Registration No. 333-_________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ Post-Effective Amendment No. ____
(Check appropriate box or boxes)
DREYFUS PREMIER MUNICIPAL BOND FUND
-----------------------------------
(Exact Name of Registrant as Specified in Charter)
(212) 922-6000
--------------
(Area Code and Telephone Number)
c/o The Dreyfus Corporation
200 PARK AVENUE, NEW YORK, NEW YORK 10166
-----------------------------------------
(Address of Principal Executive Offices: Number,
Street, City, State, Zip Code)
(Name and Address of Agent for Service)
Mark N. Jacobs, Esq.
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement is declared effective.
It is proposed that this filing will become effective on May __, 2000
pursuant to Rule 488.
Registrant has registered an indefinite number of shares of beneficial
interest, par value $0.001 per share, under the Securities Act of 1933, as
amended, pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Accordingly, no filing fee is being paid at this time.
<PAGE>
DREYFUS PREMIER MUNICIPAL BOND FUND
Form N-14
Cross Reference Sheet
Pursuant to Rule 481(a) Under the Securities Act of 1933
<TABLE>
<CAPTION>
PROSPECTUS/PROXY
FORM N-14 ITEM NO. STATEMENT CAPTION
- ------------------ -------------------
PART A
- -------
<S> <C> <C>
Item 1. Beginning of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
Item 2. Beginning and Outside Back Cover Page of Prospectus Cover Page
Item 3. Synopsis Information and Risk Factors Summary
Item 4. Information About the Transaction Letter to Shareholders; Summary; Reasons for the Exchange;
Information About the Exchange
Item 5. Information About the Registrant Letter to Shareholders; Summary; Reasons for the Exchange;
Information About the Exchange; Additional Information
About the Fund and Series
Item 6. Information About the Company Being Acquired Letter to Shareholders; Reasons for the Exchange;
Information About the Exchange; Additional Information
About the Fund and Series
Item 7. Voting Information Letter to Shareholders; Cover Page; Voting Information
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for Reoffering by Not Applicable
Persons Deemed to be Underwriters
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION
- ------- -------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Not Applicable
Item 12. Additional Information About the Registrant Statement of Additional Information of Dreyfus
Premier Municipal Bond Fund dated September 1,
1999, as supplemented on December 23, 1999, and
on March 22, 2000(1)
Item 13. Additional Information About the Company Being Statement of Additional Information of Dreyfus
Acquired Premier State Municipal Bond Fund dated
September 1, 1999, as supplemented on December 22,
1999, and on March 22, 2000(2)
Item 14. Financial Statements Statement of Additional Information of Dreyfus
Premier Municipal Bond Fund dated September 1,
1999, as supplemented on December 23, 1999 and
on March 22, 2000(1); Statement of Additional
Information of Dreyfus Premier State Municipal
Bond Fund dated September 1, 1999, as supplemented
on December 22, 1999 and March 22, 2000(2)
PART C
- --------
Item 15. Indemnification
Item 16. Exhibits
Item 17. Undertakings
1 Incorporated herein by reference to the Registration Statement of the
Registrant on Form N-1A (File No. 33-07496).
2 Incorporated herein by reference to the Registration Statement of
Dreyfus Premier State Municipal Bond Fund on Form N-1A
(File No. 33-10238).
</TABLE>
<PAGE>
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
GEORGIA SERIES
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Dear Shareholder:
As a shareholder of the Georgia Series (the "Series") of Dreyfus
Premier State Municipal Bond Fund (the "Trust"), you are entitled to vote on the
proposal described below and in the enclosed materials.
Because the Series has been unable to attract sufficient current
assets under management to operate efficiently as a separate series of the Trust
without significant expense subsidization, management of the Trust has
determined that it would be in the best interest of the Series and its
shareholders if the Series were to exchange its assets (subject to liabilities)
for shares of a larger fund advised by The Dreyfus Corporation. It is proposed
that this exchange take place with Dreyfus Premier Municipal Bond Fund (the
"Fund") which has substantially similar investment objectives and management
policies, but which does not invest primarily in Municipal Obligations that are
exempt from Georgia state income taxes.
The proposal provides that the Series exchange (the "Exchange") all of
its assets, subject to liabilities, attributable to its Class A, Class B and
Class C shares, for Class A, Class B and Class C shares, respectively, of the
Fund. Promptly thereafter, the Series will distribute pro rata the Fund shares
received in the Exchange to its shareholders in complete liquidation of the
Series. Thus, each shareholder will receive for his or her Class A, Class B or
Class C Series shares a number of corresponding Class A, Class B or Class C Fund
shares equal to the value of the Series shares as of the date of the Exchange.
No sales charge or contingent deferred sales charge will be imposed at the time
of the Exchange. The Exchange will not result in the imposition of Federal
income tax on you. Shareholders who do not wish to participate in the Exchange
may redeem their shares prior to the Exchange. Any contingent deferred sales
charge applicable upon redemption of such shares will be waived and any sales
load deducted at the time of purchase of such shares on or after January 1, 1999
will be reimbursed to such shareholders by The Dreyfus Corporation.
Further information about the transaction is contained in the enclosed
materials, which you should review carefully.
Please take the time to consider the enclosed materials and then vote
by completing, dating and signing the enclosed proxy card. A self-addressed,
postage-paid envelope has been enclosed for your convenience.
THE TRUST'S BOARD MEMBERS RECOMMEND THAT THE SERIES' SHAREHOLDERS VOTE
IN FAVOR OF THE PROPOSED TRANSACTION. If you have any questions after
considering the enclosed materials, please contact your Service Agent.
Sincerely,
Stephen E. Canter,
President
June __, 2000
<PAGE>
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
GEORGIA SERIES
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------------
To the Shareholders:
A Special Meeting of Shareholders of the Georgia Series (the "Series")
of Dreyfus Premier State Municipal Bond Fund (the "Trust") will be held at the
offices of The Dreyfus Corporation, 200 Park Avenue, 7th Floor, New York, New
York 10166, on Tuesday, July 25, 2000 at 10:00 a.m. for the following purposes:
1. To consider an Agreement and Plan of Reorganization
providing for the transfer of all of the assets, subject to
liabilities, attributable to Class A, Class B and Class C shares of
the Series to Dreyfus Premier Municipal Bond Fund (the "Fund") in
exchange (the "Exchange") for the Fund's corresponding Class A, Class
B and Class C shares and the assumption by the Fund of the Series'
stated liabilities. Class A, Class B and Class C shares of the Fund
received in the Exchange will be distributed by the Series to its
Class A, Class B and Class C shareholders, respectively, in
liquidation of the Series, after which the Series will be terminated
as a series of the Trust; and
2. To transact such other business as may properly come
before the meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on May 15, 2000, will
be entitled to receive notice of and to vote at the meeting.
By Order of the Board of Trustees
Steven F. Newman,
Secretary
New York, New York
June __, 2000
==============================================================================
WE NEED YOUR PROXY VOTE IMMEDIATELY
A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS
VITAL. BY LAW, THE MEETING OF SHAREHOLDERS OF THE SERIES WILL HAVE TO BE
ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM OF ITS SHARES
ELIGIBLE TO VOTE IS REPRESENTED. IN THAT EVENT, THE SERIES, AT ITS SHAREHOLDERS'
EXPENSE, WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT TO ACHIEVE A QUORUM.
CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE SERIES TO HOLD THE MEETING AS
SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD IMMEDIATELY. YOU AND ALL OTHER
SHAREHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
==============================================================================
<PAGE>
______________, 2000
ACQUISITION OF THE ASSETS OF
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
GEORGIA SERIES
BY AND IN EXCHANGE FOR SHARES OF
DREYFUS PREMIER MUNICIPAL BOND FUND
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 25, 2000
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Dreyfus Premier State Municipal Bond
Fund (the "Trust") on behalf of its Georgia Series (the "Series") to be used at
the Special Meeting of Shareholders (the "Meeting") of the Series to be held on
Tuesday, July 25, 2000 at 10:00 a.m., at the offices of The Dreyfus Corporation,
200 Park Avenue, 7th Floor, New York, New York 10166, for the purposes set forth
in the accompanying Notice of Special Meeting of Shareholders. Shareholders of
record at the close of business on July 15, 2000 are entitled to receive notice
of and to vote at the Meeting.
It is proposed that the Series transfer all of its assets, subject to
liabilities, attributable to its Class A, Class B and Class C shares, to Dreyfus
Premier Municipal Bond Fund (the "Fund") in exchange (the "Exchange") for
corresponding Class A shares, Class B shares and Class C shares of the Fund, all
as more fully described herein. Upon consummation of the Exchange, Fund shares
received by the Series will be distributed to Series shareholders, with each
shareholder receiving a pro rata distribution of Fund shares (or fractions
thereof) for Series shares held prior to the Exchange. Thus, it is contemplated
that each shareholder will receive for his or her Series shares a number of Fund
Class A shares, Class B shares or Class C shares (or fractions thereof) equal in
value to the aggregate net asset value of the shareholder's Series shares of
each such Class as of the date of the Exchange.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely information about the Fund that Series
shareholders should know before voting on the Proposal or investing in the Fund.
A Statement of Additional Information ("SAI") dated _______, 2000,
relating to this Prospectus/Proxy Statement, has been filed with the Securities
and Exchange Commission (the "Commission") and is incorporated by reference in
its entirety. The Commission maintains a Web site (HTTP://WWW.SEC.GOV) that
contains the SAI, material incorporated in this Prospectus/Proxy Statement by
reference, and other information regarding the Fund and Series. A copy of the
SAI is available without charge by calling 1-800-554-4611 or writing to the Fund
at its principal executive offices located at 200 Park Avenue, New York, New
York 10166.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT BANK DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. MUTUAL
FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------------------
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- -------------------------------------------------------------------------------
The Series and the Fund are open-end, management investment companies
advised by The Dreyfus Corporation ("Dreyfus"). They also have the same
distributor, and substantially similar investment objectives and management
policies, except that the Fund invests primarily in municipal bonds that provide
income exempt from Federal income tax, whereas the Series invests primarily in
municipal bonds that also provide income exempt from Georgia state income tax
for Georgia residents. The substantive differences between the Series and the
Fund are set forth herein.
The Fund's Prospectus dated September 1, 1999, the Fund's Annual
Report for the fiscal year ended April 30, 1999, and the Fund's Semi-Annual
Report for the six months ended October 31, 1999 each accompany this
Prospectus/Proxy Statement and are incorporated by reference. FOR A FREE COPY OF
THE SERIES' PROSPECTUS DATED SEPTEMBER 1, 1999, THE SERIES' ANNUAL REPORT FOR
THE FISCAL YEAR ENDED APRIL 30, 1999, AND THE SERIES' SEMI-ANNUAL REPORT FOR THE
SIX MONTHS ENDED OCTOBER 31, 1999, WRITE TO THE SERIES AT THE TRUST'S PRINCIPAL
EXECUTIVE OFFICES LOCATED AT 200 PARK AVENUE, NEW YORK, NEW YORK 10166, OR CALL
1-800-554-4611.
Shareholders are entitled to one vote for each share of beneficial
interest of the Series, par value $.001 per share, held and fractional votes for
each fractional Series share held. Class A, Class B and Class C shareholders
will vote together on the Proposal. Series shares represented by executed and
unrevoked proxies will be voted in accordance with the specifications made
thereon. If the enclosed form of proxy is executed and returned, it nevertheless
may be revoked by giving another proxy or by letter or telegram directed to the
Series, which must indicate the shareholder's name and account number. To be
effective, such revocation must be received before the Meeting. Also, any
shareholder who attends the Meeting in person may vote by ballot at the Meeting,
thereby canceling any proxy previously given. As of February 29, 2000, the
following numbers of Series shares were issued and outstanding:
CLASS A SHARES CLASS B SHARES CLASS C SHARES
OUTSTANDING OUTSTANDING OUTSTANDING
------------- -------------- ----------------
922,573 534,578 6,859
Proxy materials will be mailed to shareholders of record on or about
June 1, 2000.
<PAGE>
TABLE OF CONTENTS
Summary.......................................................................6
Reasons for the Exchange.....................................................17
Information about the Exchange...............................................18
Additional Information about the Fund and Series.............................23
Voting Information...........................................................23
Financial Statements and Experts.............................................25
Other Matters................................................................26
Notice to Banks, Broker/Dealers and Voting Trustees and Their Nominees.......26
<PAGE>
APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION
PROVIDING FOR THE TRANSFER OF ALL OF THE ASSETS OF THE SERIES TO THE
FUND
SUMMARY
This Summary is qualified by reference to the more complete
information contained elsewhere in this Prospectus/Proxy Statement, the Fund
Prospectus, the Series Prospectus and the form of Agreement and Plan of
Reorganization attached to this Prospectus/Proxy Statement as Exhibit A.
PROPOSED TRANSACTION. The Trust's Board, including the Board members
who are not "interested persons" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")), has unanimously approved an Agreement and
Plan of Reorganization (the "Plan"). The Plan provides that, subject to the
requisite approval of the Series shareholders, on the date of the Exchange the
Series assign, transfer and convey to the Fund all of the assets (subject to
liabilities) of the Series, including all securities and cash, attributable to
its Class A, Class B and Class C shares, in exchange for Class A, Class B and
Class C shares of the Fund, respectively, having an aggregate net asset value
equal to the value of the net assets attributable to the Series' corresponding
Class of shares. The Series will distribute all Fund shares received by it among
its shareholders so that each Class A, Class B and Class C shareholder will
receive a pro rata distribution of Fund Class A, Class B and Class C shares (or
fractions thereof), respectively, having an aggregate net asset value equal to
the aggregate net asset value of the shareholder's Series shares as of the date
of the Exchange. Thereafter, the Series will be terminated as a series of the
Trust.
As a result of the Exchange, each Series shareholder will cease to be
a shareholder of the Series and will become a shareholder of the Fund as of the
close of business on the date of the Exchange. No sales charge or contingent
deferred sales charge ("CDSC") will be imposed at the time of the Exchange.
The Trust's Board has concluded unanimously that the Exchange would be
in the best interests of shareholders of the Series and the interests of
existing shareholders of the Series would not be diluted as a result of the
transactions contemplated thereby. See "Reasons for the Exchange."
TAX CONSEQUENCES. As a condition to the closing of the Exchange, the
Trust and the Fund will receive an opinion of counsel to the effect that, for
Federal income tax purposes, (a) no gain or loss will be recognized by the
Series' shareholders as a result of the Exchange, (b) the holding period and
aggregate tax basis of Fund shares received by a Series' shareholder will be the
same as the holding period and aggregate tax basis of the shareholder's Series
shares, and (c) the holding period and tax basis of the Series' assets
transferred to the Fund as a result of the Exchange will be the same as the
holding period and tax basis of such assets held by the Series immediately prior
to the Exchange. See "Information about the Exchange--Tax Consequences."
COMPARISON OF THE SERIES AND FUND. The following discussion is
primarily a summary of certain parts of the Series Prospectus and the Fund
Prospectus. Information contained herein is qualified by the more complete
information set forth therein, which is incorporated herein by reference.
GOAL/APPROACH. The Series and the Fund have similar investment goals.
Each seeks to maximize current income exempt from Federal income tax, to the
extent consistent with the preservation of capital, with respect to the Fund, or
without undue risk, with respect to the Series. The Series, however, also seeks
current income exempt from Georgia state income tax. To pursue their respective
goals, each of the Fund and Series normally invests substantially all of its
assets in municipal bonds that provide income exempt from Federal income tax,
but, for the Series, these bonds generally also must provide income exempt from
Georgia state income tax for Georgia residents ("Georgia Municipal
Obligations"). As a result of this difference, the dividends paid by the Fund
are not exempt from Georgia state income tax to residents of Georgia.
The Series and Fund each invests at least 70% of its assets in
investment grade municipal bonds or the unrated equivalent as determined by
Dreyfus. For additional yield, each may invest up to 30% of its assets in
municipal bonds rated below investment grade ("high yield" or "junk bonds") or
the unrated equivalent as determined by Dreyfus. In addition, the Series is
required, under ordinary circumstances, to invest at least 65% of its assets in
Georgia Municipal Obligations. The Fund does not limit its investments to the
municipal obligations of any single state.
The Fund is a diversified investment company, the Series is
non-diversified. As a diversified fund, the Fund is required under the 1940 Act
to spread its investments among more issuers.
In all other material respects, the management policies of the Series
and the Fund are the same. For a more complete discussion of the Series' or
Fund's management policies, see "Goal/Approach" in the Series Prospectus or the
Fund Prospectus, respectively.
The Series is a separate portfolio of the Trust, which, like the Fund,
is an unincorporated business trust organized under the laws of the Commonwealth
of Massachusetts.
MAIN RISKS The risks associated with an investment in the Fund and
Series are substantially similar and include interest rate, income, credit,
market and call risks. As a result, the value of your investment in the Fund, as
in the Series, will fluctuate, which means that you could lose money.
The Series purchases primarily Georgia Municipal Obligations and,
consequently, its portfolio is more sensitive to risks specific to that state.
If there should be a default or other financial crisis relating to Georgia or an
agency or municipality thereof, the market value and marketability of
outstanding Georgia Municipal Obligations in the Series' portfolio and the
interest income to the Series could be adversely affected. The Fund does not
concentrate its investments in Georgia or any other state. The Series is
non-diversified, which means that a relatively high percentage of Series' assets
may be invested in a limited number of issuers. Therefore, its performance may
be more vulnerable to changes in the market value of a single issuer or a group
of issuers than that of the Fund which is diversified.
The Series and the Fund may invest up to 30% of the value of its net
assets in higher yielding (and, therefore, higher risk) debt securities
(commonly known as junk bonds). The market price and yield of these bonds are
more volatile than those of higher rated bonds. Factors adversely affecting the
market price and yield of these securities will adversely affect the Series' or
Fund's net asset value. In addition, the retail secondary market for these bonds
may be less liquid than that of higher rated bonds; adverse market conditions
could make it difficult at times for the Series or Fund to sell certain
securities or could result in lower prices than those used in calculating the
Series' or Fund's net asset value.
Although the objective of the Fund and Series is to generate income
exempt from Federal income tax and, for the Series, from Georgia state income
tax, interest from some of their holdings may be subject to the Federal
alternative minimum tax.
The Fund and Series, at times, may invest in certain derivatives, such
as futures and options. Derivatives can be illiquid and highly volatile.
See "Main Risks" in the relevant Prospectus for a more complete
description of investment risks.
SALES CHARGES. The schedule of the initial sales charge imposed on
Class A shares and the CDSC imposed at the time of redemption of Class B and
Class C shares for Series and Fund shares is identical. In addition, Series
Class A shares and Fund Class A shares purchased without an initial sales charge
as part of an investment of at least $1,000,000 and redeemed within one year
after purchase are subject to the same CDSC. See in the relevant Prospectus
"Account Policies-Buying Shares--Class A Shares" for a discussion of the initial
sales charge and "Account Policies-Selling Shares--Contingent Deferred Sales
Charge" for a discussion of the CDSC imposed on Class B and Class C shares.
FEES AND EXPENSES. The following information concerning fees and
expenses of the Series and Fund is derived from information set forth under the
caption "Expenses" in the relevant Prospectus. The fees and expenses of the
Series and Fund set forth below are for the fiscal year ended April 30, 1999,
except that annual operating expenses for the Series have been restated to
reflect an undertaking by Dreyfus, in effect from July 29, 1999 to April 30,
2000, to reduce its management fee or pay certain other expenses to the extent
the Series' aggregate expenses, excluding 12b-1 distribution fees, taxes,
brokerage, commitment fees, interest on borrowings and extraordingary expenses,
exceed an annual rate of 0.89% of the Series' average daily net assets. This
undertaking was voluntary and may be withdrawn by Dreyfus at any time. The "Pro
Forma After Exchange" information is based on net assets and fund accruals of
the Series and Fund as of February 29, 2000. Annual fund operating expenses are
paid out of Fund assets, so their effect is reflected in the respective share
price.
ANNUAL FUND
OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
(percentage of average daily net assets):
<TABLE>
<CAPTION>
PRO FORMA
AFTER
EXCHANGE
SERIES FUND FUND
CLASS A CLASS A CLASS A
-------- -------- ---------
<S> <C> <C> <C>
Management fees .55% .55% .55%
Rule 12b-1 fee None None None
Shareholder services fee .25% .25% .25%
Other expenses .19% .11% .19%
- ------------------------ ----------- ---------- --------
Total .99% .91% .99%
- ------------------------ ----------- ---------- --------
Less fee waivers .10% -- --
- ------------------------ ----------- ---------- --------
Net expenses .89% .91% .99%
PRO FORMA
AFTER
EXCHANGE
SERIES FUND FUND
CLASS B CLASS B CLASS B
-------- -------- ---------
Management fees .55% .55% .55%
Rule 12b-1 fee .50% .50% .50%
Shareholder services fee .25% .25% .25%
Other expenses .19% .11% .22%
- ------------------------- ----------- ---------- --------
Total 1.49% 1.41% 1.52%
- ------------------------- ----------- ---------- --------
Less fee waivers .10% -- --
- ------------------------- ----------- ---------- --------
Net expenses 1.39% 1.41% 1.52%
PRO FORMA
AFTER
EXCHANGE
SERIES FUND FUND
CLASS C CLASS C CLASS C
-------- -------- ---------
Management fees .55% .55% .55%
Rule 12b-1 fee .75% .75% .75%
Shareholder services fee .25% .25% .25%
Other expenses .44% .12% .19%
- ------------------------ ----------- ---------- --------
Total 1.99% 1.67% 1.74%
- ------------------------- ----------- ---------- --------
Less fee waiver .35% -- --
- ------------------------- ----------- ---------- --------
Net expenses 1.64% 1.67% 1.74%
</TABLE>
EXAMPLE
This example shows what you could pay in expenses over time. It uses
the same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses. The
figures shown would be the same whether you sold your shares at the end of a
period or kept them. Because actual return and expenses will be different, the
example if for comparison only.
<TABLE>
<CAPTION>
Fund Pro Forma After
Series Fund Exchange
----------------------------------- --------------------------------- ------------------------------------
Class A Class B Class C Class A Class B Class C Class A Class B Class C
Shares Shares* Shares* Shares Shares* Shares* Shares Shares* Shares*
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $546 $552/ $302/ $202 $539 $545/ $270/ $546 $555/ $277/$177
$152 $145 $170 $155
3 Years $751 $771/ $624/ $727 $749/ $526/ $751 $780/ $548/$548
$471 $624 $449 $526 $480
5 Years $972 $1,013/ $1,073/ $931 $976/ $907/ $972 $1,029/ $944/$944
$813 $1,073 $776 $907 $829
10 Years $1,608 $1,521**/ $2,317/ $1,519 $1,436**/ $1,976/ $1,608 $1,539**/ $2,052/$2,052
$1,521** $2,317 $1,436** $1,976 $1,539**
- ------------------------------
* With redemption/without redemption
** Assumes conversion of Class B to Class A at end of sixth year
following the date of purchase.
</TABLE>
PAST PERFORMANCE. The bar chart and table below show some of the risks
of investing in the Fund. The bar chart shows the changes in the Fund's Class A
performance from year to year. Sales loads are not reflected in the chart; if
they were, the returns shown would have been lower. The table compares the
Fund's average annual total return to that of the Lehman Brothers Municipal Bond
Index, a widely recognized, unmanaged index of municipal bond performance. The
chart and table assume reinvestment of dividends and distributions. For
performance information of the Series, see the Trust's Prospectus under the
caption of "Georgia Series -- Past Performance." Of course, past performance is
no guarantee of future results.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) CLASS A SHARES OF THE FUND
<TABLE>
<CAPTION>
7.33% 13.89% 10.00% 14.40% -6.41% 17.46% 3.96% 9.59% 4.48% -5.82%
------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
`90 `91 `92 `93 `94 `95 `96 `97 `98 `99
<S> <C> <C>
Best Quarter: Q1 `95 +6.60%
Worst Quarter: Q1 `94 -6.33%
</TABLE>
The Fund's Class A year-to-date total return as of 3/31/00 was 2.03%.
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99
<TABLE>
<CAPTION>
Inception Date 1 Year 5 Years 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Class A Shares (11/26/86) -10.05% 4.69% 6.11% -
Class B Shares (1/15/93) -9.84% 4.80% - 4.53%
Class C Shares (7/13/95) -7.38% - - 3.04%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89% 5.83%*
Index
- --------------------
* Based on the life of Class B. For comparative purposes, the value of
the index on 12/31/92 is used as the beginning value on 1/15/93.
</TABLE>
INVESTMENT RESTRICTIONS. The 1940 Act requires that a relatively
limited number of investment policies and restrictions be designated as
fundamental policies that cannot be changed without shareholder approval. One
such fundamental policy is a fund's classification as either a diversified or
non-diversified investment company. The Fund is a diversified investment company
which may not invest more than 5% of the value of its assets in the obligations
of a single issuer, except that up to 25% of the value of the Fund's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities may be purchased, without regard
to any such limitation. The Series is a non-diversified investment company,
meaning the proportion of the Series' assets that may be invested in the
securities of a single issuer is not limited by the 1940 Act. However, each
seeks to meet the diversification requirements of the Internal Revenue Code and
qualify as a regulated investment company. To meet Federal tax requirements, at
the close of each quarter a fund may not have more than 25% of its total assets
invested in any one issuer and, with respect to 50% of the total assets, not
more than 5% of its total assets invested in any one issuer.
In all other respects, the fundamental policies and investment
restrictions of the Series and the Fund are identical.
INVESTMENT ADVISER The investment adviser for the Fund and Series is
Dreyfus, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus
manages more than $127 billion in over 160 mutual fund portfolios. Dreyfus is
the primary mutual fund business of Mellon Financial Corporation, a global
financial services company with approximately $2.5 trillion of assets under
management, administration or custody, including approximately $485 billion
under management. Mellon provides wealth management, global investment services
and a comprehensive array of banking services for individuals, businesses and
institutions. Mellon is headquartered in Pittsburgh, Pennsylvania.
PRIMARY PORTFOLIO MANAGERS. The primary portfolio manager for the
Series is A. Paul Disdier, who has been employed by Dreyfus since February 1988.
Mr. Disdier also serves as a portfolio manager for the Fund. The primary
portfolio manager for the Fund is Samuel J. Weinstock, who has been employed by
Dreyfus since March 1987. Mr. Weinstock also serves as a portfolio manager for
the Series.
BOARD MEMBERS. The Fund and Trust have the same Board members. For a
description of the Board members, see the relevant Statement of Additional
Information under the caption "Management of the Fund."
CAPITALIZATION. Both the Series and the Fund have classified its
respective shares into three classes--Class A, Class B and Class C. The
following table sets forth as of February 29, 2000 (1) the capitalization of
each class of the Series' shares, (2) the capitalization of each class of the
Fund's shares and (3) the pro forma capitalization of each class of the Fund's
shares, as adjusted showing the effect of the Exchange had it occurred on such
date.
<TABLE>
<CAPTION>
PRO FORMA
AFTER
EXCHANGE
SERIES FUND FUND
CLASS A CLASS A CLASS A
------- -------- ---------
<S> <C> <C> <C>
Total net assets......... $11,704,689 $366,611,483 $378,316,172
Net asset value
per share.............. $12.69 $12.69 $12.69
Shares outstanding....... 922,573 28,882,310 29,812,149
PRO FORMA
AFTER
EXCHANGE
SERIES FUND FUND
CLASS B CLASS B CLASS B
------- -------- ---------
Total net assets......... $6,784,345 $58,483,555 $65,267,900
Net asset value
per share.............. $12.69 $12.70 $12.70
Shares outstanding....... 534,578 4,606,145 5,139,205
PRO FORMA
AFTER
EXCHANGE
SERIES FUND FUND
CLASS C CLASS C CLASS C
------- -------- ---------
Total net assets......... $86,957 $4,595,069 $4,682,026
Net asset value $12.68 $12.71 $12.71
per share..............
Shares outstanding....... 6,859 361,436 368,373
</TABLE>
PURCHASE PROCEDURES. The purchase procedures of the Series and Fund
are identical. See "Account Policies - Buying Shares" in the relevant Prospectus
for a discussion of purchase procedures.
DISTRIBUTION PLAN. Fund Class B shares and Fund Class C shares are
subject to a Rule 12b-1 Plan which is identical to that adopted by the Series
for its Class B and Class C shares. The Fund and Series each pay an annual fee
to the distributor to finance the sale of Class B and Class C shares. Because
this fee is paid out of the assets attributable to Class B and Class C on an
ongoing basis, over time it will increase the cost of your investment in Class B
or Class C shares of the Fund and Series and may cost you more than paying other
types of sales charges. See "Distribution Plan and Shareholder Services
Plan--Distribution Plan" in the relevant Statement of Additional Information for
a discussion of the Rule 12b-1 Plan.
SHAREHOLDER SERVICES PLAN. Fund Class A shares, Class B shares and
Class C shares are subject to a Shareholder Services Plan which is identical to
that adopted by the Series for its Class A, Class B and Class C shares. See
"Distribution Plan and Shareholder Services Plan--Shareholder Services Plan" in
the relevant Statement of Additional Information for a discussion of the
Shareholder Services Plan.
REDEMPTION PROCEDURES. The redemption procedures of the Series and
Fund are identical. See "Account Policies - Selling Shares" in the relevant
Prospectus for a discussion of redemption procedures.
DISTRIBUTIONS. The dividend and distributions policies of the Series
and Fund are identical. See "Distributions and Taxes" in the relevant Prospectus
for a discussion of such policies.
SHAREHOLDER SERVICES. The shareholder services offered by the Series
and Fund are identical. See "Services for Fund Investors" in the relevant
Prospectus for a description of shareholder services.
REASONS FOR THE EXCHANGE
The Boards of Trustees of the Trust and the Fund have concluded that
the Exchange is in the best interests of their respective shareholders. Each
Board believes that the Exchange will permit shareholders to pursue
substantially similar investment goals in a larger fund without diluting
shareholders' interests. The Series has been unable to attract sufficient assets
to operate efficiently as a separate series of the Trust without significant
expense subsidization which Dreyfus has indicated it will not continue
indefinitely. As of February 29, 2000, the Series had assets under management of
approximately $18,575,991. The expense ratio of the Series after fee waivers and
expense reimbursements by Dreyfus is lower than that of the Fund. However,
Dreyfus has informed the Board that it does not intend to continue waiving fees
and reimbursing other Series' expenses indefinitely. Without fee waivers and
expense reimbursement, the Series' expense ratio is higher than that of the
Fund. By combining the Series with the Fund, which has larger aggregate net
assets, Series shareholders should obtain the benefits of economies of scale,
which may result in a lower overall expense ratio (as compared to the expense
ratio of the Series) through the spreading of fixed costs of fund operations
over a somewhat larger asset base.
In determining whether to recommend approval of the Exchange, each
Board considered the following factors, among others: (1) the compatibility of
the Series' and the Fund's investment objective, management policies and
investment restrictions, as well as shareholder services offered by the Series
and Fund; (2) the terms and conditions of the Exchange and whether the Exchange
would result in dilution of shareholder interests; (3) expense ratios and
published information regarding the fees and expenses of the Series and Fund, as
well as the expense ratios of similar funds and the estimated expense ratio of
the combined Fund; (4) the tax consequences of the Exchange; and (5) the
estimated costs incurred by the Series and the Fund as a result of the Exchange.
In addition, the Trust's Board considered the Series' inability to attract
sufficient assets to operate efficiently without sufficient expense
subsidization and Dreyfus's expressed intention not to continue such
subsidization.
INFORMATION ABOUT THE EXCHANGE
PLAN OF EXCHANGE. The following summary of the Plan is qualified in
its entirety by reference to the form of Plan attached hereto as Exhibit A. The
Plan provides that the Fund will acquire all of the assets of the Series,
attributable to the Series' Class A, Class B and Class C shares, in exchange for
Fund Class A, Class B and Class C shares, respectively, and the assumption by
the Fund of the Series' stated liabilities on _______, 2000, or such later date
as may be agreed upon by the parties (the "Closing Date"). The number of Fund
shares to be issued to the Series will be determined on the basis of the
relative net asset values per share and aggregate net assets of the
corresponding Class of the Fund and the Series, generally computed as of the
close of trading on the floor of the New York Stock Exchange (currently at 4:00
p.m., New York time) (except for options and futures contracts, if any, which
will be valued 15 minutes after the close of trading) on the Closing Date.
Portfolio securities of the Series and the Fund will be valued in accordance
with the valuation practices of the Fund and Series, which are described under
the caption "Account Policies-Buying Shares" in the relevant Prospectus and
under the caption "Determination of Net Asset Value" in the relevant Statement
of Additional Information.
Prior to the Closing Date, the Series will declare a dividend or
dividends which, together with all previous such dividends, will have the effect
of distributing to Series' shareholders all of the Series' previously
undistributed investment company taxable income, if any, for the taxable period
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid), its net exempt interest income for the fiscal period ending
on or prior to the Closing Date, and all of its previously undistributed net
capital gain realized in the fiscal period ending on or prior to the Closing
Date (after reduction for any capital loss carry forward).
As conveniently as practicable after the Closing Date, the Series will
liquidate and distribute pro rata to its Class A, Class B and Class C
shareholders of record as of the close of business on the Closing Date Fund
Class A shares, Fund Class B shares and Fund Class C shares, respectively,
received by it in the Exchange. Such liquidation and distribution will be
accomplished by establishing accounts on the share records of the Fund in the
name of each Series shareholder, each account representing the respective pro
rata number of Fund shares due to the shareholder. After such distribution and
the winding up of its affairs, the Series will be terminated as a series of the
Trust. After the Closing Date, any outstanding certificates representing Series
shares will represent Fund shares distributed to the record holders of the
Series. Upon presentation to the transfer agent of the Fund, Series share
certificates will be exchanged for Fund share certificates, at the applicable
exchange rate. Certificates for Fund shares will be issued only upon the
investor's written request.
The Plan may be amended at any time prior to the relevant Exchange.
The Trust will provide Series shareholders with information describing any
material amendment to the Plan prior to shareholder consideration. The
obligations of the Series and Fund under the Plan are subject to various
conditions, including approval by Series shareholders holding the requisite
number of Series shares and the continuing accuracy of various representations
and warranties of the Series and the Fund being confirmed by the respective
parties.
The total expenses of the Exchange are expected to be approximately
$35,200, which will be borne pro rata according to the aggregate net assets of
the Fund and Series on the date of the Exchange.
If the Exchange is not approved by the Series' shareholders, the
Trust's Board will consider other appropriate courses of action, including
liquidating the Series.
TEMPORARY SUSPENSION OF CERTAIN OF THE SERIES' INVESTMENT
RESTRICTIONS. Since certain of the Series' existing investment restrictions
could preclude the Series from consummating the Exchange in the manner
contemplated in the Plan, Series shareholders are requested to authorize the
temporary suspension of certain investment restrictions which restrict the
Series' ability to (i) purchase securities other than municipal obligations and
taxable investments (as defined in the Series Statement of Additional
Information) and (ii) invest more than 25% of its total assets in the securities
of issuers in any single industry, as set forth in the Series Statement of
Additional Information, as well as the temporary suspension of any other
investment restriction of the Series to the extent necessary to permit the
consummation of the Exchange. The temporary suspension of the Series' investment
restrictions will not affect the investment restrictions of the Fund. A vote in
favor of the Proposal is deemed to be a vote in favor of the temporary
suspensions.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of the Series' assets
for Fund shares is intended to qualify for Federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Code. As a condition to the
closing of the Exchange, the Fund and Series will receive the opinion of Stroock
& Stroock & Lavan, LLP, counsel to the Fund and the Series, to the effect that,
on the basis of the existing provisions of the Code, Treasury regulations issued
thereunder, current administrative regulations and pronouncements and court
decisions, and certain facts, assumptions and representations, for Federal
income tax purposes: (1) the transfer of all of the Series' assets in exchange
for Fund shares and the assumption by the Fund of the Series' liabilities will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) with
respect to the Series; (2) no gain or loss will be recognized by the Fund upon
the receipt of the Series' assets solely in exchange for Fund shares and the
assumption by the Fund of liabilities of the Series; (3) no gain or loss will be
recognized by the Series upon the transfer of its assets to the Fund in exchange
for Fund shares and the assumption by the Fund of the Series' liabilities or
upon the distribution (whether actual or constructive) of Fund shares to Series
shareholders in exchange for their Series shares; (4) no gain or loss will be
recognized by the Series shareholders upon the exchange of Series shares for
Fund Shares; (5) the aggregate tax basis for Fund shares received by each Series
shareholder pursuant to the Exchange will be the same as the aggregate tax basis
for Series shares held by such shareholder immediately prior to the Exchange,
and the holding period of Fund shares to be received by the Series shareholder
will include the period during which Series shares surrendered in exchange
therefor were held by such shareholder (provided Series shares were held as
capital assets on the date of the Exchange); and (6) the tax basis of Series
assets acquired by the Fund will be the same as the tax basis of such assets to
the Series immediately prior to the Exchange, and the holding period of Series
assets in the hands of the Fund will include the period during which those
assets were held by the Series.
NEITHER THE SERIES NOR THE FUND HAS SOUGHT A TAX RULING FROM THE
INTERNAL REVENUE SERVICE ("IRS"). THE OPINION OF COUNSEL IS NOT BINDING ON THE
IRS NOR DOES IT PRECLUDE THE IRS FROM ADOPTING A CONTRARY POSITION. Series
shareholders should consult their tax advisers regarding the effect, if any, of
the proposed Exchange in light of their individual circumstances. Since the
foregoing discussion relates only to the Federal income tax consequences of the
Exchange, Series shareholders also should consult their tax advisers as to state
and local tax consequences, if any, of the Exchange. REQUIRED VOTE AND BOARD'S
RECOMMENDATION
The Trust's Board has approved the Plan and the Exchange and has
determined that (i) participation in the Exchange is in the Series' best
interests and (ii) the interests of shareholders of the Series will not be
diluted as a result of the Exchange. Pursuant to the Trust's charter documents,
an affirmative vote of a majority of the Series' shares outstanding and entitled
to vote is required to approve the Plan and the Exchange.
THE TRUST'S BOARD,
INCLUDING THE "NON-INTERESTED" BOARD MEMBERS, RECOMMENDS THAT THE SERIES'
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN AND THE EXCHANGE.
ADDITIONAL INFORMATION ABOUT THE FUND AND SERIES
Information about the Fund is incorporated by reference into this
Prospectus/Proxy Statement from the Fund Prospectus forming a part of the
Registration Statement on Form N-1A (File No. 33-7496). Information about the
Series is incorporated by reference into this Prospectus/Proxy Statement from
the Series Prospectus forming a part of the Trust's Registration Statement on
Form N-1A (File No. 33-10238).
The Fund and Series are subject to the requirements of the 1940 Act,
and file reports, proxy statements and other information with the Commission.
Reports, proxy statements and other information filed by the Fund or Series may
be inspected and copied at the Public Reference Facilities of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Northeast
regional office of the Commission at 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material also can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates.
VOTING INFORMATION
In addition to the use of the mails, proxies may be solicited
personally, by telephone or by telegraph, and the Series may pay persons holding
its Series shares in their names or those of their nominees for their expenses
in sending soliciting materials to their principals. Authorizations to execute
proxies may be obtained by telephonic or electronically transmitted instructions
in accordance with procedures designed to authenticate the shareholder's
identity. In all cases where a telephonic proxy is solicited, the shareholder
will be asked to provided his or her address, social security number (in the
case of an individual) or taxpayer identification number (in the case of a
non-individual) and the number of shares owned and to confirm that the
shareholder has received the Fund's proxy statement and proxy card in the mail.
Within 72 hours of receiving a shareholder's telephonic or electronically
transmitted voting instructions, a confirmation will be sent to the shareholder
to ensure that the vote has been taken in accordance with the shareholder's
instructions and to provide a telephone number to call immediately if the
shareholder's instructions are not correctly reflected in the confirmation. Any
shareholder giving a proxy may revoke it at any time before it is exercised by
submitting to the Series a written notice or revocation or a subsequently
executed proxy or by attending the Meeting and voting in person.
If a proxy is properly executed and returned accompanied by
instructions to withhold authority to vote, represents a broker "non-vote" (that
is, a proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
Series shares on a particular matter with respect to which the broker or nominee
does not have discretionary power) or is marked with an abstention
(collectively, "abstentions"), the Series shares represented thereby will be
considered to be present at a Meeting for purposes of determining the existence
of a quorum for the transaction of business. Abstentions will not constitute a
vote "for" or "against" a matter and will be disregarded in determining the
"votes cast" on an issue. For this reason, abstentions will have the effect of a
"no" vote for the purpose of obtaining requisite approval for the Proposal.
In the event that a quorum is not present at the Meeting, or if a
quorum is present but sufficient votes to approve the Proposal are not received,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposal,
the percentage of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information to be provided
to Series shareholders with respect to the reasons for the solicitation. Any
adjournment will require the affirmative vote of a majority of those shares
affected by the adjournment that are represented at the Meeting in person or by
proxy. If a quorum is present, the persons named as proxies will vote those
proxies which they are entitled to vote "FOR" the Proposal in favor of such
adjournment, and will vote those proxies required to be voted "AGAINST" the
Proposal against any adjournment. A quorum is constituted with respect to the
Series by the presence in person or by proxy of the holders of more than 30% of
the outstanding Series shares entitled to vote at the Meeting.
The votes of the Fund's shareholders are not being solicited since
their approval or consent is not necessary for the Exchange.
