DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
AUGUST 1, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus Massachusetts Intermediate Municipal Bond Fund (the "Fund"),
dated August 1, 1996, as it may be revised from time to time. To obtain a
copy of the Fund's Prospectus, please write to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or call the following
numbers:
Call Toll Free 1-800-645-6561
In New York City--Call 1-718-895-1206
Outside the U.S. and Canada--Call 516-794-5424
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . . . . . . . B-2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . B-12
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . B-15
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . . . . . B-18
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . B-21
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . B-23
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . B-24
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . B-25
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . B-26
Information About the Fund . . . . . . . . . . . . . . . . . . . . . . B-27
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors . . . . . . . . . . . . . . . . . . B-28
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-32
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . B-41
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . B-53
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled
"Description of the Fund" and "Appendix."
Portfolio Securities
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended March
31, 1996, computed on a monthly basis, was as follows:
Fitch Investors Moody's Investors Standard & Poor's
Service, L.P. Service, Inc. Ratings Group Percent of
("Fitch") or ("Moody's") or ("S&P") Value
AAA Aaa AAA 48.9%
AA Aa AA 3.9%
A A A 23.0%
BBB Baa BBB 22.3%
F-1+/F-1 MIG 1/VMIG 1, SP-1+/SP-1, 1.9%
P-1 A-1
100.0%
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, industrial, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply,
gas, electricity, or sewage or solid waste disposal; the interest paid on
such obligations may be exempt from Federal income tax, although current
tax laws place substantial limitations on the size of such issues. Such
obligations are considered to be Municipal Obligations if the interest paid
thereon qualifies as exempt from Federal income tax in the opinion of bond
counsel to the issuer. There are, of course, variations in the security of
Municipal Obligations, both within a particular classification and between
classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending rate,
such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation
is adjusted automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation, and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, will have the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the
event of foreclosure might prove difficult. The staff of the Securities
and Exchange Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Fund's Board. Pursuant to
such guidelines, the Board has directed the Manager to monitor carefully
the Fund's investment in such securities with particular regard to (1) the
frequency of trades and quotes for the lease obligation; (2) the number of
dealers willing to purchase or sell the lease obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make
a market in the lease obligation; (4) the nature of the marketplace trades,
including the time needed to dispose of the lease obligation, the method of
soliciting offers and the mechanics of transfer; and (5) such other factors
concerning the trading market for the lease obligation as the Manager may
deem relevant. In addition, in evaluating the liquidity and credit quality
of a lease obligation that is unrated, the Fund's Board has directed the
Manager to consider (a) whether the lease can be cancelled; (b) what
assurance there is that the assets represented by the lease can be sold;
(c) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
the operations of the municipality (e.g., the potential for an "event of
nonappropriation; (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as the
Manager may deem relevant. The Fund will not invest more than 15% of the
value of its net assets in lease obligations that are illiquid and in other
illiquid securities. See "Investment Restriction No. 11" below.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of
the underlying Municipal Obligations and that payment of any tender fees
will not have the effect of creating taxable income for the Fund. Based on
the tender option bond agreement, the Fund expects to be able to value the
tender option bond at par; however, the value of the instrument will be
monitored to assure that it is valued at fair value.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the extent that
the ratings given by Moody's, S&P or Fitch for Municipal Obligations may
change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
Fund's Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and
are not absolute standards of quality. Although these ratings may be an
initial criterion for selection of portfolio investments, the Manager also
will evaluate these securities and the creditworthiness of the issuers of
such securities.
Illiquid Securities. Where a substantial market of qualified
institutional buyers develops for certain restricted securities purchased
by the Fund pursuant to Rule 144A under the Securities Act of 1933, as
amended, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board. Because it is not
possible to predict with assurance how the market for restricted securities
pursuant to Rule 144A will develop, the Fund's Board has directed the
Manager to monitor carefully the Fund's investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, the Fund's investing in such securities
may have the effect of increasing the level of illiquidity in the Fund's
portfolio during such period.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities are supported by the full faith and credit
of the U.S. Treasury; others by the right of the issuer to borrow from the
U.S. Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others
only by the credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so,
since it is not so obligated by law.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate. Investments in time deposits generally
are limited to London branches of domestic banks that have total assets in
excess of one billion dollars. Time deposits which may be held by the Fund
will not benefit from insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit Insurance
Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
In a repurchase agreement, the Fund buys, and the seller agrees to
repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. The Fund's
custodian or sub-custodian will have custody of, and will hold in a
segregated account, securities acquired by the Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Fund. In an attempt
to reduce the risk of incurring a loss on a repurchase agreement, the Fund
will enter into repurchase agreements only with domestic banks with total
assets in excess of $1 billion or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Fund may invest, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. Repurchase agreements could
involve risks in the event of a default or insolvency of the other party to
the agreement, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities.
Management Policies
Derivatives. The Fund may invest in Derivatives (as defined in the
Prospectus) for a variety of reasons, including to hedge certain market
risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter Derivatives. Therefore, each party to an over-
the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the Derivative to be interested
in bidding for it.
Futures Transactions--In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Fund may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate cash or high
quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting
the Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at
a specific price.
The Fund may purchase and sell municipal bond index futures contracts.
Municipal bond index futures contracts are based on an index of Municipal
Obligations. The index assigns relative values to the Municipal
Obligations included in the index, and fluctuates with changes in the
market value of such Municipal Obligations. The contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount
of cash based upon the difference between the value of the index at the
close of the last trading day of the contract and the price at which the
index contract was originally written.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities and may purchase call and
put options or futures contracts. A call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security or securities at the exercise price at any time during the option
period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers
the transaction by segregating cash or other securities. A put option
written by the Fund is covered when, among other things, cash or liquid
securities having a value equal to or greater than the exercise price of
the option are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. The Fund receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If,
as a covered call option writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in interest rates. To the extent
the Manager's predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Forward Commitments. Municipal Obligations and other securities
purchased on a forward commitment or when-issued basis are subject to
changes in value (generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise)
based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may
expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.
Lending Portfolio Securities. In connection with its securities
lending transactions, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in
connection with the loan. These conditions may be subject to future
modification.
Short-Selling. Until the Fund replaces a borrowed security in
connection with a short sale, the Fund will: (a) maintain a segregated
account, containing cash or U.S. Government securities, at such a level
that the amount deposited in the account plus the amount deposited with the
broker as collateral always equals the current value of the security sold
short; or (b) otherwise cover its short position.
Investment Considerations and Risks
Investing in Massachusetts Municipal Obligations. Investors should
consider carefully the special risks inherent in the Fund's investment in
Massachusetts Municipal Obligations. Since 1989, Massachusetts has
experienced growth rates significantly below the national average and an
economic recession in 1990 and 1991 caused negative growth rates in
Massachusetts. Massachusetts' economic difficulties and fiscal problems in
the late 1980s and 1990s caused several rating agencies to lower their
ratings of Massachusetts Municipal Obligations. A return of persistent
serious financial difficulties could adversely affect the market values and
marketability of, or result in default in payment on outstanding
Massachusetts Municipal Obligations.
