.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Transfer Agent will receive the $5.00 exchange fee, the $5.00 account
closeout fee, the $5.00 wire redemption fee and the $2.00 checkwriting
charge, described below. A sufficient number of your shares will be redeemed
automatically to pay these amounts. These payments will reduce the transfer
agency fee otherwise payable by the Fund. By purchasing Series shares, you
are deemed to have consented to this procedure. The Bank of New York, 110
Washington Street, New York, New York 10286, is the Fund's Custodian.
Page 16
HOW TO BUY FUND SHARES
The Fund's distributor is Dreyfus Service Corporation, a wholly-owned
subsidiary of The Dreyfus Corporation, located at 200 Park Avenue, New York,
New York 10166. The shares it distributes are not deposits or obligations of
The Dreyfus Security Savings Bank, F.S.B., and therefore are not insured by
the Federal Deposit Insurance Corporation.
You can purchase Series shares without a sales charge if you purchase
them directly from Dreyfus Service Corporation. You may be charged a nominal
fee if you effect transactions in Series shares through a securities dealer,
bank or other financial institution. Share certificates are issued only upon
your written request. No certificates are issued for fractional shares. It is
not recommended that any Series be used as a vehicle for Keogh, IRA or other
qualified plans. The Fund reserves the right to reject any purchase order.
The minimum initial investment is $25,000 for the Money Market Series and
$10,000 for each Longer Term Series. Subsequent investments must be at least
$1,000. The initial investment must be accompanied by the Fund's Account
Application.
You may purchase Series shares by check or wire. Checks should be made
payable to "The Dreyfus Family of Funds" and should specify the Series in
which you are investing. Payments to open new accounts which are mailed
should be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence,
Rhode Island 02940-9387, together with your Account Application. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. Neither initial nor
subsequent investments should be made by third party check. Purchase orders
may be delivered in person only to a Dreyfus Financial Center. These orders
will be forwarded to the Fund and will be processed only upon receipt
thereby. For the location of the nearest Dreyfus Financial Center, please
call one of the telephone numbers listed under "General Information."
Wire payments may be made if your bank account is in a commercial bank
that is a member of the Federal Reserve System or any other bank having a
correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, together with the applicable
Series' DDA# as shown below, for purchase of Series shares in your name:
DDA# 8900208767/Dreyfus BASIC Municipal Fund/Dreyfus BASIC Municipal Money
Market Fund;
DDA# 8900088451/Dreyfus BASIC Municipal Fund/Dreyfus BASIC Intermediate
Municipal Bond Fund;or
DDA# 8900088443/Dreyfus BASIC Municipal Fund/Dreyfus BASIC Municipal Bond
Fund.
The wire must include your Fund account number (for new accounts, your
Taxpayer Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Series shares is by wire, please call 1-800-645-6561 after completing your
wire payment to obtain your Fund account number. Please include your Fund
account number on the Fund's Account Application and promptly mail the
Account Application to the Fund, as no redemptions will be permitted until
the Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid additional fees and delays, should be drawn only
on U.S. banks. A charge will be imposed if any check used for investment in
your account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of funds
from an account maintained in a bank or other domestic financial institution
that is an Automated Clearing House member. You must direct the institution
to transmit immediately available funds through the Automated Clearing House
to The Bank of New York with instructions to credit your Fund account. The
instructions must specify your Fund account registration and your Fund
account number preceded by the digits "1111."
Shares of the Money Market Series are sold on a continuous basis at the
net asset value per share next determined after an order in proper form and
Federal Funds (monies of member banks within the Federal Reserve System which
are held on deposit at a Federal Reserve Bank) are received by the Transfer
Agent. If you do not remit Federal Funds, your payment must be converted into
Federal Funds. This usually occurs
Page 17
within one business day of receipt of a
bank wire or within two business days of receipt of a check drawn on a member
bank of the Federal Reserve System. Checks drawn on banks which are not
members of the Federal Reserve System may take considerably longer to convert
into Federal Funds. Prior to receipt of Federal Funds, your money will not be
invested.
The Money Market Series' net asset value per share is determined as of
12:00 Noon, New York time, on each day the New York Stock Exchange is open
for business. Net asset value per share is computed by dividing the value of
the Money Market Series' net assets (i.e., the value of its assets less
liabilities) by the total number of Money Market Series' shares outstanding.