As of April 12, 2000, the following were known by the Trust to own of
record 5% or more of the outstanding voting shares of the Series and indicated
Class:
NAME AND ADDRESS PERCENTAGE OUTSTANDING
---------------- -----------------------
Before After
Exchange Exchange
-------- ---------
CLASS A
MLPF & S FOR THE SOLE BENEFIT 10.0182% 0.3143%
OF ITS CUSTOMERS Shares Shares
ATTN FUND ADMINISTRATION
A/C 97AG6
4800 DEER LAKE DR E FL 3
JACKSONVILLE, FL 32246-6484
CLASS B
BRIAN O JORDAN & 16.2206% 1.8137%
PAMELA B JORDAN JT WROS Shares Shares
1050 BEDFORD GARDENS DR
ALPHARETTA, GA 30022-6276
MLPF & S FOR THE SOLE BENEFIT 13.7829% 1.5412%
OF ITS CUSTOMERS Shares Shares
ATTN FUND ADMINISTRATION
A/C 97AL3
4800 DEER LAKE DR E FL 3
JACKSONVILLE, FL 32246-6484
FIRST CLEARING CORPORATION 12.1464% 1.3582%
A/C 3433-7581 Shares Shares
FRAZIER WATSON FRANKLIN AND
BETTY C FRANKLIN JTWROS
331 COVERED BRIDGE PL SW
SMYRNA, GA 30082-3607
NFSC FEBO # G1R-135429 9.6820% 1.0826%
WALLACE F MARTIN Shares Shares
SARA P FLOWER
163 SWEETGUM ROAD
LAWRENCEVILLE, GA 30045
NFSC FEBO # G1R-137774 6.7589% 0.7558%
ZACK Z MARTIN Shares Shares
PO BOX 803
LAWRENCEVILLE, GA 30245
DONALDSON LUFKIN JENRETTE 5.9359% 0.6637%
SECURITIES CORPORATION INC. Shares Shares
P. O. BOX 2052
JERSEY CITY, NJ 07303-9998
CLASS C
MARTHA S STEPHENSON TTEE 64.4126% 1.2827%
ELISSA CLAIRE STEPHANSON IRREV Shares Shares
TRUST U/A DTD 2/17/84
FBO ELISSA CLAIRE STEPHENSON
531 LITTLE JOHN DR
LILBURN, GA 30047-6008
PAINEWEBBER FOR THE BENEFIT OF 21.8421% 0.4350%
GEORGE H. SANDERLIN Shares Shares
2285 PEACHTREE RD NE APT #404
ATLANTA, GA 30309-1117
MLPF &S FOR THE SOLE BENEFIT 12.4759% 0.2484%
OF ITS CUSTOMERS Shares Shares
ATTN FUND ADMINISTRATION
A/C 97JF2
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
As of April 12, 2000, the following were known by the Fund to own of
record 5% or more of the outstanding voting shares of the indicated Class:
NAME AND ADDRESS PERCENTAGE OUTSTANDING
---------------- -----------------------
Before After
Exchange Exchange
-------- ---------
CLASS A
None None None
CLASS B
MLPF & S FOR THE SOLE BENEFIT 13.9098% 12.3544%
OF ITS CUSTOMERS Shares Shares
ATTN FUND ADMINISTRATION
A/C 97AH1
4800 DEER LAKE DR E FL 3
JACKSONVILLE, FL 32246-6484
CLASS C
MLPF & S FOR THE SOLE BENEFIT 49.1569% 48.1780%
OF ITS CUSTOMERS Shares Shares
ATTN FUND ADMINISTRATION
A/C 97HU1
4800 DEER LAKE DR E FL 3
JACKSONVILLE, FL 32246-6484
NORWEST INVESTMENT SERVICES, INC. 6.8833% 6.7462%
FBO 020973011 Shares Shares
NORTHSTAR BUILDING EAST - 9TH FLOOR
608 SECOND AVENUE, SOUTH
MINNEAPOLIS MN 554790162
As of April 12, 2000, Trustees and officers of the Fund, as a group,
owned less than 1% of the Fund's outstanding shares. As of April 12, 2000,
Trustees and officers of Trust, as a group, owned less than 1% of the Series'
outstanding shares.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Series, and the audited
financial statements of the Fund each for the fiscal year ended April 30, 1999,
have been incorporated herein by reference in reliance upon the authority of the
reports given by Ernst & Young LLP, the Fund's and Series' independent auditors,
as experts in accounting and auditing. In addition, the unaudited financial
statements of the Fund and Series, each for the six months ended October 31,
1999, also have been incorporated herein by reference.
OTHER MATTERS
The Trust's Trustees are not aware of any other matters which may come
before the Meeting. However, should any such matters properly come before the
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise the Trust, in care of Dreyfus Transfer, Inc., Attention:
Dreyfus Premier State Municipal Bond Fund, P.O. Box 9671, Providence, Rhode
Island 02940-9671 whether other persons are the beneficial owners of Series
shares for which proxies are being solicited from you, and, if so, the number of
copies of the Prospectus/Proxy Statement and other soliciting material you wish
to receive in order to supply copies to the beneficial owners of Series shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS WHO
DO NOT EXPECT TO ATTEND IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND RETURN
EACH PROXY CARD IN THE ENCLOSED STAMPED ENVELOPE.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated April 12, 2000 (the
"Agreement"), between DREYFUS PREMIER STATE MUNICIPAL BOND FUND, a Massachusetts
business trust (the "Trust"), on behalf of its GEORGIA SERIES (the "Series") and
DREYFUS PREMIER MUNICIPAL BOND FUND, a Massachusetts business trust (the
"Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
assets of the Series, attributable to the Series' Class A, Class B and Class C
shares, in exchange solely for Class A shares ("Fund Class A Shares"), Class B
shares ("Fund Class B Shares") and Class C shares ("Fund Class C Shares" and,
together with Fund Class A Shares and Fund Class B Shares, the "Fund Shares"),
respectively, of beneficial interest, par value $.001 per share, of the Fund and
the assumption by the Fund of certain liabilities of the Series and the
distribution, after the Closing Date hereinafter referred to, of the Fund Shares
to the shareholders of the Series in liquidation of the Series as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Series is a non-diversified series of the Trust, a
registered, open-end management investment company, and the Fund is a
registered, diversified, open-end management investment company, and the Series
owns securities which are assets of the character in which the Fund is permitted
to invest;
WHEREAS, both the Fund and the Series are authorized to issue their
shares of beneficial interest;
WHEREAS, the Board of the Fund has determined that the exchange of all
of the assets of the Series and certain liabilities of the Series, attributable
to the Series' Class A, Class B and Class C shares, for Fund Class A Shares,
Fund Class B Shares and Fund Class C Shares, respectively, and the assumption of
such liabilities is in the best interests of the Fund's shareholders and that
the interests of the Fund's existing shareholders would not be diluted as a
result of this transaction; and
WHEREAS, the Board of the Trust has determined that the exchange of
all of the assets and certain of the liabilities of the Series, attributable to
the Series' Class A, Class B and Class C shares, for Fund Class A Shares, Fund
Class B Shares and Fund Class C Shares, respectively, and the assumption of such
liabilities is in the best interests of the Series' shareholders and that the
interests of the Series' existing shareholders would not be diluted as a result
of this transaction:
NOW THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE SERIES IN EXCHANGE FOR THE FUND SHARES AND
ASSUMPTION OF SERIES LIABILITIES AND LIQUIDATION OF THE SERIES.
1.1 Subject to the terms and conditions contained herein, the Series
agrees to assign, transfer and convey to the Fund all of the assets of the
Series, including all securities and cash (subject to liabilities), attributable
to the Series' Class A, Class B and Class C shares, and the Fund agrees in
exchange therefor (i) to deliver to the Series the number of Fund Shares,
including fractional Fund Shares, determined as set forth in paragraph 2.3; and
(ii) to assume certain liabilities of the Series, as set forth in paragraph 1.2.
Such transactions shall take place at the closing (the "Closing") on the closing
date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering
certificates for the Fund Shares, the Fund shall credit the Fund Shares to the
Series' account on the books of the Fund and shall deliver a confirmation
thereof to the Series.
1.2 The Series will endeavor to discharge all of its known liabilities
and obligations prior to the Closing Date. The Fund shall assume all
liabilities, expenses, costs, charges and reserves reflected on an unaudited
statement of assets and liabilities of the Series prepared by The Dreyfus
Corporation, as of the Valuation Date (as defined in paragraph 2.1), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Fund shall assume only those liabilities of
the Series reflected in that unaudited statement of assets and liabilities and
shall not assume any other liabilities, whether absolute or contingent.
1.3 Delivery of the assets of the Series to be transferred shall be
made on the Closing Date and shall be delivered to The Bank of New York, 100
Church Street, New York, New York 10286, the Fund's custodian (the "Custodian"),
for the account of the Fund, with all securities not in bearer or book-entry
form duly endorsed, or accompanied by duly executed separate assignments or
stock powers, in proper form for transfer, with signatures guaranteed, and with
all necessary stock transfer stamps, sufficient to transfer good and marketable
title thereto (including all accrued interest and dividends and rights
pertaining thereto) to the Custodian for the account of the Fund free and clear
of all liens, encumbrances, rights, restrictions and claims. All cash delivered
shall be in the form of immediately available funds payable to the order of the
Custodian for the account of the Fund.
1.4 The Series will pay or cause to be paid to the Fund any interest
received on or after the Closing Date with respect to assets transferred to the
Fund hereunder. The Series will transfer to the Fund any distributions, rights
or other assets received by the Series after the Closing Date as distributions
on or with respect to the securities transferred. Such assets shall be deemed
included in assets transferred to the Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Series will liquidate and distribute pro rata to the
Series' Class A, Class B and Class C shareholders of record, determined as of
the close of business on the Closing Date (the "Series Shareholders"), Fund
Class A Shares, Fund Class B Shares and Class C Shares, respectively, received
by the Series pursuant to paragraph 1.1. Such liquidation and distribution will
be accomplished by the transfer of the applicable Fund Shares then credited to
the account of the Series on the books of the Fund to open accounts on the share
records of the Fund in the names of the Series Shareholders and representing the
respective pro rata number of the applicable Fund Shares due such shareholders.
All issued and outstanding shares of the Series simultaneously will be canceled
on the books of the Series.
1.6 Ownership of Fund Shares will be shown on the books of the Fund's
transfer agent. Shares of the Fund will be issued in the manner described in the
Fund's current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Fund Shares in a
name other than the registered holder of the Fund shares on the books of the
Series as of that time shall, as a condition of such issuance and transfer, be
paid by the person to whom such Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Series is and shall remain the
responsibility of the Series up to and including the Closing Date and such later
date on which the Series' existence is terminated.
2. VALUATION.
2.1 The value of the Series' assets to be acquired by the Fund
hereunder shall be the value of such assets computed as of the close of trading
on the floor of the New York Stock Exchange (currently, 4:00 p.m., New York
time), except that options and futures contracts will be valued 15 minutes after
the close of trading on the floor of the New York Stock Exchange, on the Closing
Date (such time and date being hereinafter called the "Valuation Date"), using
the valuation procedures set forth in the Fund's Trust Agreement and
then-current prospectus or statement of additional information.
2.2 The net asset value of a Fund Share shall be the net asset value
per share computed as of the Valuation Date, using the valuation procedures set
forth in the Fund's Trust Agreement and then-current prospectus or statement of
additional information.
2.3 The number of Fund Class A Shares, Fund Class B Shares and Fund
Class C Shares to be issued (including fractional shares, if any) in exchange
for the Series' net assets shall be determined by dividing the value of the net
assets of the applicable Class of the Series determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one Fund Class
A Share, Fund Class B Share or Fund Class C Share, as the case may be,
determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Fund.
3 CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be ______, 2000, or such later date as
the parties may mutually agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 10:00 a.m., New
York time, at the offices of The Dreyfus Corporation, 200 Park Avenue, New York,
New York, or such other time and/or place as the parties may mutually agree.
3.2 The Custodian shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Series' portfolio securities, cash and
any other assets have been delivered in proper form to the Fund within two
business days prior to or on the Closing Date; and (b) all necessary taxes
including all applicable stock transfer stamps have been paid, or provision for
payment shall have been made, in conjunction with the delivery of portfolio
securities.
3.3 If on the Valuation Date (a) the New York Stock Exchange or
another primary trading market for portfolio securities of the Fund or the
Series shall be closed to trading or trading thereon shall be restricted; or (b)
trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the Fund
or the Series is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 The transfer agent for the Series shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Series Class A, Class B, and Class C Shareholders and the
number and percentage ownership of outstanding Class A, Class B and Class C
shares, respectively, owned by each such shareholder immediately prior to the
Closing. The Fund shall issue and deliver a confirmation evidencing the Fund
Shares to be credited on the Closing Date to the Secretary of the Series, or
provide evidence satisfactory to the Series that such Fund Shares have been
credited to the Series' account on the books of the Fund. At the Closing, each
party shall deliver to the other such bills of sale, checks, assignments,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust represents and warrants to the Fund as follows:
(a) The Series is a series of the Trust, a business trust duly
organized and validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has power to own all of its properties and
assets and to carry out this Agreement.
(b) The Series is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, non-diversified, management
investment company, and such registration has not been revoked or rescinded and
is in full force and effect.
(c) The Series is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Trust's Agreement and Declaration of Trust dated March 12, 1992, as the same may
have been amended (the "Charter"), or its Bylaws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Series is a party
or by which it is bound.
(d) The Series has no material contracts or other commitments
outstanding (other than this Agreement) which will be terminated with liability
to it on or prior to the Closing Date.
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Series or any of its properties or assets
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. The Series knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
(f) The Statements of Assets and Liabilities of the Series for
the five fiscal years ended April 30, 1999 have been audited by Ernst & Young
LLP, independent auditors, and are in accordance with generally accepted
accounting principles, consistently applied, and such statements (copies of
which have been furnished to the Fund) fairly reflect the financial condition of
the Series as of such dates, and there are no known contingent liabilities of
the Series as of such dates not disclosed therein.
(g) Since April 30, 1999, there has not been any material adverse
change in the Series' financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Series of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed on the statement of assets and
liabilities referred to in Section 1.2 hereof.
(h) At the Closing Date, all Federal and other tax returns and
reports of the Series required by law to have been filed by such dates shall
have been filed, and all Federal and other taxes shall have been paid so far as
due, or provision shall have been made for the payment thereof, and to the best
of the Trust's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(i) For each fiscal year of its operation, the Series has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(j) All issued and outstanding shares of the Series are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Series. All of the issued and outstanding shares of
the Series will, at the time of Closing, be held by the persons and in the
amounts set forth in the records of the transfer agent as provided in paragraph
3.4. The Series does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Series shares, nor is there outstanding
any security convertible into any of the Series shares.
(k) On the Closing Date, the Series will have full right, power
and authority to sell, assign, transfer and deliver the assets to be transferred
by it hereunder.
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trust's Board and, subject to the approval of the Series
Shareholders, this Agreement will constitute the valid and legally binding
obligation of the Series, enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and to general principles of
equity and the discretion of the court (regardless of whether the enforceability
is considered in a proceeding in equity or at law).
(m) The proxy statement of the Trust, on behalf of the Series
(the "Proxy Statement"), included in the Registration Statement referred to in
paragraph 5.5 (other than information therein that has been furnished by the
Fund) will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading.
4.2 The Fund represents and warrants as follows:
(a) The Fund is a business trust duly organized, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts and has
power to carry on its business as it is now being conducted and to carry out
this Agreement.
(b) The Fund is registered under the 1940 Act as an open-end,
diversified management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The current prospectus and statement of additional
information of the Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act and the rules and regulations of the Securities and Exchange Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading.
(d) The Fund is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of the Fund's Agreement
and Declaration of Trust (the "Trust Agreement") or its Bylaws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Fund is a party or by which it is bound.
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Fund knows of no facts which might
form the basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions contemplated herein.
(f) The Statements of Assets and Liabilities of the Fund for the
ten fiscal years ended April 30, 1999 have been audited by Ernst & Young LLP,
independent auditors, and are in accordance with generally accepted accounting
principles, consistently applied, and such statements (copies of which have been
furnished to the Series) fairly reflect the financial condition of the Fund as
of such dates.
(g) Since April 30, 1999 there has not been any material adverse
change in the Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed on the statement of assets and
liabilities referred to in Section 4.2(f) hereof.
(h) At the Closing Date, all Federal and other tax returns and
reports of the Fund required by law then to be filed shall have been filed, and
all Federal and other taxes shown as due on said returns and reports shall have
been paid or provision shall have been made for the payment thereof.
(i) For each fiscal year of its operation, the Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(j) All issued and outstanding shares of the Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Fund. The Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Fund Shares,
nor is there outstanding any security convertible into any Fund Shares.
(k) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Fund's Trustees and shareholders, and this
Agreement will constitute the valid and legally binding obligation of the Fund
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the discretion of
the court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(l) The Proxy Statement included in the Registration Statement
(only insofar as it relates to the Fund and is based on information furnished by
the Fund) will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading.
5. COVENANTS OF THE FUND AND THE SERIES.
5.1 The Fund and the Series each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include payment of
customary dividends and distributions.
5.2 The Trust will call a meeting of the Series Shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Fund and the
Series will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Series shall furnish the Fund, in such form as is
reasonably satisfactory to the Fund, a statement of the earnings and profits of
the Series for Federal income tax purposes which will be carried over to the
Fund as a result of Section 381 of the Code and which will be certified by the
Trust's President or its Vice President and Treasurer.
5.5 The Trust will provide the Fund with information reasonably
necessary for the preparation of a prospectus (the "Prospectus") which will
include the Proxy Statement, referred to in paragraph 4.1(m), all to be included
in a Registration Statement on Form N-14 of the Fund (the "Registration
Statement"), in compliance with the 1933 Act, the Securities Exchange Act of
1934, as amended, and the 1940 Act in connection with the meeting of the Series
Shareholders to consider approval of this Agreement and the transactions
contemplated herein.
5.6 The Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE FUND.
The obligations of the Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by the Series of
all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Series shall have delivered to the Fund a statement of the
Series' assets and liabilities, together with a list of the Series' portfolio
securities showing the tax basis of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the Treasurer
of the Trust.
6.3 The Trust shall have delivered to the Fund on the Closing Date a
certificate executed in its name by the Trust's President or Vice President and
its Treasurer, in form and substance satisfactory to the Fund, to the effect
that the representations and warranties of the Trust made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SERIES.
The obligations of the Series to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the Fund of
all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Fund shall have delivered to the Series on the Closing Date a
certificate executed in its name by its President or Vice President and its
Treasurer, in form and substance reasonably satisfactory to the Series, to the
effect that the representations and warranties of the Fund made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as to such
other matters as the Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE FUND AND THE
SERIES.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Series or the Fund, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement.
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Series in accordance with the provisions of the Trust's Charter.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Securities and Exchange Commission and of state Blue Sky and securities
authorities) deemed necessary by the Fund or the Series to permit consummation,
in all material respects, of the transactions contemplated hereby shall have
been obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Fund or the Series, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Series shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Series Shareholders all of the Series' investment company taxable income
for all taxable years or periods ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid); the excess of its
interest income excludable from gross income under Section 103(a) of the Code
over its disallowed deductions under Sections 265 and 171(a)(2) of the Code, for
all taxable years or periods ending on or prior to the Closing Date; and all of
its net capital gain realized in all taxable years ending on or prior to the
Closing Date (after reduction for any capital loss carry forward).
8.6 The parties shall have received an opinion of Stroock & Stroock &
Lavan LLP substantially to the effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the Series'
assets in exchange for the Fund Shares and the assumption by the Fund of certain
identified liabilities of the Series will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Fund upon the receipt of the assets of the Series solely in
exchange for the Fund Shares and the assumption by the Fund of certain
identified liabilities of the Series; (c) No gain or loss will be recognized by
the Series upon the transfer of the Series' assets to the Fund in exchange for
the Fund Shares and the assumption by the Fund of certain identified liabilities
of the Series or upon the distribution (whether actual or constructive) of the
Fund Shares to Series Shareholders in exchange for their shares of the Series;
(d) No gain or loss will be recognized by the Series Shareholders upon the
exchange of their Series shares for the Fund Shares; (e) The aggregate tax basis
for the Fund Shares received by each of the Series Shareholders pursuant to the
Reorganization will be the same as the aggregate tax basis of the Series shares
held by such shareholder immediately prior to the Reorganization, and the
holding period of the Fund Shares to be received by each Series Shareholder will
include the period during which the Series shares exchanged therefor were held
by such shareholder (provided the Series shares were held as capital assets on
the date of the Reorganization); and (f) The tax basis of the Series assets
acquired by the Fund will be the same as the tax basis of such assets to the
Series immediately prior to the Reorganization, and the holding period of the
assets of the Series in the hands of the Fund will include the period during
which those assets were held by the Series.
No opinion will be expressed as to the effect of the reorganization on
(i) the Series or the Fund with respect to any asset as to which any unrealized
gain or loss is required to be recognized for Federal income tax purposes at the
end of a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting, and (ii) any shareholder of the Series
that is required to recognize unrealized gains and losses for Federal income tax
purposes under a mark-to-market system of accounting.
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transaction contemplated hereby may be
terminated and abandoned by resolution of the Board of the Trust or of the Fund,
as the case may be, at any time prior to the Closing Date (and notwithstanding
any vote of the Series Shareholders) if circumstances should develop that, in
the opinion of either of the parties' Board, make proceeding with the Agreement
inadvisable.
9.2 If this Agreement is terminated and the transaction contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this Agreement
shall become void and have no effect, without any liability on the part of any
party hereto or the trustees, officers or shareholders of the Fund or of the
Trust, as the case may be, in respect of this Agreement, except that the parties
shall bear the aggregate expenses of the transaction contemplated hereby in
proportion to their respective net assets as of the date this Agreement is
terminated or the exchange contemplated hereby is abandoned.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of the Fund or of the Trust if, in the judgment of
either, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of the Fund or of the Series,
as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and merges
and supersedes all prior discussions, agreements and understandings of every
kind and nature between them relating to the subject matter hereof. Neither
party shall be bound by any condition, definition, warranty or representation,
other than as set forth or provided in this Agreement or as may be, on or
subsequent to the date hereof, set forth in a writing signed by the party to be
bound thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the State of New York, without giving effect to principles
of conflict of laws; provided, however, that the due authorization, execution
and delivery of this Agreement by the Fund and the Series shall be governed and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts without giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in counterparts, each of which,
when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6 (a) The names "Dreyfus Premier Municipal Bond Fund" and "Trustees
of Dreyfus Premier Municipal Bond Fund" refer respectively to the Fund and its
Trustees, as trustees but not individually or personally, acting from time to
time under the Trust Agreement, a copy of which is on file at the office of the
Secretary of The Commonwealth of Massachusetts and at the principal office of
the Fund. The obligations of the Fund entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Fund personally, but bind only
the Fund's property, and all persons dealing with any class of shares of the
Fund must look solely to the Fund's property belonging to such class for the
enforcement of any claims against the Fund.
(b) The names "Dreyfus Premier State Municipal Bond Fund" and
"Trustees of Dreyfus Premier State Municipal Bond Fund" refer respectively to
the Trust and its Trustees, as trustees but not individually or personally,
acting from time to time under the Charter, a copy of which is on file at the
office of the Secretary of The Commonwealth of Massachusetts and at the
principal office of the Trust. The obligations of the Trust entered into in the
name or on behalf of the Series by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the Series' property, and all persons dealing with the
Series' class of shares of the Trust must look solely to the Series' property
belonging to such class for the enforcement of any claims against the Series.
11.7 Any references in this Agreement to actions taken, deliveries by
or to, representations and warranties made by or to, or obligations of, the
Series shall be deemed references to actions taken, deliveries by or to,
representations and warranties made by or to, or obligations of, the Trust on
behalf of the Series.
<PAGE>
IN WITNESS WHEREOF, the Fund and the Trust have caused this Agreement
and Plan of Reorganization to be executed and attested on its behalf by its duly
authorized representatives as of the date first above written.
DREYFUS PREMIER MUNICIPAL BOND FUND
By:
--------------------------------
Stephen E. Canter,
President
ATTEST:
---------------------------
Steven F. Newman,
Secretary
DREYFUS PREMIER STATE
MUNICIPAL BOND FUND, on
behalf of its Georgia Series
By:
-----------------------------
Stephen E. Canter,
President
ATTEST:
------------------------
Steven F. Newman,
Secretary
<PAGE>
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
GEORGIA SERIES
The undersigned shareholder of the Georgia Series (the "Series") of
Dreyfus Premier State Municipal Bond Fund (the "Trust") hereby appoints James
Bitetto and Janette E. Farragher, and each of them, the attorneys and proxies of
the undersigned, with full power of substitution, to vote, as indicated herein,
all of the shares of beneficial interest of the Series standing in the name of
the undersigned at the close of business on May 15, 2000, at a Special Meeting
of Shareholders to be held at the offices of The Dreyfus Corporation, 200 Park
Avenue, 7th Floor, New York, New York 10166, at 10:00 a.m. on Tuesday, July 25,
2000, and at any and all adjournments thereof, with all of the powers the
undersigned would possess if then and there personally present and especially
(but without limiting the general authorization and power hereby given) to vote
as indicated on the proposal, as more fully described in the Prospectus/Proxy
Statement for the meeting.
Please mark boxes in blue or black ink.
1. To approve an Agreement and Plan of Reorganization between the
Series and Dreyfus Premier Municipal Bond Fund (the "Fund"), providing for the
transfer of all of the assets of the Series, subject to its liabilities,
attributable to its Class A, Class B and Class C shares in exchange for Class A,
Class B and Class c shares, respectively, of the Fund and the assumption by the
Fund of the Series' liabilities, and the pro rata distribution of those shares
to Series' shareholders and subsequent termination of the Series.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting, or any adjournment(s)
thereof.
THIS PROXY IS SOLICITED BY THE TRUST'S BOARD OF TRUSTEES AND WILL BE VOTED FOR
THE ABOVE PROPOSAL UNLESS OTHERWISE INDICATED.
Signature(s) should be exactly as name or names
appearing on this proxy. If shares are held jointly,
each holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please
give full title.
Dated:___________, 2000
_____________________________
Signature(s)
_____________________________
Signature(s)
Sign, Date and Return the Proxy Card
Promptly Using the Enclosed Envelope
<PAGE>
DREYFUS PREMIER MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
________ ___, 2000
Transfer of the Assets of
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
Georgia Series
200 Park Avenue
New York, New York 10166
1-800-654-6561
To and in Exchange for Shares of
DREYFUS PREMIER MUNICIPAL BOND FUND
200 Park Avenue
New York, New York 10166
1-800-654-6561
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated ______, 2000, relating specifically to the proposed transfer of
all of the assets and liabilities of the Georgia Series of Dreyfus Premier State
Municipal Bond Fund in exchange for shares of Dreyfus Premier Municipal Bond
Fund. The transfer is to occur pursuant to an Agreement and Plan of
Reorganization. This Statement of Additional Information consists of this cover
page and the following described documents, each of which is attached hereto and
incorporated herein by reference:
1. The Statement of Additional Information of Dreyfus Premier
Municipal Bond Fund dated September 1, 1999.
2. The Statement of Additional Information of Dreyfus Premier State
Municipal Bond Fund dated September 1, 1999.
3. Annual Report of Dreyfus Premier Municipal Bond Fund for
the fiscal year ended April 30, 1999.
4. Semi-Annual Report of Dreyfus Premier Municipal Bond Fund
for the six month period ended October 31, 1999.
5. Annual Report of Dreyfus Premier State Municipal Bond Fund
- Georgia Series - for the fiscal year ended April 30, 1999.
6. Semi-Annual Report of Dreyfus Premier State Municipal Bond Fund
- Georgia Series - for the six month period ended October 31, 1999.
The Prospectus/Proxy Statement dated _______, 2000 may be obtained by
writing to Dreyfus Premier Municipal Bond Fund 200 Park Avenue, New York, New
York 10166.
<PAGE>
- ------------------------------------------------------------------------------
DREYFUS PREMIER MUNICIPAL BOND FUND
CLASS A, CLASS B AND CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Premier Municipal Bond Fund (the "Fund"), dated September 1, 1999, 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 1-800-554-4611.
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
TABLE OF CONTENTS
PAGE
Description of the Fund...................................................B-2
Management of the Fund....................................................B-16
Management Arrangements...................................................B-20
How to Buy Shares.........................................................B-23
Distribution Plan and Shareholder Services Plan...........................B-28
How to Redeem Shares......................................................B-30
Shareholder Services......................................................B-34
Determination of Net Asset Value..........................................B-38
Dividends, Distributions and Taxes........................................B-39
Portfolio Transactions....................................................B-41
Performance Information...................................................B-42
Information About the Fund................................................B-44
Counsel and Independent Auditors..........................................B-46
Appendix................................................................. B-47
<PAGE>
DESCRIPTION OF THE FUND
The Fund is a Massachusetts business trust that commenced operations
on November 26, 1987. The Fund is an open-end management investment company,
known as a municipal bond fund. The Fund is a diversified fund, which means
that, with respect to 75% of its total assets, the Fund will not invest more
than 5% of its assets in the securities of any single issuer.
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.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Fund's Prospectus.
MUNICIPAL OBLIGATIONS. The Fund will invest at least 80% of the value
of its net assets (except when maintaining a temporary defensive position) in
Municipal Obligations. Municipal Obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities, the interest from which, in the opinion of
bond counsel to the issuer, is exempt from Federal income tax. Municipal
Obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain industrial development bonds issued
by or on behalf of public authorities. Municipal Obligations are classified as
general obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source, but not
from the general taxing power. Tax exempt industrial development bonds, in most
cases, are revenue bonds that do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal Obligations include municipal lease/purchase agreements which are
similar to installment purchase contracts for property or equipment issued by
municipalities. Municipal Obligations bear fixed, floating or variable rates of
interest, which are determined in some instances by formulas under which the
Municipal Obligation's interest rate will change directly or inversely to
changes in interest rates or an index, or multiples thereof, in many cases
subject to a maximum and minimum. Certain Municipal Obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related Municipal Obligation and
purchased and sold separately.
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.
CERTAIN TAX EXEMPT OBLIGATIONS. The Fund may purchase floating and
variable rate demand notes and bonds, which are tax exempt obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Fund, as lender, and the
borrower. These obligations permit daily changes in the amount borrowed. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Each obligation purchased
by the Fund will meet the quality criteria established for the purchase of
Municipal Obligations.
TAX EXEMPT PARTICIPATION INTERESTS. The Fund may purchase from
financial institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to the
total principal amount of the Municipal Obligation. These instruments may have
fixed, floating or variable rates of interest. If the participation interest is
unrated, it will be backed by an irrevocable letter of credit or guarantee of a
bank that the Fund's Board has determined meets prescribed quality standards for
banks, or the payment obligation otherwise will be collateralized by U.S.
Government securities. For certain participation interests, the Fund will have
the right to demand payment, on not more than seven days' notice, for all or any
part of the Fund's participation interest in the Municipal Obligation, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment only upon a default under the terms of the Municipal
Obligation, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio.
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 canceled; (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. 12" below.
TENDER OPTION BONDS. The Fund may purchase tender option bonds. A
tender option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal Obligation's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt rate. The
Manager, on behalf of the Fund, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal Obligation, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligation and for other reasons.
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.
CUSTODIAL RECEIPTS. The Fund may purchase custodial receipts
representing the right to receive certain future principal and interest payments
on Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt arrangement,
an issuer or a third party owner of Municipal Obligations deposits such
obligations with a custodian in exchange for two classes of custodial receipts.
The two classes have different characteristics, but, in each case, payments on
the two classes are based on payments received on the underlying Municipal
Obligations. One class has the characteristics of a typical auction rate
security, where at specified intervals its interest rate is adjusted, and
ownership changes, based on an auction mechanism. This class's interest rate
generally is expected to be below the coupon rate of the underlying Municipal
Obligations and generally is at a level comparable to that of a Municipal
Obligation of similar quality and having a maturity equal to the period between
interest rate adjustments. The second class bears interest at a rate that
exceeds the interest rate typically borne by a security of comparable quality
and maturity; this rate also is adjusted, but in this case inversely to changes
in the rate of interest of the first class. In no event will the aggregate
interest paid with respect to the two classes exceed the interest paid by the
underlying Municipal Obligations. The value of the second class and similar
securities should be expected to fluctuate more than the value of a Municipal
Obligation of comparable quality and maturity and their purchase by the Fund
should increase the volatility of its net asset value and, thus, its price per
share. These custodial receipts are sold in private placements. The Fund also
may purchase directly from issuers, and not in a private placement, Municipal
Obligations having characteristics similar to custodial receipts. These
securities may be issued as part of a multi-class offering and the interest rate
on certain classes may be subject to a cap or floor.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Fund obligates a broker, dealer or bank to repurchase, at the
Fund's option, specified securities at a specified price and, in this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Fund will acquire stand-by commitments solely to facilitate its
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
Municipal Obligation and similarly decreasing such security's yield to
investors. Gains realized in connection with stand-by commitments will be
taxable. The Fund also may acquire call options on specific Municipal
Obligations. The Fund generally would purchase these call options to protect the
Fund from the issuer of the related Municipal Obligation redeeming, or other
holder of the call option from calling away, the Municipal Obligation before
maturity. The sale by the Fund of a call option that it owns on a specific
Municipal Obligation could result in the receipt of taxable income by the Fund.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and perceived
credit quality of the issuer. Zero coupon securities also may take the form of
debt securities that have been stripped of their unmatured interest coupons, the
coupons themselves and receipts or certificates representing interests in such
stripped debt obligations and coupons. The market prices of zero coupon
securities generally are more volatile than the market prices of securities that
pay interest periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having similar
maturities and credit qualities.
RATINGS OF MUNICIPAL OBLIGATIONS. The Fund will invest at least 70% of
the value of its net assets in Municipal Obligations which, in the case of
bonds, are rated no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch IBCA,
Inc. ("Fitch" and, together with Moody's and S&P, the "Rating Agencies"). The
Fund may invest up to 30% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated lower than Baa by Moody's and
BBB by S&P and Fitch and as low as the lowest rating assigned by the Rating
Agencies. The Fund also may invest in securities which, while not rated, are
determined by the Manager to be of comparable quality to the rated securities in
which the Fund may invest; for purposes of the 70% requirement described in this
paragraph, such unrated securities will be considered to have the rating so
determined.
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended April 30,
1999, computed on a monthly basis, was as follows:
Percentage
FITCH or MOODY'S or S&P OF VALUE
- ----- ------- --- --------
AAA Aaa AAA 20.6%
AA Aa AA 1.7%
A A A 10.8%
BBB Baa BBB 24.7%
BB Ba BB 9.7%
B B B 2.5%
F-1+/F-1 VMIG1/MIG1, P-1 SP-1+,SP-1,
A1+/A1 .9
Not Rated Not Rated Not Rated 29.1*
-----
100%
* Included in the Not Rated category are securities comprising 29.1%
of the Fund's market value, which while not rated, all have been determined by
the Manager to be of comparable quality to securities in the following rating
categories: AAA/Aaa (7.9%); AA/Aa (.7%); A/A (.9%); BBB/Baa (13.6%); BB/Ba
(1.5%); B/B (.9%); CCC/Caa (1.6%) and DDD/D (2.0%).
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 the Rating Agencies 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
Prospectus and this Statement of Additional Information. The ratings of the
Rating Agencies 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. The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment objective.
These securities may include securities that are not readily marketable, such as
securities that are subject to legal or contractual restrictions on resale, and
repurchase agreements providing for settlement in more than seven days after
notice. As to these securities, the Fund is subject to a risk that should the
Fund desire to sell them when a ready buyer is not available at a price that the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected.
TAXABLE INVESTMENTS. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest in
taxable short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two highest
grades of a Rating Agency; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated not lower than P-1 by Moody's, A-1 by
S&P or F-1 by Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of $1 billion or more; time
deposits; bankers' acceptances and other short-term bank obligations; and
repurchase agreements in respect of any of the foregoing. Dividends paid by the
Fund that are attributable to income earned by the Fund from Taxable Investments
will be taxable to investors. Except for temporary defensive purposes, at no
time will more than 20% of the value of the Fund's net assets be invested in
Taxable Investments. Under normal market conditions, the Fund anticipates that
not more than 5% of the value of its total assets will be invested in any one
category of Taxable Investments.
INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the Fund's Prospectus. The Fund's use of certain of the
investment techniques described below may give rise to taxable income.
BORROWING MONEY. The Fund is permitted to borrow to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940 Act"),
which permits an investment company to borrow in an amount up to 33-1/3% of the
value of its total assets. The Fund currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 15% of the
value of its total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While borrowings exceed 5% of the Fund's total
assets, the Fund will not make any additional investments.
SHORT-SELLING. In these transactions, the Fund sells a security it
does not own in anticipation of a decline in the market value of the security.
To complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security was
sold by the Fund, which would result in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not make a short
sale which results in the Fund having sold short in the aggregate more than 5%
of the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns. At no time will more than
15% of the value of the Fund's net assets be in deposits on short sales against
the box.
Until the Fund closes its short position or replaces the borrowed
security, the Fund will: (a) segregate permissible liquid assets in an amount
that, together with 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.
LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund continues to be entitled
to payments in amounts equal to the interest or other distributions payable on
the loaned securities which affords the Fund an opportunity to earn interest on
the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities may not exceed 33-1/3% of the value of the Fund's total
assets, and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Fund. 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.
DERIVATIVES. The Fund may invest in, or enter into, derivatives, such
as options and futures, 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. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Fund's
performance.
If the Fund invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return or
result in a loss. The Fund also could experience losses if its derivatives were
poorly correlated with its other investments, or if the Fund were unable to
liquidate its position because of an illiquid secondary market. The market for
many derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
Although the Fund will not be a commodity pool, certain derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission which
limit the extent to which the Fund can invest in such derivatives. The Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Fund may not invest in such contracts and
options for other purposes if the sum of the amount of initial margin deposits
and premiums paid for unexpired options with respect to such contracts, other
than for bona fide hedging purposes, exceeds 5% of the liquidation value of the
Fund's assets, after taking into account unrealized profits and unrealized
losses on such contracts and options; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5% limitation.
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 variation margin system 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 securities 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 permissible
liquid assets to cover its obligations relating to its transactions in
derivatives. To maintain this required cover, the Fund may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position at a reasonable price. In addition,
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.
OPTIONS--IN GENERAL. The Fund may invest up to 5% of its assets, represented by
the premium paid, in the purchase of call and put options with respect to
interest rate futures contracts. The Fund may write (i.e., sell) covered call
and put option contracts to the extent of 20% of the value of its net assets at
the time such option contracts are written. 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 permissible liquid assets. A put option written by
the Fund is covered when, among other things, the Fund segregates permissible
liquid assets having a value equal to or greater than the exercise price of the
option 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. The Fund may purchase Municipal Obligations and
other securities on a forward commitment or when-issued basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate receivable
on a forward commitment or when-issued security are fixed when the Fund enters
into the commitment, but the Fund does not make payment until it receives
delivery from the counterparty. The Fund will commit to purchase such securities
only with the intention of actually acquiring the securities, but the Fund may
sell these securities before the settlement date if it is deemed advisable. The
Fund will segregate permissible liquid assets at least equal at all times to the
amount of the Fund's purchase 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 forward commitment or
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.
INVESTMENT CONSIDERATIONS AND RISKS
INVESTING IN MUNICIPAL OBLIGATIONS. The Fund may invest more than 25%
of the value of its total assets in Municipal Obligations which are related in
such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types of
projects, or securities whose issuers are located in the same state. As a
result, the Fund may be subject to greater risk as compared to a fund that does
not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Manager will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), relating to the issuance of Municipal Obligations may reduce the
volume of Municipal Obligations qualifying for Federal tax exemption. One effect
of these provisions could be to increase the cost of the Municipal Obligations
available for purchase by the Fund and thus reduce available yield. Shareholders
should consult their tax advisers concerning the effect of these provisions on
an investment in the Fund. Proposals that may restrict or eliminate the income
tax exemption for interest on Municipal Obligations may be introduced in the
future. If any such proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Fund so as to adversely affect Fund
shareholders, the Fund would reevaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a type of Municipal
Obligation as taxable, the Fund would treat such security as a permissible
Taxable Investment within the applicable limits set forth herein.
LOWER RATED BONDS. The Fund may invest up to 30% of the value of its
net assets in higher yielding (and, therefore, higher risk) debt securities such
as those rated below investment grade by the Rating Agencies (commonly known as
junk bonds). They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated Municipal Obligations. See the Appendix for a general description of the
Rating Agencies' 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.
You 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 and
will fluctuate over time. These bonds generally are considered by the Rating
Agencies to be, on balance, 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 would disrupt severely the market for such
securities and may have an adverse impact on the value of such securities, and
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would 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 person 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 and pay-in-kind bonds, in which the Fund
may invest up to 5% of its total assets. Zero coupon bonds and pay-in-kind 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."
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities
and pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds). Federal income tax law requires the holder of a zero coupon
security or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for Federal income taxes,
the Fund may be required to distribute such income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
SIMULTANEOUS INVESTMENTS. Investment decisions for the Fund are made
independently from those of other investment companies advised by the Manager.
If, however, such other investment companies desire to invest in, or dispose of,
the same securities as the Fund, available investments or opportunities for
sales will be allocated equitably to each investment company. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by the Fund or the price paid or received by the Fund.
INVESTMENT RESTRICTIONS
The Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, the Fund has adopted
investment restrictions numbered 1 through 10 as fundamental policies.
Investment restrictions numbered 11 and 12 are not fundamental policies and may
be changed by a vote of a majority of the Fund's Board members at any time. The
Fund may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus and those
arising out of transactions in futures and options.
2. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Fund's total assets). Transactions in futures and options and the entry into
short sales transactions do not involve any borrowing for purposes of this
restriction.
3. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in futures, including those related to
indices, and options on futures or indices.
4. 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.
5. 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 related to indices, and options on
futures contracts or indices.
6. Make loans to others except through the purchase of qualified debt
obligations and the entry into repurchase agreements referred to above and in
the Fund's Prospectus; 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 members.
7. Invest more than 15% of its assets in the obligations of any one
bank for temporary defensive purposes, or invest more than 5% of its assets in
the obligations of any other issuer, except that up to 25% of the value of the
Fund's total assets may be invested, and securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities may be purchased, without
regard to any such limitations. Notwithstanding the foregoing, to the extent
required by the rules of the Securities and Exchange Commission, the Fund will
not invest more than 5% of its assets in the obligations of any one bank, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to such limitation.
8. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such limitation
on the purchase of Municipal Obligations and, for temporary defensive purposes,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
9. Invest in companies for the purpose of exercising control.
10. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
11. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings. The deposit of
assets in escrow in connection with the writing of covered put and call options
and the purchase of securities on a when-issued or delayed-delivery basis and
collateral arrangements with respect to initial or variation margin for futures
contracts and options on futures contracts or indices will not be deemed to be
pledges of the Fund's assets.
12. 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 that are not subject to the
demand feature described in the Fund's Prospectus and floating and variable rate
demand obligations as to which no secondary market exists and the Fund cannot
exercise the demand feature described in the Fund's Prospectus on less than
seven days' notice), if, in the aggregate, more than 15% of the value of its net
assets would be so invested.
For purposes of Investment Restriction No. 8, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
If a percentage restriction is adhered to at the time of investment, a
later increase in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of
the Fund. The Board approves all significant agreements between the Fund and
those companies that furnish services to the Fund. These companies are as
follows:
The Dreyfus Corporation.....................Investment Adviser
Premier Mutual Fund Services, Inc...........Distributor
Dreyfus Transfer, Inc.......................Transfer Agent
The Bank of New York........................Custodian
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.
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. He also is a
director of The Noel Group, Inc., a venture capital company (for which,
from February 1995 until November 1997, he was Chairman of the Board),
The Muscular Dystrophy Association, HealthPlan Services Corporation, a
provider of marketing, administrative and risk management services to
health and other benefit programs, Carlyle Industries, Inc. (formerly,
Belding Heminway Company, Inc.), a button packager and distributor,
Career Blazers, Inc. (formerly, Staffing Resources, Inc.), a temporary
placement agency, and Century Business Services, Inc. (formerly,
International Alliance Services, Inc.), a provider of various outsourcing
functions for small and medium sized companies. For more than five years
prior to January 1995, 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 until December 31, 1994, he was a director of Mellon Bank
Corporation. He is 55 years old and his address is 200 Park Avenue, New
York, New York 10166.
CLIFFORD L. ALEXANDER, JR., BOARD MEMBER. President of Alexander & Associates,
Inc., a management consulting firm. From 1977 to 1981, Mr. Alexander
served as Secretary of the Army and Chairman of the Board of the Panama
Canal Company, and from 1975 to 1977, he was a member of the Washington,
D.C. law firm of Verner, Liipfert, Bernhard, McPherson and Alexander. He
is a director of American Home Products Corporation, Cognizant
Corporation, a service provider of marketing information and information
technology, The Dun & Bradstreet Corporation, MCI Communications
Corporation, Mutual of America Life Insurance Company and TLC Beatrice
International Holdings, Inc. He is 64 years old and his address is 400 C
Street, N.E., Washington, D.C. 20002.
PEGGY C. DAVIS, BOARD MEMBER. Shad Professor of Law, New York University School
of Law. Professor Davis has been a member of the New York University law
faculty since 1983. Prior to that time, she served for three years as a
judge in the courts of New York State; was engaged for eight years in the
practice of law, working in both corporate and non-profit sectors; and
served for two years as a criminal justice administrator in the
government of the City of New York. She writes and teaches in the fields
of evidence, constitutional theory, family law, social sciences and the
law, legal process and professional methodology and training. She is 55
years old and her address is c/o New York University School of Law, 40
Washington Square South, New York, New York 10011.
ERNEST KAFKA, BOARD MEMBER. A physician engaged in private practice specializing
in the psychoanalysis of adults and adolescents. Since 1981, he has
served as an Instructor at the New York Psychoanalytic Institute and,
prior thereto, held other teaching positions. He is Associate Clinical
Professor of Psychiatry at Cornell Medical School. For more than the past
five years, Dr. Kafka has held numerous administrative positions,
including President of The New York Psychoanalytic Society, and has
published many articles on subjects in the field of psychoanalysis. He is
65 years old and his address is 23 East 92nd Street, New York, New York
10128.
SAUL B. KLAMAN, BOARD MEMBER. Chairman and Chief Executive Officer of SBK
Associates, which provides research and consulting services to financial
institutions. Dr. Klaman was President of the National Association of
Mutual Savings Banks until November 1983, President of the National
Council of Savings Institutions until June 1985, Vice Chairman of Golembe
Associates and BEI Golembe, Inc. until 1989 and Chairman Emeritus of BEI
Golembe, Inc. until November, 1992. He also served as an Economist to the
Board of Governors of the Federal Reserve System and on several
Presidential Commissions and has held numerous consulting and advisory
positions in the fields of economics and housing finance. He is 78 years
old and his address is 431-B Dedham Street, The Gables, Newton Center,
Massachusetts 02159.
NATHAN LEVENTHAL, BOARD MEMBER. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York City
from September 1979 to March 1984 and Commissioner of the Department of
Housing Preservation and Development of New York City from February 1978
to September 1979. Mr. Leventhal was an associate and then a member of
the New York law firm of Poletti Freidin Prashker Feldman and Gartner
from 1974 to 1978. He was Commissioner of Rent and Housing Maintenance
for New York City from 1972 to 1973. Mr. Leventhal served as Chairman of
Citizens Union, an organization which strives to reform and modernize
city and state government from June 1994 until June 1997. He is 55 years
old and his address is 70 Lincoln Center Plaza, New York, New York
10023-6583.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain 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.
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 April 30, 1999, and
by all other funds in the Dreyfus Family of Funds for which such person was 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, 1998, was as
follows:
Total
Compensation from
Aggregate Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund** Board Member
- ---------------- ------------------------- --------------------
Joseph S. DiMartino $6,250 $619,660 (93)
Clifford L. Alexander, Jr. $5,000 $ 80,918 (17)
Peggy C. Davis $5,000 $ 64,000 (15)
Ernest Kafka $5,000 $ 57,500 (15)
Saul B. Klaman $5,000 $ 64,000 (15)
Nathan Leventhal $5,000 $ 64,000 (15)
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Fund, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $1,580 for all Board members as a group.
OFFICERS OF THE FUND
MARIE E. CONNOLLY, PRESIDENT AND TREASURER. President, Chief Executive Officer,
Chief Compliance Officer and a director of the Distributor and Funds
Distributor, Inc., the ultimate parent of which is Boston Institutional
Group, Inc., and an officer of other investment companies advised or
administered by the Manager. She is 41 years old.
MARGARET W. CHAMBERS, VICE PRESIDENT AND SECRETARY. Senior Vice President and
General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From August
1996 to March 1998, she was Vice President and Assistant General Counsel
for Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was
an associate with the law firm of Ropes & Gray. She is 38 years old.
*FREDERICK C. DEY, VICE PRESIDENT AND ASSISTANT TREASURER AND ASSISTANT
SECRETARY. Vice President, New Business Development of Funds Distributor,
Inc., since September 1994, and an officer of other investment companies
advised or administered by the Manager. From 1988 to August 1994, he was
Manager of High Performance Fabrics Division of Springs Industries, Inc.,
where he was responsible for sales and marketing. He is 37 years old.
STEPHANIE D. PIERCE, VICE PRESIDENT, ASSISTANT SECRETARY AND ASSISTANT
TREASURER. Vice President of the Distributor and Funds Distributor, Inc.,
and an officer of other investment companies advised or administered by the
Manager. From April 1997 to March 1998, she was employed as a Relationship
Manager with Citibank, N.A. From August 1995 to April 1997, she was an
Assistant Vice President with Hudson Valley Bank, and from September 1990
to August 1995, she was Second Vice President with Chase Manhattan Bank.
She is 30 years old.
*JOHN P. COVINO, VICE PRESIDENT AND ASSISTANT TREASURER. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of Funds
Distributor, Inc., since December 1998. From December 1995 to November
1998, he was employed by Fidelity Investments where he held multiple
positions in their Institutional Brokerage Group. Prior to joining
Fidelity, he was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product
group. He is 35 years old.
MARY A. NELSON, VICE PRESIDENT AND ASSISTANT TREASURER. Vice President of the
Distributor and Funds Distributor, Inc., and an officer of other investment
companies advised or administered by the Manager. She is 34 years old.
*GEORGE A. RIO, VICE PRESIDENT AND ASSISTANT TREASURER. Executive Vice President
and Client Service Director of Funds Distributor, Inc., and an officer of
other investment companies advised or administered by the Manager. From
June 1995 to March 1998, he was Senior Vice President and Senior Key
Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, he was
Director of Business Development for First Data Corporation. He is 43 years
old.
JOSEPH F. TOWER, III, VICE PRESIDENT AND ASSISTANT TREASURER. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., 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 36
years old.
DOUGLAS C. CONROY, VICE PRESIDENT AND ASSISTANT SECRETARY. Assistant Vice
President of Funds Distributor, Inc., and an officer of other investment
companies advised or administered by the Manager. From April 1993 to
January 1995, he was a Senior Fund Accountant for Investors Bank & Trust
Company. He is 29 years old.
CHRISTOPHER J. KELLEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President
and Senior Associate General Counsel of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From April 1994 to July 1996, he was Assistant Counsel at Forum
Financial Group. From October 1992 to March 1994, he was employed by Putnam
Investments in legal and compliance capacities. He is 33 years old.
KATHLEEN K. MORRISEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Manager of
Treasury Services Administration of Funds Distributor, Inc., and an officer
of other investment companies advised or administered by the Manager. From
July 1994 to November 1995, she was a Fund Accountant for Investors Bank &
Trust Company. She is 26 years old.
*KAREN JACOPPO-WOOD, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President and
Senior Counsel of Funds Distributor, Inc., since February 1997, and an
officer of other investment companies advised or administered by the
Manager. From June 1994 to January 1996, she was Manager of SEC
Registration at Scudder, Stevens & Clark, Inc. Prior to June 1994, she was
a senior paralegal at The Boston Company Advisors, Inc. She is 32 years
old.
ELBA VASQUEZ, VICE PRESIDENT AND ASSISTANT SECRETARY. Assistant Vice President
of Funds Distributor, Inc., and an officer of other investment companies
advised or administered by the Manager. From March 1990 to May 1996, she
was employed by U.S. Trust Company of New York where she held various sales
and marketing positions. She is 37 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166, except those officers indicated by an (*), whose address is 60
State Street, Boston, Massachusetts 02109.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's shares outstanding on July 15, 1999.
The following entities held of record or beneficially 5% or more of
the Fund's shares outstanding on July 15, 1999:
Class B - MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake
Dr E Fl 3, Jacksonville FL 32246 - 12.96%; Class C - MLPF&S for the
Sole Benefit of its Customers, 4800 Deer Lake Dr E Fl 3, Jacksonville,
Fl 32246 - 69.71%
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international markets.
Mellon is among the twenty-five largest bank holding companies in the United
States based on total assets.
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
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 July 21, 1999. 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 outstanding 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:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer
and a director; Lawrence S. Kash, Vice Chairman and a director; J. David
Officer, Vice Chairman and a director; Thomas F. Eggers, Vice
Chairman--Institutional and a director; Ronald P. O'Hanley III, Vice Chairman;
William T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Diane P. Durnin, Vice
President--Product Development; Patrice M. Kozlowski, Vice President--Corporate
Communications; Mary Beth Leibig, Vice President--Human Resources; Andrew S.
Wasser, Vice President--Information Systems; Theodore A. Schachar, Vice
President; Wendy Strutt, Vice President; Richard Terres, Vice President; William
H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven F. Newman,
Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt, Steven G. Elliot,
Martin C. McGuinn, Richard W. Sabo and Richard F. Syron, 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 A. Paul
Disdier, Joseph P. Darcy, Douglas J. Gaylor, Richard J. Moynihan, W. Michael
Petty, Jill C. Shaffro, 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 and
for other funds advised by the Manager.
The Manager has a personal securities trading policy (the "Policy")
which restricts the personal securities transactions of its employees. Its
primary purpose is to ensure that personal trading by the Manager's employees
does not disadvantage any fund managed by the Manager. Under the Policy, the
Manager's employees must preclear personal transactions in securities not exempt
under the Policy. In addition, the Manager's employees must report their
personal securities transactions and holdings, which are reviewed for compliance
with the Policy. In that regard, the Manager's portfolio managers and other
investment personnel also are subject to the oversight of Mellon's Investment
Ethics Committee. Portfolio managers and other investment personnel of the
Manager who comply with the Policy's preclearance and disclosure procedures and
the requirements of the Committee may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
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 may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not including
the management fee paid by the Fund. The Distributor may use part or all of such
payments to pay Service Agents (as defined below) in respect of these services.
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, without limitation, the following: 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 and
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
independent pricing services, costs of maintaining the Fund's existence, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders, costs of shareholders' reports and meetings, and any
extraordinary expenses. In addition, shares of each Class are subject to an
annual service fee and Class B and Class C shares are subject to an annual
distribution fee. See "Distribution Plan and Shareholder Services Plan."
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .55% of the value of
the Fund's average daily net assets. For the fiscal years ended April 30, 1997,
1998 and 1999, the management fees payable amounted to $3,180,718, $3,155,724
and $3,144,295, respectively.
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.
DISTRIBUTOR. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the Fund's distributor on a best efforts basis
pursuant to an agreement which is renewable annually.
For the fiscal years ended April 30, 1997, 1998 and 1999, the
Distributor retained $32,137, $33,805 and $29,154, respectively, from sales
loads on Class A shares and $248,884, $177,747 and $166,883, respectively, from
contingent deferred sales charges ("CDSC") on Class B shares. For the fiscal
years ended April 30, 1997, 1998 and 1999, the Distributor retained $6,468, $294
and $2,275, respectively, from the CDSC on Class C shares.
The Distributor, at its expense, may provide promotional incentives to
dealers that sell shares of funds advised by the Manager which are sold with a
sales load, such as the Dreyfus Premier Funds. In some instances, these
incentives may be offered only to certain dealers who have sold or may sell
significant amounts of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. Dreyfus
Transfer, Inc. (the "Transfer Agent"), 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.
The Bank of New York (the "Custodian"), 90 Washington Street, New
York, New York 10286, is the Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund. Under a custody agreement with the Fund, the
Custodian holds the Fund's securities and keeps all necessary accounts and
records. For its custody services, the Custodian receives a monthly fee based on
the market value of the Fund's assets held in custody and receives certain
securities transactions charges.
HOW TO BUY SHARES
GENERAL. Fund shares may be purchased only by clients of certain
financial institutions (which may include banks), securities dealers ("Selected
Dealers") and other industry professionals (collectively, "Service Agents"),
except that full-time or part-time employees of the Manager or any of its
affiliates or subsidiaries, directors of the Manager, Board members of a fund
advised by the Manager, including members of the Fund's Board, or the spouse or
minor child of any of the foregoing may purchase Class A shares directly through
the Distributor. Subsequent purchases may be sent directly to the Transfer Agent
or your Service Agent.
When purchasing Fund shares, you must specify which Class is being
purchased. Share certificates are issued only upon your written request. No
certificates are issued for fractional shares. It is not recommended that the
Fund be used as a vehicle for Keogh, IRA or other qualified retirement plans.
The Fund reserves the right to reject any purchase order.
Service Agents may receive different levels of compensation for
selling different Classes of shares. Management understands that some Service
Agents may impose certain conditions on their clients which are different from
those described in the Fund's Prospectus and this Statement of Additional
Information, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees. You should consult your Service Agent in
this regard.
The minimum initial investment is $1,000. Subsequent investments must
be at least $100. The Fund reserves the right to vary further the initial and
subsequent investment minimum requirements at any time.
Fund shares also may be purchased through Dreyfus-AUTOMATIC Asset
Builder(R) and Dreyfus Government Direct Deposit Privilege described under
"Shareholder Services." These services enable you to make regularly scheduled
investments and may provide you with a convenient way to invest for long-term
financial goals. You should be aware, however, that periodic investment plans do
not guarantee a profit and will not protect an investor against loss in a
declining market.
Fund shares are sold on a continuous basis. Net asset value per share
of each Class is determined as of the close of trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time), on each day the New
York Stock Exchange is open for business. For purposes of determining net asset
value, options and futures contracts will be valued 15 minutes after the close
of trading on the floor of the New York Stock Exchange. Net asset value per
share of each Class is computed by dividing the value of the Fund's net assets
represented by such Class (i.e., the value of its assets less liabilities) by
the total number of shares of such Class outstanding. The Fund's investments are
valued by an independent pricing service approved by the Fund's Board and are
valued at fair value as determined by the pricing service. The pricing service's
procedures are reviewed under the general supervision of the Fund's Board. For
further information regarding the methods employed in valuing the Fund's
investments, see "Determination of Net Asset Value."
If an order is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time) on any business day, Fund shares will be purchased at the public
offering price determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, Fund shares will be purchased at the
public offering price determined as of the close of trading on the floor of the
New York Stock Exchange on the next business day, except where shares are
purchased through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by the
close of trading on the floor of the New York Stock Exchange on a business day
and transmitted to the Distributor or its designee by the close of its business
day (normally 5:15 p.m., New York time) will be based on the public offering
price per share determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, the orders will be based on the next
determined public offering price. It is the dealer's responsibility to transmit
orders so that they will be received by the Distributor or its designee before
the close of its business day.
CLASS A SHARES. The public offering price for Class A shares is the
net asset value per share of that Class plus a sales load as shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
--------------------------------- ---------------------
AS A % OF AS A % OF DEALERS'
AMOUNT OF TRANSACTION OFFERING PRICE NET ASSET VALUE REALLOWANCE AS A % OF
PER SHARE PER SHARE OFFERING PRICE
--------------------------------- ---------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.50 4.70 4.25
$50,000 to less than $100,000 4.00 4.20 3.75
$100,000 to less than $250,000 3.00 3.10 2.75
$250,000 to less than $500,000 2.50 2.60 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 or more -0- -0- -0-
</TABLE>
A CDSC of 1% will be assessed at the time of redemption of Class A
shares purchased without an initial sales charge as part of an investment of at
least $1,000,000 and redeemed within one year of purchase. The Distributor may
pay Service Agents an amount up to 1% of the net asset value of Class A shares
purchased by their clients that are subject to a CDSC.
The scale of sales loads applies to purchases of Class A shares made
by any "purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children, or a trustee or other fiduciary purchasing securities for a single
trust estate or a single fiduciary account (including a pension, profit-sharing
or other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code) although more than one beneficiary is involved; or a
group of accounts established by or on behalf of the employees of an employer or
affiliated employers pursuant to an employee benefit plan or other program
(including accounts established pursuant to Sections 403(b), 408(k), and 457 of
the Code); or an organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the purchases
are made through a central administration or a single dealer, or by other means
which result in economy of sales effort or expense.
Set forth below is an example of the method of computing the offering
price of the Fund's Class A shares. The example assumes a purchase of Class A
shares aggregating less than $50,000 subject to the schedule of sales charges
set forth above at a price based upon the net asset value of the Fund's Class A
shares on April 30, 1999:
NET ASSET VALUE per Share $14.33
Per Share Sales Charge - 4.5%
of offering price (4.7% of
net asset value per share) $.68
Per Share Offering Price to
the Public $15.01
Full-time employees of NASD member firms and full-time employees of
other financial institutions which have entered into an agreement with the
Distributor pertaining to the sale of Fund shares (or which otherwise have a
brokerage related or clearing arrangement with an NASD member firm or financial
institution with respect to the sale of such shares) may purchase Class A shares
for themselves directly or pursuant to an employee benefit plan or other
program, or for their spouses or minor children, at net asset value, provided
they have furnished the Distributor with such information as it may request from
time to time in order to verify eligibility for this privilege. This privilege
also applies to full-time employees of financial institutions affiliated with
NASD member firms whose full-time employees are eligible to purchase Class A
shares at net asset value. In addition, Class A shares are offered at net asset
value to full-time or part-time employees of the Manager or any of its
affiliates or subsidiaries, directors of the Manager, Board members of a fund
advised by the Manager, including members of the Fund's Board, or the spouse or
minor child of any of the foregoing.
Class A shares may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with the Distributor, which includes a requirement that such shares be
sold for the benefit of clients participating in a "wrap account" or a similar
program under which such clients pay a fee to such broker-dealer or other
financial institution.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, through a broker-dealer or other financial
institution with the proceeds from the redemption of shares of a registered
open-end management investment company not managed by the Manager or its
affiliates. The purchase of Class A shares of the Fund must be made within 60
days of such redemption and the shareholder must have been subject to an initial
sales charge or a contingent deferred sales charge with respect to such redeemed
shares.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, by (i) qualified separate accounts maintained by an
insurance company pursuant to the laws of any State or territory of the United
States, (ii) a State, county or city or instrumentality thereof, (iii) a
charitable organization (as defined in Section 501(c)(3) of the Code) investing
$50,000 or more in Fund shares, and (iv) a charitable remainder trust (as
defined in Section 501(c)(3) of the Code).
CLASS B SHARES. The public offering price for Class B shares is the
net asset value per share of that Class. No initial sales charge is imposed at
the time of purchase. A CDSC is imposed, however, on certain redemptions of
Class B shares as described in the Fund's Prospectus and in this Statement of
Additional Information under "How to Redeem Shares--Contingent Deferred Sales
Charge--Class B Shares." The Distributor compensates certain Service Agents for
selling Class B shares at the time of purchase from the Distributor's own
assets. The proceeds of the CDSC and the distribution fee, in part, are used to
defray these expenses.
Approximately six years after the date of purchase, Class B shares
automatically will convert to Class A shares, based on the relative net asset
values for shares of each such Class. Class B shares that have been acquired
through the reinvestment of dividends and distributions will be converted on a
pro rata basis together with other Class B shares, in the proportion that a
shareholder's Class B shares converting to Class A shares bears to the total
Class B shares not acquired through the reinvestment of dividends and
distributions.
CLASS C SHARES. The public offering price for Class C shares is the
net asset value per share of that Class. No initial sales charge is imposed at
the time of purchase. A CDSC is imposed, however, on redemptions of Class C
shares made within the first year of purchase. See "Class B Shares" above and
"How to Redeem Shares."
RIGHT OF ACCUMULATION--CLASS A SHARES. Reduced sales loads apply to
any purchase of Class A shares, shares of other funds in the Dreyfus Premier
Family of Funds, shares of certain other funds advised by the Manager which are
sold with a sales load and shares acquired by a previous exchange of such shares
(hereinafter referred to as "Eligible Funds"), by you and any related
"purchaser" as defined above, where the aggregate investment, including such
purchase, is $50,000 or more. If, for example, you previously purchased and
still hold Class A shares, or shares of any other Eligible Fund or combination
thereof, with an aggregate current market value of $40,000 and subsequently
purchase Class A shares or shares of an Eligible Fund having a current value of
$20,000, the sales load applicable to the subsequent purchase would be reduced
to 4.0% of the offering price. All present holdings of Eligible Funds may be
combined to determine the current offering price of the aggregate investment in
ascertaining the sales load applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of purchase you or
your Service Agent must notify the Distributor if orders are made by wire, or
the Transfer Agent if orders are made by mail. The reduced sales load is subject
to confirmation of your holdings through a check of appropriate records.
USING FEDERAL FUNDS. The Transfer Agent or the Fund may attempt to
notify you upon receipt of checks drawn on banks that are not members of the
Federal Reserve System as to the possible delay in conversion into Federal Funds
(monies of member banks within the Federal Reserve System which are held on
deposit at a Federal Reserve Bank) and may attempt to arrange for a better means
of transmitting the money. If you are a customer of a Selected Dealer and your
order to purchase Fund shares is paid for other than in Federal Funds, the
Selected Dealer, acting on your behalf, will complete the conversion into, or
itself advance, Federal Funds generally on the business day following receipt of
your order. The order is effective only when so converted and received by the
Transfer Agent. An order for the purchase of Fund shares placed by you with
sufficient Federal Funds or a cash balance in your brokerage account with a
Selected Dealer will become effective on the day that the order, including
Federal Funds, is received by the Transfer Agent.
DREYFUS TELETRANSFER PRIVILEGE. You may purchase shares by telephone
if you have checked the appropriate box and supplied the necessary information
on the Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your Fund account. Only a bank account
maintained in a domestic financial institution which is an Automated Clearing
House ("ACH") member may be so designated.
Dreyfus TELETRANSFER purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day 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 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 shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or Shareholder
Services Form on file. If the proceeds of a particular redemption are to be
wired to an account at any other bank, the request must be in writing and
signature-guaranteed. See "How to Redeem Shares--Dreyfus TELETRANSFER
Privilege."
REOPENING AN ACCOUNT. You 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.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class B and Class C shares are subject to a Distribution Plan and
Class A, Class B and Class C shares are subject to a Shareholder Services Plan.
DISTRIBUTION PLAN. Rule 12b-1 (the "Rule"), adopted by the Securities
and Exchange Commission under the 1940 Act, provides, among other things, that
an investment company may bear expenses of distributing its shares only pursuant
to a plan adopted in accordance with the Rule. The Fund's Board has adopted such
a plan (the "Distribution Plan") with respect to the Fund's Class B and Class C
shares, pursuant to which the Fund pays the Distributor for distributing each
such Class of shares a fee at the annual rate of .50% of the value of the
average daily net assets of Class B and .75% of the average daily net assets of
Class C. The Fund's Board believes that there is a reasonable likelihood that
the Distribution Plan will benefit the Fund and holders of Class B and Class C
shares.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be made
to the Board for its review. In addition, the Distribution Plan provides that it
may not be amended to increase materially the costs which holders of Class B or
Class C shares may bear for distribution pursuant to the Distribution Plan
without the approval of such shareholders and that other material amendments of
the Distribution Plan must be approved by the Board, and by the Board members
who are not "interested persons" (as defined in the 1940 Act) of the Fund or the
Manager and have no direct or indirect financial interest in the operation of
the Distribution Plan, or in any agreements entered into in connection with the
Distribution Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Distribution 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 Distribution Plan. The Distribution Plan was last so
approved at a meeting held on July 21, 1999. As to each of Class B and Class C,
the Distribution Plan may be terminated at any time (i) 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 Distribution Plan or (ii) by
vote of the holders of a majority of such Class.
For the fiscal year ended April 30, 1999, the Fund was charged
$604,681 and $47,348, with respect to Class B and Class C, respectively,
pursuant to the Distribution Plan.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services
Plan, pursuant to which the Fund pays the Distributor for the provision of
certain services to the holders of Class A, Class B and Class C shares a fee at
the annual rate of .25% of the value of the average daily net assets of each
such Class. 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 such shareholder accounts. Under the Shareholder Services Plan,
the Distributor may make payments to certain financial institutions (which may
include banks), Selected Dealers and other financial industry professionals
(collectively, "Service Agents") in respect of these services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred, must
be made to the Board for its review. In addition, the Shareholder Services Plan
provides that material amendments must be approved by the Fund's Board, 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 Shareholder Services Plan, by vote cast in person at a meeting called for
the purpose of considering such amendments. The Shareholder Services 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 Shareholder Services Plan. The
Shareholder Services Plan was last so approved on July 21, 1999. As to each
Class of shares, the Shareholder Services Plan is terminable at any time by vote
of a majority of the Board members who are not "interested persons" and who have
no direct or indirect financial interest in the operation of the Shareholder
Services Plan, or in any agreements entered into in connection with the
Shareholder Services Plan.
For the fiscal year ended April 30, 1999, the Fund was charged
$1,111,102, $302,340 and $15,783 with respect to Class A, Class B and Class C,
respectively, pursuant to the Shareholder Services Plan.
HOW TO REDEEM SHARES
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A CDSC payable to
the Distributor is imposed on any redemption of Class B shares which reduces the
current net asset value of your Class B shares to an amount which is lower than
the dollar amount of all payments by you for the purchase of Class B shares of
the Fund held by you at the time of redemption. No CDSC will be imposed to the
extent that the net asset value of the Class B shares redeemed does not exceed
(i) the current net asset value of the Class B shares acquired through
reinvestment of dividends or capital gain distributions, plus (ii) increases in
the net asset value of your Class B shares above the dollar amount of all your
payments for the purchase of Class B shares held by you at the time of
redemption.
If the aggregate value of Class B shares redeemed has declined below
their original cost as a result of the Fund's performance, a CDSC may be applied
to the then-current net asset value rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge
will depend on the number of years for the time you purchased the Class B shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of Class B
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
The following table sets forth the rates of the CDSC for Class B
shares, except for Class B shares purchased by shareholders who beneficially
owned Class B shares on November 30, 1996:
Year Since CDSC as a % of
Purchase Payment Amount Invested or
WAS MADE REDEMPTION PROCEEDS
First.......................................... 4.00
Second......................................... 4.00
Third.......................................... 3.00
Fourth......................................... 3.00
Fifth.......................................... 2.00
Sixth.......................................... 1.00
The following table sets forth the rates of the CDSC for Class B
shares purchased by shareholders who beneficially owned Class B shares on
November 30, 1996:
Year Since CDSC as a % of
Purchase Payment Amount Invested or
WAS MADE REDEMPTION PROCEEDS
First.......................................... 3.00
Second......................................... 3.00
Third.......................................... 2.00
Fourth......................................... 2.00
Fifth.......................................... 1.00
Sixth.......................................... 0.00
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value of Class B shares
above the total amount of payments for the purchase of Class B shares made
during the preceding six years (five years for shareholders beneficially owning
Class B shares on November 30, 1996); then of amounts representing the cost of
shares purchased six years (five years for shareholders beneficially owning
Class B shares on November 30, 1996) prior to the redemption; and finally, of
amounts representing the cost of shares held for the longest period of time
within the applicable six-year period (five-year period for shareholders
beneficially owning Class B shares on November 30, 1996).
For example, assume an investor purchased 100 shares at $10 per share
for a cost of $1,000. Subsequently, the shareholder acquired five additional
shares through dividend reinvestment. During the second year after the purchase
the investor decided to redeem $500 of the investment. Assuming at the time of
the redemption the net asset value had appreciated to $12 per share, the value
of the investor's shares would be $1,260 (105 shares at $12 per share). The CDSC
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4% (the
applicable rate in the second year after purchase) for a total CDSC of $9.60.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A CDSC of 1% payable
to the Distributor is imposed on any redemption of Class C shares within one
year of the date of purchase. The basis for calculating the payment of any such
CDSC will be the method used in calculating the CDSC for Class B shares. See
"Contingent Deferred Sales Charge--Class B Shares" above.
WAIVER OF CDSC. The CDSC will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
Section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in qualified or non-qualified employee benefit plans or other
programs where (i) the employers or affiliated employers maintaining such plans
or programs have a minimum of 250 employees eligible for participation in such
plans or programs, or (ii) such plan's or program's aggregate investment in the
Dreyfus Family of Funds or certain other products made available by the
Distributor exceeds $1,000,000, (c) redemptions as a result of a combination of
any investment company with the Fund by merger, acquisition of assets or
otherwise, (d) a distribution following retirement under a tax-deferred
retirement plan or upon attaining age 70 1/2 in the case of an IRA or Keogh plan
or custodial account pursuant to Section 403(b) of the Code, and (e) redemptions
pursuant to the Automatic Withdrawal Plan, as described below. If the Fund's
Board determines to discontinue the waiver of the CDSC, the disclosure herein
will be revised appropriately. Any Fund shares subject to a CDSC which were
purchased prior to the termination of such waiver will have the CDSC waived as
provided in the Fund's Prospectus or this Statement of Additional Information at
the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
entitlement.
CHECK REDEMPTION PRIVILEGE--CLASS A ONLY. The Fund provides Redemption
Checks ("Checks") to investors in Class A shares automatically upon opening an
account unless you specifically refuse the Check Redemption Privilege by
checking the applicable "No" box on the Account Application. Checks will be sent
only to the registered owner(s) of the account and only to the address of
record. The Check Redemption Privilege may be established for an existing
account by a separate signed Shareholder Services Form. The Account Application
or Shareholder Services Form must be manually signed by the registered owner(s).
Checks are drawn on your Fund account and 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 your agent, will cause the
Fund to redeem a sufficient number of full and fractional Class A shares in your
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 you. You
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.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the Check, all postdated
Checks which are dated within six months of presentment for payment, if they are
otherwise in good order.
Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the Class A shares in your account, the Check
will be returned marked insufficient funds. Checks should not be used to close
an account.
This Privilege will be terminated immediately, without notice, with
respect to any account which is, or becomes, subject to backup withholding on
redemptions. Any Check written on an account which has become subject to backup
withholding on redemptions will not be honored by the Transfer Agent.
REDEMPTION THROUGH A SELECTED DEALER. If you are a customer of a
Selected Dealer, you may make redemption requests to your Selected Dealer. If
the Selected Dealer transmits the redemption request so that it is received by
the Transfer Agent prior to the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m., New York time), the redemption request will
be effective on that day. If a redemption request is received by the Transfer
Agent after the close of trading on the floor of the New York Stock Exchange,
the redemption request will be effective on the next business day. It is the
responsibility of the Selected Dealer to transmit a request so that it is
received in a timely manner. The proceeds of the redemption are credited to your
account with the Selected Dealer. See "How to Buy Shares" for a discussion of
additional conditions or fees that may be imposed upon redemption.
In addition, the Distributor or its designee will accept orders from
Selected Dealers with which the Distributor has sales agreements for the
repurchase of shares held by shareholders. Repurchase orders received by dealers
by the close of trading on the floor of the New York Stock Exchange on any
business day and transmitted to the Distributor or its designee prior to the
close of its business day (normally 5:15 p.m., New York time) are effected at
the price determined as of the close of trading on the floor of the New York
Stock Exchange on that day. Otherwise, the shares will be redeemed at the next
determined net asset value. It is the responsibility of the Selected Dealer to
transmit orders on a timely basis. The Selected Dealer may charge the
shareholder a fee for executing the order. This repurchase arrangement is
discretionary and may be withdrawn at any time.
REINVESTMENT PRIVILEGE. Upon written request, you may reinvest up to
the number of Class A or Class B shares you have redeemed, within 45 days of
redemption, at the then-prevailing net asset value without a sales load, or
reinstate your account for the purpose of exercising Fund Exchanges. Upon
reinstatement, with respect to Class B shares, or Class A shares if such shares
were subject to a CDSC, your account will be credited with an amount equal to
CDSC previously paid upon redemption of the Class A or Class B shares
reinvested. The Reinvestment Privilege may be exercised only once.
DREYFUS TELETRANSFER PRIVILEGE. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Holders of jointly registered Fund or
bank accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within any 30-day period.
Redemption proceeds will be on deposit in your account at an ACH member bank
ordinarily two business days after receipt of the redemption request. You should
be aware that if you have selected the Dreyfus TELETRANSFER Privilege, any
request for a wire redemption will be effected as a Dreyfus TELETRANSFER
transaction through the ACH system unless more prompt transmittal specifically
is requested. See "How to Buy 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 owner 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.
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 and is a
fundamental policy of the Fund which may not be changed without shareholder
approval. 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 or other assets of the Fund 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 sells 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
FUND EXCHANGES. Clients of certain Service Agents may purchase, in
exchange for Class A, Class B or Class C shares of the Fund, shares of the same
class of certain other funds managed or administered by the Manager, to the
extent such shares are offered for sale in such client's state of residence.
Shares of the same Class of such 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 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"), but 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.
E. Shares of funds subject to a CDSC that are exchanged for shares
of another fund will be subject to the higher applicable CDSC of
the two funds, and for purposes of calculating CDSC rates and
conversion periods, if any, will be deemed to have been held
since the date the shares being exchanged were initially
purchased.
To accomplish an exchange under item D above, your Service Agent must
notify the Transfer Agent of your prior ownership of such Class A shares and
your account number.
You also may exchange your Fund shares that are subject to a CDSC for
shares of Dreyfus Worldwide Dollar Money Market Fund, Inc. The shares so
purchased will be held in a special account created solely for this purpose
("Exchange Account"). Exchanges of shares for an Exchange Account only can be
made into certain other funds manage or administered by the Manager. No CDSC is
charged when an investor exchanges into an Exchange Account; however, the
applicable CDSC will be imposed when shares are redeemed from an Exchange
Account or other applicable Fund account. Upon redemption, the applicable CDSC
will be calculated without regard to the time such shares were held in an
Exchange Account. See "How to Redeem Shares." Redemption proceeds for Exchange
Account shares are paid by Federal wire or check only. Exchange Account shares
also are eligible for the Dreyfus Auto-Exchange Privilege, Dreyfus Dividend
Sweep and the Automatic Withdrawal Plan.
To request an exchange, your Service Agent acting on your behalf 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 shareholders
automatically, unless you check the applicable "No" box on the Account
Application, indicating that you specifically refuse this privilege. By using
the Telephone Exchange Privilege, you authorize the Transfer Agent to act on
telephonic instructions (including over The Dreyfus Touch(R) automated telephone
system) from any person representing himself or herself to be you or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. 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. No fees currently are
charged shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules promulgated
by the Securities and Exchange Commission.
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 being required for shares of the same Class of the fund into which
the exchange is being made.
DREYFUS AUTO-EXCHANGE PRIVILEGE. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for Class A, Class B or Class C shares of
the Fund, shares of the same Class of another fund in the Dreyfus Premier Family
of Funds or certain funds in the Dreyfus Family of Funds of which you are a
shareholder. 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 you. You
will be notified if your account falls below the amount designated to be
exchanged under this Privilege. In this case, your account will fall to zero
unless additional investments are made in excess of the designated amount prior
to the next Auto-Exchange transaction.
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. Shares may be exchanged only between
accounts having identical names and other identifying designations. The Fund
Exchanges service or the Dreyfus Auto-Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
DREYFUS-AUTOMATIC ASSET BUILDER(R). Dreyfus-AUTOMATIC Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased by
transferring funds from the bank account designated by you.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social Security,
or certain veterans', military or other payments from the U.S. Government
automatically deposited into your Fund account. You may deposit as much of such
payments as you elect.
DREYFUS DIVIDEND OPTIONS. Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from the Fund in shares of the same Class of another fund in the Dreyfus
Premier Family of Funds or certain funds in the Dreyfus Family of Funds of which
you are a shareholder. Shares of the same Class 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 with respect to Class A shares
by a fund may be invested without imposition of a sales load in
Class A shares of other funds offered without a sales load.
B. Dividends and distributions paid with respect to Class A shares
by a fund which does not charge a sales load may be invested in
Class A shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Dividends and distributions paid with respect to Class A shares
by a fund which charges a sales load may be invested in Class A
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), but 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 with respect to Class
B or Class C shares may be invested without imposition of any
applicable CDSC in the same Class of shares of other funds and
the relevant Class of shares of such other funds will be subject
on redemption to any applicable CDSC.
Dreyfus Dividend ACH permits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an ACH member may be so designated. Banks may charge a fee
for this service.
AUTOMATIC WITHDRAWAL PLAN. The Automatic Withdrawal Plan permits you
to request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. Withdrawal
payments are the proceeds from sales of Fund shares, not the yield on the
shares. If withdrawal payments exceed reinvested dividends and distributions,
your shares will be reduced and eventually may be depleted. Automatic Withdrawal
may be terminated at any time by you, the Fund or the Transfer Agent. Shares for
which share certificates have been issued may not be redeemed through the
Automatic Withdrawal Plan.
No CDSC with respect to Class B shares will be imposed on withdrawals
made under the Automatic Withdrawal Plan, provided that the amounts withdrawn
under the plan do not exceed on an annual basis 12% of the account value at the
time the shareholder elects to participate in the Automatic Withdrawal Plan.
Withdrawals with respect to Class B shares under the Automatic Withdrawal Plan
that exceed on an annual basis 12% of the value of the shareholders account will
be subject to a CDSC on the amounts exceeding 12% of the initial account value.
Withdrawals of Class A shares subject to a CDSC and Class C shares under the
Automatic Withdrawal Plan will be subject to any applicable CDSC. Purchases of
additional Class A shares where the sales load is imposed concurrently with
withdrawals of Class A shares generally are undesirable.
LETTER OF INTENT--CLASS A SHARES. By signing a Letter of Intent form,
which can be obtained by calling 1-800-554-4611, you become eligible for the
reduced sales load applicable to the total number of Eligible Fund shares
purchased in a 13-month period pursuant to the terms and conditions set forth in
the Letter of Intent. A minimum initial purchase of $5,000 is required. To
compute the applicable sales load, the offering price of shares you hold (on the
date of submission of the Letter of Intent) in any Eligible Fund that may be
used toward "Right of Accumulation" benefits described above may be used as a
credit toward completion of the Letter of Intent. However, the reduced sales
load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent for payment of a higher sales load if you do not purchase
the full amount indicated in the Letter of Intent. The escrow will be released
when you fulfill the terms of the Letter of Intent by purchasing the specified
amount. If your purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect your total purchase at the end of 13 months. If
total purchases are less than the amount specified, you will be requested to
remit an amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If such
remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A shares of the Fund held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase, or the
Fund to sell, the full amount indicated at the sales load in effect at the time
of signing, but you must complete the intended purchase to obtain the reduced
sales load. At the time you purchase Class A shares, you must indicate your
intention to do so under a Letter of Intent. Purchase pursuant to a Letter of
Intent will be made at the then-current net asset value plus the applicable
sales load in effect at the time such Letter of Intent was executed.
DETERMINATION OF NET ASSET VALUE
VALUATION OF PORTFOLIO SECURITIES. The Fund's investments are valued
each business day 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) and fees pursuant to the Shareholder
Services Plan, with respect to Class A, Class B and Class C shares, and fees
pursuant to the Distribution Plan, with respect to Class B and Class C shares
only, are accrued daily and are taken into account for the purpose of
determining the net asset value of the relevant Class of shares. Because of the
difference in operating expenses incurred by each Class, the per share net asset
value of each Class will differ.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that the Fund qualified as a "regulated investment
company" under the Code for the fiscal year ended April 30, 1999, and the Fund
intends to continue to so qualify so long as such qualification is in the best
interests of its shareholders. As a regulated investment company, the Fund will
pay no Federal income tax on net investment income and net realized capital
gains to the extent that such income and gains are distributed to shareholders
in accordance with applicable provisions of the Code. To qualify as a regulated
investment company, the Fund must distribute to its shareholders at least 90% of
its net income (consisting of net investment income from tax exempt obligations
and taxable obligations, if any, and net short-term capital gains) and must meet
certain asset diversification and other requirements. If the Fund did not
qualify as a regulated investment company, it would be treated for tax purposes
as an ordinary corporation subject to Federal income tax. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
The Fund ordinarily declares dividends from its net investment income
on each day the New York Stock Exchange is open for business. Fund shares begin
earning income dividends on the day Federal Funds are received by the Transfer
Agent. If a purchase order is not accompanied by remittance in Federal Funds,
there may be a delay between the time the purchase order becomes effective and
the time the shares purchased start earning dividends. If your payment is not
made in Federal Funds, it must be converted into Federal Funds. This usually
occurs within one business day of receipt of a bank wire and within two business
days of receipt of a check drawn on a member bank of the Federal Reserve System.