Lower Rated Bonds. The Fund is permitted to invest in securities
rated Ba or lower by Moody's or BB or lower by S&P and Fitch and as low as
the lowest rating assigned by Moody's, S&P or Fitch. Such bonds, though
higher yielding, are characterized by risk. See "Description of the Fund-
- -Investment Considerations and Risks--Lower Rated Bonds" in the Prospectus
for a discussion of certain risks and "Appendix B" in this Statement of
Additional Information for a general description of Moody's, S&P and Fitch
ratings of Municipal Obligations. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of these bonds. The Fund will rely on the
Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
Investors should be aware that the market values of many of these
bonds tend to be more sensitive to economic conditions than are higher
rated securities. These bonds generally are considered by S&P, Moody's and
Fitch to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation
and generally will involve more credit risk than securities in the higher
rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market
price and yield and the Fund's ability to dispose of particular issues when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating its
net asset value. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
these securities. In such cases, judgment may play a greater role in
valuation because less reliable objective data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon and increase the incidence of
default for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any persons concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon bonds in which the Fund may invest up to
5% of its net assets. Zero coupon bonds carry an additional risk in that,
unlike bonds which pay interest throughout the period to maturity, the Fund
will realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Fund may obtain no
return at all on its investment. See "Dividends, Distributions and Taxes."
The Fund has adopted investment restrictions numbered 1 through 6 as
fundamental policies, which cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding voting shares.
Investment restrictions numbered 7 through 12 are not fundamental policies
and may be changed by vote of a majority of the Fund's Board members at any
time. The Fund may not:
1. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowings to no more than 33 1/3% of the value of
the Fund's total assets). For purposes of this investment restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
2. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests,
but this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein, or prevent the Fund from
purchasing and selling futures contracts, including those relating to
indices, and options on futures contracts or indices.
3. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available, and except to the extent the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
by virtue of disposing of portfolio securities.
4. Make loans to others except through the purchase of debt
obligations and the entry into repurchase agreements; however, the Fund may
lend its portfolio securities in an amount not to exceed 33 1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board.
5. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
6. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent that the activities permitted
in Investment Restriction Nos. 1, 2, 8 and 10 may be deemed to give rise to
a senior security.
7. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and options or
as otherwise provided in the Fund's Prospectus.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in futures, including those
relating to indices, and options on futures or indices.
9. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings and to the
extent related to the deposit of assets in escrow in connection with the
purchase of securities on a when-issued or delayed-delivery basis and
collateral arrangements with respect to futures contracts, including those
related to indexes and options on futures contracts or indexes, and
collateral arrangements with respect to initial or variation margin for
futures contracts, including those relating to indices, and options on
futures contracts or indices.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid
(which securities could include participation interests (including
municipal lease/purchase agreements) that are not subject to the demand
feature described in the Fund's Prospectus, and floating and variable rate
demand obligations as to which the Fund cannot exercise the demand feature
described in the Fund's Prospectus on less than seven days' notice and as
to which there is no secondary market) if, in the aggregate, more than 15%
of its net assets would be so invested.
12. Invest in companies for the purpose of exercising control.
For purposes of Investment Restriction No. 5, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry." If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Board members and officers of the Fund, together with information as
to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Fund, as defined in the 1940 Act, is indicated
by an asterisk.
Board Members of the Fund
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the Fund's distributor. From August 1994 to December
31, 1994, he was a director of Mellon Bank Corporation. He is
Chairman of the Board of Noel Group, Inc., a trustee of Bucknell
University; and a director of the Muscular Dystrophy Association,
HealthPlan Services Corporation, Belding Heminway Company, Inc.,
Curtis Industries, Inc., and Staffing Resources, Inc. He is 52 years
old and his address is 200 Park Avenue, New York, New York 10166.
*DAVID W. BURKE, Board Member. Chairman of the Broadcasting Board of
Governors, an independent board within the United States Information
Agency, since August 1995. From August 1994 to August 1995, Mr. Burke
was Consultant to the Manager and from October 1990 to August 1994, he
was Vice President and Chief Administrative Officer of the Manager.
From 1977 to October 1990, Mr. Burke was involved in the management of
national television news, as Vice President and Executive Vice
President at ABC News, and subsequently as President of CBS News. He
is 60 years old and his address is Box 654, Eastham, Massachusetts
02642.
DIANE DUNST, Board Member. Since January 1992, President of Diane Dunst
Promotion, Inc., a full service promotion agency. From January 1989
to January 1992, Director of Promotion Services, Lear's Magazine.
From 1985 to January 1989, she was Sales Promotion Manager of ELLE
Magazine. She is 56 years old and her address is 1172 Park Avenue,
New York, New York 10128.
ROSALIND GERSTEN JACOBS, Board Member. Director of Merchandise and
Marketing for Corporate Property Investors, a real estate investment
company. From 1974 to 1976, she was owner and manager of a
merchandise and marketing consulting firm. Prior to 1974, she was a
Vice President of Macy's, New York. She is 71 years old and her
address is c/o Corporate Property Investors, 305 East 47th Street, New
York, New York 10017.
JAY I. MELTZER, Board Member. Physician engaged in private practice
specializing in internal medicine. He is also a member of the
Advisory Board of the Section of Society and Medicine, College of
Physicians and Surgeons, Columbia University and a Clinical Professor
of Medicine, Department of Medicine, Columbia University College of
Physicians and Surgeons. He is 68 years old and his address is 903
Park Avenue, New York, New York 10021.
DANIEL ROSE, Board Member. President and Chief Executive Officer of Rose
Associates, Inc., a New York based real estate development and
management firm. He is also Chairman of the Housing Committee of The
Real Estate Board of New York, Inc., and a Trustee of Corporate
Property Investors, a real estate investment company. Since July
1994, he has been Vice Chairman of the U.S. Government sponsored
Baltic-American Enterprise Fund, Inc. He is 66 years old and his
address is c/o Rose Associates, Inc., 200 Madison Avenue, New York,
New York 10016.
WARREN B. RUDMAN, Board Member. Since January 1993, Partner in the law
firm of Paul, Weiss, Rifkind, Wharton & Garrison. From January 1981
to January 1993, Mr. Rudman served as a United States Senator from the
State of New Hampshire. Since May 1995, Mr. Rudman has served as a
director of Collins & Aikman Corporation, a manufacturing company.
Since January 1993, Mr. Rudman also has served as Vice Chairman of the
Federal Reserve Bank of Boston and as a director of Chubb Corporation
and Raytheon Company. Since 1988, Mr. Rudman also has served as a
trustee of Boston College and since 1986 as a member of the Senior
Advisory Board of the Institute of Politics of the Kennedy School of
Government at Harvard University. He also serves as Deputy Chairman
of the President's Foreign Intelligence Advisory Board. He is 65
years old and his address is c/o Paul, Weiss, Rifkind, Wharton &
Garrison, 1615 L Street, N.W., Washington, D.C. 20036.
SANDER VANOCUR, Board Member. Since January 1992, President of Old Owl
Communications, a full-service communications firm. Since November
1989, Mr. Vanocur has served as a Director of the Damon Runyon-Walter
Winchell Cancer Research Fund. Since January 1994, Mr. Vanocur has
served as a Visiting Professional Scholar at the Freedom Forum First
Amendment Center at Vanderbilt University. From June 1986 to December
1991, he was a Senior Correspondent of ABC News and, from October 1977
to December 31, 1991, he was Anchor of the ABC News program "Business
World," a weekly business program on the ABC television network. He
is 68 years old and his address is 2928 P Street, N.W., Washington,
D.C. 20007.
For so long as the Fund's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members of the
Fund who are not "interested persons" of the Fund, as defined in the 1940
Act, will be selected and nominated by the Board members who are not
"interested persons" of the Fund.