See "Determination of Net Asset Value" in the Statement of Additional
Information.
If your payments into the Money Market Series are received in or
converted into Federal Funds by 12:00 Noon, New York time, by the Transfer
Agent, you will receive the dividend declared that day. If your payments are
received in or converted into Federal Funds after 12:00 Noon, New York time,
by the Transfer Agent, you will begin to accrue dividends on the following
business day.
Qualified institutions may telephone orders for purchase of the Money
Market Series' shares. These orders will become effective at the price
determined at 12:00 Noon, New York time, and the shares purchased will
receive the dividend on Series shares declared on that day if the telephone
order is placed by 12:00 Noon, New York time, and Federal Funds are received
by 4:00 p.m., New York time, on that day.
Shares of each Longer Term Series are sold on a continuous basis at the
net asset value per share next determined after an order in proper form is
received by the Transfer Agent. Each Longer Term Series' net asset value per
share is determined as of the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m., New York time), on each day that the New
York Stock Exchange is open for business. For purposes of determining the net
asset value of each Longer Term Series, options and futures contracts will be
valued 15 minutes after the close of trading on the floor of the New York
Stock Exchange. Net asset value per share is computed by dividing the value
of the specific Longer Term Series' net assets (i.e., the value of its assets
less liabilities) by the total number of such Series' shares outstanding. The
investments of each Longer Term Series are valued by an independent pricing
service approved by the Fund's Board of Directors, and are valued at fair
value as determined by the pricing service. The pricing service's procedures
are reviewed under the general supervision of the Fund's Board of Directors.
For further information regarding the methods employed in valuing each Longer
Term Series' investments, see "Determination of Net Asset Value" in the
Statement of Additional Information.
Federal regulations require that you provide a certified TIN upon opening
or reopening an account. See "Dividends, Distributions and Taxes" and the
Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
EXCHANGE PRIVILEGE
The Exchange Privilege enables you to purchase up to four times a
calendar year, in exchange for shares of a Series, shares in one of the other
Series or shares of certain other funds managed or administered by The
Dreyfus Corporation, to the extent such shares are offered for sale in your
state of residence. These funds have different investment objectives which
may be of interest to you. If you desire to use this Privilege, you should
consult Dreyfus Service Corporation to determine if it is available and
whether any conditions are imposed on its use. You will be charged a $5.00
fee for each exchange you make out of a Series. This fee will be deducted
from your account and paid to the Transfer Agent.
To use this Privilege, you must give exchange instructions to the
Transfer Agent in writing, by wire or by telephone. If you previously have
established the Telephone Exchange Privilege, you may telephone exchange
instructions by calling 1-800-221-4060 or, if you are calling from overseas,
call 1-401-455-3306. See "How to Redeem Fund Shares-Procedures." Before any
exchange into a fund offered by another prospectus, you must obtain and
should review a copy of the current prospectus of the fund into which the
exchange is being made. Prospectuses may be obtained from Dreyfus Service
Corporation. Except in the case of Personal Retirement
Page 18
Plans, the shares
being exchanged must have a current value of at least $1,000; furthermore,
when establishing a new account by exchange, the shares being exchanged must
have a value of at least the minimum initial investment required for the fund
into which the exchange is being made. Telephone exchanges may be made only
if the appropriate "YES" box has been checked on the Account Application, or
a separate signed Shareholder Services Form is on file with the Transfer
Agent. Upon an exchange into a new account, the following shareholder
services and privileges, as applicable and where available, will be
automatically carried over to the fund into which the exchange is made:
Exchange Privilege, Check Redemption Privilege, Wire Redemption Privilege,
Telephone Redemption Privilege, and the dividend/capital gain distribution
option selected by the investor.
Shares will be exchanged at the next determined net asset value; however,
a sales load may be charged with respect to exchanges into funds sold with a
sales load. If you are exchanging into a fund that charges a sales load, you
may qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares of the fund from which you are
exchanging were: (a) purchased with a sales load, (b) acquired by a previous
exchange from shares purchased with a sales load, or (c) acquired through
reinvestment of dividends or distributions paid with respect to the foregoing
categories of shares. To qualify, at the time of your exchange you must
notify the Transfer Agent. Any such qualification is subject to confirmation
of your holdings through a check of appropriate records. See "Exchange
Privilege" in the Statement of Additional Information. The Fund reserves the
right to reject any exchange request in whole or in part and will reject any
request to exchange out of one of the Series in excess of four during any
calendar year. The Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable
gain or loss.