Checks drawn on banks which are not members of the Federal Reserve System may
take considerably longer to convert into Federal Funds.
The Fund's earnings for Saturdays, Sundays and holidays are declared
as dividends on the preceding business day. Dividends usually are paid on the
last calendar day of each month and are automatically reinvested in additional
shares of the same Class from which they were paid at net asset value without a
sales load or, at your option, paid in cash. If you redeem all shares in your
account at any time during the month, all dividends to which you are entitled
will be paid to you along with the proceeds of the redemption. If you are an
omnibus accountholder and indicate in a partial redemption request that a
portion of any accrued dividends to which such account is entitled belongs to an
underlying accountholder who has redeemed all shares in his or her account, such
portion of the accrued dividends will be paid to you along with the proceeds of
the redemption. Distributions from net realized securities gains, if any,
generally are declared and paid once a year, but the Fund may make distributions
on a more frequent basis to comply with the distribution requirements of the
Code, in all events in a manner consistent with the provisions of the 1940 Act.
All expenses are accrued daily and deducted before declaration of dividends to
investors.
If you elect to receive dividends and distributions in cash and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest such
dividend or distribution and all future dividends and distributions payable to
you in additional Fund shares at net asset value. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated under "Distributions
and Taxes" in the Prospectus. In addition, the Code provides that if a
shareholder has not held his 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 will be disallowed to the extent of the
exempt-interest dividend received.
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 of the Code. "Conversion
transactions" are defined to include certain forward, futures, option and
"straddle" 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 as described above.
Offsetting positions held by the Fund involving certain 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 of the Code. 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 certain futures contracts or options transactions, such "straddles"
would be characterized as "mixed straddles" if the futures or options
transactions 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." Depending on which election is made, if any, the results to the Fund
may differ. 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 the offsetting position. Moreover, as a
result of the "straddle" and the conversion transaction rules, short-term
capital losses on "straddle" positions may be recharacterized as long-term
capital losses, and long-term capital gains on straddle positions may be treated
as short-term capital gains or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified as hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.
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.
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 and may be selected
based upon their sales of shares of the Fund or other funds managed, advised or
administered by the Manager or its affiliates.
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.
The Fund's portfolio turnover rate for the fiscal years ended April
30, 1997, 1998 and 1999 was 28.17%, 26.33% and 46.84%, respectively. The Fund
anticipates that its annual portfolio turnover rate generally will not exceed
100%, but the turnover rate will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. Therefore, depending upon market
conditions, the Fund's annual portfolio turnover rate may exceed 100% in
particular years.
The aggregate amount of transactions during the last fiscal year in
newly issued debt instruments in fixed price public offerings directed to an
underwriter in consideration of, among other things, research services provided
was $4,100,000.
PERFORMANCE INFORMATION
Current yield for the 30-day period ended April 30, 1999 for Class A
was 4.04%, for Class B was 3.72% and for Class C was 3.50%. 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) 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 maximum
offering price per share in the case of Class A or the net asset value per share
in the case of Class B or Class C 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 1999 Federal tax rate of 39.6%, the tax equivalent yield
for the 30-day period ended April 30, 1999 for Class A was 6.69%, for Class B
was 6.16% and for Class C was 5.79%. 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 that is not tax exempt.
The tax equivalent yield noted above represents the application of the
highest Federal marginal personal income tax rate presently in effect. The tax
equivalent yield figure, however, does not reflect the potential effect of any
state or 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 rate 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.
The average annual total return for the 1, 5 and 10 year periods ended
April 30, 1999 for Class A was -0.70%, 6.06% and 7.48%, respectively. The
average annual total return for the 1, 5 and 6.29 year periods ended April 30,
1999 for Class B was -0.48%, 6.17% and 6.12%, respectively. The average annual
total return for the 1 and 3.8 year periods ended April 30, 1999 for Class C was
2.18% and 5.55%, respectively. Average annual total return is calculated by
determining the ending redeemable value of an investment purchased at net asset
value (maximum offering price in the case of Class A) per share 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. A Class'
average annual total return figures calculated in accordance with such formula
provides that in the case of Class A the maximum sales load has been deducted
from the hypothetical initial investment at the time of purchase or in the case
of Class B or Class C the maximum applicable CDSC has been paid upon redemption
at the end of the period.
The aggregate total return excluding sales load, for the period
November 26, 1986 (commencement of operations) through April 30, 1999 for Class
A was 140.84%. The total return net of sales load for Class A was 129.99% for
this period. The aggregate total return for the period January 15, 1993
(commencement of initial offering of Class B shares) through April 30, 1999 for
Class B was 45.30%. Without giving effect to the applicable CDSC, the aggregate
total return for Class B was 45.30% for this period. The total return for Class
C for the period from July 13, 1995 (commencement of initial offering of Class
C) through April 30, 1999 was 22.80%. Without giving effect to the applicable
CDSC, the total return for Class C was 22.80% for this period. Total return is
calculated by subtracting the amount of the Fund's net asset value (maximum
offering price in the case of Class A) 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 period) and
dividing the result by the maximum offering price per share at the beginning of
the period. Total return also may be calculated based on the net asset value per
share at the beginning of the period instead of the maximum offering price per
share at the beginning of the period for Class A shares or without giving effect
to any applicable CDSC at the end of the period for Class B or Class C shares.
In such cases, the calculation would not reflect the deduction of the sales
charge, which, if reflected, would reduce the performance quoted.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be used
for illustrative purposes only and not as being representative of the Fund's
past or future performance.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical Services,
Inc., Moody's Bond Survey Bond Index, Lehman Brothers Municipal Bond Index,
Morningstar, Inc. and other industry publications. From time to time,
advertising materials for the Fund may refer to or discuss then-current or past
economic conditions, developments and/or events, including those relating to or
arising from actual or proposed tax legislation, statistical or other
information concerning trends relating to investment companies, as compiled by
industry associations, such as the Investment Company Institute and Morningstar
ratings and related analysis supporting such ratings. Advertising materials for
the Fund also may include biographical information relating to its portfolio
managers and may refer to, or include, commentary by a portfolio manager
relating to investment strategy, asset growth, current or past business,
political, economic or financial conditions and other matters of general
interest to investors.
INFORMATION ABOUT THE FUND
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.
Shares have no preemptive or subscription rights and are freely transferable.
The Fund is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts. Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Fund. However, the Fund's Agreement and Declaration of Trust
("Trust Agreement") disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in the agreement,
obligation or instrument entered into or executed by the Fund or a Board member.
The Trust Agreement provides for indemnification from the Fund's property for
all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Fund, the shareholder paying such liability will be entitled to reimbursement
from the general assets of the Fund. The Fund intends to conduct its operations
in a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Board member from office. Fund
shareholders may remove a Board member by the affirmative vote of two-thirds of
the Fund's outstanding voting shares. In addition, the Board will call a meeting
of shareholders for the purpose of electing Board members if, at any time, less
than a majority of the Board members then holding office have been elected by
shareholders.
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to the
Fund's performance and its shareholders. Accordingly, if the Fund's management
determines that an investor is following a market-timing strategy or is
otherwise engaging in excessive trading, the Fund, with or without prior notice,
may temporarily or permanently terminate the availability of Fund Exchanges, or
reject in whole or part of any purchase or exchange request, with respect to
such investor's account. Such investors also may be barred from purchasing other
funds in the Dreyfus Family of Funds. Generally, an investor who makes more than
four exchanges out of the Fund during any calendar year or who makes exchanges
that appear to coincide with a market-timing strategy may be deemed to be
engaged in excessive trading. Accounts under common ownership or control will be
considered as one account for purposes of determining a pattern of excessive
trading. In addition, the Fund may refuse or restrict purchase or exchange
requests by any person or group if, in the judgment of the Fund's management,
the Fund would be unable to invest the money effectively in accordance with its
investment objective and policies or could otherwise be adversely affected or if
the Fund receives or anticipates receiving simultaneous orders that may
significantly affect the Fund (e.g., amounts equal to 1% or more of the Fund's
total assets). If an exchange request is refused, the Fund will take no other
action with respect to the shares until it receives further instructions from
the investor. The Fund may delay forwarding redemption proceeds for up to seven
days if the investor redeeming shares is engaged in excessive trading or if the
amount of the redemption request otherwise would be disruptive to efficient
portfolio management or would adversely affect the Fund. The Fund's policy on
excessive trading applies to investors who invest in the Fund directly or
through financial intermediaries, but does not apply to the Dreyfus
Auto-Exchange Privilege, to any automatic investment or withdrawal privilege
described herein, or to participants in employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components--redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but the
purchase order would be effective only at the net asset value next determined
after the fund being purchased receives the proceeds of the redemption, which
may result in the purchase being delayed.
To offset the relatively higher costs of servicing smaller accounts,
the Fund will charge regular accounts with balances below $2,000 an annual fee
of $12. The valuation of accounts and the deductions are expected to take place
during the last four months of each year. The fee will be waived for any
investor whose aggregate Dreyfus mutual fund investments total at least $25,000,
and will not apply to IRA accounts or to accounts participating in automatic
investment programs or opened through a securities dealer, bank or other
financial institution, or to other fiduciary accounts.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
The Manager's legislative efforts led to the 1976 Congressional
amendment to the Code permitting an incorporated mutual fund to pass through tax
exempt income to its shareholders. The Manager offered to the public the first
incorporated tax exempt fund and currently manages or administers over $24
billion in tax exempt assets.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, 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 independent auditors of the Fund.
<PAGE>
APPENDIX
Description of certain 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 an 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 or 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 interest and repayment 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 payment
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 designation to show relative standing within the
major rating 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 (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
SP-3
The issuers of these municipal notes exhibit speculative 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. Issues assigned an A 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 (+)
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.
A-3
Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B
Issues rated B are regarded as having only an adequate capacity for
timely payment; such capacity may be damaged by changing conditions or
short-term adversities.
C
This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
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 sometime 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.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for the bonds in the generic rating category Aa. Moody's
also provides numerical modifiers of 2 and 3 in this category for bond issues in
the health care, higher education and other not-for-profit sectors; the modifier
1 indicates that the issue ranks in the higher end of that generic rating
category; the modifier 2 indicates that the issue is in the mid-range of that
generic category; and the modifier 3 indicates that the issue is in the low end
of that generic category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3/VMIG 3
This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will 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.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate 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.
DEMAND BOND OR NOTES RATINGS
Certain demand securities empower the holder at his option to require
the issuer, usually through a remarketing agent, to repurchase the security upon
notice at par with accrued interest. This is also referred to as a put option.
The ratings of the demand provision may be changed or withdrawn at any time if,
in Fitch's judgment, changing circumstances warrant such action.
Fitch demand provision ratings carry the same symbols and related
definitions as its short-term ratings.
December 23, 1999
Dreyfus Premier Municipal Bond Fund
Supplement to Statement of Additional Information
Dated September 1, 1999
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "How to Buy
Shares--Right of Accumulation - Class A Shares."
Reduced sales loads apply to any purchase of Class A shares, shares of
other funds in the Dreyfus Premier Family of Funds which are sold with a sales
load, shares of certain other funds advised by the Manager or Founders Asset
Management LLC ("Founders"), an affiliate of the Manager, which are sold with a
sales load and shares acquired by a previous exchange of such shares
(hereinafter referred to as "Eligible Funds"), by you and any related
"purchaser" as defined above, where the aggregate investment, including such
purchase, is $50,000 or more.
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "Shareholder Services --
Fund Exchanges."
Clients of certain Service Agents may purchase, in exchange for Class A,
Class B or Class C shares of the Fund, shares of the same Class of another fund
in the Dreyfus Premier Family of Funds, shares of the same Class of certain
funds advised by Founders, or shares of certain other funds in the Dreyfus
Family of Funds, to the extent such shares are offered for sale in your state of
residence.
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "Shareholder Services --
Dreyfus Auto-Exchange Privilege."
Dreyfus Auto-Exchange Privilege permits you to purchase (on a semi-monthly,
monthly, quarterly or annual basis), in exchange for Class A, Class B or Class C
shares of the Fund, shares of the same Class of another fund in the Dreyfus
Premier Family of Funds, shares of the same Class of certain funds advised by
Founders, or shares of certain other funds in the Dreyfus Family of Funds, of
which you are a shareholder.
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "Shareholder Services -
Dreyfus Dividend Options."
Dreyfus Dividend Sweep allows you to invest automatically your dividends or
dividends and capital gain distributions, if any, from the Fund in shares of the
same Class of another fund in the Dreyfus Premier Family of Funds, shares of the
same Class of certain funds advised by Founders, or shares of certain other
funds in the Dreyfus Family of Funds, of which you are a shareholder.
<PAGE>
March 22, 2000
DREYFUS PREMIER MUNICIPAL BOND FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 1, 1999
1. The following information replaces all contrary information contained in the
sections of the Statement of Additional Information ("SAI") entitled
"Description of the Fund", "Management of the Fund" and "Management
Arrangements":
Effective March 22, 2000, Dreyfus Service Corporation ("DSC") became the
distributor to the Fund. DSC is located at 200 Park Avenue, New York, NY 10166.
2. The following information replaces the information contained in the section
of the Statement of Additional Information ("SAI") entitled "Management of the
Fund - Officers of the Fund":
Stephen E. Canter, President. President, Chief Operating Officer, and Chief
Investment Officer of the Manager, and an officer of other investment
companies advised and administered by the Manager. Mr. Canter also is
a Director or an Executive Committee Member of the other investment
management subsidiaries of Mellon Financial Corporation, each of which
is an affiliate of the Manager. He is 54 years old.
Mark N. Jacobs, Vice President. Vice President, General Counsel and
Secretary to the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 53 years old.
Joseph Connolly, Vice President and Treasurer. Director - Mutual Fund
Accounting of the Manager, and an officer of other investment
companies advised and administered by the Manager. He is 42 years old.
Steven F. Newman, Secretary. Associate General Counsel and Assistant
Secretary of the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 50 years old.
Michael A. Rosenberg, Assistant Secretary. Associate General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. He is 40 years old.
Janette Farragher, Assistant Secretary. Assistant General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. She is 37 years old.
Gregory S. Gruber, Assistant Treasurer. Senior Accounting Manager - Municipal
Bond Funds of the Manager, and an officer of other investment
companies advised and administered by the Manager. He is 40 years old.
The address of each Fund officer is 200 Park Avenue, New York, NY 10166.
3. The following information supplements the information contained in the
section of the SAI entitled "Management Arrangements - Distributor":
Disclosure of the amounts retained by "the distributor" on the sale of
shares of the Fund refers to amounts retained by Premier Mutual Fund Services,
Inc. ("Premier"), the Fund's distributor prior to March 22, 2000. No information
is provided for Dreyfus Service Corporation, as it was not the Fund's
distributor as of the Fund's last fiscal year end.
<PAGE>
- -------------------------------------------------------------------------------
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
o Connecticut Series o Minnesota Series
o Florida Series o New Jersey Series
o Georgia Series o North Carolina Series
o Maryland Series o Ohio Series
o Massachusetts Series o Pennsylvania Series
o Michigan Series o Texas Series
o Virginia Series
CLASS A AND CLASS B AND CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
above-named series (each, a "Series") of Dreyfus Premier State Municipal Bond
Fund (the "Fund"), dated September 1, 1999, 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 1-800-554-4611.
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
PAGE
Description of the Fund and Series........................................3
Management of the Fund....................................................23
Management Arrangements...................................................31
How to Buy Shares.........................................................36
Distribution Plan and Shareholder Services Plan...........................42
How To Redeem Shares......................................................44
Shareholder Services......................................................49
Determination of Net Asset Value..........................................52
Dividends, Distributions and Taxes........................................53
Portfolio Transactions....................................................63
Performance Information...................................................64
Information About the Fund................................................73
Counsel and Independent Auditors..........................................75
Appendix A................................................................76
Appendix B................................................................141
<PAGE>
DESCRIPTION OF THE FUND AND SERIES
The Fund is a Massachusetts business trust that was formed on
September 19, 1986. The Fund is an open-end, management investment company,
known as a municipal bond fund.
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.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Fund's Prospectus.
MUNICIPAL OBLIGATIONS. The Fund's investment objective is to maximize
current income exempt from Federal income tax and, where applicable, from State
income taxes for residents of the States of Connecticut, Florida, Georgia,
Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Ohio,
Pennsylvania, Texas and Virginia, without undue risk. To accomplish the Fund's
investment objective, each Series invests primarily in the debt securities of
the State after which it is named, such State's political subdivisions,
authorities and corporations, the interest from which is, in the opinion of bond
counsel to the issuer, exempt from Federal and such State's personal income
taxes (collectively, "State Municipal Obligations" or when the context so
requires, "Connecticut Municipal Obligations," "Florida Municipal Obligations,"
"Georgia Municipal Obligations," "Maryland Municipal Obligations," etc.).
Each Series will invest at least 80% of the value of its net assets
(except when maintaining a temporary defensive position) in Municipal
Obligations. Municipal Obligations are debt obligations issued by states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities, the interest from which, in the opinion of bond counsel
to the issuer, is exempt from Federal income tax. Municipal Obligations
generally include debt obligations issued to obtain funds for various public
purposes as well as certain industrial development bonds issued by or on behalf
of public authorities. Municipal Obligations are classified as general
obligation bonds, revenue bonds and notes. General obligation bonds are secured
by the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenue derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Tax exempt industrial development bonds, in most cases,
are revenue bonds that do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are obligations
of the issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from the
related Municipal Obligation and purchased and sold separately.
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.
CERTAIN TAX EXEMPT OBLIGATIONS. Each Series may purchase floating and
variable rate demand notes and bonds, which are tax exempt obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Series to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Series, as lender, and the
borrower. These obligations permit daily changes in the amount borrowed. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Series' right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Each obligation purchased
will meet the quality criteria established for the purchase of Municipal
Obligations.
TAX EXEMPT PARTICIPATION INTERESTS. Each Series may purchase from
financial institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Series an undivided interest in the Municipal
Obligation in the proportion that the Series' participation interest bears to
the total principal amount of the Municipal Obligation. These instruments may
have fixed, floating or variable rates of interest. If the participation
interest is unrated or has been given a rating below that which otherwise is
permissible for purchase by the Series, it will be backed by an irrevocable
letter of credit or guarantee of a bank that the Fund's Board has determined
meets prescribed quality standards for banks, or the payment obligation
otherwise will be collateralized by U.S. Government securities. For certain
participation interests, the Series will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Series'
participation interest in the Municipal Obligation, plus accrued interest. As to
these instruments, each Series intends to exercise its right to demand payment
only upon a default under the terms of the Municipal Obligation, as needed to
provide liquidity to meet redemptions, or to maintain or improve the quality of
its investment portfolio.
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 each Series' 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 canceled; (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. A Series will not invest more than 15% of the value
of its net assets in lease obligations that are illiquid and in other illiquid
securities.
TENDER OPTION BONDS. Each Series may purchase tender option bonds. A
tender option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal Obligation's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt rate. The
Manager, on behalf of the Series, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal Obligation, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligation and for other reasons.
A Series will purchase tender option bonds only when the Fund 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 Series. 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.
CUSTODIAL RECEIPTS. Each Series may purchase custodial receipts
representing the right to receive certain future principal and interest payments
on Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt arrangement,
an issuer or a third party owner of Municipal Obligations deposits such
obligations with a custodian in exchange for two classes of custodial receipts.
The two classes have different characteristics, but, in each case, payments on
the two classes are based on payments received on the underlying Municipal
Obligations. One class has the characteristics of a typical auction rate
security, where at specified intervals its interest rate is adjusted, and
ownership changes, based on an auction mechanism. This class's interest rate
generally is expected to be below the coupon rate of the underlying Municipal
Obligations and generally is at a level comparable to that of a Municipal
Obligation of similar quality and having a maturity equal to the period between
interest rate adjustments. The second class bears interest at a rate that
exceeds the interest rate typically borne by a security of comparable quality
and maturity; this rate also is adjusted, but in this case inversely to changes
in the rate of interest of the first class. In no event will the aggregate
interest paid with respect to the two classes exceed the interest paid by the
underlying Municipal Obligations. The value of the second class and similar
securities should be expected to fluctuate more than the value of a Municipal
Obligation of comparable quality and maturity and their purchase by a Series
should increase the volatility of its net asset value and, thus, its price per
share. These custodial receipts are sold in private placements. Each Series also
may purchase directly from issuers, and not in a private placement, Municipal
Obligations having characteristics similar to custodial receipts. These
securities may be issued as part of a multi-class offering and the interest rate
on certain classes may be subject to a cap or floor.
STAND-BY COMMITMENTS. Each Series may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Series obligates a broker, dealer or bank to repurchase, at the
Series' option, specified securities at a specified price and, in this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Series will acquire stand-by commitments solely to facilitate its
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Series may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
Municipal Obligation and similarly decreasing such security's yield to
investors. Gains realized in connection with stand-by commitments will be
taxable. Each Series also may acquire call options on specific Municipal
Obligations. A Series generally would purchase these call options to protect the
Series from the issuer of the related Municipal Obligation redeeming, or other
holder of the call option from calling away, the Municipal Obligation before
maturity. The sale by the Series of a call option that it owns on a specific
Municipal Obligation could result in the receipt of taxable income by the
Series.
RATINGS OF MUNICIPAL OBLIGATIONS. Each Series will invest at least 70%
of the value of its net assets in Municipal Obligations which, in the case of
bonds, are rated no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch IBCA,
Inc. ("Fitch" and, together with Moody's and S&P, the "Rating Agencies"). Each
Series may invest up to 30% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated lower than Baa by Moody's and
BBB by S&P and Fitch and as low as the lowest rating assigned by a Rating
Agency. Each Series also may invest in securities which, while not rated, are
determined by the Manager to be of comparable quality to the rated securities in
which the Series may invest; for purposes of the 70% requirement described in
this paragraph, such unrated securities will be considered to have the rating so
determined.
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the fiscal year ended April 30,
1999, computed on a monthly basis, for each Series was as follows:
<PAGE>
FITCH or MOODY'S or S&P Connecticut Florida Georgia
- ----- ------- --- SERIES SERIES SERIES
AAA Aaa AAA 30.3% 49.5% 76.2%
AA Aa AA 26.4 12.6 13.2
A A A 5.0 6.4 -
BBB Baa BBB 24.9 14.0 8.4
BB Ba BB 2.1 .8 -
F-1 MIG 1/P-1 SP-1/A-1 .7 3.9 2.2
Not Rated Not Rated Not Rated 10.61 12.82 -
---- ---- -
100.0% 100.0% 100.0%
====== ====== ======
Maryland Massachusetts Michigan
FITCH or MOODY'S or S&P SERIES SERIES SERIES
- ----- ------- ----- ------ ------- ------
AAA Aaa AAA 29.8% 34.4% 52.4%
AA Aa AA 32.3 18.2 12.2
A A A 20.1 16.3 12.5
BBB Baa BBB 8.3 18.1 7.3
BB Ba BB - - -
F-1 MIG 1/P-1 SP-1/A-1 1.2 1.4 1.7
Not Rated Not Rated Not Rated 8.3 (3) 11.6 (4) 13.9 (5)
---- ------- -----
100.0% 100.0% 100.0%
====== ====== ======
New North
Minnesota Jersey Carolina Ohio
FITCH or MOODY'S or S&P SERIES SERIES SERIES SERIES
- ----- ------- ------ --------- ------ -------- ------
AAA Aaa AAA 50.8% 45.3% 26.9% 41.5%
AA Aa AA 20.5 4.8 19.8 12.0
A A A 17.4 4.1 12.3 15.7
BBB Baa BBB 7.6 33.8 27.0 13.2
BB Ba BB - .5 - 9.7
F-1 MIG 1/P-1 SP-1/A-1 2.4 2.3 1.2 1.3
Not Rated Not Rated Not Rated 1.3 (6) 9.2 (7) 12.8(8) 6.6 (9)
--- --- ---- ---
100.0% 100.0% 100.0 100.0%
====== ====== ====== ======
Pennsylvania Texas Virginia
FITCH or MOODY'S or S&P SERIES SERIES SERIES
- ----- ------- --- ------ ------ ------
AAA Aaa AAA 53.3 % 62.9% 16.0 %
AA Aa AA 7.1 4.8 16.4
A A A 16.4 13.3 21.1
BBB Baa BBB 10.0 14.3 18.6
BB Ba BB - - -
B B B - .5 -
F-1 MIG 1/P-1 P-1/A-1 1.1 2.3 .6
Not Rated Not Rated Not Rated 12.1(10) 1.9(11) 27.3(12)
------ ---- -----
100.0% 100.0% 100.0%
====== ====== ======
Subsequent to its purchase by a Series, 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 Series.
- ------
1 Included in the Not Rated category are securities comprising 10.6% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (2.3%), Aa/AA (2.1%), A/A (.4%), Baa/BBB (5.1%), Ba/BB
(.1%) and B/B (.6%).
2 Included in the Not Rated category are securities comprising 12.8% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (2.2%), A/A (.9%), Baa/BBB (4.1%), B/B (.2%), C/C (.4%)
and D/D (5.0%).
3 Included in the Not Rated category are securities comprising 8.3% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: A/A (.3%), Baa/BBB (4.9%), Ba/BB (1.3%) and B (1.8%).
4 Included in the Not Rated category are securities comprising 11.6% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rated
category: Aaa/AAA (3.4%) and Baa/BBB (8.2%).
5 Included in the Not Rated category are securities comprising 13.9% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (5.4%), A/A (.8%), Baa/BBB (4.0%) and Ba/BB (3.7%).
6 Included in the Not Rated category are securities comprising 1.3% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rated
category: Aa/AA (.2%), Baa/BBB (.5%), Ba/BB (.5%) and F-1/MIG1, P-1/SP-1,
A-1 (.1%).
7 Included in the Not Rated category are securities comprising 9.2% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rated
category: BBB (9.2%).
8 Included in the Not Rated category are securities comprising 12.8% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rated
category: Aaa/AAA (5.3%), BBB (4.9%) and B (2.6%).
9 Included in the Not Rated category are securities comprising 6.6% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (5.0%), Aa/AA (.1%), A/A (.3%), Baa/BBB (.9%) and Ba/BB
(.3%).
10 Included in the Not Rated category are securities comprising 12.1% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (2.0%), A/A (.6%), Baa/BBB (6.7%), Ba/BB (1.4%), B
(1.2%) and Caa/CCC (.2%).
11 Included in the Not Rated category are securities comprising 1.9% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (1.3%) and Baa/BBB (.6%).
12 Included in the Not Rated category are securities comprising 27.3% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (8.1%), Baa/BBB (9.7%), Ba/BB (9.3%) and B (.2%).
<PAGE>
Neither event will require the sale of such Municipal Obligations by
the Series, but the Manager will consider such event in determining whether the
Series should continue to hold the Municipal Obligations. To the extent that the
ratings given by the Rating Agencies for Municipal Obligations may change as a
result of changes in such organizations or their rating systems, the Series will
attempt to use comparable ratings as standards for its investments in accordance
with the investment policies contained in the Prospectus and this Statement of
Additional Information. The ratings of the Rating Agencies 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.
TAXABLE INVESTMENTS. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of a
Series' net assets) or for temporary defensive purposes, each Series may invest
in taxable short-term investments ("Taxable Investments") consisting of: notes
of issuers having, at the time of purchase, a quality rating within the two
highest grades of a Rating Agency; obligations of the U.S. Government, its
agencies or instrumentalities; commercial paper rated not lower than P-1 by
Moody's, A-1 by S&P or F-1 by Fitch; certificates of deposit of U.S. domestic
banks, including foreign branches of domestic banks, with assets of $1 billion
or more; time deposits; bankers' acceptances and other short-term bank
obligations; and repurchase agreements in respect of any of the foregoing.
Dividends paid by a Series that are attributable to income earned by the Series
from Taxable Investments will be taxable to investors. See "Dividends,
Distributions and Taxes." Except for temporary defensive purposes, at no time
will more than 20% of the value of a Series' net assets be invested in Taxable
Investments. When a Series has adopted a temporary defensive position, including
when acceptable State Municipal Obligations are unavailable for investment by a
Series, in excess of 35% of a Series' net assets may be invested in securities
that are not exempt from Federal and, where applicable, State personal income
taxes. Under normal market conditions, each Series anticipates that not more
than 5% of the value of its total assets will be invested in any one category of
Taxable Investments.
ZERO COUPON SECURITIES. Each Series may invest in zero coupon
securities which are debt securities issued or sold at a discount from their
face value which do not entitle the holder to any periodic payment of interest
prior to maturity or a specified redemption date (or cash payment date). The
amount of the discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may take the
form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves and receipts or certificates representing
interest in such stripped debt obligations and coupons. The market prices of
zero coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are likely to respond to a greater
degree to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualities.
ILLIQUID SECURITIES. Each Series may invest up to 15% of the value of
its net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Series' investment objective.
These securities may include securities that are not readily marketable, such as
securities that are subject to legal or contractual restrictions on resale, and
repurchase agreements providing for settlement in more than seven days after
notice. As to these securities, the Series is subject to a risk that should the
Series desire to sell them when a ready buyer is not available at a price that
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the Fund's Prospectus. A Series' use of certain of the
investment techniques described below may give rise to taxable income.
BORROWING MONEY. Each Series is permitted to borrow to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940 Act"),
which permits an investment company to borrow in an amount up to 33-1/3% of the
value of its total assets. The Fund currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 15% of the
value of its total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While borrowings exceed 5% of the value of a Series'
total assets, the Series will not make any additional investments.
SHORT SELLING. Each Series may make short sales of securities. In
these transactions, a Series sells a security it does not own in anticipation of
a decline in the market value of the security. To complete the transaction, the
Series must borrow the security to make delivery to the buyer. The Series is
obligated to replace the security borrowed by purchasing it subsequently at the
market price at the time of replacement. The price at such time may be more or
less the price at which the security was sold by the Series, which would result
in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed 25%
of the value of a Series' net assets. A Series may not make a short sale which
results in the Series having sold short in the aggregate more than 5% of the
outstanding securities of any class of an issuer.
Each Series also may make short sales "against the box," in which the
Series enters into a short sale of a security it owns. At no time will a Series
have more than 15% of the value of its net assets in deposits on short sales
against the box.
Until the Series closes its short position or replaces the borrowed
security, the Series will: (a) segregate permissible liquid assets in an amount
that, together with 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.
LENDING PORTFOLIO SECURITIES. Each Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Series continues to be entitled
to payments in amounts equal to the interest or other distributions payable on
the loaned securities which affords the Series an opportunity to earn interest
on the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities may not exceed 33-1/3% of the value of the Series' total
assets, and the Series will receive collateral consisting of cash, U.S.
Government securities or irrevocable letters of credit which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Such loans are terminable at any time upon specified
notice. The Series might experience risk of loss if the institution with which
it has engaged in a portfolio loan transaction breaches its agreement with the
Series. In connection with its securities lending transactions, the Series 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.
DERIVATIVES. Each Series may invest in, or enter into, derivatives,
such as options and futures, 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 Series 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 Series 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 Series can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Series'
performance.
If a Series invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Series' return or
result in a loss. A Series also could experience losses if its derivatives were
poorly correlated with its other investments, or if the Series were unable to
liquidate its position because of an illiquid secondary market. The market for
many derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
Although neither the Fund nor any Series will be a commodity pool,
certain derivatives subject the Series to the rules of the Commodity Futures
Trading Commission which limit the extent to which a Series can invest in such
derivatives. A Series may invest in futures contracts and options with respect
thereto for hedging purposes without limit. However, no Series may invest in
such contracts and options for other purposes if the sum of the amount of
initial margin deposits and premiums paid for unexpired options with respect to
such contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Series' assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
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 variation margin system 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 Series. 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. Each Series 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 Series which could adversely affect
the value of the Series' net assets. Although each Series intends to purchase or
sell futures contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond 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 Series to substantial losses.
Successful use of futures by a Series 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 securities being hedged and
the price movements of the futures contract. For example, if a Series 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 Series 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 Series has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. A Series 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, a Series may be required to segregate permissible
liquid assets to cover its obligations relating to its transactions in
derivatives. To maintain this required cover, the Series may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position at a reasonable price. In addition,
the segregation of such assets will have the effect of limiting a Series'
ability otherwise to invest those assets.
SPECIFIC FUTURES TRANSACTIONS. Each Series may purchase and sell interest rate
futures contracts. An interest rate future obligates the Series to purchase or
sell an amount of a specific debt security at a future date at a specific price.
OPTIONS--IN GENERAL. Each Series may purchase call and put options and write
(i.e., sell) covered call and put option contracts with respect to interest rate
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 a Series is a call option with
respect to which the Series owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written by a
Series is covered when, among other things, the Series segregates permissible
liquid assets having a value equal to or greater than the exercise price of the
option 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. A
Series 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, a Series is unable to effect a closing purchase
transaction in the 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 a Series 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 Series may incur losses.
FUTURE DEVELOPMENTS. A Series 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 Series
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Series' investment objective and
legally permissible for the Series. 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. Each Series may purchase or sell Municipal
Obligations and other securities on a forward commitment or when-issued basis,
which means that delivery and payment take place a number of days after the date
of the commitment to purchase. The payment obligation and the interest rate
receivable on a forward commitment or when-issued security are fixed when the
Series enters into the commitment, but the Series does not make payment until it
receives delivery from the counterparty. The Series will commit to purchase such
securities only with the intention of actually acquiring the securities, but the
Series may sell these securities before the settlement date if it is deemed
advisable. The Series will segregate permissible liquid assets at least equal at
all times to the amount of the Series' purchase 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 Series to risks because they may experience such
fluctuations prior to their actual delivery. Purchasing securities on a forward
commitment or 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 Series is fully or almost fully
invested may result in greater potential fluctuation in the value of the Series'
net assets and its net asset value per share.
INVESTMENT CONSIDERATIONS AND RISKS
INVESTING IN MUNICIPAL OBLIGATIONS. Each Series may invest more than
25% of the value of its total assets in Municipal Obligations which are related
in such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types of
projects. As a result, each Series may be subject to greater risk as compared to
a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Series may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Manager will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), relating to the issuance of Municipal Obligations may reduce the
volume of Municipal Obligations qualifying for Federal tax exemption. One effect
of these provisions could be to increase the cost of the Municipal Obligations
available for purchase by the Series and thus reduce available yield.
Shareholders should consult their tax advisers concerning the effect of these
provisions on an investment in a Series. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations may be
introduced in the future. If any such proposal were enacted that would reduce
the availability of Municipal Obligations for investment by a Series so as to
adversely affect its shareholders, the Series would reevaluate its investment
objective and policies and submit possible changes in the Series' structure to
shareholders for their consideration. If legislation were enacted that would
treat a type of Municipal Obligation as taxable, the Series would treat such
security as a permissible Taxable Investment within the applicable limits set
forth herein.
INVESTING IN STATE MUNICIPAL OBLIGATIONS. You should consider
carefully the special risks inherent in the purchase of shares of each Series
resulting from its purchase of the respective State's Municipal Obligations.
Certain of the States have experienced financial difficulties, the recurrence of
which could result in defaults or declines in the market values of various
Municipal Obligations in which such Series invests. If there should be a default
or other financial crisis relating to a State or an agency or municipality
thereof, the market value and marketability of outstanding State Municipal
Obligations in a Series' portfolio and the interest income to the Series could
be adversely affected.
CONNECTICUT SERIES. Connecticut's economy relies in part on activities
that may be adversely affected by cyclical change. Connecticut's economy has
improved since a recession in the early 1990s. The improvements have been
primarily in non-manufacturing industries, whose employment has recovered most
of the losses suffered during the recession. Manufacturing employment, however,
has continued its downward trend. Despite the recession, the average per capita
personal income of Connecticut residents has remained among the highest in the
nation, and the State's financial performance has improved. After having
accumulated a $965,712,000 unappropriated deficit as of June 30, 1991, the
General Fund ran operating surpluses, based on the State's budgetary method of
accounting, for each of the seven succeeding fiscal years since. However, the
State's high level of tax-supported debt imposes a relatively significant burden
on the State's revenue base. The State's general obligation bonds are rated AA
by S&P, AA by Fitch, and Aa3 by Moody's. There can be no assurance that general
economic difficulties or the financial circumstances of Connecticut or its towns
and cities will not adversely affect the market value of their obligations or
the ability of the obligors to pay debt service on such obligations.
FLORIDA SERIES. The Florida Constitution and Statutes mandate that the
State budget as a whole, and each separate fund within the State budget, be kept
in balance from currently available revenues each fiscal year. Florida's
Constitution permits issuance of Florida Municipal Obligations pledging the full
faith and credit of the State, with a vote of the electors, to finance or
refinance fixed capital outlay projects authorized by the Legislature, provided
that the outstanding principal does not exceed 50% of the total tax revenues of
the State for the two preceding years. Florida's Constitution also provides that
the Legislature shall appropriate monies sufficient to pay debt service on State
bonds pledging the full faith and credit of the State as the same becomes due.
All State tax revenues, other than trust funds dedicated by Florida's
Constitution for other purposes, would be available for such an appropriation,
if required. Revenue bonds may be issued by the State or its agencies without a
vote of Florida's electors only to finance or refinance the cost of State fixed
capital outlay projects which may be payable solely from funds derived directly
from sources other than State tax revenues. Fiscal year 1997-1998 total General
Revenue and Working Capital Funds available are estimated to have been $19.789
billion, which resulted in estimated unencumbered reserves of $440.5 million at
the end of fiscal 1997-1998. The General Revenue and Working Capital Funds ended
the 1996-1997 fiscal year with unencumbered reserves of $440.5 million.
GEORGIA SERIES. Georgia's Constitution limits appropriation of funds
for any given fiscal year to the sum of the amount of unappropriated surplus
expected to have accrued at the beginning of the fiscal year and an amount not
greater than the total receipts anticipated, less refunds, as estimated. The
State Constitution provides for supplementary appropriations in accordance with
its provisions as well. Georgia's economy grew rapidly in the 1980s, resulting
in a general fund reserve. As a result of a slowdown in the State's economy in
the early 1990's, the general fund reserve was effectively eliminated. Beginning
in Fiscal 1993, however, revenues once again began to exceed appropriations. The
State's revenue shortfall reserve at the end of Fiscal 1998 was approximately
$351 million. Revenues are estimated to exceed expenditures for Fiscal 1999.
MARYLAND SERIES. The public indebtedness of the State of Maryland and
its instrumentalities is divided into three basic types: general obligation
bonds for capital improvements and for various State-sponsored projects to the
payment of which the State ad valorem property tax is exclusively pledged;
limited, special obligation bonds issued by the Maryland Department of
Transportation for transportation purposes, payable primarily from specific,
fixed-rate excise taxes and other revenues related mainly to highway use; and
obligations issued by certain authorities payable solely from specific non-tax,
enterprise fund revenues for which the State has no liability and has given no
moral obligation assurance. The State and certain of its agencies also have
entered into a variety of lease purchase agreements to finance the acquisition
of capital assets. These lease agreements specify that payments thereunder are
subject to annual appropriation by the General Assembly.
Since at least the end of the Civil War, the State has paid the
principal of and interest on its general obligation bonds when due. There is no
general debt limit imposed by the State Constitution or public general laws, but
the State Constitution does require the annual operating budget to be in balance
with estimated revenues. Based on the information from the State's Official
Statement dated February 24, 1999, the State's general fund balance on a
budgetary basis was $419.8 million for the fiscal year ended June 30, 1998, is
estimated to be $249.5 million for the fiscal year ended June 30, 1999, and is
estimated to be $9.1 million for the fiscal year ended June 30, 2000. The
balance in the Revenue Stabilization Fund of the State Reserve Fund was $617.9
million (7.7% of General Fund Revenues) for the fiscal year ended June 30, 1998,
is estimated to be $646 million (7.8% of General Fund Revenues) for the fiscal
year ended June 30, 1999, and is estimated to be $622 million (7.2% of General
Fund Revenues) at June 30, 2000.
MASSACHUSETTS SERIES. Massachusetts' economic and fiscal difficulties
of recent years appear to have abated. Massachusetts ended each of the fiscal
years 1994 through 1998 with a positive fiscal balance in its general operating
funds, and expects to do so in fiscal year 1999.
MICHIGAN SERIES. Michigan's economy has been undergoing certain basic
changes in its underlying structure. These changes reflect a diversifying
economy which is less reliant on the automobile industry. As a result, it is
anticipated that the State's economy in the future will be less susceptible to
cyclical swings and more resilient when national downturns occur. The principal
sectors of Michigan's diversifying economy are manufacturing of durable goods
(including automobile and office equipment manufacturing), tourism and
agriculture. Michigan's unemployment rate averaged 9.9% in 1985 and averaged
3.9% in 1998.
Michigan ended fiscal years 1997-1998 on September 30, 1998 with a $1
billion balance in its budget stabilization fund.
MINNESOTA SERIES. The structure of Minnesota's economy parallels the
structure of the United States' economy as a whole when viewed at a highly
aggregated level of detail. Diversity and a significant natural resource base
are two important characteristics of the State's economy. However, the State of
Minnesota experienced financial difficulties in the early 1980s because of a
downturn in the State's economy resulting from the national recession. More
recently, real growth has been equal to or greater than national growth.
There can be no assurance that the financial problems referred to or
similar future problems will not affect the market value or marketability of the
Minnesota Municipal Obligations or the ability of the issuer thereof to pay
interest or principal thereon.