Ordinarily, meetings of shareholders for the purpose of electing Board
members will not be held unless and until such time as less than a majority
of the Board members holding office have been elected by shareholders, at
which time the Board members then in office will call a shareholders'
meeting for the election of Board members. Under the 1940 Act,
shareholders of record of not less than two-thirds of the outstanding
shares of the Fund may remove a Board member through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. The Board members are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any such Board
member when requested in writing to do so by the shareholders of record of
not less than 10% of the Fund's outstanding shares.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund for the fiscal year
ended March 31, 1996, and by all other funds in the Dreyfus Family of Funds
for which such person is a Board member (the number of which is set forth
in parenthesis next to each Board member's total compensation) for the year
ended December 31, 1995, were as follows:
Compensation From
Aggregate Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund* Board Member
David W. Burke $2,250 $253,654 (52)
Joseph S. DiMartino $2,813 $448,618 (93)
Diane Dunst $2,250 $39,000 (10)
Rosalind Gersten Jacobs $2,250 $92,500 (20)
Jay I. Meltzer $2,250 $37,500 (10)
Daniel Rose $2,250 $80,250 (22)
Warren B. Rudman $2,250 $85,500 (18)
Sander Vanocur $2,250 $79,750 (22)
_____________________
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $1,256 for all Board members as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive Officer
and a director of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., the ultimate parent of which is Boston Institutional
Group, Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc. She is 38 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992
to July 1994, he served as Counsel for The Boston Company Advisors, Inc.
From August 1990 to February 1992, he was employed as an Associate at
Ropes & Gray. He is 32 years old.
ELIZABETH BACHMAN, Vice President and Assistant Secretary. Assistant Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years old.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President, Treasurer and
Chief Financial Officer of the Distributor and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 34 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1% of
the Fund's shares outstanding on July 15, 1996.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the Fund,
provided that in either event the continuance also is approved by a majority of
the Board members who are not "interested persons" (as defined in the 1940 Act)
of the Fund or the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Agreement was approved by shareholders
of the Fund on August 3, 1994, and was last approved by the Fund's Board,
including a majority of the Board members who are not "interested persons" of
any party to the Agreement, at a meeting held on May 8, 1996. The Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board or by vote
of the holders of a majority of the Fund's shares, or, on not less than 90 days'
notice, by the Manager. The Agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith Smith,
Vice Chairman of the Board; Christopher M. Condron, President, Chief Operating
Officer and a director; Stephen E. Canter, Vice Chairman, Chief Investment
Officer and a director; Lawrence S. Kash, Vice Chairman-Distribution and a
director; Philip L. Toia, Vice Chairman-Operations and Administration and a
director; William T. Sandalls, Jr., Senior Vice President and Chief Financial
Officer; Elie M. Genadry, Vice President-Institutional Sales; William F. Glavin,
Jr., Vice President-Corporate Development; Mark N. Jacobs, Vice President,
General Counsel and Secretary; Patrice M. Kozlowski, Vice President-Corporate
Communications; Mary Beth Leibig, Vice President-Human Resources; Jeffrey N.
Nachman, Vice President-Mutual Fund Accounting; Andrew S. Wasser, Vice
President-Information Systems; Elvira Oslapas, Assistant Secretary; and Mandell
L. Berman, Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene and Julian M.
Smerling, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions, and provides the
Fund with portfolio managers who are authorized by the Fund's Board to execute
purchases and sales of securities. The Fund's portfolio managers are Richard J.
Moynihan, Joseph A. Darcy, A. Paul Disdier, Douglas Gaylor, Karen M. Hand,
Stephen C. Kris, Jill C. Shaffro, L. Lawrence Troutman, Samuel J. Weinstock and
Monica S. Wieboldt. The Manager also maintains a research department with
a professional staff of portfolio managers and securities analysts who provide
research services for the Fund as well as for other funds advised by the
Manager. All purchases and sales are reported for the Board's review at the
meeting subsequent to such transactions.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time deems
appropriate.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The expenses
borne by the Fund include: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, fees of Board members who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of the Manager, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining the
Fund's existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, and any extraordinary
expenses.
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. All fees and expenses are accrued
daily and deducted before the declaration of dividends to shareholders. For the
fiscal year ended March 31, 1994, no management fee was paid by the Fund
pursuant to undertakings by the Manager. For the fiscal years ended March 31,
1995 and 1996, the management fees payable by the Fund amounted to $467,124 and
$421,431, respectively, which amounts were reduced by $328,284 and $98,481,
respectively, pursuant to undertakings then in effect, resulting in net fees
paid to the Manager of $138,840 in fiscal 1995 and $322,950 in fiscal 1996.
The Manager has agreed that if in any fiscal year the aggregate expenses
of the Fund, exclusive of taxes, brokerage, interest on borrowings and (with the
prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the expense
limitation of any state having jurisdiction over the Fund, the Fund may
deduct from the payment to be made to the Manager under the Agreement, or the
Manager will bear, such excess expense to the extent required by state law.
Such deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Shares."
The Distributor. The Distributor serves as the Fund's distributor on a
best efforts basis pursuant to an agreement which is renewable annually. The
Distributor also acts as distributor for the other funds in the Dreyfus Family
of Funds and for certain other investment companies. In some states, certain
financial institutions effecting transactions in Fund shares may be required to
register as dealers pursuant to state law.
Services Charges. There is no sales or service charge by the Fund or
the Distributor, although investment dealers, banks and other institutions may
make reasonable charges to investors for their services. The services provided
and the applicable fees are established by each dealer or other institution
acting independently of the Fund. The Fund has been given to understand that
these fees may be charged for customer services including, but not limited to,
same-day investment of client funds; same-day access to client funds; advice to
customers about the status of their accounts, yield currently being paid or
income earned to date; provision of periodic account statements showing security
and money market positions; other services available from the dealer,
bank or other institution; and assistance with inquiries related to their
investment. Any such fees will be deducted monthly from the investor's account,
which on smaller accounts could constitute a substantial portion of
distributions. Small, inactive, long-term accounts involving monthly service
charges may not be in the best interest of investors. Investors should be aware
that they may purchase shares of the Fund directly from the Fund without
imposition of any maintenance or service charges, other than those already
described herein.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 p.m., New York time,
on any business day that Dreyfus Transfer, Inc., the Fund's transfer and
dividend disbursing agent (the "Transfer Agent") and the New York Stock Exchange
are open for business will be credited to the shareholder's Fund account on the
next bank business day following such purchase order. Purchase orders made
after 4:00 p.m., New York time, on any business day the Transfer Agent and the
New York Stock Exchange are open for business, or orders made on Saturday,
Sunday or any Fund holiday (e.g., when the New York Stock Exchange is not open
for business), will be credited to the shareholder's Fund account on the second
bank business day following such purchase order. To qualify to use the Dreyfus
TeleTransfer Privilege, the initial payment for purchase of Fund shares must be
drawn on, and redemption proceeds paid to, the same bank and account as are
designated in the Account Application or Shareholder Services Form on file. If
the proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"Redemption of Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services Plan."
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation for certain allocated
expenses of providing personal services and/or maintaining shareholder accounts.