HOW TO REDEEM FUND SHARES
GENERAL - You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
You will be charged $5.00 when you redeem all shares in your account or
your account is otherwise closed out. The fee will be deducted from your
redemption proceeds and paid to the Transfer Agent. The account closeout fee
does not apply to exchanges out of a Series or to wire redemptions, for each
of which a $5.00 fee applies. Securities dealers, banks and other financial
institutions may charge a nominal fee for effecting redemptions of Series
shares. Any certificates representing Series shares being redeemed must be
submitted with the redemption request. The value of the shares redeemed may
be more or less than their original cost, depending upon the Series' then
current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. However, if you have purchased Series shares by check and
subsequently submit a written redemption request to the Transfer Agent, your
redemption will be effective and the redemption proceeds will be transmitted
to you promptly upon bank clearance of your purchase check, which may take up
to eight business days or more. In addition, the Fund will not honor
Redemption Checks under the Check Redemption Privilege, and will reject
requests to redeem shares by wire or telephone, for a period of eight
business days after receipt by the Transfer Agent of the purchase check
against which such redemption is requested. These procedures will not apply
if your shares were purchased by wire payment, or if you otherwise have a
sufficient collected balance in your account to cover the redemption request.
Prior to the time any redemption is effective, dividends on such shares will
accrue and be payable, and you will be entitled to exercise all other rights
of beneficial ownership. Shares will not be redeemed until the Transfer Agent
has received your Account Application.
The Fund reserves the right to redeem your account at its option upon not
less than 45 days' written notice if your account's net asset value is
$10,000 or less in the case of the Money Market Series or $5,000 or less in
the case of the Longer Term Series and remains so during the notice period.
The $5.00 account closeout fee would be charged in such case.
Page 19
PROCEDURES - You may redeem Series shares by using the regular redemption
procedure through the Transfer Agent, using the Check Redemption Privilege,
through the Wire Redemption Privilege or through the Telephone Redemption
Privilege. The Fund makes available to certain large institutions the ability
to issue redemption instructions through compatible computer facilities.
You may redeem or exchange Series shares by telephone if you have checked
the appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If you select a telephone
redemption or exchange privilege, you authorize the Transfer Agent to act on
telephone instructions from any person representing himself or herself to be
you and reasonably believed by the Transfer Agent to be genuine. The Fund
will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Fund or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Fund nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, you may experience
difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Series shares. In such cases, you should consider
using the other redemption procedures described herein. Use of these other
redemption procedures may result in your redemption request being processed
at a later time than it would have been if telephone redemption had been
used. During the delay, a Longer Term Series' net asset value may fluctuate.
REGULAR REDEMPTION - Under the regular redemption procedure, you may redeem
your shares by written request mailed to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. These requests will
be forwarded to the Fund and will be processed only upon receipt thereby. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information." Redemption requests
must be signed by each shareholder, including each owner of a joint account,
and each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature- guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations, as well as from participants in
the New York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. If you have any questions with respect to signature-guarantees,
please call one of the telephone numbers listed under "General Information."
Redemption proceeds of at least $5,000 will be wired to any member bank
of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE - You may request on the Account Application,
Shareholder Services Form or by later written request, that the Fund provide
Redemption Checks drawn on the Fund's account. Redemption Checks may be made
payable to the order of any person in the amount of $1,000 or more. Potential
fluctuations in the net asset value of the shares of each Longer Term Series
should be considered in determining the amount of the check. Redemption
Checks should not be used to close your account. Your account will be charged
$2.00 for each Redemption Check you write. The Transfer Agent also will
impose a fee for stopping payment of a Redemption Check upon your request or
if the Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. The Fund may return unpaid a Redemption Check
that would draw your account balance below $5.00 and you may be subject to
extra charges. You should date your Redemption Checks with the current date
when you write them. Please do not post-date your Redemption Checks. If you
do, the Transfer Agent will honor, upon presentment, even if presented before
the date of the check, all post-dated Redemption Checks which are dated
within six months of presentment for payment, if they are otherwise in good
order. Shares for which certificates have been issued may not be redeemed by
Redemption Check. This Privilege may be modified or terminated at any time by
the Fund or the Transfer Agent upon notice to shareholders.