NEW JERSEY SERIES. Although New Jersey enjoyed a period of economic
growth with unemployment levels below the national average during the mid-1980s,
its economy slowed down well before the onset of the national recession in July
1990. Reflecting the economic downturn, the State's unemployment rate rose from
a low of 3.6% in the first quarter of 1989 to a recessionary peak of 8.4% during
1992. Since then, New Jersey's unemployment rate fell to an average of 6.2%
during 1996. For the eight quarters following mid-1996, employment growth in New
Jersey has ranged between 1.7% and 2.4%. As a result of New Jersey's fiscal
weakness, in July 1991, S&P lowered its rating of the State's general obligation
debt from AAA to AA+. As of June 30, 1997, S&P, Moody's and Fitch rated the
State's long-term general obligations AA+, Aa1 and AA+, respectively.
NORTH CAROLINA SERIES. The economic profile of the State of North
Carolina consists of a combination of agriculture, industry and tourism, with
agriculture as the basic element in the economy. The poultry industry is the
leading source of agricultural income in the State, accounting for 25% of gross
agricultural income. The tobacco and pork industries also are significant
sources of gross agricultural income.
The North Carolina Constitution requires a balanced budget. In 1996,
State voters approved a State Constitutional amendment to give the Governor the
power to veto budgetary and certain other legislative actions.
OHIO SERIES. The "non-manufacturing" sector employs approximately
80.0% of all non-agricultural payroll workers in Ohio. However, due to the
continued importance of manufacturing industries (including auto-related
manufacturing), economic activity in Ohio tends to be more cyclical than in some
other states and in the nation as a whole. Although Ohio's economy has improved
since the 1980-82 national recession, the State experienced an economic slowdown
during its 1990-91 fiscal year, consistent with national economic conditions
during that period. For Ohio's fiscal year ended June 30, 1998, the Ohio Office
of Budget and Management reported positive $1.0844 billion and $1.649 billion
ending fund and cash balances, respectively. Each of the foregoing factors could
have an effect on the market for issuers generally or may have the effect of
impairing the ability of issuers to pay interest on, or repay principal of, Ohio
Municipal Obligations.
PENNSYLVANIA SERIES. Pennsylvania has been historically identified as
a heavy industry state although that reputation has recently changed as the
coal, steel and railroad industries declined. A more diversified economy has
developed in Pennsylvania as a long-term shift in jobs, investment and workers
away from the northeast part of the nation took place. The major sources of
growth currently are in the service sector, including trade, medical and health
services, education and financial institutions. Pennsylvania is highly
urbanized, with approximately 50% of the Commonwealth's total population
contained in the metropolitan areas which include the cities of Philadelphia and
Pittsburgh. The Commonwealth's adopted fiscal 1999-2000 General Fund budget
provided for a decrease in taxes of over $400 million. As of June 30, 1998, the
General Fund had a surplus of $772.4 million or 4.2% above the official estimate
for the prior fiscal year.
TEXAS SERIES. Economically and financially the State of Texas suffered
significant damage during the 1980s from the continued depressed price of oil
and gas and the overbuilding in the real estate market. The decline in oil
prices, particularly since 1986, and the recession that followed have had a
severe effect on the Texas banking and savings and loan industries, resulting in
a number of closings among banks and savings and loans through the early 1990s.
In recent years, however, the State's overall financial situation has improved
significantly as Texas' economic growth has been outpacing that of the United
States as a whole. In fiscal years 1994, 1995, 1996, 1997, and 1998, Texas'
General Revenue Fund ended with cash surpluses of $2.225 billion, $2.101
billion, $2.270 billion, $2.685 billion, and $3.330 billion, respectively,
marking eleven straight years that Texas has ended the fiscal year in the black.
VIRGINIA SERIES. Because of Northern Virginia, with its proximity to
Washington, D.C., and Hampton Roads, which has the nation's largest
concentration of military installations, the Federal government has a greater
impact on Virginia relative to its size than any states other than Alaska and
Hawaii. Virginia's economy has continued to grow over the last decade, and while
per capita income has grown both faster and slower than the U.S. average from
year to year during that period, per capita income continues to be above the
national average. Virginia's unreserved General Fund balances have continued to
grow in recent years from a low in 1991. The Virginia Constitution requires a
balanced budget and, since 1993, the funding of a Revenue Stabilization Fund.
Current debt levels are well below limits established by the State Constitution.
ZERO COUPON SECURITIES. Each Series may invest in zero coupon
securities and pay-in-kind bonds (bonds which pay interest through the issuance
of additional bonds). Federal income tax law requires the holder of a zero
coupon security or of certain pay-in-kind bonds to accrue income with respect to
these securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for Federal
income taxes, a Series may be required to distribute such income accrued with
respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
LOWER RATED BONDS. Each Series may invest up to 30% of the value of
its net assets in higher yielding (and, therefore, higher risk) debt securities
such as those rated Ba by Moody's or BB by S&P or Fitch or as low as the lowest
rating assigned by the Rating Agencies (commonly known as junk bonds). They may
be subject to certain risks with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated Municipal
Obligations. See "Appendix B" for a general description of the Rating Agencies'
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. A Series will rely on the Manager's judgment,
analysis and experience in evaluating the creditworthiness of an issuer.
You 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 and
will fluctuate over time. These bonds generally are considered by the Rating
Agencies to be, on balance, 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
Series' ability to dispose of particular issues when necessary to meet the
Series' 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
Series to obtain accurate market quotations for purposes of valuing the Series'
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 would disrupt severely the market for such
securities and may have an adverse impact on the value of such securities, and
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would increase the incidence of default
for such securities.
The Series 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 person 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 and pay-in-kind bonds, in which each
Series may invest up to 5% of its total assets. Zero coupon bonds and
pay-in-kind bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the Series will realize no cash
until the cash payment date unless a portion of such securities are sold and, if
the issuer defaults, the Series may obtain no return at all on its investment.
See "Dividends, Distributions and Taxes."
SIMULTANEOUS INVESTMENTS. Investment decisions for a Series are made
independently from those of the other Series and investment companies advised by
the Manager. If, however, such other Series or investment companies desire to
invest in, or dispose of, the same securities as a Series, available investments
or opportunities for sales will be allocated equitably to each. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by a Series or the price paid or received by a Series.
INVESTMENT RESTRICTIONS
Each Series' investment objective is a fundamental policy, which
cannot be changed as to a Series without approval by the holders of a majority
(as defined in the 1940 Act) of such Series' outstanding voting shares. In
addition, each Series has adopted investment restrictions numbered 1 through 9
as fundamental policies. Investment restrictions numbered 10 and 11 are not
fundamental policies and may be changed by a vote of a majority of the Fund's
Board members at any time. No Series may:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus and those
arising out of transactions in futures and options.
2. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Series' total assets). Transactions in futures and options and the entry into
short sales transactions do not involve any borrowing for purposes of this
restriction.
3. Purchase securities on margin, but may make margin deposits in
connection with transactions in futures, including those related to indices, and
options on futures or indices.
4. Underwrite the securities of other issuers, except that the Series
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 Series may be
deemed an underwriter under the Securities Act of 1933, as amended, by virtue of
disposing of portfolio securities.
5. 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 related to indices, and options on
futures contracts or indices.
6. Make loans to others except through the purchase of qualified debt
obligations and the entry into repurchase agreements referred to above and in
the Fund's Prospectus; however, the Fund may lend each Series' portfolio
securities in an amount not to exceed 33-1/3% of the value of the Series' 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.
7. 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.
8. Invest in companies for the purpose of exercising control.
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. The deposit of
assets in escrow in connection with the writing of covered put and call options
and the purchase of securities on a when-issued or delayed-delivery basis and
collateral arrangements with respect to initial or variation margin for futures
contracts and options on futures contracts or indices will not be deemed to be
pledges of assets.
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 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 not more than seven days' notice if there
is no secondary market), if, in the aggregate, more than 15% of the value of the
Series' net assets would be so invested.
For purposes of Investment Restriction No. 7, 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 in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
While not a fundamental policy, the Texas Series will not invest in
real estate limited partnerships.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of
the Fund. The Board approves all significant agreements between the Fund and
those companies that furnish services to the Fund. These companies are as
follows:
The Dreyfus Corporation......................... Investment Adviser
Premier Mutual Fund Services, Inc............... Distributor
Dreyfus Transfer, Inc........................... Transfer Agent
The Bank of New York............................ Custodian
Board members of the Fund, together with information as to their
principal business occupations during at least the last five years, are shown
below.
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. He also is a
director of The Noel Group, Inc., a venture capital company (for which,
from February 1995 until November 1997, he was Chairman of the Board), The
Muscular Dystrophy Association, HealthPlan Services Corporation, a provider
of marketing, administrative and risk management services to health and
other benefit programs, Carlyle Industries, Inc. (formerly, Belding
Heminway Company, Inc.), a button packager and distributor, Century
Business Services, Inc., a provider of various outsourcing functions for
small and medium sized companies, and Career Blazers, Inc. (formerly,
Staffing Resources, Inc.), a temporary placement agency. For more than five
years prior to January 1995, 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 until December 31, 1994, he was a director of Mellon Bank Corporation.
He is 55 years old and his address is 200 Park Avenue, New York, New York
10166.
CLIFFORD L. ALEXANDER, JR., BOARD MEMBER. President of Alexander & Associates,
Inc., a management consulting firm. From 1977 to 1981, Mr. Alexander served
as Secretary of the Army and Chairman of the Board of the Panama Canal
Company, and from 1975 to 1977, he was a member of the Washington, D.C. law
firm of Verner, Liipfert, Bernhard, McPherson and Alexander. He is a
director of American Home Products Corporation, IMS Health, a service
provider of marketing information and information technology, The Dun &
Bradstreet Corporation, MCI WorldCom and Mutual of America Life Insurance
Company. He is 65 years old and his address is 400 C Street, N.E.,
Washington, D.C. 20002.
PEGGY C. DAVIS, BOARD MEMBER. Shad Professor of Law, New York University School
of Law. Professor Davis has been a member of the New York University law
faculty since 1983. Prior to that time, she served for three years as a
judge in the courts of New York State; was engaged for eight years in the
practice of law, working in both corporate and non-profit sectors; and
served for two years as a criminal justice administrator in the government
of the City of New York. She writes and teaches in the fields of evidence,
constitutional theory, family law, social sciences and the law, legal
process and professional methodology and training. She is 56 years old and
her address is c/o New York University School of Law, 40 Washington Square
South, New York, New York 10012.
ERNEST KAFKA, BOARD MEMBER. A physician engaged in private practice specializing
in the psychoanalysis of adults and adolescents. Since 1981, he has served
as an Instructor at the New York Psychoanalytic Institute and, prior
thereto, held other teaching positions. He is Associate Clinical Professor
of Psychiatry at Cornell Medical School. For more than the past five years,
Dr. Kafka has held numerous administrative positions, including President
of the NY Psychoanalytic Society, and has published many articles on
subjects in the field of psychoanalysis. He is 66 years old and his address
is 23 East 92nd Street, New York, New York 10128.
SAUL B. KLAMAN, BOARD MEMBER. Chairman and Chief Executive Officer of SBK
Associates, which provides research and consulting services to financial
institutions. Dr. Klaman was President of the National Association of
Mutual Savings Banks until November 1983, President of the National Council
of Savings Institutions until June 1985, Vice Chairman of Golembe
Associates and BEI Golembe, Inc. until 1989, and Chairman Emeritus of BEI
Golembe, Inc. until November 1992. He also served as an Economist to the
Board of Governors of the Federal Reserve System and on several
Presidential Commissions, and has held numerous consulting and advisory
positions in the fields of economics and housing finance. He is 79 years
old and his address is 431-B Dedham Street, The Gables, Newton Center,
Massachusetts 02159.
NATHAN LEVENTHAL, BOARD MEMBER. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York City
from September 1979 to March 1984 and Commissioner of the Department of
Housing Preservation and Development of New York City from February 1978 to
September 1979. Mr. Leventhal was an associate and then a member of the New
York law firm of Poletti Freidin Prashker Feldman and Gartner from 1974 to
1978. He was Commissioner of Rent and Housing Maintenance for New York City
from 1972 to 1973. Mr. Leventhal also served as Chairman of Citizens Union,
an organization which strives to reform and modernize city and state
governments from June 1994 to June 1997. He is 56 years old and his address
is 70 Lincoln Center Plaza, New York, New York 10023-6583.
The Fund has a standing nominating committee comprised of its Board
members who are not "interested persons" of the Fund, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Fund for election to the
Fund's Board.
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 April 30, 1999, and,
by all funds in the Dreyfus Family of Funds for which such person was a Board
member (the number of which is set forth in parenthesis next to each Board
member's total compensation)* during the year ended December 31, 1998, was as
follows:
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM FUND
NAME OF BOARD COMPENSATION FROM AND FUND COMPLEX PAID TO
MEMBER FUND** BOARD MEMBER
- --------- ---------------- ----------------------------
<S> <C> <C>
Joseph S. DiMartino $5,000 $619,660 (187)
Clifford L. Alexander, Jr. $4,000 $ 80,918 (38)
Peggy C. Davis $4,000 $ 64,000 (31)
Ernest Kafka $3,750 $ 57,500 (31)
Saul B. Klaman $4,000 $ 64,000 (31)
Nathan Leventhal $4,000 $ 64,000 (31)
- ------------------
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Series, for which the Board member
serves.
** Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $4,421 for all Board members as a group.
</TABLE>
OFFICERS OF THE FUND
MARIE E. CONNOLLY, PRESIDENT AND TREASURER. President, Chief Executive Officer,
Chief Compliance Officer and a director of the Distributor and Funds
Distributor, Inc. ("FDI"), the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 42 years old.
MARGARET W. CHAMBERS, VICE PRESIDENT AND SECRETARY. Senior Vice President and
General Counsel of FDI, and an officer of other investment companies
advised or administered by the Manager. From August 1996 to March 1998, she
was Vice President and Assistant General Counsel for Loomis, Sayles &
Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. She is 39 years old.
*FREDERICK C. DEY, VICE PRESIDENT, ASSISTANT TREASURER AND ASSISTANT SECRETARY.
Vice President, New Business Development of FDI since September 1994, and
an officer of other investment companies advised or administered by the
Manager. He is 37 years old.
STEPHANIE D. PIERCE, VICE PRESIDENT, ASSISTANT SECRETARY AND ASSISTANT
TREASURER. Vice President of the Distributor and FDI, and an officer of
other investment companies advised or administered by the Manager. From
April 1997 to March 1998, she was employed as a Relationship Manager with
Citibank, N.A. From August 1995 to April 1997, she was an Assistant Vice
President with Hudson Valley Bank, and from September 1990 to August 1995,
she was Second Vice President with Chase Manhattan Bank. She is 31 years
old.
*JOHN P. COVINO, VICE PRESIDENT AND ASSISTANT TREASURER. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI
since December 1998. From December 1995 to November 1998, he was employed
by Fidelity Investments where he held multiple positions in their
Institutional Brokerage Group. Prior to joining Fidelity, he was employed
by SunGard Brokerage Systems where he was responsible for the technology
and development of the accounting product group. He is 35 years old.
MARY A. NELSON, VICE PRESIDENT AND ASSISTANT TREASURER. Vice President of the
Distributor and FDI, and an officer of other investment companies advised
or administered by the Manager. She is 35 years old.
*GEORGE A. RIO, VICE PRESIDENT AND ASSISTANT TREASURER. Executive Vice President
and Client Service Director of FDI, and an officer of other investment
companies advised or administered by the Manager. From June 1995 to March
1998, he was Senior Vice President and Senior Key Account Manager for
Putnam Mutual Funds. From May 1994 to June 1995, he was Director of
Business Development for First Data Corporation. He is 44 years old.
JOSEPH F. TOWER, III, VICE PRESIDENT AND ASSISTANT TREASURER. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and FDI, 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 37 years old.
DOUGLAS C. CONROY, VICE PRESIDENT AND ASSISTANT SECRETARY. Assistant Vice
President of FDI, and an officer of other investment companies advised or
administered by the Manager. From April 1993 to January 1995, he was a
Senior Fund Accountant for Investors Bank & Trust Company. He is 30 years
old.
*KAREN JACOPPO-WOOD, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President and
Senior Counsel of FDI since February 1997, and an officer of other
investment companies advised or administered by the Manager. From June 1994
to January 1996, she was Manager of SEC Registration at Scudder, Stevens &
Clark, Inc. She is 32 years old.
CHRISTOPHER J. KELLEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President
and Senior Associate General Counsel of FDI, and an officer of other
investment companies advised or administered by the Manager. From April
1994 to July 1996, he was Assistant Counsel at Forum Financial Group. From
October 1992 to March 1994, he was employed by Putnam Investments in legal
and compliance capacities. He is 34 years old.
KATHLEEN K. MORRISEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Manager of
Treasury Services Administration of FDI, and an officer of other investment
companies advised or administered by the Manager. From July 1994 to
November 1995, she was a Fund Accountant for Investors Bank & Trust
Company. She is 27 years old.
ELBA VASQUEZ, VICE PRESIDENT AND ASSISTANT SECRETARY. Assistant Vice President
of FDI, and an officer of other investment companies advised or
administered by the Manager. From March 1990 to May 1996, she was employed
by U.S. Trust Company of New York where she held various sales and
marketing positions. She is 38 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166, except those officers indicated by an (*), whose address is 60
State Street, Boston, Massachusetts 02109.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's voting securities outstanding on August 11, 1999.
As of August 11, 1999, the following persons owned of record 5% or
more of the indicated Series' outstanding shares of beneficial interest:
CLASS A SHARES:
- --------------
Connecticut Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 9.40%;
Florida Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 5.31%;
Georgia Series - None;
Maryland Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 5.63%;
Massachusetts
Series - None;
Michigan Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 10.29%;
Minnesota Series - None;
New Jersey Series - Bernard and Rhoda Stern, Cranbury, NJ - 7.37%;
North Carolina
Series - None;
Ohio Series - None;
Pennsylvania
Series - First Union Brokerage Services Mary Alice Morrisey and
James D. Morrisey, Huntingdon Valley, PA - 5.81%;
Texas Series - None;
Virginia Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 7.45%.
CLASS B SHARES:
- --------------
Connecticut Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 9.49%;
Florida Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 13.63%; Rose S. Miller Living Trust Rose S. Miller
TTEE, Boca Raton, FL - 5.83%;
Georgia Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 23.96%; FUBS & CO. FEBO Franzier Watson Franklin
and Betty C. Franklin, Smyrna, GA - 8.67%; Brian O
Jordan and Pamela B. Jordan JTWROS, Alpharetta, GA -
6.49%; BHC Securities, Inc., Philadelphia, PA - 5.86%;
Maryland Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 12.09%;
Massachusetts
Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 7.21%;
Michigan Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 16.49%;
Minnesota Series - None;
New Jersey Series - NFSC FEBO Lakeview Developers LTD, Fort Lee, NJ -
10.13%; Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 9.59%;
North Carolina
Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 5.13%;
Ohio Series - None;
Pennsylvania
Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 5.29%;
Texas Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 6.03%;
Virginia Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 14.58%.
CLASS C SHARES:
- --------------
Connecticut Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 14.91%; Painewebber for the Benefit of Michael N.
Haines and Joanne Haines JTWROS, Norwalk, CT - 5.83%;
Florida Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 30.84%; Painewebber for the Benefit of Christine
Hassuk Rev Liv Trust Christine Hassuk TTEE, N. Miami
Beach, FL - 12.99%; Painewebber for the Benefit of
Hildred Levine TTEE Hildred Levine Revocable Trust,
Delray Beach, FL - 6.71%; Painewebber for the Benefit
of Maynard D. Hellman EXEC Estate of Florence Hellman,
Rochester, NY - 6.43%; Wachovia Securities, Inc.,
Winston - Salem, NC - 6.39%; Painewebber for the
Benefit of Bridleway Partners, Boca Raton, FL - 6.33%;
PaineWebber for the Benefit of Hildred Levine and
Howard Eichenbaum TTEES, Delray Beach, FL - 5.89%;
Georgia Series - Martha S. Stephenson TTEE Elissa Claire Stephenson
IRREV Trust, Lilburn, GA - 72.83%; Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL - 24.62%;
Maryland Series - Merrill Lynch Pierce Fenner & Smith, Jacksonsville,
FL - 23.43%; Dale E. Conley & Minnie P. Conley JTWROS,
Hagerstown, MD - 9.10%; Painewebber for the Benefit of
Charles Guthmann, Chevy Chase, MD - 6.95%; PaineWebber
for the Benefit of Joseph Guarriello, Silver Springs,
MD - 5.00%;
Massachusetts
Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 42.50%; Karen P. Doppke TTEE Karen P. Doppke
Family Trust, Boston, MA - 30.70%; Raymond M. Cote,
Swansea, MA - 14.57%; NFSC FEBO Bartley Sullivan &
Martha Sullivan, Braintree, MA - 11.55%;
Michigan Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 28.81%; David W. Elliott TTEE David W. Elliott Rev
Trust, Rochester, MI - 27.46%; Penn A Sparks & Sherline
Sparks JTTEN, Southfield, MI - 11.63%;
Minnesota Series - James M. Kinney and Audrey Hallen Kinney JTTEN,
Glenwood, MN - 12.25%; Merrill Lynch Pierce Fenner &
Smith, Jacksonville, FL - 10.35%; Norwest Investment
Services, Inc., Minneapolis, MN - 7.71%; Frances A.
Quade, Sauk Centre, MN - 6.10%;
New Jersey Series - Summit Financial Services Group FBO
Anthony N. Sorrentino, Bethlehem, PA - 59.83%;
Painewebber Inc. Cust FBO Ann and Jeff Berk JT WROS,
Scotch Plains, NJ - 17.29%; PaineWebber for the Benefit
of Meredith Spencer, Bayhead, NJ - 8.98%; Summit
Financial Services FBO Alexander Zlata, Bethlehem PA -
5.75%;
North Carolina
Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 56.08%; NFSC FEBO Jean C. Mitchell and Lyndon H.
Mitchell, Greensboro, NC - 17.87%; First Clearing
Corporation, Ronald Foster and Jo Lynn Foster, Trinity,
NC - 9.13%; Donald Lufkin Jenrette Securities
Corporation Inc., Jersey City, NJ - 9.02%;
Ohio Series - Max Weisbrod & Sylvia Weisbrod JTWROS, Canton,
OH - 21.69%; Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 16.39%; Donaldson Lufkin Jenrette
Securities Corporation, Inc., Jersey City, NJ - 8.85%;
PaineWebber For The Benefit Of Richard C Walker & Carol
J. Walker JTTEN, Oxford, OH - 6.08% Key Clearing Corp.,
Brooklyn, NY - 5.51%;
Pennsylvania
Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 32.44%; PaineWebber For The Benefit Of Sharon A
Stark, Lenhartsville, PA - 8.98%; PaineWebber For the
Benefit Of Ruth L. Heston, Malvern, PA - 7.79%;
PaineWebber For The Benefit of Charlene Monzo,
Monroeville, PA - 6.13%; PaineWebber For The Benefit Of
Michelle Monzo, Monroeville, PA - 6.13%; PaineWebber
For The Benefit Of Charron Monzo, Monroeville, PA
--6.12%.
Texas Series - PaineWebber For The Benefit Of Gerald G Fall Jr.,
Frisco, TX - 28.03%; Merrill Lynch Pierce Fenner &
Smith, Jacksonville, FL - 19.45%; NFSC FEBO Flow
Partners LP, Dallas TX - 13.72%; NFSC FEBO Ronald
Rieke, Dallas, TX - 13.39%; Norwest Investment
Services, Inc., Minneapolis, MN - 10.66%; NFSC FEBO L
Gordon Stearns & Joey Stearns, Austin TX - 6.74%;
Virginia Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 66.02%; US Clearing Corp., New York, NY - 6.04%.
A shareholder who beneficially owned, directly or indirectly, 25% or
more of a Series' voting securities may be deemed to be a "control person" (as
defined in the 1940 Act) of that Series.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international markets.
Mellon is among the twenty-five largest bank holding companies in the United
States based on total assets.
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") with the Fund dated August 24, 1994. As to each
Series, the Agreement 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 such Series, 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
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
July 21, 1999. Shareholders of each Series (other than the New Jersey Series
which had not commenced operations) approved the Agreement on August 3, 1994.
The Agreement is terminable without penalty, as to each Series, on 60 days'
notice, by the Fund's Board or by vote of the holders of a majority of such
Series' shares, or, on not less than 90 days' notice, by the Manager. The
Agreement will terminate automatically, as to the relevant Series, in the event
of its assignment (as defined in the Act).
The following persons are officers and/or directors of the Manager:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer
and a director; Lawrence S. Kash, Vice Chairman and a director; J. David
Officer, Vice Chairman and a director; Thomas F. Eggers, Vice
Chairman--Institutional and a director; Ronald P. O'Hanley III, Vice Chairman;
William T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Diane P. Durnin, Vice
President--Product Development; Patrice M. Kozlowski, Vice President--Corporate
Communications; Mary Beth Leibig, Vice President--Human Resources; Andrew S.
Wasser, Vice President--Information Systems; Theodore A. Schachar, Vice
President; Wendy Strutt, Vice President; Richard Terres, Vice President; William
H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven F. Newman,
Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt, Steven G. Elliot,
Martin C. McGuinn, Richard W. Sabo and Richard F. Syron, directors.
The Manager has a personal securities trading policy (the "Policy")
which restricts the personal securities transactions of its employees. Its
primary purpose is to ensure that personal trading by the Manager's employees
does not disadvantage any fund managed by the Manager. Under the Policy, the
Manager's employees must preclear personal transactions in securities not exempt
under the Policy. In addition, the Manager's employees must report their
personal securities transactions and holdings, which are reviewed for compliance
with the Policy. In that regard, the Manager's portfolio managers and other
investment personnel also are subject to the oversight of Mellon's Investment
Ethics Committee. Portfolio managers and other investment personnel of the
Manager who comply with the Policy's preclearance and disclosure procedures, and
the requirements of the Committee, may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
The Manager manages each Series' portfolio of investments in
accordance with the stated policies of such Series, 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 Board to
execute purchases and sales of securities. The Fund's portfolio managers are
Joseph P. Darcy, A. Paul Disdier, Douglas J. Gaylor, Richard J. Moynihan, W.
Michael Petty, Jill C. Shaffro, 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 and for other funds advised by the Manager.
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 may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not including
the management fee paid by the Fund. The Distributor may use part or all of such
payments to pay Service Agents (as defined below) in respect of these services.
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, without limitation, the following: taxes, interest,
loan commitment fees, interest and distributions 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 and
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
independent pricing services, costs of maintaining the Fund's existence, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders, costs of shareholders' reports and meetings, and any
extraordinary expenses. In addition, shares of each Class are subject to an
annual service fee and Class B and Class C shares are subject to an annual
distribution fee. See "Distribution Plan and Shareholder Services Plan."
Expenses attributable to a particular Series are charged against the assets of
that Series; other expenses of the Fund are allocated among the Series on the
basis determined by the Board, including, but not limited to, proportionately in
relation to the net assets of each Series.
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .55% of the value of
each Series' average daily net assets. For the fiscal years ended April 30,
1997, 1998 and 1999, the management fee payable, the reduction in such fee
pursuant to undertakings in effect, and the net management fee paid by each
Series was as set forth below:
<PAGE>
<TABLE>
<CAPTION>
NAME OF SERIES MANAGEMENT FEE PAYABLE REDUCTION IN FEE NET FEE PAID
- -------------- ---------------------- ---------------- ------------
1997 1998 1999 1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Connecticut Series $1,972,181 $2,056,770 $2,091,086 $ 0 $ 0 $ 0 $1,972,181 $2,056,770 $2,091,086
Florida Series 1,318,540 1,217,046 1,046,222 0 0 0 1,318,540 1,217,046 1,046,222
Georgia Series 147,484 136,699 126,319 0 0 0 147,484 136,699 126,319
Maryland Series 1,755,487 1,735,376 1,774,160 0 0 0 1,755,487 1,735,376 1,774,160
Massachusetts Series 404,124 382,683 380,345 0 0 0 404,124 382,683 380,345
Michigan Series 1,003,722 969,239 943,868 0 0 0 1,003,722 969,239 943,868
Minnesota Series 874,105 861,736 890,399 0 0 0 874,105 861,736 890,399
New Jersey Series 56,35(11) 81,625 89,899 9,656(1) 4,579 0 46,695(1) 77,046 89,899
North Carolina Series 481,809 481,978 482,759 0 0 0 481,809 481,978 482,759
Ohio Series 1,617,417 1,599,166 1,619,028 0 0 0 1,617,417 1,599,166 1,619,028
Pennsylvania Series 1,553,060 1,513,450 1,484,169 0 0 0 1,553,060 1,513,450 1,484,169
Texas Series 437,938 442,275 441,230 437,938 145,790 56,145 0 296,485 385,085
Virginia Series 534,594 574,324 596,668 534,594 147,021 0 0 427,303 596,668
- ----------------------
1 Effective August 1, 1996, the New Jersey Series changed its fiscal year
end from July 31 to April 30. The information provided is from
August 1, 1996 through April 30, 1997.
</TABLE>
The Manager has agreed that if in any fiscal year the aggregate
expenses of each Series, exclusive of taxes, brokerage, interest on borrowings
and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee, exceed
the expense limitation of any state having jurisdiction over such Series, 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 of 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 Series' net assets increases.
DISTRIBUTOR. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the Fund's distributor on a best efforts basis
pursuant to an agreement which is renewable annually.
For the fiscal years ended April 30, 1997, 1998 and 1999, the
Distributor retained the following amounts from sales loads in the respect to
Class A, and from contingent deferred sales charges ("CDSCs") with respect to
Class B and Class C, of each Series:
<TABLE>
<CAPTION>
NAME OF SERIES CLASS A CLASS B CLASS C
- -------------- ------- ------- -------
1997 1998 1999 1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Connecticut Series $22,875 $24,947 $38,230 $91,437 $79,931 $56,410 $4,291 $50 $215
Florida Series 8,377 6,983 5,671 67,358 88,555 44,932 0 0 297
Georgia Series 215 453 5,184 41,536 29,318 28,422 0 20 10
Maryland Series 17,726 20,191 4,932 83,431 66,118 47,833 0 247 3,350
Massachusetts Series 5,320 3,640 30,466 14,492 6,252 14,587 0 0 0
Michigan Series 12,046 8,197 9,695 54,072 39,054 36,799 0 0 522
Minnesota Series 9,460 11,909 12,720 50,144 25,293 12,907 0 0 200
New Jersey Series 137(1) 1,456 2,222 10,000(1) 32,380 28,222 0(1) 100 36
North Carolina Series 3,281 4,367 3,489 72,766 52,671 18,275 0 0 249
Ohio Series 13,993 15,644 15,801 84,422 85,243 40,857 0 150 1,146
Pennsylvania Series 12,886 10,760 16,787 123,667 87,672 58,804 0 42 2,904
Texas Series 3,327 3,891 4,379 27,930 16,845 22,638 0 0 176
Virginia Series 8,159 14,139 12,457 65,396 37,262 31,316 0 0 400
- -------------------
1 Effective August 1, 1996, the New Jersey Series changed its fiscal year end
from July 31 to April 30. The information provided is from August 1, 1996
through April 30, 1997.
</TABLE>
The Distributor, at its expense, may provide promotional incentives to
dealers that sell shares of funds advised by the Manager which are sold with a
sales load, such as the Dreyfus Premier Funds. In some instances, those
incentives may be offered only to certain dealers who have sold or may sell
significant amounts of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. Dreyfus
Transfer, Inc. (the "Transfer Agent"), 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.
The Bank of New York (the "Custodian"), 90 Washington Street, New
York, New York 10286, is the Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund. Under a custody agreement with the Fund, the
Custodian holds the Fund's securities and keeps all necessary accounts and
records. For its custody services, the Custodian receives a monthly fee based on
the market value of the Fund's assets held in custody and receives certain
securities transactions charges.
HOW TO BUY SHARES
GENERAL. Fund shares may be purchased only by clients of certain
financial institutions (which may include banks), securities dealers ("Selected
Dealers") and other industry professionals (collectively, "Service Agents"),
except that full-time or part-time employees of the Manager or any of its
affiliates or subsidiaries, directors of the Manager, Board members of a fund
advised by the Manager, including members of the Fund's Board, or the spouse or
minor child of any of the foregoing may purchase Class A shares directly through
the Distributor. Subsequent purchases may be sent directly to the Transfer Agent
or your Service Agent.
When purchasing Fund shares, you must specify which Class is being
purchased. Share certificates are issued only upon your written request. No
certificates are issued for fractional shares. It is not recommended that the
Fund be used as a vehicle for Keogh, IRA or other qualified retirement plans.
The Fund reserves the right to reject any purchase order.
Service Agents may receive different levels of compensation for
selling different Classes of shares. Management understands that some Service
Agents may impose certain conditions on their clients which are different from
those described in the Fund's Prospectus and this Statement of Additional
Information, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees. You should consult your Service Agent in
this regard.
The minimum initial investment is $1,000. Subsequent investments must
be at least $100. The Fund reserves the right to vary further the initial and
subsequent investment minimum requirements at any time.
Fund shares may be purchased through Dreyfus-Automatic Asset
Builder(R) and Dreyfus Government Direct Deposit Privilege described under
"Shareholder Services." These services enable you to make regularly scheduled
investments and may provide you with a convenient way to invest for long-term
financial goals. You should be aware, however, that periodic investment plans do
not guarantee a profit and will not protect an investor against loss in a
declining market.
Each Series' shares are sold on a continuous basis. Net asset value
per share of each Class is determined as of the close of trading on the floor of
the New York Stock Exchange (currently 4:00 p.m., New York time), on each day
the New York Stock Exchange is open for business. For purposes of determining
net asset value, options and futures contracts will be valued 15 minutes after
the close of trading on the floor of the New York Stock Exchange. Net asset
value per share of each Class is computed by dividing the value of the net
assets of each Series represented by such Class (i.e., the value of its assets
less liabilities) by the total number of shares of such Class outstanding. Each
Series' investments are valued by an independent pricing service approved by the
Fund's Board and are valued at fair value as determined by the pricing service.
The pricing service's procedures are reviewed under the general supervision of
the Fund's Board. For further information regarding the methods employed in
valuing the Series' investments, see "Determination of Net Asset Value."
If an order is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time) on a business day, Fund shares will be purchased at the public
offering price determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, Fund shares will be purchased at the
public offering price determined as of the close of trading on the floor of the
New York Stock Exchange on the next business day, except where shares are
purchased through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by the
close of trading on the floor of the New York Stock Exchange on any business day
and transmitted to the Distributor or its designee by the close of its business
day (normally 5:15 p.m., New York time) will be based on the public offering
price per share determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, the orders will be based on the next
determined public offering price. It is the dealer's responsibility to transmit
orders so that they will be received by the Distributor or its designee before
the close of its business day.
USING FEDERAL FUNDS. The Transfer Agent or the Fund may attempt to
notify the investor upon receipt of checks drawn on banks that are not members
of the Federal Reserve System as to the possible delay in conversion into
immediately available funds ("Federal Funds" (monies of member banks within the
Federal Reserve System which are held on deposit at a Federal Reserve Bank)) and
may attempt to arrange for a better means of transmitting the money. If the
investor is a customer of a Selected Dealer and his order to purchase Fund
shares is paid for other than in Federal Funds, the Selected Dealer, acting on
behalf of its customer, will complete the conversion into, or itself advance,
Federal Funds generally on the business day following receipt of the customer
order. The order is effective only when so converted and received by the
Transfer Agent. An order for the purchase of Fund shares placed by an investor
with sufficient Federal Funds or a cash balance in his brokerage account with a
Selected Dealer will become effective on the day that the order, including
Federal Funds, is received by the Transfer Agent.
CLASS A SHARES. The public offering price for Class A shares is the
net asset value per share of that Class plus a sales load as shown below:
<TABLE>
<CAPTION>
Total Sales Load
---------------------------------------------
As a % of As a % of Dealers' Reallowance
Amount of Transaction Offering Price Net Asset Value as a % of
Per Share Per Share Offering Price
------------------ --------------- --------------------
<S> <C> <C> <C>
Less than $50,000 4.50 4.70 4.25
$50,000 to less than $100,000 4.00 4.20 3.75
$100,000 to less than $250,000 3.00 3.10 2.75
$250,000 to less than $500,000 2.50 2.60 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 or more -0- -0- -0-
</TABLE>
A CDSC of 1% will be assessed at the time of redemption of Class A
shares purchased without an initial sales charge as part of an investment of at
least $1,000,000 and redeemed within one year of purchase. Pursuant to an
agreement with the Distributor, Dreyfus Service Corporation may pay Service
Agents an amount up to 1% of the net asset value of Class A shares purchased by
their clients that are subject to a CDSC.
The scale of sales loads applies to purchases of Class A shares made
by any "purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children, or a trustee or other fiduciary purchasing securities for a single
trust estate or a single fiduciary account (including a pension, profit-sharing
or other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code), although more than one beneficiary is involved; or a
group of accounts established by or on behalf of the employees of an employer or
affiliated employers pursuant to an employee benefit plan or other program
(including accounts established pursuant to Sections 403(b), 408(k) and 457 of
the Code); or an organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the purchases
are made through a central administration or a single dealer, or by other means
which result in economy of sales effort or expense.
Set forth below is an example of the method of computing the offering
price of each Series' Class A shares. The examples assume a purchase of Class A
shares aggregating less than $50,000 subject to the schedule of sales charges
set forth above at a price based upon the net asset value of the Series' Class A
shares on April 30, 1999.
<TABLE>
<CAPTION>
CONNECTICUT FLORIDA GEORGIA MARYLAND
SERIES SERIES SERIES SERIES
----------- ------ ------- --------
Class A Shares:
<S> <C> <C> <C> <C>
NET ASSET VALUE, per share.................. $12.26 $14.03 $13.81 $12.94
Sales load for individual sales of shares
aggregating less than $50,000 - 4.5% of
offering price (approximately 4.7% of net
asset value per share)...................... .58 .66 .65 .61
--- --- --- ---
Offering price to public............... $12.84 $14.69 $14.46 $13.55
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS MICHIGAN MINNESOTA NEW JERSEY NORTH CAROLINA
SERIES SERIES SERIES SERIES SERIES
------------- -------- --------- --------- --------------
Class A Shares:
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, per share............. $11.68 $15.57 $15.30 $13.14 $13.95
Sales load for individual sales of
shares aggregating less than $50,000
- 4.5% of offering price
(approximately 4.7% of net asset
value per share)....................... .55 .73 .72 .62 .66
--- --- --- --- ---
Offering price to public............... $12.23 $16.30 $16.02 $13.76 $14.61
====== ====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA TEXAS VIRGINIA
SERIES SERIES SERIES SERIES
------ ------------ ------ --------
Class A Shares:
<S> <C> <C> <C> <C>
NET ASSET VALUE, per share................. $12.80 $16.56 $21.37 $17.31
Sales load for individual sales of shares
aggregating less than $50,000 - 4.5% of
offering price (approximately 4.7% of net
asset value per share)..................... .60 .78 1.01 .82
--- --- ---- ---
Offering price to public................... $13.40 $17.34 $22.38 $18.13
====== ====== ====== ======
</TABLE>
<PAGE>
Full-time employees of NASD member firms and full-time employees of
other financial institutions which have entered into an agreement with the
Distributor pertaining to the sale of Fund shares (or which otherwise have a
brokerage related or clearing arrangement with an NASD member firm or financial
institution with respect to the sale of such shares) may purchase Class A shares
for themselves directly or pursuant to an employee benefit plan or other
program, or for their spouses or minor children, at net asset value, provided
they have furnished the Distributor with such information as it may request from
time to time in order to verify eligibility for this privilege. This privilege
also applies to full-time employees of financial institutions affiliated with
NASD member firms whose full-time employees are eligible to purchase Class A
shares at net asset value. In addition, Class A shares are offered at net asset
value to full-time or part-time employees of the Manager or any of its
affiliates or subsidiaries, directors of the Manager, Board members of a fund
advised by the Manager, including members of the Fund's Board, or the spouse or
minor child of any of the foregoing.
Class A shares may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with the Distributor, which includes a requirement that such shares be
sold for the benefit of clients participating in a "wrap account" or a similar
program under which such clients pay a fee to such broker-dealer or other
financial institution.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, through a broker-dealer or other financial
institution with the proceeds from the redemption of shares of a registered
open-end management investment company not managed by the Manager or its
affiliates. The purchase of Class A shares of the Fund must be made within 60
days of such redemption and the shareholder must have been subject to an initial
sales charge or a contingent deferred sales charge with respect to such redeemed
shares.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, by (i) qualified separate accounts maintained by an
insurance company pursuant to the laws of any State or territory of the United
States, (ii) a State, county or city or instrumentality thereof, (iii) a
charitable organization (as defined in Section 501(c)(3) of the Code) investing
$50,000 or more in Fund shares, and (iv) a charitable remainder trust (as
defined in Section 501(c)(3) of the Code).
CLASS B SHARES. The public offering price for Class B shares is the
net asset value per share of that Class. No initial sales charge is imposed at
the time of purchase. A CDSC is imposed, however, on certain redemptions of
Class B shares as described in the Fund's Prospectus and in this Statement of
Additional Information under "How to Redeem Shares--Contingent Deferred Sales
Charge--Class B Shares."
Approximately six years after the date of purchase, Class B shares of
a Series automatically will convert to Class A shares of such Series, based on
the relative net asset values for shares of each such Class. Class B shares that
have been acquired through the reinvestment of dividends and distributions will
be converted on a pro rata basis together with other Class B shares, in the
proportion that a shareholder's Class B shares converting to Class A shares
bears to the total Class B shares not acquired through the reinvestment of
dividends and distributions.
CLASS C SHARES. The public offering price for Class C shares is the
net asset value per share of that Class. No initial sales charge is imposed at
the time of purchase. A CDSC is imposed, however, on redemptions of Class C
shares made within the first year of purchase. See "Class B Shares" above and
"How to Redeem Shares."
CLASS B AND C SHARES. Pursuant to an agreement with the Distributor,
Dreyfus Service Corporation compensates certain Service Agents for selling Class
B and Class C shares at the time of purchase from its own assets. The proceeds
of the CDSC and the distribution fee, in part, are used to defray these
expenses.