The services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to the maintenance
of shareholder accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Fund's
Board for its review. In addition, the Plan provides that material amendments
of the Plan must be approved by the Board members and by the Board members who
are not "interested persons" (as defined in the 1940 Act) of the Fund and have
no direct or indirect financial interest in the operation of the Plan by vote
cast in person at a meeting called for the purpose of considering such
amendments. The Plan is subject to annual approval by such vote of the Board
members cast in person at a meeting called for the purpose of voting on the
Plan. The Plan is terminable at any time by vote of a majority of the Board
members who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Plan.
For the fiscal year ended March 31, 1996, $41,683 was chargeable to the
Fund under the Plan.
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application, Shareholder Services Form or by later written request that the Fund
provide Redemption Checks ("Checks") drawn on the Fund's account. Checks will
be sent only to the registered owner(s) of the account and only to the address
of record. The Account Application, Shareholder Services Form or later written
request must be manually signed by the registered owner(s). Checks may be made
payable to the order of any person in an amount of $500 or more. When a Check
is presented to the Transfer Agent for payment, the Transfer Agent, as the
investor's agent, will cause the Fund to redeem a sufficient number of shares in
the investor's account to cover the amount of the Check. Dividends are earned
until the Check clears. After clearance, a copy of the Check will be returned
to the investor. Investors generally will be subject to the same rules and
regulations that apply to checking accounts, although election of this Privilege
creates only a shareholder-transfer agent relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in an
investor's account, the Check will be returned marked insufficient funds.
Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the investor,
and reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege on
the next business day after receipt if the Transfer Agent receives the
redemption request in proper form or Shareholder Services Form. Redemption
proceeds ($1,000 minimum) will be transferred by Federal Reserve wire only to
the commercial bank account specified by the investor on the Account Application
or Shareholder Services Form or to a correspondent bank if the investor's
bank is not a member of the Federal Reserve System. Fees ordinarily are imposed
by such bank and usually are borne by the investor. Immediate notification by
the correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code which
may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
toll free. Investors should advise the operator that the above transmittal code
must be used and should also inform the operator of the Transfer Agent's answer
back sign.
To change the commercial bank or account designated to receive wire
redemption proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed as
described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through the
Automated Clearing House ("ACH") system unless more prompt transmittal
specifically is requested. Redemption proceeds will be on deposit in the
investor's account at an ACH member bank ordinarily two business days after
receipt of the redemption request. See "Purchase of Shares--Dreyfus
TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder of
a joint account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which signature-
guarantees in proper form generally will be accepted from domestic banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, as well as
from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP"), and the
Stock Exchanges Medallion Program. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature-Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, executors, administrators, trustees or guardians, and may accept
other suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to signature-
guarantees, please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission. In the case of
requests for redemption in excess of such amount, the Fund's Board reserves the
right to make payments in whole or in part in securities (which may include non-
marketable securities) or other assets in case of an emergency or any time a
cash distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the
same manner as the Fund's portfolio is valued. If the recipient sold such
securities, brokerage charges might be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b) when
trading in the markets the Fund ordinarily utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
that could have been imposed in connection with the Purchased
Shares (at the time the Purchased Shares were acquired), without
giving effect to any reduced loads, the difference will be
deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor must give exchange instructions to
the Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the applicable box on the Account Application,
indicating that the investor specifically refuses this Privilege. By using the
Telephone Exchange Privilege, the investor authorizes the Transfer Agent to act
on telephonic instructions from any person representing himself or herself to be
the investor and reasonably believed by the Transfer Agent to be genuine.
Telephone exchanges may be subject to limitations as to the amount involved or
the number of telephone exchanges permitted. Shares issued in certificate form
are not eligible for telephone exchange.
To establish a personal retirement plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For Dreyfus-
sponsored Keogh Plans, IRAs and IRAs set up under a Simplified Employment
Pension Plan ("SEP-IRAs") with only one participant, the minimum initial
investment is $750. To exchange shares held in corporate plans, 403(b)(7) Plans
and SEP-IRAs with more than one participant, the minimum initial investment is
$100 if the plan has at least $2,500 invested among the funds in the Dreyfus
Family of Funds. To exchange shares held in personal retirement plans, the
shares exchanged must have a current value of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares of
another fund in the Dreyfus Family of Funds. This Privilege is available only
for existing accounts.
Shares will be exchanged on the basis of relative net asset value as described
above under "Fund Exchanges." Enrollment in or modification or cancellation of
this Privilege is effective three business days following notification by the
investor. An investor will be notified if his account falls below the amount
designated to be exchanged under this Privilege. In this case, an investor's
account will fall to zero unless additional investments are made in excess of
the designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege. Exchanges
of IRA shares may be made between IRA accounts and from regular accounts to IRA
accounts, but not from IRA accounts to regular accounts. With respect to all
other retirement accounts, exchanges may be made only among those accounts.
Fund Exchanges and Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being acquired
may legally be sold. Shares may be exchanged only between accounts having
identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject any
exchange request in whole or in part. The Fund Exchanges service or Dreyfus
Auto-Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the yield on
the shares. If withdrawal payments exceed reinvested dividends and
distributions, the investor's shares will be reduced and eventually may be
depleted. Automatic Withdrawal may be terminated at any time by the investor,
the Fund or the Transfer Agent. Shares for which certificates have been issued
may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest automatically their dividends or dividends and capital gains
distributions, if any, from the Fund in shares of another fund in the Dreyfus
Family of Funds of which the investor is a shareholder. Shares of other funds
purchased pursuant to this privilege will be purchased on the basis of relative
net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other
funds that are offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with
a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Shares."
Valuation of Portfolio Securities. The Fund's investments are valued by
an independent pricing service (the "Service") approved by the Fund's Board.
When, in the judgment of the Service, quoted bid prices for investments are
readily available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the Fund's officers under the general
supervision of the Fund's Board. Expenses and fees, including the
management fee (reduced by the expense limitation, if any), are accrued daily
and are taken into account for the purpose of determining the net asset value of
Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as
such, are paid by the Fund for such purchases and sales, although the price paid
usually includes an undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers ordinarily are executed at a price between the bid
and asked price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds it
advises and, conversely, research services furnished to the Manager by brokers
in connection with other funds the Manager advises may be used by the Manager in
advising the Fund. Although it is not possible to place a dollar value on these
services, it is the opinion of the Manager that the receipt and study of such
services should not reduce the overall expenses of its research department.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions and
Taxes."
The Internal Revenue Code of 1986, as amended (the "Code"), provides
that if a shareholder has not held his Fund shares for more than six months (or
such shorter period as the Internal Revenue Service may prescribe by regulation)
and has received an exempt-interest dividend with respect to such shares, any
loss incurred on the sale of such shares shall be disallowed to the extent of
the exempt-interest dividend received. In addition, any dividend or
distribution paid shortly after an investor's purchase may have the effect of
reducing the net asset value of his shares below the cost of his investment.
Such a distribution should be a return on the investment in an economic sense
although taxable as stated in "Dividends, Distributions and Taxes" in
the Prospectus.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code. In addition,
all or a portion of the gain realized from engaging in "conversion transactions"
may be treated as ordinary income under Section 1258. "Conversion transactions"
are defined to include certain forward, futures, option and "straddle"
transactions, transactions marketed or sold to produce capital gains, or
transactions described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss realized by the Fund from
certain financial futures and options transactions will be treated as 60% long-
term capital gain or loss and 40% short-term capital gain or loss. Gain or loss
will arise upon exercise or lapse of such futures and options as well as from
closing transactions. In addition, any such futures or options remaining
unexercised at the end of the Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to the Fund
characterized in the manner described above.
