Planning & Education | Tax-Exempt Funds

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Tax-Exempt Funds

Because tax-exempt bond funds invest primarily in tax-exempt bonds issued nationally or by a single state, dividends from these funds are exempt from federal taxes — and, if you live in the issuing state, the funds may be exempt from state and local taxes as well. This helps them offer potentially higher after-tax yields than comparable taxable investments, especially for investors in higher tax brackets.

Municipal Bond Funds
Interest from municipal bonds is exempt from federal taxation, as well as state and local taxes if you live in the issuing state. When comparing a muni bond fund to a taxable bond fund, it's important to look at a fund's taxable equivalent yield. That's what you would need to earn on a taxable investment to equal a specific tax-free yield (depending on your tax bracket).

Dreyfus National Municipal Bond Funds: These funds seek to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital.

Dreyfus Intermediate Municipal Bond Fund
Dreyfus Municipal Bond Fund
Dreyfus Municipal Bond Opportunity Fund
Dreyfus High-Yield Municipal Bond Fund
Dreyfus AMT-Free Municipal Bond Fund
Dreyfus Short-Intermediate Municipal Bond Fund

Municipal Bond Funds from Your State
Residents of states with high state and local income tax rates, such as New York and California, may further benefit on an after-tax basis from purchasing municipal bonds issued by their state, since the interest earned may be exempt from federal, as well as state and local taxes.

Dreyfus State-Specific Municipal Bond Funds: These funds seek as high a level of current income, exempt from federal and state income taxes, as is consistent with the preservation of capital.

U.S. Government Bond Funds
The income paid by U.S. government bonds is free from state and local taxes only. However, federal taxes still apply and, unfortunately, they're usually the biggest tax obligation for investors.

Dreyfus U.S. Government Bond Funds: These funds seek to maximize total return, consisting of capital appreciation and current income through investments in securities issued or guaranteed by the U.S. government or its agencies or instrumentalities.

Dreyfus Short-Intermediate Government Fund
Dreyfus BASIC U.S. Mortgage Securities Fund
Dreyfus U.S. Treasury Intermediate Term Fund
Dreyfus Intermediate Term Income Fund
Dreyfus U.S. Treasury Long Term Fund

Tax-Exempt Money Market Funds¹
Considered to be the most stable mutual fund investments, money market funds invest in short-term, highly liquid securities as they seek to maintain a constant share price of $1 per share. Moreover, tax-exempt money market funds provide income that's free from federal income taxes — and, in some cases, free from state and local taxes as well.

U.S. Government Money Market Funds
Dreyfus 100% U.S. Treasury Money Market Fund
Dreyfus BASIC U.S. Government Money Market Fund
Dreyfus Money Market Instruments, Inc.: Government Securities Series
Dreyfus U.S. Treasury Reserves - Class R
Dreyfus U.S. Treasury Reserves - Investor Shares
General Government Securities Money Market Fund
General Treasury Prime Money Market Fund

Next: Variable and Fixed Annuities

1. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. As a measure of current income, seven-day yield is more reflective of the fund's income-generating ability than total return.

Bond funds are subject generally to interest rate, credit, prepayment and extension and market risks, to varying degrees, all of which are more fully described in the fund's prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines. While the U.S. guarantees the timely payment of principal and interest on these bonds, the market value and share price of these funds are not guaranteed. High-yield bonds are subject to increased credit risk and are considered speculative in terms of the issuer's perceived ability to continue making interest payments on a timely basis and to repay principal upon maturity.

Municipal bond income may be subject to state and local taxes if you do not reside in the issuing state. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable. State income tax exemption applies only to dividend income earned from bonds issued in the state in which you reside. Investing primarily in a single state makes the fund more sensitive to risks specific to the state and may magnify other risks.

Short-term corporate, asset-backed and municipal securities holdings (where applicable), while rated in the highest rating category by one or more NRSRO (or if an unrated municipal, deemed of comparable quality by Dreyfus), involve credit and liquidity risks and risk of principal loss.

This information is general in nature and is not intended to constitute tax advice. Please consult your tax advisor for more detailed information on tax issues and for advice on your specific situation.

Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.