RIGHT OF ACCUMULATION--CLASS A SHARES. Reduced sales loads apply to
any purchase of Class A shares, shares of other funds in the Dreyfus Premier
Family of Funds, shares of certain other funds advised by the Manager which are
sold with a sales load and shares acquired by a previous exchange of such shares
(hereinafter referred to as "Eligible Funds"), by you and any related
"purchaser" as defined above, where the aggregate investment, including such
purchase, is $50,000 or more. If, for example, you previously purchased and
still hold Class A shares, or shares of any other Eligible Fund or combination
thereof, with an aggregate current market value of $40,000 and subsequently
purchase Class A shares or shares of an Eligible Fund having a current value of
$20,000, the sales load applicable to the subsequent purchase would be reduced
to 4.0% of the offering price. All present holdings of Eligible Funds may be
combined to determine the current offering price of the aggregate investment in
ascertaining the sales load applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of purchase you or
your Service Agent must notify the Distributor if orders are made by wire, or
the Transfer Agent if orders are made by mail. The reduced sales load is subject
to confirmation of your holdings through a check of appropriate records.
DREYFUS TELETRANSFER PRIVILEGE. You may purchase shares by telephone
if you have checked the appropriate box and supplied the necessary information
on the Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your Fund account. Only a bank account
maintained in a domestic financial institution which is an Automated Clearing
House ("ACH") member may be so designated.
Dreyfus TELETRANSFER purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day 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 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 shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or Shareholder
Services Form on file. If the proceeds of a particular redemption are to be
wired to an account at any other bank, the request must be in writing and
signature-guaranteed. See "How to Redeem Shares--Dreyfus TELETRANSFER
Privilege."
REOPENING AN ACCOUNT. You 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.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class B and Class C shares only are subject to a Distribution Plan and
Class A, Class B and Class C shares are subject to a Shareholder Services Plan.
DISTRIBUTION PLAN. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant to
a plan adopted in accordance with the Rule. The Fund's Board has adopted such a
plan (the "Distribution Plan") with respect to the Class B and Class C shares of
each Series, pursuant to which the Fund pays the Distributor for distributing
each such Class of shares a fee at the annual rate of .50% of the value of the
average daily net assets of Class B and .75% of the value of the average daily
net assets of Class C. The Fund's Board believes that there is a reasonable
likelihood that the Distribution Plan will benefit the Fund and the holders of
the Series' relevant Class of shares.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be made
to the Fund's Board for its review. In addition, the Distribution Plan provides
that it may not be amended to increase materially the costs which holders of
Class B or Class C shares may bear for distribution pursuant to the Distribution
Plan without such shareholders' approval and that other material amendments of
the Distribution Plan must be approved by the Fund's Board, 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
Distribution Plan or in any agreements entered into in connection with the
Distribution Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Distribution 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 Distribution Plan. The Distribution Plan was last so
approved by the Board members at a meeting held on July 21, 1999. As to the
relevant Class of shares of the Fund, the Distribution Plan may be terminated at
any time (i) 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 Distribution Plan or in any agreements entered into in connection with the
Distribution Plan or (ii) by vote of the holders of a majority of the
outstanding shares of such Class.
For the fiscal year ended April 30, 1999, each Series paid the
Distributor the following amounts with respect to its Class B shares and Class C
shares pursuant to the Distribution Plan:
AMOUNT CHARGED AMOUNT CHARGED
NAME OF SERIES CLASS B CLASS C
- -------------- ------- -------
Connecticut Series $307,019 $28,368
Florida Series 155,136 3,267
Georgia Series 80,687 218
Maryland Series 279,128 19,166
Massachusetts Series 35,042 839
Michigan Series 112,209 11,000
Minnesota Series 151,580 7,914
New Jersey Series 56,028 1,351
North Carolina Series 227,439 1,190
Ohio Series 273,891 8,378
Pennsylvania Series 372,567 4,696
Texas Series 99,734 2,935
Virginia Series 195,297 20,171
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services
Plan, pursuant to which the Fund pays the Distributor for the provision of
certain services to the holders of its Class A, Class B and Class C shares a fee
at the annual rate of .25% of the value of the average daily net assets of each
such Class. 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 such shareholder accounts. Under the Shareholder Services Plan,
the Distributor may make payments to Service Agents in respect to these
services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred, must
be made to the Fund's Board for its review. In addition, the Shareholder
Services Plan provides that material amendments must be approved by the Fund's
Board, 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 Shareholder Services Plan or in any agreements entered into
in connection with the Shareholder Services Plan, by vote cast in person at a
meeting called for the purpose of considering such amendments. The Shareholder
Services 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 Shareholder
Services Plan. The Shareholder Services Plan was last so approved by the Board
at a meeting held on July 21, 1999. As to each Series, the Shareholder Services
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 Shareholder Services Plan or in any agreements entered
into in connection with the Shareholder Services Plan.
For the fiscal year ended April 30, 1999, each Series was charged the
following amounts with respect to its Class A, Class B and Class C pursuant to
the Shareholder Services Plan:
NAME OF SERIES CLASS A CLASS B CLASS C
- -------------- ------- ------- -------
Connecticut Series $787,528 $153,509 $9,456
Florida Series 396,899 77,568 1,089
Georgia Series 17,002 40,344 72
Maryland Series 660,483 139,564 6,389
Massachusetts Series 155,084 17,520 280
Michigan Series 369,259 56,105 3,667
Minnesota Series 326,299 75,790 2,638
New Jersey Series 12,399 28,014 450
North Carolina Series 105,320 113,720 396
Ohio Series 596,184 136,945 2,793
Pennsylvania Series 486,774 186,283 1,565
Texas Series 149,714 49,867 978
Virginia Series 166,840 97,648 6,724
HOW TO REDEEM SHARES
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A CDSC is paid to
Dreyfus Service Corporation on any redemption of Class B shares of a Series
which reduces the current net asset value of your Class B shares to an amount
which is lower than the dollar amount of all payments by you for the purchase of
Class B shares of such Series held by you at the time of redemption. No CDSC
will be imposed to the extent that the net asset value of the Class B shares
redeemed does not exceed (i) the current net asset value of the Class B shares
acquired through reinvestment of dividends or capital gain distributions, plus
(ii) increases in the net asset value of your Class B shares above the dollar
amount of all your payments for the purchase of Class B shares of such Series
held by you at the time of redemption.
If the aggregate value of Class B shares redeemed has declined below
their original cost as a result of the Series' performance, a CDSC may be
applied to the then-current net asset value rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge
will depend on the number of years for the time you purchased the Class B shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of Class B
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
The following table sets forth the rates of the CDSC for Class B
shares, except for Class B shares purchased by shareholders who beneficially
owned Class B shares on November 30, 1996:
YEAR SINCE CDSC AS A % OF
PURCHASE PAYMENT AMOUNT INVESTED OR
WAS MADE REDEMPTION PROCEEDS
- ---------------- -------------------
First.......................................... 4.00
Second......................................... 4.00
Third.......................................... 3.00
Fourth......................................... 3.00
Fifth.......................................... 2.00
Sixth.......................................... 1.00
The following table sets forth the rates of the CDSC for Class B
shares purchased by shareholders who beneficially owned Class B shares on
November 30, 1996:
YEAR SINCE CDSC AS A % OF
PURCHASE PAYMENT AMOUNT INVESTED OR
WAS MADE REDEMPTION PROCEEDS
- ----------------- --------------------
First.......................................... 3.00
Second......................................... 3.00
Third.......................................... 2.00
Fourth......................................... 2.00
Fifth.......................................... 1.00
Sixth.......................................... 0.00
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value of Class B shares
above the total amount of payments for the purchase of Class B shares made
during the preceding six years (five years for shareholders beneficially owning
Class B shares on November 30, 1996); then of amounts representing the cost of
shares purchased six years (five years for shareholders beneficially owning
Class B shares on November 30, 1996) prior to the redemption; and finally, of
amounts representing the cost of shares held for the longest period of time
within the applicable six-year period (five-year period for shareholders
beneficially owning Class B shares on November 30, 1996).
For example, assume an investor purchased 100 shares at $10 per share
for a cost of $1,000. Subsequently, the shareholder acquired five additional
shares through dividend reinvestment. During the second year after the purchase
the investor decided to redeem $500 of the investment. Assuming at the time of
the redemption the net asset value had appreciated to $12 per share, the value
of the investor's shares would be $1,260 (105 shares at $12 per share). The CDSC
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4% (the
applicable rate in the second year after purchase) for a total CDSC of $9.60.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A CDSC of 1% is paid
to Dreyfus Service Corporation on any redemption of Class C shares within one
year of the date of purchase. The basis for calculating the payment of any such
CDSC will be the method used in calculating the CDSC for Class B shares. See
"Contingent Deferred Sales Charge--Class B Shares" above.
WAIVER OF CDSC. The CDSC will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
Section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in qualified or non-qualified employee benefit plans or other
programs where (i) the employers or affiliated employers maintaining such plans
or programs have a minimum of 250 employees eligible for participation in such
plans or programs, or (ii) such plan's or program's aggregate investment in the
Dreyfus Family of Funds or certain other products made available by the
Distributor exceeds $1,000,000, (c) redemptions as a result of a combination of
any investment company with the relevant Series by merger, acquisition of assets
or otherwise, (d) a distribution following retirement under a tax-deferred
retirement plan or upon attaining age 70 1/2 in the case of an IRA or Keogh plan
or custodial account pursuant to Section 403(b) of the Code, and (e) redemptions
pursuant to the Automatic Withdrawal Plan, as described below. If the Fund's
Board determines to discontinue the waiver of the CDSC, the disclosure herein
will be revised appropriately. Any Fund shares subject to a CDSC which were
purchased prior to the termination of such waiver will have the CDSC waived as
provided in the Fund's Prospectus or this Statement of Additional Information at
the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
entitlement.
CHECK REDEMPTION PRIVILEGE - CLASS A ONLY. The Fund provides
Redemption Checks ("Checks") to investors in Class A shares automatically upon
opening an account unless you specifically refuse the Check Redemption Privilege
by checking the applicable "No" box on the Account Application. Checks will be
sent only to the registered owner(s) of the account and only to the address of
record. The Check Redemption Privilege may be established for an existing
account by a separate signed Shareholder Services Form. The Account Application
or Shareholder Services Form must be manually signed by the registered owner(s).
Checks are drawn on your Fund account and 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 your agent, will cause the
Fund to redeem a sufficient number of full and fractional Class A shares in your
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 you. You
generally will be subject to the same rules and regulations that apply to
checking accounts, although the election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the Check, all postdated
Checks which are dated within six months of presentment for payment, if they are
otherwise in good order.
Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the Class A shares in the investor's account,
the Check will be returned marked insufficient funds. Checks should not be used
to close an account.
REDEMPTION THROUGH A SELECTED DEALER. If you are a customer of a
Selected Dealer, you may make redemption requests to your Selected Dealer. If
the Selected Dealer transmits the redemption request so that it is received by
the Transfer Agent prior to the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m., New York time), the redemption request will
be effective on that day. If a redemption request is received by the Transfer
Agent after the close of trading on the floor of the New York Stock Exchange,
the redemption request will be effective on the next business day. It is the
responsibility of the Selected Dealer to transmit a request so that it is
received in a timely manner. The proceeds of the redemption are credited to your
account with the Selected Dealer. See "How to Buy Shares" for a discussion of
additional conditions or fees that may be imposed upon redemption.
In addition, the Distributor or its designee will accept orders from
Selected Dealers with which the Distributor has sales agreements for the
repurchase of shares held by shareholders. Repurchase orders received by dealers
by the close of trading on the floor of the New York Stock Exchange on any
business day and transmitted to the Distributor or its designee prior to the
close of its business day (normally 5:15 p.m., New York time) are effected at
the price determined as of the close of trading on the floor of the New York
Stock Exchange on that day. Otherwise, the shares will be redeemed at the next
determined net asset value. It is the responsibility of the Selected Dealer to
transmit orders on a timely basis. The Selected Dealer may charge the
shareholder a fee for executing the order. This repurchase arrangement is
discretionary and may be withdrawn at any time.
REINVESTMENT PRIVILEGE. Upon written request, you may reinvest up to
the number of Class A or Class B shares you have redeemed, within 45 days of
redemption, at the then-prevailing net asset value without a sales load, or
reinstate your account for the purpose of exercising Fund Exchanges. Upon
reinstatement, with respect to Class B shares, or Class A shares if such shares
were subject to a CDSC, your account will be credited with an amount equal to
CDSC previously paid upon redemption of the Class A or Class B shares
reinvested. The Reinvestment Privilege may be exercised only once.
DREYFUS TELETRANSFER PRIVILEGE. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Holders of jointly registered Fund or
bank accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within any 30-day period.
Redemption proceeds will be on deposit in your account at an ACH member bank
ordinarily two business days after receipt of the redemption request. You should
be aware that if you have selected the Dreyfus TELETRANSFER Privilege, any
request for a wire redemption will be effected as a Dreyfus TELETRANSFER
transaction through the ACH system unless more prompt transmittal specifically
is requested. See "How to Buy 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 owner 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.
REDEMPTION COMMITMENT. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record of a Series, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value of
such Series' net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange Commission
and is a fundamental policy, as to a Series, which may not be changed without
shareholder approval of such Series. 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 or other assets in case of an emergency or any
time a cash distribution would impair the liquidity of the Series to the
detriment of the existing shareholders. In this event, the securities would be
valued in the same manner as the Series' portfolio is valued. If the recipient
sells 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
FUND EXCHANGES. Clients of certain Service Agents may purchase, in
exchange for Class A, Class B or Class C shares of a Series, shares of the same
Class of one of the other Series or of certain other funds managed or
administered by the Manager to the extent such shares are offered for sale in
such client's state of residence. Shares of the same Class of such 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 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"), but 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.
E. Shares of funds subject to a CDSC that are exchanged for shares
of another fund will be subject to the higher applicable CDSC of
the two funds, and for purposes of calculating CDSC rates and
conversion periods, if any, will be deemed to have been held
since the date the shares being exchanged were initially
purchased.
To accomplish an exchange under item D above, your Service Agent must
notify the Transfer Agent of your prior ownership of such Class A shares and
your account number.
You also may exchange your Fund shares that are subject to a CDSC for
shares of Dreyfus Worldwide Dollar Money Market Fund, Inc. The shares so
purchased will be held in a special account created solely for this purpose
("Exchange Account"). Exchanges of shares for an Exchange Account only can be
made into certain other funds managed or administered by the Manager. No CDSC is
charged when an investor exchanges into an Exchange Account; however, the
applicable CDSC will be imposed when shares are redeemed from an Exchange
Account or other applicable Fund account. Upon redemption, the applicable CDSC
will be calculated without regard to the time such shares were held in an
Exchange Account. See "How to Redeem Shares." Redemption proceeds for Exchange
Account shares are paid by Federal wire or check only. Exchange Account shares
also are eligible for the Dreyfus Auto-Exchange Privilege, Dreyfus Dividend
Sweep and the Automatic Withdrawal Plan.
To request an exchange, your Service Agent acting on your behalf 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 shareholders
automatically, unless you check the applicable "No" box on the Account
Application, indicating that you specifically refuse this privilege. By using
the Telephone Exchange Privilege, you authorize the Transfer Agent to act on
telephonic instructions (including over The Dreyfus Touch(R) automated telephone
system) from any person representing himself or herself to be you or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. 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. No fees currently are
charged shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules promulgated
by the Securities and Exchange Commission.
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 being required for shares of the same Class of the fund into which
the exchange is being made.
DREYFUS AUTO-EXCHANGE PRIVILEGE. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for Class A, Class B or Class C shares of a
Series, shares of the same Class of one of the other Series or of another fund
in the Dreyfus Premier Family of Funds or certain funds in the Dreyfus Family of
Funds of which you are a shareholder. 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 you. You will be notified if your account falls below the amount
designated to be exchanged under this Privilege. In this case, your account will
fall to zero unless additional investments are made in excess of the designated
amount prior to the next Auto-Exchange transaction.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-554-4611. The Fund reserves the right to reject any
exchange request in whole or in part. Shares may be exchanged only between
accounts having identical names and other identifying designations. The Fund
Exchanges service or the Dreyfus Auto-Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
DREYFUS-AUTOMATIC ASSET BUILDER(R). Dreyfus-AUTOMATIC Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased by
transferring funds from the bank account designated by you.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social Security,
or certain veterans', military or other payments from the U.S. Government
automatically deposited into your Fund account. You may deposit as much of such
payments as you elect.
DREYFUS DIVIDEND OPTIONS. Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from the Fund in shares of the same Class of another fund in the Dreyfus
Premier Family of Funds or certain funds in the Dreyfus Family of Funds of which
you are a shareholder. Shares of the same Class 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 with respect to Class A shares
by a fund may be invested without imposition of a sales load in
Class A shares of other funds offered without a sales load.
B. Dividends and distributions paid with respect to Class A shares
by a fund which does not charge a sales load may be invested in
Class A shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Dividends and distributions paid with respect to Class A shares
by a fund which charges a sales load may be invested in Class A
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), but 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 with respect to Class
B or Class C shares may be invested without imposition of any
applicable CDSC in the same Class of shares of other funds and
the relevant Class of shares of such other funds will be subject
on redemption to any applicable CDSC.
Dreyfus Dividend ACH permits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an ACH member may be so designated. Banks may charge a fee
for this service.
AUTOMATIC WITHDRAWAL PLAN. The Automatic Withdrawal Plan permits you
to request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. Withdrawal
payments are the proceeds from sales of Fund shares, not the yield on the
shares. If withdrawal payments exceed reinvested dividends and distributions,
your shares will be reduced and eventually may be depleted. Automatic Withdrawal
may be terminated at any time by you, the Fund or the Transfer Agent. Shares for
which share certificates have been issued may not be redeemed through the
Automatic Withdrawal Plan.
No CDSC with respect to Class B shares will be imposed on withdrawals
made under the Automatic Withdrawal Plan, provided that the amounts withdrawn
under the plan do not exceed on an annual basis 12% of the account value at the
time the shareholder elects to participate in the Automatic Withdrawal Plan.
Withdrawals with respect to Class B shares under the Automatic Withdrawal Plan
that exceed on an annual basis 12% of the value of the shareholders account will
be subject to a CDSC on the amounts exceeding 12% of the initial account value.
Withdrawals of Class A shares subject to a CDSC and Class C shares under the
Automatic Withdrawal Plan will be subject to any applicable CDSC. Purchases of
additional Class A shares where the sales load is imposed concurrently with
withdrawals of Class A shares generally are undesirable.
LETTER OF INTENT--CLASS A SHARES. By signing a Letter of Intent form,
which can be obtained by calling 1-800-554-4611, you become eligible for the
reduced sales load applicable to the total number of Eligible Fund shares
purchased in a 13-month period pursuant to the terms and conditions set forth in
the Letter of Intent. A minimum initial purchase of $5,000 is required. To
compute the applicable sales load, the offering price of shares you hold (on the
date of submission of the Letter of Intent) in any Eligible Fund that may be
used toward "Right of Accumulation" benefits described above may be used as a
credit toward completion of the Letter of Intent. However, the reduced sales
load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent for payment of a higher sales load if you do not purchase
the full amount indicated in the Letter of Intent. The escrow will be released
when you fulfill the terms of the Letter of Intent by purchasing the specified
amount. If your purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect your total purchase at the end of 13 months. If
total purchases are less than the amount specified, you will be requested to
remit an amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If such
remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A shares of the Fund held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase, or the
Fund to sell, the full amount indicated at the sales load in effect at the time
of signing, but you must complete the intended purchase to obtain the reduced
sales load. At the time you purchase Class A shares, you must indicate your
intention to do so under a Letter of Intent. Purchase pursuant to a Letter of
Intent will be made at the then-current net asset value plus the applicable
sales load in effect at the time such Letter of Intent was executed.
DETERMINATION OF NET ASSET VALUE
VALUATION OF PORTFOLIO SECURITIES. Each Series' investments are valued
each business day 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) and, fees pursuant to the
Shareholder Services Plan, and with respect to Class B and Class C shares only,
Distribution Plan, are accrued daily and are taken into account for the purpose
of determining the net asset value of the relevant Class of each Series' shares.
Because of the difference in operating expenses incurred by each Class, the per
share net asset value of each Class will differ.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that each Series qualified for the fiscal year
ended April 30, 1999 as a "regulated investment company" under the Code. Each
Series intends to continue to so qualify, if such qualification is in the best
interests of its shareholders. As a regulated investment company, a Series will
pay no Federal income tax on net investment income and net realized capital
gains to the extent that such income and gains are distributed to shareholders
in accordance with applicable provisions of the Code. To qualify as a regulated
investment company, a Series must distribute to its shareholders at least 90% of
its net income (consisting of net investment income from tax exempt obligations
and taxable obligations, if any, and net short-term capital gains), and must
meet certain asset diversification and other requirements. If a Series did not
qualify as a regulated investment company, it would be treated for tax purposes
as an ordinary corporation subject to Federal income tax. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
Each Series ordinarily declares dividends from its net investment
income on each day the New York Stock Exchange is open for business. Shares
begin earning income dividends on the day Federal Funds are received by the
Transfer Agent. If a purchase order is not accompanied by remittance in Federal
Funds, there may be a delay between the time the purchase order becomes
effective and the time the shares purchased start earning dividends. If your
payment is not made in Federal Funds, it must be converted into Federal Funds.
This usually occurs within one business day of receipt of a bank wire and within
two business days of receipt of a check drawn on a member bank of the Federal
Reserve System. Checks drawn on banks which are not members of the Federal
Reserve System may take considerably longer to convert into Federal Funds.
Each Series' earnings for Saturdays, Sundays and holidays are declared
as dividends on the preceding business day. Dividends usually are paid on the
last business day of each month and are automatically reinvested in additional
shares of the Series and the same Class from which they were paid at net asset
value without a sales load or, at your option, paid in cash. If you redeem all
shares in your account at any time during the month, all dividends to which you
are entitled will be paid to you along with the proceeds of the redemption. If
you are an omnibus accountholder and indicate in a partial redemption request
that a portion of any accrued dividends to which such account is entitled
belongs to an underlying accountholder who has redeemed all shares in his or her
account, such portion of the accrued dividends will be paid to you along with
the proceeds of the redemption. Distributions by each Series from its net
realized securities gains, if any, generally are declared and paid once a year,
but the Series may make distributions on a more frequent basis to comply with
the distribution requirements of the Code, in all events in a manner consistent
with the provisions of the 1940 Act.
If you elect to receive dividends and distributions in cash and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest such
dividend or distribution and all future dividends and distributions payable to
you in additional Fund shares at net asset value. No interest will accrue on
amounts represented by uncashed distribution or redemption checks. All expenses
are accrued daily and deducted before declaration of dividends to investors.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated under "Distributions
and Taxes" in the Prospectus. In addition, the Code provides that if a
shareholder has not held his 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 will be disallowed to the extent of the
exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code. In addition,
all or a portion of any gain realized from engaging in "conversion transactions"
may be treated as ordinary income under Section 1258 of the Code. "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 a Series 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 or options as well as
from closing transactions. In addition, any such futures or options remaining
unexercised at the end of a Series' taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to a Series
as described above.
Offsetting positions held by a Series involving certain 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 of the Code. 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 a Series were treated as entering into "straddles" by reason of its
engaging in certain futures or options transactions, such "straddles" would be
characterized as "mixed straddles" if the futures or options transactions
comprising a part of such "straddles" were governed by Section 1256 of the Code.
A Series may make one or more elections with respect to "mixed straddles."
Depending on which election is made, if any, the results to a Series may differ.
If no election is made to the extent the "straddle" rules apply to positions
established by a Series, losses realized by a Series will be deferred to the
extent of unrealized gain in the offsetting position. Moreover, as a result of
the "straddle" and the conversion transaction rules, short-term capital losses
on "straddle" positions may be recharacterized as long-term capital losses, and
long-term capital gains on straddle positions may be treated as short-term
capital gains or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified as hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.
Investment by a Series 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, a Series 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, a Series may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
STATE AND LOCAL TAX TREATMENT. Each Series will invest primarily in
Municipal Obligations of the State after which the Series is named. Except to
the extent specifically noted below, dividends by a Series are not subject to an
income tax by such State to the extent that the dividends are attributable to
interest on such Municipal Obligations. However, some or all of the other
dividends or distributions by a Series may be taxable by those States that have
income taxes, even if the dividends or distributions are attributable to income
of the Series derived from obligations of the United States or its agencies or
instrumentalities.
The Fund anticipates that a substantial portion of the dividends paid
by each Series will not be subject to income tax of the State after which the
Series is named. However, to the extent that you are obligated to pay State or
local taxes outside of such State, dividends earned by an investment in such
Series may represent taxable income. Also, all or a portion of the dividends
paid by a Series that are not subject to income tax of the State after which the
Series is named may be a preference item for such State's alternative minimum
tax (where imposed). Finally, you should be aware that State and local taxes,
other than those described above, may apply to the dividends, distributions or
shares of a Series.
The paragraphs below discuss the State tax treatment of dividends and
distributions by each Series to residents of the State after which the Series is
named. Investors should consult their own tax advisers regarding specific
questions as to Federal, State and local taxes.
CONNECTICUT SERIES. Dividends by the Series that qualify as
exempt-interest dividends for Federal income tax purposes are not subject to the
Connecticut income tax, imposed on individuals, trusts and estates, to the
extent that such dividends are derived from income received by the Series as
interest from Connecticut Municipal Obligations or obligations the interest with
respect to which Connecticut is prohibited by Federal law from taxing. In the
case of shares held as a capital asset, dividends that qualify as capital gain
dividends for Federal income tax purposes are not subject to the Connecticut
income tax to the extent they are derived from Connecticut Municipal
Obligations. Dividends derived from other sources are subject to the Connecticut
income tax. In the case of a shareholder subject to the Connecticut income tax
and required to pay the Federal alternative minimum tax, the portion of
exempt-interest dividends paid by the Series that is derived from income
received by the Series as interest from Connecticut Municipal Obligations or
obligations the interest with respect to which Connecticut is prohibited by
Federal law from taxing is not subject to the net Connecticut minimum tax even
if treated as a preference item for purposes of the Federal alternative minimum
tax.
Dividends qualifying as exempt-interest dividends or capital gain
dividends for Federal income tax purposes that are distributed by the Series to
entities subject to the Connecticut corporation business tax are not exempt from
that tax.
The shares of the Series are not subject to property taxation by the
State of Connecticut or its political subdivisions.
FLORIDA SERIES. Dividends or distributions by the Series to a Florida
individual resident are not taxable by Florida. However, Florida imposes an
intangible personal property tax on shares of the Series owned by a Florida
resident on January 1 of each year unless such shares qualify for an exemption
from the tax.
Dividends qualifying as exempt-interest dividends for Federal income
tax purposes as well as other Federally taxable dividends and distributions that
are distributed by the Series to entities taxed as corporations under Florida
law may not be exempt from the Florida corporate income tax.
The Fund has received a Technical Assistance Advisement from the State
of Florida, Department of Revenue, to the effect that Florida Series' shares
owned by a Florida resident will be exempt from the intangible personal property
tax so long as the Series' portfolio includes only assets, such as notes, bonds,
and other obligations issued by the State of Florida or its municipalities,
counties, and other taxing districts, the United States Government, and its
agencies, Puerto Rico, Guam, and the U.S. Virgin Islands, and other assets which
are exempt from that tax.
GEORGIA SERIES. Dividends and distributions by the Georgia Series to a
Georgia resident that are attributable to interest on Georgia Municipal
Obligations or direct obligations of the United States and its territories and
possessions are not subject to the State of Georgia income tax. Dividends or
other distributions by the Series which are attributable to other sources,
including all distributions that qualify as capital gains dividends for Federal
income tax purposes, are subject to the State of Georgia income tax at the
applicable rate.
The Georgia intangibles tax previously imposed upon certain intangible
personal property has been repealed, effective as of January 1, 1996.
Accordingly, shares of the Georgia Series will not be subject to an intangibles
tax in Georgia.
MARYLAND SERIES. Dividends and distributions by the Series to a
Maryland resident (including individuals, corporations, estates or trusts who
are subject to Maryland state and local income tax) will not be subject to
income tax in Maryland to the extent that such dividends or distributions (a)
qualify, for Federal income tax purposes, as exempt-interest dividends of a
regulated investment company and are attributable to (i) interest on Maryland
Municipal Obligations or (ii) interest on obligations of the United States or an
authority, commission, instrumentality, possession or territory of the United
States, or (b) are attributable to gain realized by the Series from the sale or
exchange of Maryland Municipal Obligations or obligations of the United States
or an authority, commission or instrumentality thereof. To the extent that
distributions by the Series are attributable to sources other than those
described above, such as (x) interest on obligations issued by states other than
Maryland or (y) income from repurchase agreements, such distributions will not
be exempt from Maryland state and local income taxes. In addition, any gain
realized by a shareholder upon a redemption or exchange of Series shares will be
subject to Maryland taxation.
Interest on indebtedness incurred (directly or indirectly) by a
shareholder of the Series to purchase or carry shares of the Series will not be
deductible for Maryland state and local income tax purposes to the extent such
interest is allocable to exempt-interest dividends.
If the Series fails to qualify as a regulated investment company, the
Series would be subject to corporate Maryland income tax and distributions
generally would be taxable as ordinary income to the shareholders.
Individuals will not be subject to personal property tax on their
shares of the Maryland Series.
MASSACHUSETTS SERIES. Dividends by the Series to a Massachusetts
resident are not subject to the Massachusetts personal income tax to the extent
that the dividends are attributable to income received by the Series from
Massachusetts Municipal Obligations or direct U.S. Government obligations, and
are properly designated as such. Distributions of capital gain dividends by the
Series to a Massachusetts resident are not subject to the Massachusetts personal
income tax to the extent such distributions are attributable to gain from the
sale of certain Massachusetts Municipal Obligations the gain from which is
exempt from the Massachusetts personal income tax, and the distributions are
properly designated as such. Dividends or distributions by the Series to a
Massachusetts resident that are attributable to most other sources are subject
to the Massachusetts personal income tax. In addition, distributions from the
Series may be included in the net income measure of the corporate excise tax for
corporate shareholders who are subject to the Massachusetts corporate excise
tax. In 1994, the Massachusetts personal income tax statute was modified to
provide for graduated rates of tax (with some exceptions) on gains from the sale
or exchange of capital assets held for more than one year based on the length of
time the asset has been held since January 1, 1995. The Massachusetts Department
of Revenue has released proposed regulations providing that the holding period
of the mutual fund (rather than that of its shareholders) will be determinative
for purposes of applying the revised statute to shareholders that receive
capital gain distributions, so long as the mutual fund separately designates the
amount of such distributions attributable to each of six classes of gains from
the sale or exchange of capital assets held for more than one year in a notice
provided to shareholders and the Commissioner of Revenue on or before March 1 of
the calendar year after the calendar year of such distributions. In the absence
of such notice, the holding period of the assets giving rise to such gains is
deemed to be more than one but not more than two years. Shareholders should
consult their tax advisers with respect to the Massachusetts tax treatment of
capital gain distributions from the Series.
The shares of the Series are not subject to property taxation by
Massachusetts or its political subdivisions.
MICHIGAN SERIES. Dividends by the Series to a Michigan resident
individual are not subject to the Michigan personal income tax to the extent
that the dividends are attributable to income received by the Series as interest
from the Series' investment in Michigan Municipal Obligations, obligations of
U.S. possessions, as well as direct U.S. Government obligations.
For Michigan personal income tax purposes, the proportionate share of
dividends from the Series' net investment income from other than Michigan
Municipal Obligations and from distributions from any short-term or long-term
capital gains will be included in Michigan taxable income. Additionally, for
Michigan personal income tax purposes, any gain or loss realized when the
shareholder sells or exchanges Series' shares will be included in Michigan
taxable income.
Persons engaging in business activities in Michigan may be subject to
the Michigan Single Business Tax and should consult their tax advisers with
respect to the application of such tax in connection with an investment in the
Series.
MINNESOTA SERIES. Dividends paid by the Series to a Minnesota resident
are not subject to the Minnesota personal income tax to the extent that the
dividends are attributable to income received by the Series as interest from
Minnesota Municipal Obligations, provided such attributable dividends represent
95% or more of the exempt-interest dividends that are paid by the Series.
Moreover, dividends paid by the Series to a Minnesota resident are not subject
to the Minnesota personal income tax to the extent that the dividends are
attributable to income received by the Series as interest from a Series'
investment in direct U.S. Government obligations. Dividends and distributions by
the Series to a Minnesota resident that are attributable to most other sources
are subject to the Minnesota personal income tax. Dividends and distributions
from the Series will be included in the determination of taxable net income of
corporate shareholders who are subject to Minnesota income (franchise) taxes. In
addition, dividends attributable to interest received by the Series that is a
preference item for Federal income tax purposes, whether or not such interest is
from a Minnesota Municipal Obligation, may be subject to the Minnesota
alternative minimum tax.
The shares of the Series are not subject to property taxation by
Minnesota or its political subdivisions.
NEW JERSEY SERIES. The New Jersey Series is a "qualified investment
fund" within the meaning of the New Jersey gross income tax. The primary
criteria for constituting a "qualified investment fund" are that (i) the Series
is an investment company registered with the Securities and Exchange Commission
which, for the calendar year in which the dividends and distributions (if any)
are paid, has no investments other than interest-bearing obligations,
obligations issued at a discount, and cash and cash items, including
receivables, and financial options, futures and forward contracts, or other
similar financial instruments relating to interest-bearing obligations,
obligations issued at a discount or bond indices related thereto and (ii) at the
close of each quarter of the taxable year, the Series has not less than 80% of
the aggregate principal amount of all of its investments excluding financial
options, futures and forward contracts, or other similar financial instruments
related to interest-bearing obligations, obligations issued at a discount or
bond indices related thereto, cash and cash items, which cash items shall
include receivables, in New Jersey Municipal Obligations, including obligations
of Puerto Rico, the Virgin Islands and other territories and possessions of the
United States and certain other specified securities exempt from New Jersey
income taxes. Additionally, a qualified investment fund must comply with certain
continuing reporting requirements.
If the New Jersey Series continues to qualify as a qualified
investment fund and the Series complies with its reporting obligations, (a)
dividends and distributions by the New Jersey Series to a New Jersey resident
individual shareholder will not be subject to New Jersey gross income tax to the
extent that the dividends and distributions are attributable to income earned by
the Series as interest on or gain from New Jersey Municipal Obligations, and (b)
gain from the sale of New Jersey Series shares by a New Jersey resident
individual shareholder will not be subject to the New Jersey gross income tax.
Shares of the New Jersey Series are not subject to property taxation by New
Jersey or its political subdivisions. To the extent that you are subject to
state and local taxes outside of New Jersey, dividends and distributions earned
by an investment in the New Jersey Series may represent taxable income.
NORTH CAROLINA SERIES. Dividends paid by the Series to a North
Carolina resident that are attributable to interest on North Carolina Municipal
Obligations or direct U.S. Government obligations are not subject to the North
Carolina income tax. Dividends or distributions attributable to gain realized by
the Series from the sale or exchange of certain North Carolina Municipal
Obligations issued before July 1, 1995 will not be included in the North
Carolina taxable income of a resident individual, trust or estate. Other
dividends or distributions which are attributable to net realized securities
gains and most other sources are subject to the North Carolina income tax at the
applicable rate. Gain realized by a North Carolina resident shareholder from the
sale or exchange of an interest held in the North Carolina Series also will be
subject to the North Carolina income tax at the applicable rate.
The North Carolina intangibles tax previously imposed upon certain
intangible personal property was repealed, as of January 1, 1995. Accordingly,
shares of the North Carolina Series will not be subject to an intangibles tax in
North Carolina.
To the extent that dividends or distributions from the North Carolina
Series increase the surplus of a corporate shareholder required to file a North
Carolina franchise tax return, such increase in the surplus will be subject to
the North Carolina franchise tax.
OHIO SERIES. Dividends paid by the Series to an Ohio resident, or to a
corporation subject to the Ohio Corporation Franchise Tax, are not subject to
Ohio state and local income taxes or the net income basis of the Ohio
Corporation Franchise Tax to the extent that such dividends are attributable to
income received by the Series as interest from Ohio Municipal Obligations and
direct obligations of the United States, certain Federal agencies and certain
U.S. territories. Dividends or distributions paid by the Series to an Ohio
resident, or to a corporation subject to the Ohio Corporation Franchise Tax,
that are attributable to most other sources are subject to Ohio state and local
income taxes and are includible in the net income basis of the Ohio Corporation
Franchise Tax. The shares of the Series are not subject to property taxation by
the State of Ohio or its political subdivisions, except when held by a "dealer
in intangibles" (generally, a person in the lending or brokerage business), a
decedent's estate, an Ohio insurance company, or a corporation (other than
certain holding companies) taxed on the net worth basis of the Ohio Corporation
Franchise Tax.
PENNSYLVANIA SERIES. Dividends by the Series will not be subject to
the Pennsylvania personal income tax to the extent that the dividends are
attributable to interest received by the Series from its investments in
Pennsylvania Municipal Obligations and U.S. Government obligations, including
obligations issued by U.S. possessions. Dividends by the Series will not be
subject to the Philadelphia School District investment income tax to the extent
that the dividends are attributable to interest received by the Series from its
investments in Pennsylvania Municipal Obligations and U.S. obligations,
including obligations issued by U.S. possessions. Dividends or distributions by
the Series to a Pennsylvania resident that are attributable to most other
sources may be subject to the Pennsylvania personal income tax and (for
residents of Philadelphia) to the Philadelphia School District investment net
income tax.
Dividends paid by the Series which are considered "exempt-interest
dividends" for Federal income tax purposes are not subject to the Pennsylvania
Corporate Net Income Tax, but other dividends or distributions paid by the
Series may be subject to that tax. An additional deduction from Pennsylvania
taxable income is permitted for dividends or distributions paid by the Series
attributable to interest received by the Series from its investments in
Pennsylvania Municipal Obligations and U.S. Government obligations to the extent
included in Federal taxable income, but such a deduction is reduced by any
interest on indebtedness incurred to carry the securities and other expenses
incurred in the production of such interest income, including expenses deducted
on the Federal income tax return that would not have been allowed under the Code
if the interest were exempt from Federal income tax. Series shares are
considered exempt assets (with a pro rata exclusion based on the value of the
Series attributable to its investments in Pennsylvania Municipal Obligations and
U.S. Government obligations, including obligations issued by U.S. possessions)
for purposes of determining a corporation's capital stock value subject to the
Pennsylvania Capital Stock/Franchise Tax.
TEXAS SERIES. All dividends and distributions by the Series to Texas
resident individuals are not subject to taxation by Texas. However, Texas
enacted significant changes to its corporate franchise tax law for reporting
years beginning January 1, 1992 and thereafter. These changes include the
imposition of a tax measured by earned surplus, in addition to the previously
existing tax on a corporation's capital. The earned surplus component of the
Texas franchise tax is applicable only to the extent that it exceeds the taxable
capital component of the franchise tax. For Texas franchise tax purposes, earned
surplus is computed by reference to Federal taxable income. Thus, any amounts
subject to Federal income tax that are payable by the Series to corporations
doing business in or incorporated in Texas generally will be included in the
earned surplus component of the Texas franchise tax, to the extent such earned
surplus is apportioned to Texas. Dividends and other distributions not subject
to Federal income tax generally will be excluded from the calculation of the
earned surplus component of the franchise tax.
Both the capital tax and earned surplus tax components of the Texas
franchise tax are computed by reference to the portion of the corporation's
capital or earned surplus, respectively, based on the corporation's gross
receipts derived from Texas. To the extent dividend and interest payments are
made by a corporation not incorporated in Texas, or another type of entity not
legally domiciled in Texas, such dividends and payments are not considered to be
Texas sourced receipts for franchise tax apportionment purposes.
Effective with franchise tax reports originally due after January 1,
1994 (which are based upon accounting years ending in 1993), other taxable
distributions from the Series to corporations doing business in or incorporated
in Texas (such as the proceeds resulting from net gain upon the sale of Series
bonds) may be allocable to Texas as Texas sourced gross receipts for the earned
surplus component of the franchise tax if: (1) the activities of the recipient
corporation do not have a sufficient unitary connection with that corporation's
other activities conducted within the state giving rise to the underlying sale
of such assets; and (2) the recipient corporation has its commercial domicile in
Texas. Although there were attempts made ruing the 1997 legislative session to
extend the franchise tax to entities other than corporations and limited
liability companies, no such changes occurred then or during the 1999
legislative session.
The shares of the Series are not subject to property taxation by Texas
or its political subdivisions.
VIRGINIA SERIES. Subject to the provisions discussed below, dividends
paid to shareholders and derived from interest on obligations of the
Commonwealth of Virginia or of any political subdivision or instrumentality of
the Commonwealth or derived from interest or dividends on obligations of the
United States excludable from Virginia taxable income under the laws of the
United States, which obligations are issued in the exercise of the borrowing
power of the Commonwealth or the United States and are backed by the full faith
and credit of the Commonwealth or the United States, will be exempt from
Virginia income tax. Dividends paid to shareholders by the Series and derived
from interest on debt obligations of certain territories and possessions of the
United States (those issued by Puerto Rico, the Virgin Islands and Guam) will be
exempt from Virginia income tax. To the extent any portion of the dividends are
derived from interest on debt obligations other than those described above, such
portion will be subject to Virginia income tax even though it may be excludable
from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Series and
derived from capital gains will be taxable to the shareholders. To the extent
any portion of the dividends are derived from taxable interest for Virginia
purposes or from net short-term capital gains, such portion will be taxable to
the shareholders as ordinary income. The character of long-term capital gains
realized and distributed by the Series will flow through to its shareholders
regardless of how long the shareholders have held their shares. Capital gains
distributed to shareholders derived from Virginia obligations issued pursuant to
special Virginia enabling legislation that provides a specific exemption for
such gains will be exempt from Virginia income tax. Generally, interest on
indebtedness incurred by shareholders to purchase or carry shares of the Fund
will not be deductible for Virginia income tax purposes.
As a regulated investment company, the Series may distribute dividends
that are exempt from Virginia income tax to its shareholders if the Series
satisfies all requirements for conduit treatment under Federal law and, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets consists of obligations the interest on which is exempt from
taxation under Federal law. If the Series fails to qualify, no part of its
dividends will be exempt from Virginia income tax.