Offsetting positions held by the Fund involving certain financial
futures contracts or options transactions may be considered, for tax purposes,
to constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Section 1256. As such, all
or a portion of any short- or long-term capital gain from certain "straddle"
and/or conversion transactions may be recharacterized to ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in financial futures contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the futures or
options comprising a part of such "straddles" were governed by Section 1256 of
the Code. The Fund may make one or more elections with respect to "mixed
straddles." If no election is made, to the extent the straddle rules apply to
positions established by the Fund, losses realized by the Fund will be deferred
to the extent of unrealized gain in any offsetting positions. Moreover, as a
result of the straddle and conversion transaction rules, short-term capital loss
on straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain may be recharacterized as short-term capital gain or
ordinary income.
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion in
order to maintain its qualification as a regulated investment company. In such
case, the Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance Information."
For the 30-day period ended March 31, 1996, the Fund's yield was 4.21%.
The Fund's yield reflects the waiver of a portion of the management fee then in
effect, without which the Fund's yield for the 30-day period ended March 31,
1996 would have been 4.14%. Current yield is computed pursuant to a formula
which operates as follows: The amount of the Fund's expenses accrued for the
30-day period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned (computed in accordance with regulatory
requirements) by the Fund during the period. That result is then divided by the
product of: (a) the average daily number of shares outstanding during the
period that were entitled to receive dividends, and (b) the net asset value per
share on the last day of the period less any undistributed earned income per
share reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power, after
which 1 is subtracted. The current yield is then arrived at by multiplying the
result by 2.
Based upon a combined 1996 Federal and Massachusetts income tax rate of
46.85%, the Fund's tax equivalent yield for the 30-day period ended March 31,
1996 was 7.92%. Absent the fee waiver then in effect, the Fund's tax equivalent
yield for such period would have been 7.79%. Tax equivalent yield is computed by
dividing that portion of the current yield (calculated as described above) which
is tax exempt by 1 minus a stated tax rate and adding the quotient to that
portion, if any, of the yield of the Fund that is not tax exempt.
The tax equivalent yield quoted above represents the application of the
highest Federal and State of Massachusetts marginal personal income tax rates
presently in effect. For Federal personal income tax purposes, a 39.6% tax rate
has been used. For Massachusetts personal income tax purposes, a 12% tax rate
has been used. The tax equivalent figure, however, does not include the
potential effect of any local (including, but not limited to, county, district
or city) taxes, including applicable surcharges. In addition, there may be
pending legislation which could affect such stated tax rates or yield. Each
investor should consult its tax adviser, and consider its own factual
circumstances and applicable tax laws, in order to ascertain the relevant tax
equivalent yield.
For the one year period ended March 31, 1996 and for the period June 26,
1992 (commencement of operations) through March 31, 1996, the Fund's average
annual total returns were 7.22% and 6.22%, respectively. Average annual total
return is calculated by determining the ending redeemable value of an investment
purchased with a hypothetical $1,000 payment made at the beginning of the period
(assuming the reinvestment of dividends and distributions), dividing by the
amount of the initial investment, taking the "n"th root of the quotient (where
"n" is the number of years in the period) and subtracting 1 from the result.
For the period June 26, 1992 (commencement of operations) through March
31, 1996, the Fund's aggregate total return was 25.51%. Total return is
calculated by subtracting the amount of the Fund's net asset value per share at
the beginning of a stated period from the net asset value per share at the end
of the period (after giving effect to the reinvestment of dividends and
distributions during the periods), and dividing the result by the net asset
value per share at the beginning of the period.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be used
for illustrative purposes only and are not indicative of the Fund's past or
future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or events,
and actual or proposed tax legislation. From time to time, advertising
materials for the Fund may also refer to statistical or other information
concerning trends relating to investment companies, as compiled by industry
associations such as the Investment Company Institute. From time to time, the
Fund may advertise that it is (or was) the first no-load Massachusetts
intermediate-term tax-free mutual fund available to investors and, for so long
as such statement remains true, that it is the only no-load Massachusetts
intermediate-term tax-free fund available to investors. From time to time,
advertising materials for the Fund also may refer to Morningstar ratings and
related analyses supporting such ratings.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Fund shares
are of one class and have equal rights as to dividends and in liquidation.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
The Fund will send annual and semi-annual financial statements to
shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the Fund, the
Transfer Agent arranges for the maintenance of shareholder account records for
the Fund, the handling of certain communications between shareholders and the
Fund and the payment of dividends and distributions payable by the Fund. For
these services, the Transfer Agent receives a monthly fee computed on the basis
of the number of shareholder accounts it maintains for the Fund during the
month, and is reimbursed for certain out-of-pocket expenses. For the period
December 1, 1995 (effective date of transfer agency agreement) through March 31,
1996, the Fund paid the Transfer Agent $13,198.
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Fund's custodian.
Neither The Bank of New York nor the Transfer Agent has any part in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-
2696, as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares being
sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, has been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS - INVESTING
IN MASSACHUSETTS MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the Commonwealth of
Massachusetts available as of the date of this Statement of Additional
Information. While the Fund has not independently verified this information, it
has no reason to believe that such information is not correct in all material
aspects.
The economy of the Commonwealth of Massachusetts is experiencing a
recovery following a slowdown that began in mid-1988. Massachusetts had
benefitted from an annual job growth rate of approximately 2% since the early
1980s, but by 1989 employment started to decline. Between 1988 and 1992, total
employment in Massachusetts declined 10.7%. In 1993, 1994 and 1995, however,
total employment increased by 1.6%, 2.2% and 2.4% respectively. Employment
levels increased in all sectors except manufacturing. Between 1990 and 1992,
the Commonwealth's unemployment rate was considerably higher than the
national average, however, unemployment rates in Massachusetts since 1993 have
declined faster than the national average (6.9% compared to 6.8% in 1993) and
the employment rate in Massachusetts in 1994 and 1995 was slightly below the
national average (6.0% compared to 6.1% for 1994 and 5.4% compared with 5.6% for
1995).
Massachusetts' economic and fiscal difficulties of recent years appear
to have abated. While Massachusetts' expenditures for state programs and
services in each of the fiscal years 1987 through 1991 exceeded each year's
current revenues, Massachusetts ended each of the fiscal years 1991 through 1996
with a positive fiscal balance in its general operating funds.
While the Commonwealth's expenditures for State programs and services in
each of the fiscal years 1987 through 1991 exceeded each year's current
revenues, Massachusetts ended each of the fiscal years 1991 to 1996 with a
positive closing fund balance in its budgeted operating funds.
In recent years, health care related costs have risen dramatically in
Massachusetts and across the nation and the increase in the State's Medicaid and
group health insurance costs reflects this trend. In fiscal 1993, Medicaid was
the largest item in Massachusetts' budget and has been one of the fastest
growing budget items, although the rate of increase has abated in recent
years. During fiscal years 1989, 1990, 1991 and 1992, Medicaid expenditures
were $1.83 billion, $2.12 billion, $2.77 billion and $2.82 billion,
respectively, representing an average increase of 15.4%. Expenditures for
fiscal 1993 were $3.15 billion, an 11.8% increase over fiscal 1992. Medicaid
expenses in fiscal 1994 were $3.31 billion and in fiscal 1995 $3.398 billion.
The average annual growth from fiscal 1991 to fiscal 1995 was 5.4% compared with
approximately 17% between fiscal 1987 and fiscal 1991.