Page 20
WIRE REDEMPTION PRIVILEGE - You may request by wire or telephone that
redemption proceeds (minimum $5,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. You will be charged a $5.00 wire redemption fee for
each wire redemption, which will be deducted from your account and paid to
the Transfer Agent. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
Account Application or file a Shareholder Services Form with the Transfer
Agent. You may direct that redemption proceeds be paid by check (maximum
$150,000 per day) made out to the owners of record and mailed to your
address. Redemption proceeds of less than $5,000 will be paid automatically
by check. Holders of jointly registered Fund or bank accounts may have
redemption proceeds of only up to $250,000 wired within any 30-day period.
You may telephone redemption requests by calling 1-800-221-4060 or, if you
are calling from overseas, call 1-401-455-3306. The Fund reserves the right
to refuse any redemption request, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. This Privilege may be modified or terminated at any time by the
Transfer Agent or the Fund. The Fund's Statement of Additional Information
sets forth instructions for transmitting redemption requests by wire. Shares
for which certificates have been issued are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE - You may redeem Series shares (maximum
$150,000 per day) by telephone if you have checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares for which certificates have been issued are not eligible for this
Privilege.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan pursuant to which the
Fund reimburses Dreyfus Service Corporation an amount not to exceed an annual
rate of .25 of l% of the value of each Series' average daily net assets for
certain allocated expenses of providing personal services and/or maintaining
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Series and providing reports and other information, and
services related to the maintenance of shareholder accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Series ordinarily declares dividends from its net investment income
on each day the New York Stock Exchange is open for business. Dividends
usually are paid on the last business of each month (calendar day in the case
of the Money Market Series) and are automatically reinvested in additional
Series shares at net asset value or, at your option, paid in cash. The
Series' earnings for Saturdays, Sundays and holidays are declared as
dividends on the preceding business day in the case of the Money Market
Series and on the next business day in the case of the Longer Term Series.
With respect to each Longer Term Series, Series shares begin earning income
dividends on the day following the date of purchase. If you redeem all shares
in your account at any time during the month, all dividends to which you are
entitled will be paid to you along with the proceeds of the redemption, after
deduction of any fees. Distributions from net realized securities gains, if
any, generally are declared and paid once a year, but each Series may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the Investment Company Act of 1940. No Series will make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose
whether to receive distributions in cash or to reinvest in additional Series
shares at net asset value. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Except for dividends from Taxable Investments, each Series anticipates
that substantially all dividends paid by such Series will not be subject to
Federal income tax. Dividends derived from Taxable Investments, together
Page 21
with
distributions from any net realized short-term securities gains and all or a
portion of any gains from the sale or other disposition of certain market
discount bonds, paid by a Series are subject to Federal income tax as
ordinary income whether or not reinvested. No dividend paid by a Series will
qualify for the dividends received deduction allowable to certain U.S.
corporations. Distributions from net realized long-term securities gains of
each Series generally are taxable as long-term capital gains for Federal
income tax purposes if you are a citizen or resident of the United States.
The Code provides that the net capital gain of an individual generally will
not be subject to Federal income tax at a rate in excess of 28%. Under the
Code, interest on indebtedness incurred or continued to purchase or carry
Series shares which is deemed to relate to exempt-interest dividends is not
deductible. Dividends and distributions may be subject to state and local
taxes.
Taxable dividends derived from net investment income, together with
distributions from net realized short-term securities gains and gains from
the sale or other disposition of certain market discount bonds, paid by a
Series to a foreign investor generally are subject to U.S. nonresident
withholding taxes at the rate of 30%, unless the foreign investor claims the
benefit of a lower rate specified in a tax treaty. Distributions from net
realized long-term securities gains paid by a Series to a foreign investor as
well as, in the case of a Longer Term Series, the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gains or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Although all or a substantial portion of the dividends paid by a Series
may be excluded by its shareholders from their gross income for Federal
income tax purposes, such Series may purchase specified private activity
bonds, the interest from which may be (i) a preference item for purposes of
the alternative minimum tax, (ii) a component of the "adjusted current
earnings" preference item for purposes of the corporate alternative minimum
tax as well as a component in computing the corporate environmental tax or
(iii) a factor in determining the extent to which a shareholder's Social
Security benefits are taxable. If a Series purchases such securities, the
portion of its dividends related thereto will not necessarily be tax exempt
to an investor who is subject to the alternative minimum tax and/or tax on
Social Security benefits and may cause an investor to be subject to such
taxes.