When taxable income of a regulated investment company is commingled
with exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Series receives taxable income, the Series must determine the portion of income
that is exempt from Virginia income tax and provide such information to the
shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Series.
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 and may be selected
based upon their sales of shares of the Series or other funds managed, advised
or administered by the Manager or its affiliates.
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.
Each Series anticipates that its annual portfolio turnover rate
generally will not exceed 100%, but the turnover rate will not be a limiting
factor when a Series deems it desirable to sell or purchase securities.
Therefore, depending upon market conditions, a Series' annual portfolio turnover
rate may exceed 100% in particular years.
PERFORMANCE INFORMATION
The current yield for the 30-day period ended April 30, 1999, for
Class A, Class B and Class C of each Series was as follows:
CURRENT NET OF ABSORBED
NAME OF SERIES YIELD EXPENSES(1)
- -------------- ----- ----------
CLASS A:
- -------
Connecticut Series 3.84% -
Florida Series 3.74 -
Georgia Series 3.59 -
Maryland Series 4.17 -
Massachusetts Series 3.67 -
Michigan Series 3.62 -
Minnesota Series 3.89 -
New Jersey Series 3.78 -
North Carolina Series 3.83 -
Ohio Series 3.72 -
Pennsylvania Series 4.06 -
Texas Series 3.87 3.79%
Virginia Series 4.11 -
- ----------------------------
1 This column sets forth current yield had certain expenses for the indicated
Series not been absorbed.
CURRENT NET OF ABSORBED
NAME OF SERIES YIELD EXPENSES(1)
- -------------- ----- ---------
CLASS B:
- -------
Connecticut Series 3.50% -
Florida Series 3.42 -
Georgia Series 3.25 -
Maryland Series 3.83 -
Massachusetts Series 3.33 -
Michigan Series 3.34 -
Minnesota Series 3.57 -
New Jersey Series 3.45 -
North Carolina Series 3.50 -
Ohio Series 3.39 -
Pennsylvania Series 3.74 -
Texas Series 3.55 3.45%
Virginia Series 3.79 -
- -----------
1 This column sets forth current yield had certain expenses for the indicated
Series not been absorbed.
CURRENT NET OF ABSORBED
NAME OF SERIES YIELD EXPENSES(1)
- -------------- ----- ----------
CLASS C:
- -------
Connecticut Series 3.25% -
Florida Series 3.09 -
Georgia Series 3.17 -
Maryland Series 3.61 -
Massachusetts Series 3.07 -
Michigan Series 3.08 -
Minnesota Series 3.26 -
New Jersey Series 3.18 -
North Carolina Series 3.28 -
Ohio Series 3.09 -
Pennsylvania Series 3.44 -
Texas Series 3.24 3.17%
Virginia Series 3.57 -
- ----------------------------
1 This column sets forth current yield had certain expenses for the indicated
Series not been absorbed.
Current yield is computed pursuant to a formula which operates as follows: The
amount of each Series' 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 Series
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 (or maximum offering price in
the case of Class A) 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 the 1999 combined (except where noted) Federal and
applicable State tax rate specified below, the tax equivalent yield for the
30-day period ended April 30, 1999 for Class A, Class B and Class C of each
Series was as follows:
TAX EQUIVALENT NET OF ABSORBED
NAME OF SERIES TAX RATE YIELD EXPENSES(1)
- -------------- -------- ----- ----------
CLASS A:
- -------
Connecticut Series 42.32% 6.66% -
Florida Series (2) 39.60 6.19 -
Georgia Series 43.22 6.32 -
Maryland Series 42.53 7.26 -
Massachusetts Series 43.19 6.46 -
Michigan Series 42.26 6.27 -
Minnesota Series 44.73 7.04 -
New Jersey Series 43.45 6.68 -
North Carolina Series 44.28 6.87 -
Ohio Series 43.71 6.61 -
Pennsylvania Series 44.12 7.27 -
Texas Series (2) 39.60 6.41 6.27%
Virginia Series 43.07 7.22 -
- -----------------
1 This column sets forth tax equivalent yield had certain expenses for the
indicated Series not been absorbed.
2 Federal tax rate only. No state personal income tax imposed during 1999.
<PAGE>
TAX EQUIVALENT NET OF ABSORBED
NAME OF SERIES TAX RATE YIELD EXPENSES(1)
- -------------- -------- ----- ----------
CLASS B:
- -------
Connecticut Series 42.32% 6.07% -
Florida Series (2) 39.60 5.66 -
Georgia Series 43.22 5.72 -
Maryland Series 42.53 6.66 -
Massachusetts Series 43.19 5.86 -
Michigan Series 42.26 5.78 -
Minnesota Series 44.73 6.46 -
New Jersey Series 43.45 6.10 -
North Carolina Series 44.28 6.28 -
Ohio Series 43.71 6.02 -
Pennsylvania Series 44.12 6.69 -
Texas Series (2) 39.60 5.88 5.71%
Virginia Series 43.07 6.66 -
- ---------------------------
1 This column sets forth tax equivalent yield had certain expenses for the
indicated Series not been absorbed.
2 Federal tax rate only. No state personal income tax imposed during 1999.
TAX EQUIVALENT NET OF ABSORBED
NAME OF SERIES TAX RATE YIELD EXPENSES(1)
- -------------- -------- ----- ----------
CLASS C:
- -------
Connecticut Series 42.32% 5.63% -
Florida Series(2) 39.60 5.12 -
Georgia Series 43.22 5.58 -
Maryland Series 42.53 6.28 -
Massachusetts Series 43.19 5.40 -
Michigan Series 42.26 5.33 -
Minnesota Series 44.73 5.90 -
New Jersey Series 43.45 5.62 -
North Carolina Series 44.28 5.89 -
Ohio Series 43.71 5.49 -
Pennsylvania Series 44.12 6.16 -
Texas Series(2) 39.60 5.36 5.25%
Virginia Series 43.07 6.27 -
- -----------
1 This column sets forth tax equivalent yield had certain expenses for the
indicated Series not been absorbed.
2 Federal tax rate only. No state personal income tax imposed during 1999.
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 Series that
is not tax-exempt.
The tax equivalent yield noted above represents the application of the
highest marginal personal tax rates currently in effect. For Federal personal
income tax purposes, a 39.60% 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 yields. 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.
The average annual total return for the periods indicated for Class A
of each Series was as follows:
<TABLE>
<CAPTION>
1-YEAR PERIOD 5-YEAR PERIOD 10-YEAR PERIOD
NAME OF SERIES ENDED APRIL 30, 1999 ENDED APRIL 30, 1999 ENDED APRIL 30, 1999
- -------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Connecticut Series 1.86% 6.06% 7.07%
Florida Series 0.26 4.98 6.86
Georgia Series 0.99 5.75 6.01 (1)
Maryland Series 1.04 6.17 7.23
Massachusetts Series 1.34 5.73 7.05
Michigan Series 1.10 5.97 7.37
Minnesota Series 0.67 5.46 6.89
New Jersey Series 0.74 5.55 -
North Carolina Series 0.84 6.27 7.05 (2)
Ohio Series 0.93 5.64 7.25
Pennsylvania Series 1.18 6.37 7.66
Texas Series 0.91 6.83 8.02
Virginia Series 1.20 6.56 7.41 (2)
- --------------------
1 For the 6.66 year period ended April 30, 1999.
2 For the 7.75 year period ended April 30, 1999.
</TABLE>
The average annual total return for the periods indicated since the
initial offering for Class B of each Series was as follows:
<TABLE>
<CAPTION>
1-YEAR PERIOD 5-YEAR PERIOD 6.290-YEAR PERIOD
NAME OF SERIES ENDED APRIL 30, 1999 ENDED APRIL 30, 1999 ENDED APRIL 30, 1999
- -------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Connecticut Series 2.15% 6.19% 6.12%
Florida Series 0.44 5.10 5.27
Georgia Series 1.29 5.90 5.96
Maryland Series 1.24 6.27 6.08
Massachusetts Series 1.48 5.85 5.85
Michigan Series 1.30 6.08 6.30
Minnesota Series 0.86 5.57 5.68
New Jersey Series 1.08 5.68 -
North Carolina Series 1.10 6.39 6.13
Ohio Series 1.19 5.74 5.94
Pennsylvania Series 1.46 6.48 6.42
Texas Series 1.19 6.96 6.92
Virginia Series 1.46 6.69 6.43
</TABLE>
The average annual total return for the periods indicated since the
initial offering for Class C of each Series was as follows:
1-YEAR PERIOD 3.710-YEAR PERIOD
NAME OF SERIES ENDED APRIL 30, 1999 ENDED APRIL 30, 1999
- -------------- -------------------- --------------------
Connecticut Series 4.88% 6.55%
Florida Series 3.14 4.68
Georgia Series 3.59 5.66
Maryland Series 3.94 6.36
Massachusetts Series 4.28 6.12
Michigan Series 4.08 6.23
Minnesota Series 3.53 5.39
New Jersey Series 3.67 4.41 (1)
North Carolina Series 4.02 6.96
Ohio Series 3.93 6.03
Pennsylvania Series 4.16 6.68
Texas Series 3.87 7.03
Virginia Series 4.20 6.90
- ------------
1 For the 3.41 year period ended April 30, 1999.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value (maximum offering
price in the case of Class A) per share 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. A Class' average annual total return figures
calculated in accordance with such formula assume that in the case of Class A
the maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase or in the case of Class B or Class C the
maximum applicable CDSC has been paid upon redemption at the end of the period.
The total return for the period May 28, 1987 through April 30, 1999
(except where indicated) for Class A of each Series was as follows:
BASED ON MAXIMUM BASED ON NET ASSET
NAME OF SERIES OFFERING PRICE VALUE
- -------------- ----------------- ------------------
Connecticut Series 130.94% 141.85%
Florida Series 153.26 165.29
Georgia Series (1) 47.52 54.48
Maryland Series 118.01 128.30
Massachusetts Series 117.70 127.92
Michigan Series 157.00 169.03
Minnesota Series 133.41 144.48
New Jersey Series (2) 30.93 37.10
North Carolina Series (3) 69.49 77.54
Ohio Series 88.12 96.92
Pennsylvania Series (4) 136.35 147.53
Texas Series 203.34 217.62
Virginia Series (3) 73.99 82.20
- -------------
1 For the period from September 3, 1992 (commencement of operations) through
April 30, 1999.
2 For the period from May 4, 1994 (commencement of operations) through April
30, 1999.
3 For the period from August 1, 1991 (commencement of operations) through
April 30, 1999.
4 For the period from July 30, 1987 (commencement of operations) through
April 30, 1999.
<PAGE>
The total return for the period January 15, 1993 to April 30, 1999
(except where indicated) for Class B of each Series was as follows:
BASED ON NET ASSET BASED ON
NAME OF SERIES VALUE MAXIMUM CDSC
- -------------- ------------------ ------------
Connecticut Series 45.27% 45.27%
Florida Series 38.17 38.17
Georgia Series 43.96 43.96
Maryland Series 44.93 44.93
Massachusetts Series 42.99 42.99
Michigan Series 46.89 46.89
Minnesota Series 41.57 41.57
New Jersey Series (1) 33.75 31.75
North Carolina Series 45.37 45.37
Ohio Series 43.73 43.73
Pennsylvania Series 47.87 47.87
Texas Series 52.29 52.29
Virginia Series 48.00 48.00
- --------------
1 For the period May 4, 1994 (commencement of operations) to April 30, 1999.
The total return for the period August 15, 1995 to April 30, 1999
(except where indicated) for Class C of each Series was as follows:
NAME OF SERIES BASED ON NET ASSET VALUE*
- ------------- -------------------------
Connecticut Series 26.52%
Florida Series 18.50
Georgia Series 22.66
Maryland Series 25.71
Massachusetts Series 24.64
Michigan Series 25.13
Minnesota Series 21.52
New Jersey Series (1) 15.85
North Carolina Series 28.33
Ohio Series 24.28
Pennsylvania Series 27.10
Texas Series 28.68
Virginia Series 28.09
- ---------------
* No CDSC is charged Class C shares after one year of purchase.
1 For the period December 4, 1995 (commencement of operations) to April 30,
1999.
Total return is calculated by subtracting the amount of the Series'
net asset value (maximum offering price in the case of Class A) 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 period and any applicable CDSC), and dividing the
result by the net asset value (maximum offering price in the case of Class A)
per share at the beginning of the period. Total return also may be calculated
based on the net asset value per share at the beginning of the period for Class
A shares or without giving effect to any applicable CDSC at the end of the
period for Class B or Class C shares. In such cases, the calculation would not
reflect the deduction of the sales load with respect to Class A shares or any
applicable CDSC with respect to Class B or Class C shares which, if reflected,
would reduce the performance quoted.
On March 31, 1997, the New Jersey Series commenced operations through
a transfer of assets from the New Jersey Series of Premier Insured Municipal
Bond Fund (the "Insured New Jersey Fund"). The performance information provided
above for periods prior to such date for the New Jersey Series is for the
Insured New Jersey Fund and reflects the fact that for such periods, the Insured
New Jersey Fund was required to invest (i) at least 65% of the value of its
total assets in Municipal Obligations insured as to timely payment of principal
and interest by recognized insurers of Municipal Obligations and (ii) in
Municipal Obligations rated no lower than Baa by Moody's or BBB by S&P and
Fitch.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be used
for illustrative purposes only and not as being representative of the Fund's
past or future performance.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical Services,
Inc., Moody's Bond Survey Bond Index, Lehman Brothers Municipal Bond Index,
Morningstar, Inc. and other industry publications. Advertising materials for the
Fund may refer to or discuss then-current or past economic conditions,
developments and/or events, including those relating to actual or proposed tax
legislation. From time to time, advertising materials for the Fund also may
refer to statistical or other information concerning trends relating to
investment companies, as compiled by industry associations such as the
Investment Company Institute, and to Morningstar ratings and related analysis
supporting such ratings.
The Fund may compare its performance, directly as well as against
inflation, with that of other instruments, such as short-term Treasury bills
(which are direct obligations of the U.S. Government), FDIC-insured bank money
market accounts and FDIC-insured fixed-rate certificates of deposit. In
addition, advertising for the Fund may indicate that investors may consider
diversifying their investment portfolios in order to seek protection of the
value of their assets against inflation.
From time to time, advertising materials for the Fund may include
biographical information relating to its portfolio managers and may refer to, or
include commentary by a portfolio manager relating to an investment strategy,
asset growth, current or past business, political, economic or financial
conditions and other matters of general interest to investors.
INFORMATION ABOUT THE FUND
Each share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Shares have no
preemptive or subscription rights and are freely transferable.
The Fund is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts. Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Fund. However, the Fund's Agreement and Declaration of Trust
(the "Trust Agreement") disclaims shareholder liability for acts or obligations
of the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from a Series'
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Series. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Series itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any liability
incurred by the Series, the shareholder paying such liability will be entitled
to reimbursement from the general assets of the Series. The Fund intends to
conduct its operations in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Series.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Board members or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Board member from office.
Shareholders may remove a Board member by the affirmative vote of two-thirds of
the Fund's outstanding voting shares. In addition, the Board will call a meeting
of shareholders for the purpose of electing Board members if, at any time, less
than a majority of the Board members then holding office have been elected by
shareholders.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For certain
matters shareholders vote together as a group; as to others they vote separately
by portfolio.
To date, the Board has authorized the creation of thirteen Series of
shares. All consideration received by the Fund for shares of one of the Series,
and all assets in which such consideration is invested, will belong to that
Series (subject only to the rights of creditors of the Fund) and will be subject
to the liabilities related thereto. The income attributable to, and the expenses
of, one Series would be treated separately from those of the other Series. The
Fund has the ability to create, from time to time, new series without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of any investment
company, such as the Fund, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by such matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the interests
of each series in the matter are identical or that the matter does not affect
any interest of such series. However, the rule exempts the selection of
independent accountants and the election of Board members from the separate
voting requirements of the rule.
Each Series is intended to be a long-term investment vehicle and is
not designed to provide investors with a means of speculating on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Series' performance and its shareholders. Accordingly, if the
Fund's management determines that an investor is following a market-timing
strategy or is otherwise engaging in excessive trading, the Fund, with or
without prior notice, may temporarily or permanently terminate the availability
of Fund Exchanges, or reject in whole or part any purchase or exchange request,
with respect to such investor's account. Such investors also may be barred from
purchasing other funds in the Dreyfus Family of Funds. Generally, an investor
who makes more than four exchanges out of a Series during any calendar year or
who makes exchanges that appear to coincide with a market-timing strategy may be
deemed to be engaged in excessive trading. Accounts under common ownership or
control will be considered as one account for purposes of determining a pattern
of excessive trading. In addition, the Fund may refuse or restrict purchase or
exchange requests for shares by any person or group if, in the judgment of the
Fund's management, the Series would be unable to invest the money effectively in
accordance with its investment objective and policies or could otherwise be
adversely affected or if the Series receives or anticipates receiving
simultaneous orders that may significantly affect the Series (e.g., amounts
equal to 1% or more of the Series' total assets). If an exchange request is
refused, the Fund will take no other action with respect to the shares until it
receives further instructions from the investor. A Series may delay forwarding
redemption proceeds for up to seven days if the investor redeeming shares is
engaged in excessive trading or if the amount of the redemption request
otherwise would be disruptive to efficient portfolio management or would
adversely affect the Series. The Fund's policy on excessive trading applies to
investors who invest in a Series directly or through financial intermediaries,
but does not apply to the Auto-Exchange Privilege, to any automatic investment
or withdrawal privilege described herein, or to participants in
employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components -- redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Series' next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
To offset the relatively higher costs of servicing smaller accounts,
the Fund will charge regular accounts with balances below $2,000 an annual fee
of $12. The valuation of accounts and the deductions are expected to take place
during the last four months of each year. The fee will be waived for any
investor whose aggregate Dreyfus mutual fund investments total at least $25,000,
and will not apply to IRA accounts or to accounts participating in automatic
investment programs or opened through a securities dealer, bank or other
financial institution, or to other fiduciary accounts.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
The Manager's legislative efforts led to the 1976 Congressional
Amendment to the Code permitting an incorporated mutual fund to pass through tax
exempt income to its shareholders. The Manager offered to the public the first
incorporated tax exempt fund and currently manages or administers over $24
billion in tax exempt assets.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to each Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as independent auditors of the Company.
<PAGE>
APPENDIX A
RISK FACTORS -- INVESTING
IN STATE MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based primarily on information
drawn from official statements relating to securities offerings of the relevant
State 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 respects.
Connecticut Series.......................................... B-78
Florida Series.............................................. B-81
Georgia Series.............................................. B-86
Maryland Series............................................. B-91
Massachusetts Series........................................ B-93
Michigan Series............................................. B-95
Minnesota Series............................................ B-100
New Jersey Series........................................... B-106
North Carolina Series....................................... B-108
Ohio Series................................................. B-114
Pennsylvania Series......................................... B-123
Texas Series................................................ B-133
Virginia Series............................................. B-141
CONNECTICUT SERIES
Manufacturing has historically been of prime economic importance to
Connecticut. The State's manufacturing industry is diversified, with
transportation equipment (primarily aircraft engines, helicopters and
submarines) as the dominant industry, followed by fabricated metals,
non-electrical machinery, and electrical equipment. As a result of a rise in
employment in service-related industries and a decline in manufacturing
employment, however, manufacturing accounted for only 17.09% of total
non-agricultural employment in Connecticut in 1997. Defense-related business
represents a relatively high proportion of the manufacturing sector. On a per
capita basis, defense awards to Connecticut have traditionally been among the
highest in the nation, and reductions in defense spending have had a substantial
adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a
low of 3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.8% in 1996. Average
per capita personal income of Connecticut residents increased in every year from
1989 to 1997, rising from $25,443 to $36,434. However, pockets of significant
unemployment and poverty exist in several Connecticut cities and towns.
At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the seven fiscal years
ended June 30, 1998, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, $262,600,000, and
$312,900,000, respectively. As a result of legislative action in the final month
of the 1998-1999 fiscal year substantially increasing expenditures, a General
Fund surplus of only $31,000,000 for the year is expected. General Fund budgets
adopted for the biennium ending June 30, 2001, authorize expenditures of
$10,581,600,000 for the 1999-2000 fiscal year and $11,085,200,000 for the
2000-2001 fiscal year and project surpluses of $64,400,000 and $4,800,000,
respectively, for those years.
During 1991 the State issued a total of $965,710,000 Economic Recovery
Notes. The notes were to be payable no later than June 30, 1996, but as part of
the budget adopted for the biennium ended June 30, 1997, payment of the notes
scheduled to be paid during the 1995-1996 fiscal year was rescheduled to be made
over the four fiscal years ending June 30, 1999. The outstanding notes were
$78,055,000 as of December 1, 1998.
The State's primary method for financing capital projects is through
the sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of December 1, 1998, the State had authorized direct
general obligation bond indebtedness totaling $12,398,200,000, of which
$11,057,371,000 had been approved for issuance by the State Bond Commission and
$9,814,857,000 had been issued. As of December 1, 1998, net State direct general
obligation bond indebtedness outstanding was $6,837,131,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University was authorized to issue bonds totaling $962,000,000
by June 30, 2005, that are secured by a State debt service commitment to finance
the improvements.
In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the following
quasi-public agencies: the Connecticut Housing Finance Authority, the
Connecticut Development Authority, the Connecticut Higher Education Supplemental
Loan Authority, the Connecticut Resources Recovery Authority and the Connecticut
Health and Educational Facilities Authority. Such bonds have also been issued by
the cities of Bridgeport and West Haven and the Southeastern Connecticut Water
Authority. As of December 1, 1998, the amount of bonds outstanding on which the
State has limited or contingent liability totaled $4,054,900,000.
In 1984, the State established a program to plan, construct and
improve the State's transportation system (other than Bradley International
Airport). The total cost of the program through June 30, 2002, is currently
estimated to be $12.6 billion, to be met from federal, state, and local funds.
The State expects to finance most of its $5.1 billion share of such cost by
issuing $4.6 billion of special tax obligation ("STO") bonds. The STO bonds are
payable solely from specified motor fuel taxes, motor vehicle receipts, and
license, permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
The State's general obligation bonds are rated "Aa3" by Moody's and
"AA" by Fitch. On October 8, 1998, Standard & Poor's upgraded its rating of the
State's general obligation bonds from "AA-" to "AA."
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have a significant impact on the State's financial
position: (i) an action on behalf of all persons with traumatic brain injury who
have been placed in certain State hospitals, and other persons with acquired
brain injury who are in the custody of the Department of Mental Health and
Addiction Services, claiming that their constitutional rights are violated by
placement in State hospitals alleged not to provide adequate treatment and
training, and seeking placement in community residential settings with
appropriate support services; (ii) litigation involving claims by Indian tribes
to portions of the State's land area; (iii) an action by certain students and
municipalities claiming that the State's formula for financing public education
violates the State's Constitution and seeking a declaratory judgment and
injunctive relief; and (iv) an action for money damages for the death of a young
physician killed in an automobile accident allegedly as a result of negligence
of the State.
As a result of litigation on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" within the
Greater Hartford metropolitan area, on July 9, 1996, the State Supreme Court
directed the legislature to develop appropriate measures to remedy the racial
and ethnic segregation in the Hartford public schools. The Superior Court
recently ordered the State to show cause as to whether there has been compliance
with the Supreme Court's ruling. The fiscal impact of this decision might be
significant but is not determinable at this time.
The State's Department of Information Technology is reviewing the
State's Year 2000 exposure and developing plans for modification or replacement
of existing software that it believes will prevent significant operations
problems. There is a risk that the plan will not be completed on time, that
planned testing will not reveal all problems, or that systems of others on whom
the State relies will not be updated in a timely manner. If the necessary
remediations are not completed in a timely fashion, the Year 2000 problem may
have a material impact on the operations of the State.
General obligation bonds issued by municipalities are payable
primarily from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the control
of the municipality, including the decline in Connecticut's manufacturing
industry. Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits. The most
notable of these is the City of Bridgeport, which filed a bankruptcy petition on
June 7, 1991. The State opposed the petition. The United States Bankruptcy Court
for the District of Connecticut held that Bridgeport had authority to file such
a petition but that its petition should be dismissed on the grounds that
Bridgeport was not insolvent when the petition was filed. State legislation
enacted in 1993 prohibits municipal bankruptcy filings without the prior written
consent of the Governor.
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
Regional economic difficulties, reductions in revenues and increases
in expenses could lead to further fiscal problems for the State and its
political subdivisions, authorities and agencies. Difficulties in payment of
debt service on borrowings could result in declines, possibly severe, in the
value of their outstanding obligations, increases in their future borrowing
costs, and impairment of their ability to pay debt service on their obligations.
FLORIDA SERIES
REVENUES AND EXPENDITURES. Financial operations of the State of
Florida covering all receipts and expenditures are maintained through the use of
three funds: General Revenue Fund, Trust Funds and Working Capital Fund. The
General Revenue Fund receives the majority of State tax revenues. The Trust
Funds consist of monies received by the State which under law or trust agreement
are segregated for a purpose authorized by law. Revenues in the General Revenue
Fund which are in excess of the amount needed to meet appropriations may be
transferred to the Working Capital Fund. Beginning in 1993-94, the Florida
Constitution requires that the State establish a Budget Stabilization Fund. This
fund is to contain a balance of at least 1% of the previous year's net General
Revenue collections in 1994-95, 2% in 1995-96, 3% in 1996-97, 4% in 1997-98 and
5% in 1998-99 and thereafter. These monies can be only spent for the purpose of
covering revenue shortfalls and for emergency purposes as defined by general
law. Implementing legislation establishing this fund was enacted during the 1994
Session of the Florida legislature.
In November of 1994, Florida voters approved an amendment to the
Florida Constitution which set forth limitations on revenue collections by the
State. With certain exceptions, State revenues collected for any fiscal year are
limited to State revenues allowed under the amendment for the prior fiscal year
plus an adjustment for growth.
As used in the amendment, "growth" means an amount equal to the
average annual rate of growth in Florida personal income over the most recent
twenty quarters times the State revenues allowed under the amendment for the
prior fiscal year. For the 1996-1997 fiscal year, the State revenues allowed
under the amendment for the prior fiscal year shall equal the State revenues
collected for the 1995-1996 fiscal year. Florida personal income will be
determined by the Legislature, from information available from the United States
Department of Commerce or its successor on the first day of February prior to
the beginning of the fiscal year. State revenues collected for any fiscal year
in excess of this limitation will be transferred to the Budget Stabilization
Fund until the fund reaches the maximum balance specified above, and thereafter
shall be refunded to taxpayers as provided by general law. State revenues
allowed under the amendment for any fiscal year may be increased by a two-thirds
vote of the membership of each house of the Florida Legislature.
For purposes of the amendment, "State revenues" means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, "State revenues" does
not include: revenues that are necessary to meet the requirements set forth in
documents authorizing the issuance of bonds by the State; revenues that are used
to provide matching funds for the federal Medicaid program with the exception of
the revenues used to support the Public Medical Assistance Trust Fund or its
successor program and with the exception of State matching funds used to fund
elective expansions made after July 1, 1994; proceeds from the State Lottery
returned as prizes; receipts of the Florida Hurricane Catastrophe Fund; balances
carried forward from prior fiscal years; taxes, licenses, fees and charges for
services imposed by local, regional, or school district governing bodies; or
revenue from taxes, licenses, fees and charges for services required to be
imposed by any amendment or revision to the State Constitution after July 1,
1994. An adjustment to the revenue limitation will be made by general law to
reflect the fiscal impact of transfers of responsibility for the funding of
governmental functions between the State and other levels of government.
The amendment became effective January 1, 1995.
The Florida Constitution and Statutes mandate that the State budget as
a whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each State fiscal year.
Florida ended fiscal years 1996-97 and 1997-98 with General Revenue
plus Working Capital Funds unencumbered reserves of approximately $440.5 million
and $744.0 million, respectively. Estimated fiscal year 1997-98 General Revenue
plus Working Capital Funds available total $22.6 billion. Total effective
appropriations for the 1998-99 fiscal year are estimated at $21.7 billion,
resulting in estimated unencumbered reserves of $900.0 million at the end of the
fiscal year.
In fiscal year 1997-98, the State derived approximately 60% of its
total direct revenues from the General Revenue Fund, Trust Funds and Working
Capital Fund from State taxes. Federal grants and other special revenues
accounted for the remaining revenues. Major sources of tax revenues to the
General Revenue Fund are the sales and use tax, corporate income tax, and
beverage tax, which amounted to 61%, 6% and 2.5%, respectively, of total General
Revenue Fund receipts.
State expenditures are categorized for budget and appropriation
purposes by type of fund and spending unit, which are further subdivided by line
item. In fiscal year 1997-98, expenditures from the General Revenue Fund for
education, health and welfare and public safety amounted to approximately 28%,
35% and 7%, respectively, of total General Revenues.
SALES AND USE TAX. The greatest single source of tax receipts in
Florida is the sales and use tax. The sales tax is 6% of the sales price of
tangible property sold at retail in the State. The use tax is 6% of the cost
price of tangible personal property when the same is not sold but is used, or
stored for use, in the State. The use tax also applies to the use in the State
of tangible personal property purchased outside Florida which would have been
subject to the sales tax if purchased from a Florida dealer. Less than 10% of
the sales tax is designated for local governments and is distributed to the
respective counties in which it is collected for use by such counties and
municipalities therein. In addition to this distribution, local governments may
(by referendum) assess a .5% or 1% discretionary sales surtax within their
county. Proceeds from this local option sales tax are earmarked for funding
local infrastructure programs and acquiring land for public recreation or
conservation or protection of natural resources. In addition, non-consolidated
counties with populations in excess of 800,000 may levy a local option sales tax
to fund indigent health care. This tax rate may not exceed .5% and the combined
levy of the indigent health care surtax and the infrastructure surtax described
above may not exceed 1%. Furthermore, charter counties which adopted a charter
prior to June 1, 1976, and each county with a consolidated county/municipal
government, may (by referendum) assess up to a 1% discretionary sales surtax
within their county. Proceeds from this tax are earmarked for the development,
construction, maintenance and operation of a fixed guideway rapid transit system
or may be remitted to an expressway or transportation authority for use on
country roads and bridges, for a bus system, or to service bonds financing roads
and bridges. The two taxes, sales and use, stand as complements to each other,
and taken together provide a uniform tax upon either the sale at retail or the
use of all tangible personal property irrespective of where it may have been
purchased. This tax also includes a levy on the following: (i) rentals of
tangible personal property, transient lodging and non-residential real property;
(ii) admissions to places of amusements, most sports and recreation events;
(iii) utilities, except those used in homes; and (iv) restaurant meals.
Exemptions include: groceries; medicines; hospital rooms and meals; fuels used
to produce electricity; purchases by religious, charitable and educational
nonprofit institutions; most professional, insurance and personal service
transactions; apartments used as permanent dwellings; the trade-in value of
motor vehicles; and residential utilities.
All receipts of the sales and use tax, with the exception of the tax
on gasoline and special fuels, are credited to either the General Revenue Fund,
the Solid Waste Management Trust Fund, or countries and cities. For the State
fiscal year which ended June 30, 1998, receipts from this source were $13.349
billion, an increase of 10% from fiscal year 1996-97.
FUELS SALE TAX. The second largest source of State tax receipts is the
tax on fuel sales. Preliminary data show collections from this source in the
State fiscal year ended June 30, 1998, were $1.518 billion. However, these
revenues are almost entirely dedicated trust funds for specific purposes and are
not included in the State General Revenue Fund.
State and local taxes on motor fuels (gasoline and special fuel)
include several distinct fuel taxes: (i) the State fuels sales tax levied at a
rate calculated by The State Department of Revenue by adjusting the 1997 base
rate of 6.9 cents per gallon by the percentage change in the CPI for the most
recent 12 month period ending September 30, compared to the base year average
which is the average for the 12 month period ending September 30, 1989. For
Calendar Year 1998 the rate was nine cents per gallon; for Calendar Year 1999
the rate is 9.1 cents per gallon; (ii) the State excise tax of four cents per
gallon of motor fuel, proceeds distributed to local governments; (iii) the State
Comprehensive Enhanced Transportation System (SCETS) tax, which is levied at a
rate in each county equal to two-thirds of the sum of the county's local option
motor fuel taxes; and (iv) local option motor fuel taxes, which may range
between one cent to seven cents per gallon.
ALCOHOLIC BEVERAGE TAX. Florida's alcoholic beverage tax is an excise
tax on beer, wine, and liquor. This tax is one of the State's major tax sources,
with revenues totaling $566.2 million in State fiscal year ended June 30, 1998.
Alcoholic beverage receipts declined from the previous year's total. The
revenues collected from this tax are deposited into the State's General Revenue
Fund.
CORPORATE INCOME TAX. Pursuant to an amendment to the State
Constitution, the State Legislature adopted, effective January 1, 1972, the
"Florida Income Tax Code" imposing a tax upon the net income of corporations,
organizations, associations and other artificial entities for the privilege of
conducting business, deriving income or existing within the State. This tax does
not apply to natural persons who engage in a trade or business or profession
under their own or any fictitious name, whether individually as proprietorships
or in partnerships with others, estates of decedents or incompetents, or
testamentary trusts.
The tax is imposed in an amount equal to 5.5% of the taxpayer's net
corporate income for the taxable year, less a $5,000 exemption, as defined in
such Code. Net income is defined by the Code as that share of a taxpayer's
adjusted Federal income for such year which is apportioned to the State of
Florida. Apportionment is by weighted factors of sales (50%), property (25%) and
payroll (25%). All business income is apportioned and non-business income is
allocated to a single jurisdiction, usually the State of commercial domicile.
All receipts of the corporate income tax are credited to the General
Revenue Fund. For the fiscal year ended June 30, 1998, receipts from this source
were $1.395 billion, an increase of 3% from fiscal year 1996-97.
DOCUMENTARY STAMP TAX. Deeds and other documents relating to a realty
are taxed at 70 cents per $100 of consideration, while corporate shares, bonds,
certificates of indebtedness, promissory notes, wage assignments and retail
charge accounts are taxed at 35 cents per $100 of consideration. Documentary
stamp tax collections totaled $1.005 billion during fiscal year 1997-98, posting
a 16% increase from the previous fiscal year. The General Revenue Fund receives
approximately 2% of documentary stamp tax collections.
GROSS RECEIPTS TAX. Effective July 1, 1992, the tax rate was increased
from 2.25% to 2.5% of the gross receipts of electric, natural gas and
telecommunications services. All gross receipts utilities collections are
credited to the Public Education Capital Outlay and Debt Service Trust Fund. In
fiscal year 1997-98, gross receipts utilities tax collections totaled $638.0
million, an increase of 5% over the previous fiscal year.
INTANGIBLE PERSONAL PROPERTY TAX. This tax is levied on two distinct
bases: (i) stocks, bonds, including bonds secured by Florida realty, notes,
government leaseholds, interests in limited partnerships registered with the
SEC, and other miscellaneous intangible personal property not secured by liens
on Florida realty are taxed annually at a rate of 2 mills, (ii) mortgages and
other obligations secured by liens on Florida realty, taxed with a non-recurring
2 mill tax.
Of the tax proceeds, 33.5% is distributed to the Municipal Revenue
Sharing Trust Fund. The remainder is distributed to the General Reserve Fund.
Fiscal year 1997-98 total intangible personal property tax collections
were $1.164 billion, a 16% increase over the prior year.
SEVERANCE TAXES. The severance tax includes the taxation of oil, gas
and sulfur production and a tax on the severance of primarily phosphate rock and
other solid minerals. Collections from severance taxes totaled $61.269 million
during fiscal year 1997-98, down 5% from the previous fiscal year.
LOTTERY. The 1987 Legislature created the Department of the Lottery to
operate the State Lottery and setting forth the allocation of the revenues. Of
the revenues generated by the Lottery, 50% is to be returned to the public as
prizes; at least 38% is to be deposited in the Educational Enhancement Trust
Fund (for public education); and no more than 12% can be spent on the
administrative cost of operating the lottery.
Fiscal year 1997-98 produced ticket sales of $2.057 billion of which
education received approximately $813.11 million.
GEORGIA SERIES
Georgia's economy grew rapidly in the 1980's, resulting in a general
fund reserve. Although the State's economy incurred a slowdown in the early
1990's which effectively eliminated the general fund reserve, revenues once
again began to exceed appropriations in Fiscal 1993. The State's revenue
shortfall reserve at the end of Fiscal 1998 was approximately $351.0 million,
and revenues are estimated to exceed expenditures for Fiscal 1999.
Georgia's unemployment rate was 3.9% for 1998 which is a decrease of
.5% over the State's 1997 annual average unemployment rate. The largest sectors
of Georgia's economy are wholesale and retail trade, services, manufacturing and
government.
CONSTITUTIONAL PROVISIONS. Georgia's Constitution limits the
appropriation of funds for any given fiscal year to the sum of the amount of
unappropriated surplus expected to have accrued at the beginning of the fiscal
year and an amount not greater than the total receipts anticipated, less
refunds, as estimated. The State Constitution provides for supplementary
appropriations in accordance with its provisions as well.
Georgia may incur public debt to fund a temporary deficit due to a
delay in collecting the taxes of that fiscal year. Such debt may not exceed, in
the aggregate, 5% of the total revenue receipts, less refunds, in the fiscal
year immediately preceding the year in which such debt is incurred. The debt
incurred is to be repaid on or before the last day of the fiscal year in which
it is incurred out of taxes levied for that fiscal year. No such debt may be
incurred in any fiscal year under this provision if there is then outstanding
unpaid debt from any previous fiscal year which was incurred to supply a
temporary deficit. No such debt has been incurred under this provision since its
inception.
The State Constitution also provides that the State may incur debt for
three types of public purposes: (i) debt to "repel invasion, suppress
insurrection, and defend the State in time of war;" (ii) general obligation debt
and (iii) guaranteed revenue debt. General obligation debt may be incurred to
acquire, construct, develop, extend, enlarge or improve land, waters,
properties, highways, buildings, structures, equipment or facilities of the
State, its agencies, departments, institutions and certain State authorities, to
provide educational facilities for county and independent school systems, to
provide public library facilities for county and independent school systems,
counties, municipalities, and boards of trustees of public libraries or boards
of trustees of public library systems, and to make loans to counties, municipal
corporations, political subdivisions, local authorities and other local
government entities for water and sewage facilities or systems. Guaranteed
revenue debt may be incurred by guaranteeing the payment of certain revenue
obligations issued by an instrumentality of the State as set forth in its
Constitution.
Georgia may not incur debt at any time when the highest aggregate
annual debt service requirements for the then current year or any subsequent
year for outstanding general obligation debt and guaranteed revenue debt,
including the proposed debt, and the highest aggregate annual payments for the
then current year or any subsequent fiscal year of the State under certain
contracts then in force, exceed 10% of the total revenue receipts, less refunds,
of the State treasury in the fiscal year immediately preceding the year in which
any such debt is to be incurred. No general obligation debt may be incurred at
any time when the term of the debt is in excess of 25 years.
The State Constitution also provides that Georgia counties,
municipalities, and other political subdivisions may not incur debt (including
debt incurred on behalf of any special district) in excess of 10% of the
assessed value of all taxable property within such county, municipality, or
political subdivisions. However, a separate provision of the State Constitution
permits certain long-term, intergovernmental contracts for services and
facilities. The Georgia Supreme Court has held that certain categories of
intergovernmental contracts give rise to payment obligations which are not
"debts" subject to the 10% debt limitation. It is possible that the
intergovernmental contracts clause could be used by local governments to justify
entering into transactions which increase their financial obligations, and such
transactions could result in increasing the credit risk associated with debt
obligations issued by such governmental units.
REVENUES AND EXPENDITURES. Georgia's major revenue sources are its
sales tax and its income tax. The State also receives revenues from its motor
fuels tax, from miscellaneous fees and sales, from other taxes (such as alcohol
taxes, the inheritance tax, and license taxes), and from the State Lottery.
Unaudited information from the Georgia Revenue Department indicates that
revenues from these sources increased 4.81% in Fiscal 1998 from Fiscal 1997, and
that these revenue sources generated the following percentages of total Georgia
State revenue in Fiscal 1998:
Sales Tax 30.9%
Income Tax 49.0%
Motor Fuels Tax 4.4%
Lottery 4.5%
Misc. Fees & Sales 5.2%
OTHER TAXES 6.0%
----------- ------
TOTAL 100.0%
State expenditures are classified by the major policy category for
budgetary purposes. In the Fiscal 1999 operating budget, Georgia expenditures
for education, human services, public safety, and transportation amounted to
56.4%, 22.8%, 8.4%, and 4.5%, respectively, of total budgeted expenditures. Debt
service for issued obligations accounts for 3.3% of total budgeted expenditures
for Fiscal 1999.
The aggregate general obligation debt and guaranteed revenue debt
authorized by the State General Assembly as of June 30, 1999 was $9.4 billion
and $200.0 million, respectively. The aggregate amount of general obligation
debt and guaranteed revenue debt actually outstanding, as of October 31, 1998,
was $5.1 billion. Of this outstanding debt, 26.5% is due and payable on or
before October 31, 2003 and 59.3% is due and payable on or before October 31,
2008.
SIGNIFICANT CONTINGENT LIABILITIES. The State from time to time is
named as a party in certain lawsuits, which may or may not have a material
adverse impact on the financial position of the State if decided in a manner
adverse to the State's interests. Certain of such lawsuits which could have a
significant impact on the State's financial position are summarized below.
ABBOTT LABORATORIES V. GEORGIA DEPARTMENT OF ADMINISTRATIVE SERVICES,
ET AL., Fulton Superior Court Civil Action No. E-65451. The plaintiff is seeking
unspecified damages against the Department of Administrative Services ("DOAS")
and the Department of Human Resources under breach of contract and promissory
estoppel theories. The case arises out of DOAS' issuance of a notice of award to
Abbott Laboratories, Ross Products Division in connection with the WIC Infant
Formula Rebate Program. The Director of State Purchasing subsequently ordered
cancellation of the notice of award and rebid because of conflicting information
that created a contradiction in the bidding specifications. The damages sought
are unspecified and speculative. Discovery is ongoing in this matter. The State
intends to file a motion for summary judgment at the close of discovery.