Massachusetts' pension costs have risen dramatically as the State has
appropriated funds to address in part the unfunded liabilities that had
accumulated over several decades. Total pension costs increased at an average
annual rate of 8.1% from $703.9 million in fiscal 1991 to $968.8 million in
fiscal 1995.
Payments for debt service on Massachusetts general obligation bonds and
notes have risen at an average annual rate of 11.6% from $649.8 million in
fiscal 1989 to $1.23 billion in fiscal 1995. Debt service payments were $898.3
million in fiscal 1992, $1.14 billion in fiscal 1993 and $1.15 billion in fiscal
1994. In 1990, legislation was enacted which generally imposes a 10% limit on
the total appropriations in any fiscal year that may be expended for payment of
interest and principal on general obligation debt. As of January 1, 1995, the
State had approximately $9,595 billion of long-term general obligation debt
outstanding and short-term direct obligations of the Commonwealth totalled $264
million.
Certain independent authorities and agencies within the State are
statutorily authorized to issue debt for which Massachusetts is directly, in
whole or in part, or indirectly liable. The State's liabilities are either in
the form of (i) a direct guaranty, (ii) state support through contract
assistance payments for debt service, or (iii) indirect obligations. The State
is indirectly liable for the debt of certain authorities through a moral
obligation to maintain the funding of reserve funds which are pledged as
security for the authorities' debt.
In November 1980, voters in the Commonwealth approved a State-wide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees imposed
on cities and towns of certain government entities, including county
governments. The law is not a constitutional provision and accordingly is
subject to amendment or repeal by the legislature. Proposition 2 1/2 limits the
property taxes which a Massachusetts city or town may assess in any fiscal year
to the lesser of (i) 2.5% of the full and fair cash value of real estate and
personal property therein and (ii) 2.5% over the previous year's levy limit plus
any growth in the tax base from certain new construction and parcel
subdivisions. In addition, Proposition 2 1/2 limits any increase in the charges
and fees assessed by certain governmental entities, including county
governments, on cities and towns to the sum of (i) 2.5% of the total charges and
fees imposed in the preceding fiscal year, and (ii) any increase in charges for
services customarily provided locally or services obtained by the city or town
at its option. The law contains certain override provisions which require voter
approval at a general or special election. Proposition 2 1/2 also limits any
annual increase in the total assessments on cities and towns by any county,
district, authority, the Commonwealth, or any other governmental entity except
regional school districts and regional water and sewer districts whose budgets
are approved by 2/3 of their member cities and towns. During the 1980s,
Massachusetts increased payments to the cities, towns and regional school
districts ("Local Aid") to mitigate the impact of Proposition 2 1/2 on local
programs and services. In fiscal 1996, approximately 19.1% of Massachusetts'
budget was allocated to Local Aid. Direct Local Aid dropped from a high of
$2.961 billion in fiscal 1989 to $2.727 billion in fiscal 1994, but increased to
$2.976 billion in fiscal 1995 and an estimated $3.240 billion in fiscal 1996.
Recent increases are largely a result of comprehensive education reform
legislation enacted in 1993 that requires annual increases in state expenditures
for education funding, subject to annual legislative appropriations, above a
fiscal 1993 base of approximately $1.288 billion. Increases of $175 million
above the base for fiscal 1994 to $867 million for fiscal 1997 have been fully
funded. Additional increases are called for in future years.
Many factors affect the financial condition of the Commonwealth and its
cities, towns and public bodies, such as social, environmental, and economic
conditions, many of which are not within the control of such entities. As is
the case with most urban States, the continuation of many of Massachusetts'
programs, particularly its human services programs, is in significant
part dependent upon continuing Federal reimbursements which have been steadily
declining. The loss of grants to Massachusetts and its cities and towns could
further slow economic development. To the extent that such factors may exist,
they could have an adverse effect on economic conditions in Massachusetts,
although what effect, if any, such factors would have on Massachusetts'
Municipal Obligations cannot be predicted.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely
strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A
Principal and interest payments on bonds in this category are regarded
as safe. This rating describes the third strongest capacity for payment of debt
service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between "A" and "BBB" rating is that the latter shows
more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the
factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to
meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and
repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus sign (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
A
Issues assigned this rating are regarded as having the greatest capacity
for timely payment. Issues in this category are delineated with the numbers 1,
2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
categories below B. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of a rating
category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over the
short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months or the
DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<TABLE>
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS MARCH 31, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-90.3% AMOUNT VALUE
_______ ______
<S> <C> <C>
MASSACHUSETTS-88.6%
Arlington 5%, 8/15/2001..................................................... $ 200,000 $ 204,098
Attleboro:
5.50%, 1/15/2001........................................................ 400,000 411,836
5.70%, 1/15/2002........................................................ 400,000 414,920
5.90%, 1/15/2004........................................................ 325,000 340,457
6%, 1/15/2005........................................................... 345,000 363,009
Belchertown, Refunding:
4.80%, 10/15/2001 (Insured; MBIA)....................................... 240,000 242,731
5%, 10/15/2002 (Insured; MBIA).......................................... 400,000 407,472
Boston:
6.10%, 7/1/1999 (Insured; MBIA)......................................... 250,000 263,087
6.20%, 7/1/2002......................................................... 865,000 932,358
Refunding 5.20%, 2/1/2004 (Insured; AMBAC).............................. 500,000 510,120
Revenue, Refunding (Boston City Hospital):
5.45%, 2/15/2004 (Insured; FHA)....................................... 500,000 502,905
5.45%, 8/15/2004 (Insured; FHA)....................................... 210,000 211,220
5.55%, 2/15/2005 (Insured; FHA)....................................... 295,000 296,708
Brockton, Refunding:
5.60%, 6/1/2001 (Insured; AMBAC)........................................ 255,000 266,781
5.70%, 6/1/2002 (Insured; AMBAC)........................................ 260,000 273,985
Brookline 5.20%, 9/1/2003................................................... 500,000 514,075
Canton Industrial Development Finance Authority, IDR
(General Signal Corp.) 5.625%, 12/1/2002................................ 510,000 517,839
Dartmouth 4.90%, 5/1/2002................................................... 200,000 203,626
Greater New Bedford Regional Refuse Management District:
4.75%, 5/1/1997......................................................... 815,000 819,214
5.10%, 5/1/2000......................................................... 240,000 235,913
Haverhill 6.30%, 6/15/2002.................................................. 100,000 104,162
Holyoke, Refunding:
6.10%, 11/1/1998........................................................ 190,000 197,908
6.20%, 11/1/1999........................................................ 100,000 105,199
Lawrence 4.625%, 2/15/2005.................................................. 1,190,000 1,150,397
Lowell 5.60%, 4/1/2005...................................................... 1,530,000 1,586,916
Ludlow 6.90%, 10/15/2003.................................................... 100,000 113,449
Lynn, Refunding:
4.90%, 1/15/2005 (Insured; FSA)......................................... 1,210,000 1,199,945
5%, 1/15/2006........................................................... 1,185,000 1,177,214
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) MARCH 31, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ ______