Notice as to the tax status of your dividends and distributions will be
mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year. These statements set forth
the dollar amount of income exempt from Federal tax and the dollar amount, if
any, subject to Federal tax. These dollar amounts will vary depending on the
size and length of time of your investment in a Series. If a Series pays
dividends derived from taxable income, it intends to designate as taxable the
same percentage of the day's dividend as the actual taxable income earned on
that day bears to total income earned on that day. Thus, the percentage of
the dividend designated as taxable, if any, may vary from day to day.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of taxable dividends,
distributions from net realized securities gains of a Series and, in the case
of a Longer Term Series, the proceeds of redemption, regardless of the extent
to which gain or loss may be realized, paid to a shareholder if such
shareholder fails to certify either that the TIN furnished in connection with
opening an account is correct, or that such shareholder has not received
notice from the IRS of being subject to backup withholding as a result of a
failure to properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or
if a shareholder has failed to properly report taxable dividend and interest
income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Money Market Series has
qualified for the fiscal year ended August 31, 1993 as a "regulated
investment company" under the Code. The Money Market Series intends to
Page 22
continue to so qualify if such qualification is in the best interests of its
shareholders. Management of the Fund expects that each Longer Term Series
will qualify as a "regulated investment company" under the Code so long as
such qualification is in the best interests of each such Series' shareholders.
Qualification as a "regulated investment company" relieves a Series of any
liability for Federal income taxes to the extent its earnings are distributed
in accordance with applicable provisions of the Code. In addition, each
Series is subject to a non-deductible 4% excise tax, measured with respect to
certain undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on August 8, 1991, and
commenced operations on December 16, 1991. On December 24, 1992, the Fund's
name was changed from Dreyfus Investors Municipal Money Market Fund, Inc. to
Dreyfus BASIC Municipal Money Market Fund, Inc. On March 15, 1994, the Fund
began operating under the name Dreyfus BASIC Municipal Fund. The Fund is
authorized to issue four billion shares of Common Stock, (with three billion
shares allocated to the Money Market Series and 500 million shares allocated
to each Longer Term Series) par value $.001 per share. Each share has one
vote.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of auditors. However, pursuant to
the Fund's By-Laws, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of
shareholders for purposes of removing a Director from office and for any
other purpose. Fund shareholders may remove a Director by the affirmative
vote of a majority of the Fund's outstanding voting shares. In addition, the
Fund's Board of Directors will call a meeting of shareholders for the purpose
of electing Directors if, at any time, less than a majority of the Directors
then holding office have been elected by shareholders.
To date, the Fund's Board of Directors has authorized the creation of
three series of shares. All consideration received by the Fund for shares of
one of the Series and all assets in which such consideration is invested will
belong to that Series (subject only to the rights of creditors of the Fund)
and will be subject to the liabilities related thereto. The income
attributable to, and the expenses of, one Series are treated separately from
those of the other Series. The Fund has the ability to create, from time to
time, new series without shareholder approval.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted under the provisions of the Investment
Company Act of 1940 or applicable state law or otherwise to the holders of
the outstanding voting securities of an investment company, such as the Fund,
will not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Series affected by
such matter. Rule 18f-2 further provides that a Series shall be deemed to be
affected by a matter unless it is clear that the interests of each Series in
the matter are identical or that the matter does not affect any interest of
such Series. However, the Rule exempts the selection of independent
accountants and the election of Directors from the separate voting
requirements of the Rule.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; on Long Island, call
794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 23
BASIC Municipal
Fund
*Dreyfus BASIC Municipal
Money Market Fund
*Dreyfus BASIC Intermediate
Municipal Bond Fund
*Dreyfus BASIC Municipal
Bond Fund
Prospectus
(Dreyfus Lion Logo)
Copy Rights Dreyfus Service Corporation, 1994
Distributor BMFp1031594