MASSACHUSETTS (CONTINUED)
Massachusetts Bay Transportation Authority, Refunding:
6%, 3/1/2005............................................................ $ 1,000,000 $ 1,068,630
(General Transportation System) 5.50%, 3/1/2009......................... 1,000,000 1,004,090
Massachusetts Commonwealth:
Consolidated Loan:
5.25%, 6/1/1998....................................................... 100,000 102,267
5.75%, 5/1/2003....................................................... 500,000 527,465
6.20%, 6/1/2003....................................................... 85,000 91,706
4.875%, 10/1/2013..................................................... 2,500,000 2,279,900
Refunding 6%, 8/1/2010 (Insured; AMBAC)................................. 1,500,000 1,602,075
Massachusetts Convention Center Authority, Refunding
(Hynes Convention Center) 5.90%, 9/1/1998............................... 250,000 259,622
Massachusetts Education Loan Authority, Education Loan Revenue:
7.40%, 6/1/1998 (LOC; Rabobank Nederland) (a)........................... 235,000 237,204
7.55%, 1/1/2002 (Insured; MBIA)......................................... 820,000 895,555
8%, 6/1/2002 (LOC; Rabobank Nederland) (a).............................. 90,000 92,425
Massachusetts Health and Educational Facilities Authority, Revenue:
(Bentley College) 5.50%, 7/1/2003 (Insured; MBIA)....................... 500,000 519,795
(Beth Israel Hospital) 5.10%, 7/1/2000 (Insured; AMBAC)................. 300,000 307,056
(Brigham and Womens Hospital) 4.90%, 7/1/2005........................... 1,840,000 1,811,112
(Cape Cod Health System) 5%, 11/15/2002
(Insured; College Construction Loan Insurance Association)............ 1,000,000 1,014,870
(Central New England Health System) 5.75%, 8/1/2003..................... 1,000,000 969,690
(New England Medical Center Hospitals):
5.60%, 7/1/1999 (Insured; FGIC)....................................... 100,000 103,641
4.90%, 7/1/2006 (Insured; MBIA) (b)................................... 1,365,000 1,334,670
(Refunding - Baystate Medical Center) 4.90%, 7/1/2005 (Insured; FGIC)... 1,000,000 986,980
(Refunding - Massachusetts General Hospital):
4.85%, 7/1/2004 (Insured; AMBAC)...................................... 1,000,000 989,610
6%, 7/1/2004 (Insured; AMBAC) (b)..................................... 1,875,000 2,014,162
(Refunding - Melrose-Wakefield Hospital):
5.50%, 7/1/1999....................................................... 200,000 203,614
5.80%, 7/1/2001....................................................... 100,000 102,997
(Smith College) 5.75%, 7/1/2016......................................... 1,000,000 998,120
(University of Massachusetts Medical School Research Project)
5.30%, 7/1/2002 (Insured; College Construction Loan Insurance Association) 400,000 411,100
Massachusetts Housing Finance Agency:
(Holy Cross College-11) 6%, 11/1/2002................................... 100,000 106,821
Housing Projects, Refunding:
5.20%, 4/1/2000....................................................... 800,000 814,328
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) MARCH 31, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ ______
MASSACHUSETTS (CONTINUED)
Massachusetts Housing Finance Agency (continued):
Housing Projects, Refunding (continued):
6.30%, 10/1/2013...................................................... $ 2,000,000 $ 2,009,520
SFHR:
6.90%, 12/1/2001...................................................... 95,000 98,400
6%, 12/1/2015 (Insured; AMBAC) (c).................................... 4,000,000 4,002,920
Massachusetts Industrial Finance Agency, Revenue:
(Museum of Fine Arts-Boston) 6.20%, 1/1/2000 (Insured; MBIA)............ 100,000 103,973
(Refunding - Combined Jewish Philanthropies) 5.65%, 2/1/2003 (Insured; AMBAC) 795,000 831,824
(Refunding - Refusetech, Inc. Project) 6.15%, 7/1/2002.................. 1,800,000 1,839,564
Massachusetts Municipal Wholesale Electric Co., Power Supply Systems Revenue:
5.875%, 7/1/2003........................................................ 500,000 524,755
5%, 7/1/2017 (Insured; AMBAC)........................................... 1,450,000 1,306,740
Refunding:
6.30%, 7/1/2001....................................................... 100,000 106,647
6.40%, 7/1/2002....................................................... 100,000 107,710
5%, 7/1/2013 (Insured; MBIA).......................................... 1,890,000 1,744,753
Massachusetts Water Pollution Abatement Trust, Water Pollution Abatement
Revenue
(Pool Loan Program) 5.70%, 2/1/2012..................................... 2,260,000 2,272,701
Milford 5.10%, 12/15/2010................................................... 1,300,000 1,249,807
New Bedford 5.60%, 3/1/2003................................................. 600,000 607,170
New England Education Loan Marketing Corp., Student Loan Revenue:
6%, 3/1/2002............................................................ 500,000 521,175
6.60%, 9/1/2002......................................................... 100,000 107,839
6.90%, 11/1/2009........................................................ 1,000,000 1,083,240
Newton:
4.40%, 4/15/2002........................................................ 600,000 599,832
4.50%, 4/15/2003........................................................ 575,000 575,506
North Andover:
6.50%, 11/1/2004........................................................ 300,000 329,670
6.55%, 11/1/2005........................................................ 300,000 328,728
North Reading, Refunding 6.40%, 6/15/2002 (Insured; MBIA)................... 200,000 218,778
Pioneer Valley Transit Authority, COP 5.70%, 2/1/2003 (Insured; CGIC) (b)... 1,240,000 1,301,008
Plymouth County, COP 6.50%, 10/1/2001....................................... 200,000 213,788
Springfield:
4.90%, 1/15/2002 (Insured; MBIA)........................................ 850,000 859,120
Refunding:
6%, 9/1/2001.......................................................... 500,000 515,095
4.90%, 9/1/2002 (Insured; MBIA)....................................... 515,000 521,062
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) MARCH 31, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ ______
MASSACHUSETTS (CONTINUED)
Swansea 6.60%, 1/15/2005.................................................... $ 100,000 $ 108,717
Taunton 5.25%, 7/15/2002 (Insured; AMBAC)................................... 100,000 103,428
Webster 6.50%, 9/1/2005 (Insured; AMBAC).................................... 310,000 337,426
Westfield:
4.20%, 9/1/2000 (Insured; FSA).......................................... 500,000 493,855
Refunding 4.50%, 12/15/2003 (Insured; MBIA)............................. 960,000 939,437
Westford, Refunding 5%, 10/15/2004 (Insured; AMBAC)......................... 795,000 805,184
Weymouth 6%, 6/15/2001...................................................... 100,000 105,137
Woods Hole, Marthas Vineyard & Nantucket 6.10%, 3/1/2005.................... 690,000 735,402
Worcester:
5.80%, 8/1/1998......................................................... 200,000 206,280
5.80%, 8/1/1999......................................................... 250,000 259,093
6%, 8/1/2003............................................................ 545,000 572,294
U. S. RELATED-1.7%
Guam Airport Authority, Revenue 6%, 10/1/2000............................... 1,100,000 1,131,834
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Refunding 5.875%, 7/1/1999............................. 100,000 104,113
_____
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $63,473,774).................... $64,300,574
======
SHORT-TERM MUNICIPAL INVESTMENTS -9.7%
MASSACHUSETTS-9.1%
Massachusetts Commonwealth, VRDN 3.50% (d).................................. $ 4,500,000 $ 4,500,000
Massachusetts Health and Educational Facilities Authority, Revenue, VRDN
(Saint Elizabeth's) 3.40% (Insured; FSA) (d)............................ 2,000,000 2,000,000
U.S. RELATED-.6%
Puerto Rico Commonwealth Government Development Bank, Refunding, VRDN
2.80% (LOC; Credit Suisse International) (a,d).......................... 400,000 400,000
______
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $6,900,000).................... $ 6,900,000
======
TOTAL INVESTMENTS-100.0%
(cost $70,373,774)...................................................... $71,200,574
======
</TABLE>
<TABLE>
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation IDR Industrial Development Revenue
CGIC Capital Guaranty Insurance Company LOC Letter of Credit
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company SFHR Single Family Housing Revenue
FHA Federal Housing Administration VRDN Variable Rate Demand Notes
FSA Financial Security Assurance
Insurance Corporation
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (E) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
_____ _____ ___________ ____________
<S> <C> <C>
AAA Aaa AAA 53.9%
AA Aa AA 3.2
A A A 22.9
BBB Baa BBB 13.1
F1+ & F1 MIG1, VMG1 & P1 SP1 & A1 6.9
____
100.0%
====
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Secured by letter of credit.
(b) Wholly held by the custodian in a segregated account as collateral
for a delayed delivery security.
(c) Purchased on a delayed delivery basis.
(d) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(e) Fitch currently provides creditworthiness information for a limited
number of investments.
See notes to financial statements.
<TABLE>
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1996
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $70,373,774)-see statement...................................... $71,200,574
Cash.................................................................... 110,457
Interest receivable..................................................... 930,019
Prepaid expenses........................................................ 8,224
______
72,249,274
LIABILITIES:
Due to The Dreyfus Corporation and subsidiaries......................... $ 27,708
Payable for investment securities purchased............................. 4,021,333
Payable for shares of Beneficial Interest redeemed...................... 5,823
Accrued expenses and other liabilities.................................. 65,547 4,120,411
_____ ______
NET ASSETS.................................................................. $68,128,863
======
REPRESENTED BY:
Paid-in capital......................................................... $70,222,974
Accumulated undistributed investment income-net......................... 16,239
Accumulated net realized (loss) on investments.......................... (2,937,150)
Accumulated net unrealized appreciation on investments-Note 3........... 826,800
______
NET ASSETS at value applicable to 5,182,617 shares outstanding (unlimited
number of $.001 par value shares of Beneficial Interest authorized)..... $68,128,863
======
NET ASSET VALUE, offering and redemption price per share
($68,128,863 / 5,182,617 shares)........................................ $13.15
======
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 1996
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $3,661,011
EXPENSES:
Management fee-Note 2(a).............................................. $ 421,431
Shareholder servicing costs-Note 2(b)................................. 109,193
Professional fees..................................................... 32,651
Trustees' fees and expenses-Note 2(c)................................. 18,745
Custodian fees........................................................ 7,676
Prospectus and shareholders' reports.................................. 4,943
Registration fees..................................................... 3,442
Miscellaneous......................................................... 25,991
_____
TOTAL EXPENSES.................................................. 624,072
Less-reduction in management fee due to undertakings-Note 2(a)........ 98,481
_____
NET EXPENSES.................................................... 525,591
_____
INVESTMENT INCOME-NET........................................... 3,135,420
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (316,507)
Net unrealized appreciation on investments.............................. 2,125,130
_____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 1,808,623
_____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $4,944,043
======
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31,
________________________________
1995 1996
_______ _______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 3,749,907 $ 3,135,420
Net realized (loss) on investments...................................... (2,620,069) (316,507)
Net unrealized appreciation on investments for the year................. 1,403,906 2,125,130
______ ______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 2,533,744 4,944,043
______ ______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (3,749,907) (3,119,181)
Net realized gain on investments........................................ (91,423) _
______ ______
TOTAL DIVIDENDS....................................................... (3,841,330) (3,119,181)
______ ______
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 16,540,755 12,306,338
Dividends reinvested.................................................... 2,833,098 2,284,138
Cost of shares redeemed................................................. (40,811,502) (16,789,097)
______ ______
(DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS........ (21,437,649) (2,198,621)
______ ______
TOTAL (DECREASE) IN NET ASSETS.................................... (22,745,235) (373,759)
NET ASSETS:
Beginning of year....................................................... 91,247,857 68,502,622
______ ______
End of year (including undistributed investment income-net;
$16,239 on March 31, 1996)............................................ $ 68,502,622 $ 68,128,863
====== ======
SHARES SHARES
______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 1,300,469 933,252
Shares issued for dividends reinvested.................................. 223,568 172,921
Shares redeemed......................................................... (3,245,315) (1,271,693)
______ ______
NET (DECREASE) IN SHARES OUTSTANDING.................................. (1,721,278) (165,520)
====== ======
</TABLE>
See notes to financial statements.
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
Reference is made to page __ of the Fund's Prospectus dated
August 1, 1996.
See notes to financial statements.
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Massachusetts Intermediate Municipal Bond Fund (the "Fund") is
registered under the Investment Company Act of 1940 ("Act") as a
non-diversified open-end management investment company. The Fund's investment
objective is to provide an investor with as high a level of current income
exempt from Federal and Massachusetts income taxes as is consistent with the
preservation of capital. The Dreyfus Corporation ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. Premier Mutual Fund Services, Inc. (the "Distributor") acts as the
distributor of the Fund's shares, which are sold to the public without a
sales charge.
(A) PORTFOLIO VALUATION: The Fund's investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Fund may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund has an unused capital loss carryover of approximately $2,742,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to March 31, 1996. The
carryover does not include net realized securities losses from November 1,
1995 through March 31, 1996 which are treated, for Federal income tax purposes,
as arising in fiscal 1997. If not applied, $432,000 of the carryover expires
in fiscal 2003 and $2,310,000 of the carryover expires in fiscal 2004.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Fund for any full fiscal year. However, the Manager had
undertaken, from April 1, 1995 through July 26, 1995 to reduce the management
fee paid by the Fund, to the extent that the Fund's aggregate expenses
(exclusive of certain expenses as described above) exceeded specified annual
percentages of the Fund's average daily net assets. The Manager has currently
undertaken from July 27, 1995 through March 31, 1997 to reduce the management
fee paid by or reimburse such excess expenses of the Fund, to the extent that
the Fund's aggregate annual expenses (exclusive of certain expenses as
described above) exceed an annual rate of .80 of 1% of the value of the
Fund's average daily net assets. The reduction in management fee, pursuant to
the undertakings, amounted to $98,481 for the year ended March 31, 1996.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager, an
amount not to exceed an annual rate of .25 of 1% of the value of the Fund's
average daily net assets for certain allocated expenses of providing personal
services and/or maintaining shareholder accounts. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
During the year ended March 31, 1996, the Fund was charged an aggregate of
$41,683 pursuant to the Shareholder Services Plan.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of the Manager, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Fund. Such compensation amounted to $13,198 for the period from
December 1, 1995 through March 31, 1996.
(C) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended March 31, 1996,
amounted to $21,641,813 and $25,428,880, respectively.
At March 31, 1996, accumulated net unrealized appreciation on investments
was $826,800, consisting of $1,359,597 gross unrealized appreciation and
$532,797 gross unrealized depreciation.
At March 31, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus Massachusetts Intermediate Municipal Bond Fund, including the
statement of investments, as of March 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Massachusetts Intermediate Municipal Bond Fund at March
31, 1996, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst amd Young LLP signature logo]
New York, New York
May 2, 1996