AGE INTERNATIONAL, INC. V. STATE (two cases), Fulton Superior Court
Civil Action No. E-3793 and Fulton Superior Court Civil Action No. E-25073. Two
suits for refund have been filed in state court against the State of Georgia by
out-of-state producers of alcoholic beverages. The first suit for refund seeks
$96.0 million in refunds of alcohol taxes, plus interest, imposed under
Georgia's post-BACCHUS (BACCHUS IMPORTS, LTD. V. HERBERT H. DIAS, DIRECTOR OF
TAXATION OF THE STATE OF HAWAII, 468 U.S. 263, 82 L.Ed.2d 200 (1984)) statute,
O.C.G.A. ss. 3-4-60, I.E., as amended in 1985. These claims constitute 99% of
all such taxes paid during the three years preceding these claims. In addition,
the claimants have filed a second suit for claims for refund of such type within
the apparently applicable statute of limitations for the years in question,
I.E., 1989 through January, 1993. The trial court has granted the State's motion
for summary judgment, and 12 of the 23 claimants have appealed to the Georgia
Supreme Court. The total principal amount of the claims for refund by the 12
Plaintiffs who did appeal now appears to be approximately $42.0 million. The
total principal dollar amount of the claims for refund by the 11 Plaintiffs who
did not appeal, which claims appear to be conclusively resolved in favor of the
State by virtue of the trial court's judgment, now appears to be approximately
$54.0 million.
COBB COUNTY, ET AL. V. GEORGIA, ET AL., Fulton Superior Court Civil
Action No. E-67414 (filed March 5, 1998) and DEKALB COUNTY, ET AL. V. GEORGIA,
ET AL., Fulton Superior Court Civil Action No. E-67520 (filed March 13, 1998).
In related cases, each County and certain of its officials has sued the State of
Georgia, the Department of Revenue, Zell Miller (in his capacity as Governor),
T. Jerry Jackson (in his personal capacity and in his official capacity as
Revenue Commissioner), Claude L. Vickers (in his personal capacity and in his
official capacity as State Auditor), and the Department of Audits in connection
with the State's collection and distribution of special local option sales taxes
to the counties. In COBB, the County sought an accounting, a writ of mandamus,
injunctive relief and additional relief based upon theories of unjust enrichment
and bailment. Cobb's claims related to the State's administration of state and
local option sales taxes from April 1, 1995 to the present. Cobb sought $19.0
million in relief. In DEKALB, the County asserts similar grounds for relief with
the addition of a claim for declaratory relief. DeKalb's claims relate to the
State's administration of state and local option sales taxes from July 1, 1997
to the present. DeKalb seeks unspecified monetary relief but estimates a
shortfall in distributions from the State of $15.0 million. The State filed
motions to dismiss in both cases and additionally, in COBB, filed a counterclaim
against the County for $10.4 million. The trial court has granted the State's
motions to dismiss in both actions. DeKalb County has appealed this ruling,
claiming that certain of its claims were meritorious and seeking to litigate
those claims. The State believes that the period for Cobb County to appeal has
lapsed, although a motion by Cobb County remains pending in the trial court. The
State intends to contest all claims against it vigorously. The State believes
that the substance of Plaintiff's claims in both cases is unsubstantiated. This
appeal has been fully briefed and argued, and a decision is awaited from the
Supreme Court of Georgia.
GEORGE JACKSON, ET AL. V. GEORGIA LOTTERY CORPORATION, Fulton Superior
Court Civil Action No. E-50303, filed August 26, 1996. Plaintiffs sought a court
order declaring that two games sponsored by the Georgia Lottery Corporation,
"Quick Cash" and "Cash Three," are unconstitutional and enjoining the lottery
from further offering of these games. Plaintiffs also sought the return of all
monies played on these games during a specified period, approximately
$1,703,462,781. On an interlocutory appeal, the Georgia Court of Appeals ruled
that the Lottery Corporation does not have sovereign immunity but ruled for the
Corporation on the merits. The Plaintiffs petitioned for a writ of certiorari to
the Supreme Court of Georgia, and the Supreme Court denied the petition. The
remittitur of the Court of Appeals has been returned to the trial court.
GEORGIA DEPARTMENT OF ADMINISTRATIVE SERVICES, ET AL. V. ABBENSETT, ET
AL., Gwinnett Superior Court Civil Action No. 96A-0395-16. This case arises in
the context of a declaratory judgment action brought by the State of Georgia and
counterclaims filed by the defendants. A young professional woman and mother was
killed in an automobile accident when her car collided with another vehicle. The
other vehicle was a state-owned vehicle driven by an employee of a for-profit
corporation, which had contracted with Fulton County, Georgia, to provide a
transportation service. Fulton County had a contract with the Atlanta Regional
Commission concerning the transportation service program, and the Atlanta
Regional Commission, in turn, had a contract with the Georgia Department of
Human Resources. In June, 1996, the Georgia Department of Human Resources and
the Georgia Department of Administrative Services brought declaratory judgment
actions against the decedent's estate and others to assert the absence of any
duty to insure the second driver. In August, 1996, the estate and other parties
filed counterclaims for wrongful death. The State's self-insurance program and
the State's vehicle insurer have settled with the decedent's estate in a total
amount of $675,000; the State's share was $175,000. The State has reached a
settlement of all remaining claims for a total of less than $200,000.
W.J. LUKE, AN INDIVIDUAL, V. GEORGIA DEPARTMENT OF NATURAL RESOURCES,
ET AL., Fulton Superior Court Civil Action No. E-62384. This civil action was
filed in October, 1997, on behalf of W.J. Luke and all other contributors to the
Georgia Underground Storage Tank Trust Fund, established under the Georgia
Underground Storage Tank Act, O.C.G.A. ss. 12-13-1, ET SEQ., for refund of all
monies collected under that Act, interest, and attorney's fees. From the time of
its inception in 1988 to the present, the Fund has collected approximately $82.0
million. The State believes that it has substantial defenses to assert and
intends to defend the case vigorously. The State was granted a motion to dismiss
the action, on the grounds that no justiciable controversy exists, and the
Plaintiff has filed an appeal with the Georgia Supreme Court. The State filed a
motion to transfer the case to the Georgia Court of Appeals, which was denied.
The Supreme Court has heard oral arguments and a decision by the Court is
pending.
YEAR 2000 COMPLIANCE. Like other large organizations, the State and
its agencies are subject to the costs and risks associated with what has come to
be known as "Year 2000" compliance, which arises because many computer programs
accept only two-digit entries in date code fields used for, among other things,
calculation and report generation features. Wherever the State and its agencies
use information systems, the resulting inability of such computer programs to
distinguish between the years 1900 and 2000 presents a number of risks. Such
risks include, for example, disruption of the collection of revenues, disruption
of the distribution of State funds with respect to transfer payments, taxes,
State payroll, and transfers to local government, and disruption of other
information processing with respect to preparation of tax assessment notices and
calculation of prisoner release dates, as well as the inefficiencies and delays
caused by system-generated errors and potential litigation as a result of any of
such disruptions or delays. In addition, the State's receipt of revenues from
its various revenue sources, both in the public and private sectors, could be
adversely affected by Year 2000 compliance problems experienced by such revenue
sources.
Accordingly, the State has instituted a series of planning and
assessment activities aimed at Year 2000 compliance, which utilize the services
of an independent consultant. The State, with the assistance of the independent
consultant, has produced a status assessment and developed estimated costs of
implementing remediation and replacement strategies to reduce and eliminate Year
2000 risks for the participating agencies. The State's approach of funding Year
2000 compliance has been to include such costs with those related to the State's
ongoing goal of modernization and standardization of existing information
systems. The State's 1998 Supplemental Budget authorized the expenditure of
approximately $152,000,000 to address Year 2000 compliance, all of which has
already been allocated to State agencies for their Year 2000 compliance efforts.
The Department of Revenue has already received approximately $51,000,000 of such
funds. The State is in the process of estimating additional funding requirements
(including for nonparticipating State agencies submitting their independently
produced Year 2000 compliance and system modernization funding requirements);
however, actual costs may vary from the estimates and may be significantly
higher. Presently, the State and its agencies are continuing these remediation
and testing efforts in order that all information systems used by the State will
function properly before, during and after the Year 2000, subject, however, to
the General Assembly of the State appropriating the requested funds and the
continued ability of the State to employ and retain sufficient information
technology professionals to plan and implement remediation and replacement
strategies. The Governor of the State has directed that all agencies of the
State will have fixed, replaced and performed testing on all mission critical
systems by March 31, 1999. In the event that an agency projects that it may not
meet the March 31, 1999 deadline with respect to its mission critical systems,
the Governor has directed that alternate business processes be defined by
October 1, 1999 with full contingency plans in place by December 1, 1999. No
assurance can be given at this time, however, that these efforts will be
successful prior to the Year 2000.
As discussed above, the State has taken and is continuing to take
action to assess, plan and implement remediation and replacement strategies to
reduce and eliminate Year 2000 risk. All of the potential risks and costs
associated with the failure to remediate, however, cannot be accurately
identified and quantified at this time. In particular, the adverse impact of the
Year 2000 compliance problems on the revenues normally available to the State,
both from private and public sectors, cannot be accurately quantified. No
assurance can be given that the General Assembly will appropriate adequate funds
to assure compliance, that other possible implementation delays or problems that
may arise can be resolved on a timely basis, or that the State will not be
exposed to potential claims resulting from Year 2000 noncompliance.
The State has established a Year 2000 website at
WWW.YEAR2000.STATE.GA.US/ which provides information with respect to the State's
Year 2000 compliance efforts. No representation is made, however, that the
information in such website is accurate or includes all material information
with respect to the State's Year 2000 compliance efforts. Furthermore, the State
is under no obligation to update the website or to continue to make the website
available.
MARYLAND SERIES
Some of the significant financial and other considerations relating to
the investments of the Maryland Series are summarized below. This information is
derived principally from official statements released on or before February 24,
1999, relating to issues of State of Maryland general obligations and does not
purport to be a complete description.
The State of Maryland has a population of approximately 5.1 million,
with employment based largely in services, trade, and government. Those sectors,
along with finance, insurance, and real estate, were the largest contributors to
the gross state product, according to the most recent Census. Population is
concentrated around the Baltimore and Washington, D.C. PMSAs, and proximity to
Washington D.C. influences the above average percentage of employees in
government. Manufacturing, on the other hand, is a much smaller proportion of
employment than for the nation as a whole. Annual unemployment rates have been
below those of the national average for each of the last 20 years except 1979
and 1997. The unemployment figure for 1998 was 4.5% compared to a national rate
for the same period of 4.5%. Total employment increased by 8.3% between 1991 and
1998. The State's personal income per capita was the fifth highest in the nation
in 1997, according to the U.S. Department of Commerce, Bureau of Economic
Analysis, at 113.3% of the national average.
The State's total expenditures for the fiscal years ending June 30,
1996, June 30, 1997 and June 30, 1998 were $12,824 billion, $13,386 billion and
$13,566 billion, respectively. The State Constitution mandates a balanced
budget. The State enacts its budget annually. Revenues are derived largely from
certain broad-based taxes, including state-wide income, sales, motor vehicle,
and property taxes. Non-tax revenues are largely from the federal government for
transportation, health care, welfare and other social programs. General fund
revenues on a budgetary basis realized in the State's fiscal year ended June 30,
1998, exceeded estimates by about $105.1 million, or 1.3%. The State ended
fiscal 1998 with a $419.8 million general fund balance on a budgetary basis of
which $302.7 million was designated to fund fiscal year 1999 operations; this
balance reflects a $391.9 million increase compared to the balance projected at
the time the 1998 budget was enacted. In addition, there was a balance in the
Revenue Stabilization Account of $617.9 million. On a GAAP basis, the fiscal
1998 unreserved general fund balance was $230.2 million, compared with $49.2
million at the end of fiscal year 1997. The total GAAP fund balance for fiscal
year 1998 was $1,595.2 million compared with a total fund balance of $1,059.1
million for fiscal year 1997.
Estimates for Fiscal 1999 project a total budget of $16.9 billion, a
$1.4 billion increase over Fiscal 1998. The general fund accounts for
approximately $8.5 billion, of which the largest expenditures are for health and
education, which together represent nearly two-thirds of total general fund
expenditures. General fund expenditures exclude transportation, which is funded
with special fund revenues from the Transportation Trust Fund.
Reserve funds consist of the Revenue Stabilization Fund and other
reserve accounts, which together totaled $699.0 million at the end of Fiscal
1998. The Revenue Stabilization Fund was established to retain State revenues
for future needs and to reduce the need for future tax increases. Current
estimates for the close of Fiscal 1999 project a total reserve balance of $730.0
million, of which $646.0 million is projected to be in the Revenue Stabilization
Fund. The projected balance in the Revenue Stabilization Fund represents 7.8% of
estimated General Fund Revenues.
The public indebtedness of the State of Maryland, and its
instrumentalities, is divided into three basic types. The State issues general
obligation bonds, to the payment of which the State ad valorem property tax is
exclusively pledged, for capital improvements and for various State-sponsored
projects. In addition, the Maryland Department of Transportation issues for
transportation purposes its limited, special obligation bonds payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. Certain authorities issue obligations payable solely from specific
non-tax, enterprise fund revenues and for which the State has no liability and
has given no moral obligation assurance. The State and certain of its agencies
also have entered into a variety of lease purchase agreements to finance the
acquisition of capital assets. These lease agreements specify that payments
thereunder are subject to annual appropriation by the General Assembly.
Since the end of the Civil War, the State has paid the principal of
and interest on its general obligation bonds when due. There is no general debt
limit imposed by the State Constitution or public general laws. Although the
State has the authority to make short-term borrowings in anticipation of taxes
and other receipts up to a maximum of $100 million, the State in the past 20
years has not issued short-term tax anticipation notes or made any other similar
short-term borrowings for cash flow purposes. The State has not issued bond
anticipation notes except in connection with a State program to ameliorate the
impact of the failure of certain State-chartered savings and loans in 1985; all
such notes were redeemed without the issuance of debt.
According to recent available ratings, general obligation bonds of the
State of Maryland are rated "Aaa" by Moody's and "AAA" by S&P, as are those of
the largest county of the State, i.e., Montgomery County in the suburbs of
Washington, D.C. General obligation bonds of Baltimore County, a separate
political entity surrounding Baltimore City and the third largest county in the
State, are also rated "Aaa" by Moody's and "AAA" by S&P. The general obligation
bonds of those other counties of the State with populations in excess of 100,000
that are rated by Moody's carry an "A" rating or better. Baltimore City's
general obligation bonds are rated "Al" by Moody's. The Washington Suburban
Sanitary District, a bi-county agency providing water and sewage services in
Montgomery and Prince George's Counties, issues general obligation bonds rated
"Aal" by Moody's and "AA" by S&P.
There can, of course, be no assurance that the ratings and other
factors mentioned above will remain unchanged or that particular bond issues may
not be adversely affected by changes in state or local economic or political
conditions. Because the Maryland Fund favors investing in revenue bonds, its
performance may be affected by economic developments and local legislation and
policy changes impacting a specific facility or type of facility not described
above.
MASSACHUSETTS SERIES
The economy of The Commonwealth of Massachusetts is experiencing
recovery following a slowdown that began in mid-1988. Massachusetts had
benefited from an annual job growth rate of approximately 2% since the early
1980's, but by 1989 employment started to decline. Between 1988 and 1992, total
employment in Massachusetts declined 10.7%. With the economic recovery that
began in 1993, however, employment levels have increased. Since 1994, total
employment levels have increased at yearly rates greater than or equal to 2.0%.
In 1995, 1996 and 1997, total employment increased by 2.5%, 2.0% and 2.7%,
respectively. Employment levels increased in all sectors, including
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 (4.0%
compared to 4.9% in 1997) and the employment population ratio in Massachusetts
in 1996 and 1997 was slightly above the national average (66.4% compared to
63.2% for 1996 and 66.2% compared with 63.8% for 1997).
Massachusetts ended each of the fiscal years 1994 to 1998 with a
positive closing fund balance in its budgeted operating funds, and expects to do
so again at the close of Fiscal 1999.
In recent years, health 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. However, the rate of increase has abated in recent years,
due to a number of savings and cost-cutting initiatives, such as managed care
and utilization review. During Fiscal years 1994, 1995, 1996, 1997 and 1998,
Medicaid expenditures were $3.313 billion, $3.398 billion, $3.416 billion,
$3.456 billion, and $3.666 billion, respectively. The average annual growth rate
from Fiscal 1994 to Fiscal 1998 was 2.1%. It is estimated that in Fiscal 1999,
Medicaid expenditures will be $3.892.7 billion, an increase of 6.2% from Fiscal
1998.
Massachusetts' pension costs have risen 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 rate of 3.54% from
$908.9 million in fiscal 1994 to $1.07 billion in Fiscal 1998. The pension costs
in 1999 are estimated to be $990.8 billion.
Payments for debt service on Massachusetts general obligation bonds
and notes have risen at an average annual rate of 1.11% from $1.15 billion in
Fiscal 1994 to $1.21 billion in Fiscal 1998. State law 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 April 1,
1999 the State had approximately $15.5 billion of long-term general obligation
debt outstanding and short-term direct obligations of the Commonwealth totaled
$464.2 million.
Certain independent authorities and agencies within the State are
statutorily authorized to use 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 22, to constrain
levels of property taxation and to limit the charges and fees imposed on cities
and towns by certain government entities, including county governments. The law
is not a constitutional provision and accordingly is subject to amendment or
repeal by the legislature. Proposition 22 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 22 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 22 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 two-thirds
of their member cities and towns. During the 1980's, Massachusetts increased
payments to the cities, towns and regional school districts ("Local Aid") to
mitigate the impact of Proposition 22 on local programs and services. In Fiscal
1999, approximately 21.2% of Massachusetts' budgeted expenditures were allocated
to Local Aid.
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 effects, if any, such factors would have on Massachusetts'
Municipal Obligations cannot be predicted.
MICHIGAN SERIES
GENERAL. Recently, the State's economy has been undergoing certain
basic changes in its underlying structure. These changes reflect a diversifying
economy which is less reliant on the automobile industry. As a result, the State
anticipates that its economy in the future will be less susceptible to cyclical
swings and more resilient when national downturns occur. In 1998, approximately
78% of wage and salary employment was in the State's non-manufacturing sectors.
In 1998, total employment was 4.835 million with manufacturing wage and salary
employment totaling 965,700. Manufacturing employment remains below the peak
employment level of 1,179,600 attained in 1978. Employment in the durable goods
manufacturing industries was 724,900 and non-durable goods manufacturing
employment was 240,800 in the State in 1998. The motor vehicle industry, which
is still an important component in the State's economy, employed 273,700 in
1998. The State's average unemployment rate for calendar year 1996 was 4.9%, for
1997 was 4.2% and for 1998 was 3.9%.
The State's general obligation bonds are rated "Aa1" by Moody's, "AA+"
by S&P and "AA+" by Fitch. In January, 1998, the State received an upgrade from
S&P from its prior rating of "AA." In March, 1998, the State received an upgrade
from Moody's from its prior rating of "Aa2." In April 1998, the State received
an upgrade from Fitch from its prior rating of "AA." Because most of the State
Municipal Obligations are revenue or general obligations of local government or
authorities, rather than general obligations of the State of Michigan itself,
ratings on such State Municipal Obligations may be different from those given to
the State of Michigan.
STATE CONSTITUTIONAL PROVISIONS AFFECTING REVENUES AND EXPENDITURES.
The State Constitution provides that proposed expenditures and revenues of any
operating fund must be in balance and that any prior year's surplus or deficit
must be included in the succeeding year's budget for that fund.
In 1978, the State Constitution was amended to limit the amount of
total State revenues raised from taxes and certain other sources. State revenues
(excluding Federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or average of the prior
three calendar years, whichever is greater. The percentage is fixed by the
amendment to equal the ratio of the 1978-79 fiscal year revenues to total
calendar 1977 State personal income.
If, in any fiscal year, revenues exceed the revenue limitation by 1%
or more, the entire amount of such excess shall be rebated in the following
fiscal year's personal income tax or single business tax. Any excess of less
than 1% may be transferred to the State's Budget Stabilization Fund. The State
may raise taxes in excess of the limit for emergencies when deemed necessary by
the Governor and two-thirds of the members of each house of the Legislature.
The State Constitution provides that the proportion of State spending
paid to all units of local government to total State spending may not be reduced
below the proportion in effect in the 1978-79 fiscal year. If such spending does
not meet the required level in a given year, an additional appropriation for
local governmental units is required by the following fiscal year. Spending for
local units met this requirement for fiscal years 1990-91 through 1995-96.
The State has settled litigation with Oakland County, Michigan in
which Oakland County had alleged that the classification of State expenditures
for certain mental health programs as spending for local units was improper. As
part of the settlement, the State agreed to reclassify these expenditures,
beginning in fiscal year 1992-93. As a result, the State determined that in
fiscal year 1992-93 the proportion of State spending from State sources paid to
local units of government was approximately $97.0 million less than
constitutionally required and an amount at least this large was appropriated to
the State's local government payment fund in the fiscal year 1996-97.
The State Constitution also requires the State to finance any new or
expanded activity of local governments mandated by State law. Any expenditures
required by this provision would be counted as State spending for local units of
government for the purpose of determining compliance with the provision cited
above.
ECONOMIC AND FISCAL CONDITION. Legislation requires that the
administration prepare two economic forecasts each year. These are presented to
a Consensus Revenue Estimating Conference in January and May of each year. The
May 1999 forecast is summarized below.
The State's economic forecast for calendar years 1999 and 2000
projects healthy growth. Real GDP is projected to grow 3.9% in 1999 and 2.4% in
2000, on a calendar year basis. Car and light truck sales are expected to total
15.8 million units in 1999 and 15.5 million units in 2000.
The forecast assumes moderate inflation, accompanied by steady
interest rates. The U.S. Consumer Price Index is projected to increase by 2.0%
in 1999 and 2.3% in 2000. Ninety-day T-Bill rates are expected to average 4.5%
for both 1999 and 2000. The United States' unemployment rate is projected to
average 4.3% for 1999 and 4.5% for 2000.
The State's forecast for the Michigan economy reflects the above
national outlook. Total wage and salary employment is projected to grow 1.6% in
1999 and 1.5% in 2000. This growth reflects the ongoing diversification of the
Michigan economy. The unemployment rate is projected to average 3.9% in 1999 and
4.0% in 2000, continuing the recent trend of Michigan's unemployment rate being
below the national average for seven consecutive years compared to the 27-year
history of having higher unemployment than the nation.
The Governor's Executive Budget for fiscal year 1999-2000 was
submitted to the Legislature on February 11, 1999. The fiscal year 1999-2000
general fund, general purpose Executive Budget recommendation totaled $9.072
billion.
PROPERTY TAX REFORM PROPOSALS. On August 19, 1993, the Governor signed
into law Act 145, Public Acts of Michigan, 1993 ("Act 145"), a measure which
would have significantly impacted financing of primary and secondary school
operations and which has resulted in additional property tax and school finance
reform legislation. Act 145 would have exempted all property in the State of
Michigan from mileage levied for local and intermediate school districts
operating purposes, other than mileage levied for community colleges, effective
July 1, 1994. In order to replace local property tax revenues lost as a result
of Act 145, the Michigan Legislature, in December 1993, enacted several statutes
which address property tax and school finance reform.
The property tax and school finance reform measures included a ballot
proposal which was approved by the voters on March 15, 1994. Effective May 1,
1994, the State sales and use tax was increased from 4% to 6%, the State income
tax was decreased from 4.6% to 4.4%, the cigarette tax was increased from $.25
to $.75 per pack and an additional tax of 16% of the wholesale price was imposed
on certain other tobacco products. A 0.75% real estate transfer tax became
effective January 1, 1995. Beginning in 1994, a State-wide property tax of 6
mills will be imposed on all real and personal property currently subject to the
general property tax. The ability of school districts to levy property taxes for
school operating purposes has been partially restored. A school board will, with
voter approval, be able to levy up to the lesser of 18 mills or the number of
mills levied in 1993 for school operating purposes, on non-homestead property
and non-qualified agricultural property. The adopted ballot proposal contains
additional provisions regarding the ability of local school districts to levy
taxes as well as a limit on assessment increases for each parcel of property,
beginning in 1995 to the lesser of 5% or the rate of inflation. When property is
subsequently sold, its assessed value will revert to the current assessment
level of 50% of true cash value. Under the adopted ballot proposal, much of the
additional revenue generated by the new taxes will be dedicated to the State
School Aid Fund.
The adopted ballot proposal contains a system of financing local
school operating costs relying upon a foundation allowance amount which may vary
by district based upon historical spending levels. State funding will provide
each school district an amount equal to the difference between their foundation
allowance and the revenues generated by their local property tax levy. Local
school districts will also be entitled to levy supplemental property taxes to
generate additional revenue if their foundation allowance is less than their
historical per pupil expenditures. The adopted proposal also contains provisions
which allow for the levy of a limited number of enhancement mills on regional
and local school district bases.
The adopted ballot proposal shifts significant portions of the cost of
local school operations from local school districts to the State and raises
additional State revenues to fund these additional State expenditures. These
additional revenues will be included within the State's constitutional revenue
limitations and may impact the State's ability to raise additional revenues in
the future.
BUDGET STABILIZATION FUND. In 1977, the Budget Stabilization Fund was
established to accumulate balances during years of significant economic growth
which may be utilized in years when the State's economy experiences cyclical
downturns or unforeseen fiscal emergencies. Calculated on an accrual basis, the
unreserved ending accrued balance of the Budget Stabilization Fund on September
30, 1995 was $987.9 million, on September 30, 1996 was $614.5 million (net of a
$529.1 million reserve for future education funding), on September 30, 1997 was
$579.8 million (net of a $572.6 million reserve for future education funding)
and on September 30, 1998 was $1.001 billion.
STATE AND STATE-RELATED INDEBTEDNESS. The State Constitution limits
State general obligation debt to (i) short-term debt for State operating
purposes, (ii) short- and long-term debt for the purpose of making loans to
school districts and (iii) voter-approved long-term debt.
Short-term debt for operating purposes is limited to an amount not in
excess of 15% of undedicated revenues received during the preceding fiscal year
and must be issued only to meet obligations incurred pursuant to appropriation
and repaid during the fiscal year in which incurred. Such debt does not require
voter approval.
Debt incurred by the State for the purpose of making loans to school
districts may be issued in whatever amount required without voter approval. All
other general obligation bonds issued by the State must be approved as to
amount, purpose and method of repayment by a two-thirds vote of each house of
the Legislature and by a majority vote of the public at a general election.
There is no limitation as to number or size of such general obligation issues.
There are also various State authorities and special purpose agencies
created by the State which issue bonds secured by specific revenues. Such debt
is not a general obligation of the State.
The State has issued outstanding general obligation full faith and
credit bonds and notes for Water Resources, Environmental Protection, Recreation
Program, and School Loan purposes. As of September 30, 1998, the outstanding
principal amount of all State general obligation bonds was approximately $874.0
million. On November 13, 1997, the State issued $900.0 million in short-term
general obligation notes in order to meet cash flow requirements. These notes
matured and were fully paid on September 30, 1998. On April 28, 1998, the State
issued $160,000,000 in general obligation school loan bonds for school purposes.
On June 3, 1998, the State issued $90,000,000 in general obligation
environmental protection program bonds. In addition, the Governor proposed and
the Legislature approved the issuance of approximately $675.0 million in general
obligation indebtedness for environmental and other purposes. Issuance of such
indebtedness was also approved by a majority of Michigan voters at the November
1998 elections.
As of September 30, 1998, approximately $7.9 billion in principal
amount of "qualified" bonds of local school districts was outstanding. In the
past 30 years, the State has been required only once to advance monies from the
State School Bond Loan Fund to make a debt service payment on behalf of a school
district, other than for routine loans. In that case the tax collections
available to the school district for payment of debt service were escrowed on
the due date because of litigation. After the litigation was completed, the
escrowed funds were repaid in full to the State School Bond Loan Fund.
YEAR 2000 COMPLIANCE. On October 1, 1997, the State of Michigan
created the Year 2000 Project office to provide guidance, coordinate oversight
for applications software, manage Year 2000 funds, provide monitoring support,
quality assurance and other matters. The State's goal is to have all critical
applications operable by December 31, 1998 and all other applications operable
by September 30, 1999. The State is currently on schedule to meet its objectives
for Year 2000 compliance. The State currently believes that it will continue to
meet the objectives and time frames set forth for the Year 2000 Project. There
can, however, be no assurance that such completion will be done in a timely
manner.
MINNESOTA SERIES
STATE GOVERNMENT. The State of Minnesota was formally organized as a
territory in 1849 and was admitted to the Union in 1858 as the 32nd state.
Bordered by Canada on the north, Lake Superior and Wisconsin on the east, Iowa
on the south, and North and South Dakota on the west, it is the 12th largest and
20th most populous state in the Union.
The Minnesota Constitution organizes State government into three
branches: Executive, Legislative and Judicial. The Legislative Branch is
composed of a Senate and a House of Representatives. Fiscal administration is
performed by the Department of Finance under the control and supervision of the
Commissioner of Finance.
STATE AND STATE-RELATED INDEBTEDNESS. The Minnesota Constitution
authorizes public debt to be incurred for the acquisition and betterment of
public land, buildings and other improvements of a capital nature or for
appropriations or loans to Minnesota State agencies or political subdivisions
for this purpose, as the Legislature by the three-fifths vote of each House may
direct, and to finance the development of agricultural resources of the State by
extending credit on real estate security, as the Legislature may direct. All
such debt is evidenced by the issuance of State of Minnesota bonds maturing
within 20 years of their date of issue, for which the full faith and credit and
taxing powers of the State are irrevocably pledged. There is no limitation as to
the amount or interest rate of such general obligation issues.
As of November 1, 1998, the outstanding principal amount of all
Minnesota general obligation bonds was approximately $2.4 billion. The total
amount of general obligation bonds authorized but unissued as of November 1,
1998, was approximately $740.0 million.
The Minnesota Constitution limits Minnesota general obligation debt to
(i) short-term debt for Minnesota operating purposes, (ii) short-term debt for
purposes of making loans to school districts and (iii) voter-approved long-term
debt.
Short-term debt for operating purposes is limited to an amount not in
excess of 15% of undedicated revenues received during the preceding fiscal year
and must be issued only to meet obligations incurred pursuant to appropriation
and repaid during the fiscal year in which incurred. The April 1998, end of
session cash flow analysis for Minnesota's Statutory General Fund indicates that
Minnesota will have a positive cash flow balance during the Current Biennium
which began on July 1, 1999 and ends June 30, 2001. Minnesota has no short-term
debt outstanding and, therefore, Minnesota does not expect to do any short-term
borrowing for cash flow purposes during the Current Biennium. Minnesota has not
done any short-term borrowing since January, 1985.
There are also various Minnesota authorities and special purpose
agencies created by the state which issue bonds secured by specific revenues.
Such debt is not a general obligation of the State of Minnesota.
CONSTITUTIONAL AND STATUTORY PROVISIONS RELATING TO MINNESOTA AND
LOCAL FUNDING. Revenues in Minnesota are generated primarily from individual
income taxes, corporate franchise taxes, sales and use taxes, insurance gross
earnings taxes, estate taxes, motor vehicle excise taxes, excise taxes on liquor
and tobacco, mortgage taxes, deed taxes, legalized gambling taxes, rental motor
vehicle taxes, 900 telephone service taxes, taconite and iron ore taxes, and
health care provider taxes. In addition to the major taxes described above,
other sources of non-dedicated revenue include minor taxes, 60% of Minnesota's
lottery net proceeds, unrestricted grants, fees and charges of Minnesota State
agencies and departments, and investment income. County, municipal and certain
special purpose districts (such as water, flood or mosquito control districts)
are authorized to levy property taxes within specified legislative limits. A
portion of Minnesota's revenues is allocated from State government to other
governmental units within Minnesota such as municipal and county governments,
school districts and State agencies through a complex series of appropriations
and financial aid formulas. This financial interdependency of the Minnesota
State government with other units of government, subject all levels of
government, in varying degrees, to fluctuations in Minnesota's overall economy.
Minnesota's constitutionally prescribed fiscal period is a biennium,
and Minnesota operates on a biennial budget basis with revenues created in the
period in which they are collected and expenditures debited in the period in
which the corresponding liabilities are incurred. The biennium begins on July
1st of the odd numbered year and runs through June 30th of the next odd numbered
year.
Minnesota's ability to appropriate funds is limited by the Minnesota
Constitution, which directs that Minnesota government shall not in any biennium
appropriate funds in excess of projected tax revenues from all sources.
Minnesota is authorized to levy additional taxes to resolve any inadvertent
shortfalls.
Appropriations for each biennium are enacted during the final
legislative session of the immediately preceding biennium. A revenue forecast is
prepared during the legislative session to provide the legislature with updated
information for the appropriations process. During each biennium, regular
forecasts of revenues and expenditures are prepared.
Minnesota's biennial appropriation process relies on revenue
forecasting as the basis for establishing aggregate expenditure levels. Risks
are inherent in the revenue and expenditure forecasts. Assumptions about U.S.
economic activity and federal tax and expenditure policies underlie these
forecasts. Any federal law changes that increase federal income taxes or reduce
federal spending programs may adversely affect these forecasts. Finally, even if
economic and federal tax assumptions are correct, revenue forecasts are still
subject to some normal level of error. The correctness of revenue forecasts and
the strength of Minnesota's overall economy may restrict future aid or
appropriations from Minnesota government to other units of government.
Prior to the Current Biennium, Minnesota law established a Budget
Reserve and Cash Flow Account in the Accounting General Fund, which served two
functions. However, in 1995 the Minnesota Legislature departed the Budget
Reserve and Cash Flow Account into two separate accounts, the Cash Flow Account
and the Budget Reserve Account, each having a different function. The Cash Flow
Account was established in the General Accounting Fund for the purpose of
providing sufficient cash balances to cover monthly revenue and expenditure
imbalances. The use of funds from the Cash Flow Account is governed by statute.
The Cash Flow Account balance is set for the Current Biennium at $350.0 million.
No provision has been made for increasing the balance of the Cash Flow Account
from increases in forecast revenues over forecast expenditures. The Budget
Reserve Account was established in the Accounting General Fund for the purpose
of reserving funds to cushion the State from an economic downturn. The use of
funds from the Budget Reserve Account and the allocation of surplus forecast
balances to the Budget Reserve Account are governed by statute. The Budget
Reserve Account balance is set for the Current Biennium at $613.0 million. The
Budget Reserve Account may increase to $622 million if there is sufficient
additional revenue in the November 1998 revenue and expenditure forecast.
For the fiscal year ended June 30, 1995, net revenues received were
$8.984 billion. Total expenditures and net transfers were $8.894 billion for
fiscal year 1995. For the fiscal year ended June 30, 1996, total net revenues
were $9.617 billion. Total expenditures and net transfers were $9.301 billion.
For the fiscal year ended June 30, 1997, total net revenues were $10.538
billion. Total expenditures and net transfers were $10.229 billion.
As of May 1998 total revenues without taking into account any carry
over balance from the previous biennium for the current biennium, which began on
July 1, 1997 and ends on June 30, 1999, are estimated to be approximately
$10.365 billion for fiscal year 1998 and $10.613 billion for fiscal year 1999.
Revenue estimates for the next biennium will be available in the middle part of
June 1999.
In 1992, the Minnesota Legislature established the MinnesotaCare(R)
program to provide subsidized health care insurance for long term uninsured
Minnesotans; reform individual and small group health insurance regulations;
create a health care analysis unit; to collect condition-specific data about
health care practices in order to develop practice parameters for health care
providers; implement certain cost containment measures into the system; and
establish an office of rural health to ensure the health care needs of all
Minnesotans are being met. The program is not part of the Accounting General
Fund. A separate account, called the Health Care Access Fund, has been
established in Minnesota's Special Reserve Fund to account for revenues and
expenditures for the MinnesotaCare(R) program. Program expenditures are limited
to revenues received in the Health Care Access Fund. Program revenues are
derived from dedication of insurance premiums paid by individuals and permanent
taxes including a 2% gross revenue tax on hospitals, health care providers, and
wholesale drug distributors, a 2% use tax on prescription drugs and a 1% gross
premium tax on nonprofit health service plans and HMOs. For Calendar years 1998
and 1999, these permanent taxes have been temporarily lowered to 1.5% and 0%,
respectively. The taxes will be returned to previous levels or revised depending
on the Fund's positive cash fund balance. The Commissioners of Finance and
Revenue will determine the necessary tax levels, to be effective for calendar
year 2000, in September, 1999.
The 1993 Legislature adopted legislation establishing a school
district credit enhancement program. The legislation authorizes and directs the
Commissioner of Finance, under certain circumstances and subject to the
availability of funds, to issue a warrant and authorize the Commissioner of
Children, Families and Learning to pay debt service coming due on school
district tax and state-aid anticipation certificates of indebtedness and school
district general obligation bonds in the event that the school district notifies
the Commissioner of Children, Families and Learning that it does not have
sufficient money in its debt service fund for that purpose, or the paying agent
informs the Commissioner of Children, Families and Learning that it has not
received from the school district timely payment of moneys to be used to pay
debt service. The legislation appropriates annually from the Accounting General
Fund to the Commissioner of Children, Families and Learning the amount needed to
pay any warrants which are issued. The amounts paid on behalf of any school
district are required to be repaid, with interest, either through a reduction of
subsequent state-aid payments or by the levy of an ad valorem tax which may be
made with the approval of the Commissioner of Children, Families and Learning.
As of October 1, 1998, there were approximately $103.0 million of certificates
of indebtedness enrolled in the program, all of which will mature within a
thirteen month period. The State has not had to make any debt service payments
on behalf of school districts under the program and does not expect to make any
payments in the future. The State expects that school districts will issue
certificates of indebtedness in 1999 and will enroll these certificates in the
program in about the same amount of principal as 1998.
School districts may issue certificates of indebtedness or capital
notes to purchase certain equipment. The certificates or notes may be issued by
resolution of the Board, are payable from school district taxes levied within
statutory limits and must be payable in not more than five years. As of October
1, 1998, there are approximately $17.0 million principal amount of certificates
and notes enrolled in the program.
School districts are authorized to issue general obligation bonds only
when authorized by school district electors or special law, and only after
levying a direct, irrevocable ad valorem tax on all taxable property in the
school district for the years and in amounts sufficient to produce sums not less
than 5% in excess of the principal of an interest on the bonds when due. As of
October 1, 1998, the total amount of principal on certificates and capital notes
issued for equipment and bonds, plus the interest on these obligations, through
the year 2026, is approximately $5.3 billion.
The amount of revenue generated by Minnesota's tax structure, because
of the dependence on the income and sales taxes, is sensitive to the status of
the national and local economy. There can be no assurance that the financial
problems referred to or similar future problems will not affect the market value
or marketability of the Minnesota Municipal Obligations or the ability of the
issuers thereof to pay the interest or principal of such obligations.
Minnesota general obligation bonds are rated "Aaa" by Moody's and
"AAA" by S&P and "AAA" by Fitch.
TOBACCO SETTLEMENT. On May 8, 1998, the State entered into a
settlement of a lawsuit, which it had initiated against several tobacco
companies. The settlement requires the defendant tobacco companies to pay to the
State an amount of $6.1 billion over a period of 25 years. This settlement will
produce additional annual calendar year revenue to the State ranging from a low
of approximately $204.0 million to a high of approximately $418.0 million. The
allocation and use of most of these revenues has not been established. There has
been federal congressional discussion about state Medicaid reimbursement out of
state tobacco settlements. Federal legislative proposals have been introduced,
but to date no federal legislation has been enacted.
As of October, 1998 the State has received a settlement payment of
$240.0 million from the defendant tobacco companies. Subject to challenge, the
next payment to the State will be on January 4, 1999 in the amount of $220.8
million.
SELECTED ECONOMIC AND DEMOGRAPHIC FACTORS. Diversity and a significant
natural resource base are two important characteristics of Minnesota's economy.
Minnesota's economy is being lifted by strong earnings growth in the service
industry, rising housing construction, and job gains which are slowly firming up
the labor market.
When viewed in 1997 at a highly aggregative level of detail, the
structure of Minnesota's economy parallels the structure of the U.S. economy as
a whole. Minnesota employment in ten major industrial sectors was distributed in
approximately the same proportions as national employment. In all sectors, the
share of total Minnesota employment was within two percentage points of national
employment share.
Minnesota's employment in the durable goods industries continues to be
highly concentrated in industries specializing in the manufacturing of
industrial machinery, fabricated metal, electronic equipment and instruments,
and miscellaneous categories. This emphasis is partially explained by the
location in Minnesota of computer-related equipment manufacturers. Further,
manufacturers of food products, wood products, and printed and published
materials joined the high technology manufacturing group which has led to
significant business expansion in Minnesota in this decade.
The importance of Minnesota's rich natural resource base for overall
employment is apparent in the employment mix in non-durable goods industries. In
1997, approximately 30.3% of Minnesota's non-durable goods employment was
concentrated in food and kindred industries, and approximately 16.8% in paper
and allied industries. This compares to approximately 22.3% and 8.9%,
respectively, for comparable sectors in the national economy.
Both of these industries rely heavily on renewable resources in
Minnesota. Over half of Minnesota's acreage is devoted to agricultural purposes
and nearly one-third to forestry. Printing and publishing are also relatively
more important in Minnesota than in the U.S.
Mining is currently a less significant factor in the Minnesota economy
than formerly. Mining employment, primarily in the iron ore or taconite
industry, dropped from 17.3 per thousand in 1979 to 7.9 per thousand in 1997. It
is not expected that mining employment will soon return to 1979 levels. However,
Minnesota retains vast quantities of taconite as well as copper, nickel, cobalt,
and peat which may be utilized in the future.
While Minnesota's involvement in the defense industry is limited, as
military procurement cuts continue, Minnesota employers may face challenges in
maintaining employment and sales. More importantly, Minnesota firms producing
electronic components, communication equipment, electrical equipment, chemicals,
plastics, computers and software may face additional competition from companies
converting from military to civilian production.
Job expansion and business start-ups improved remarkably in this
decade with an average rate for new businesses at 2%, while business
dissolutions were on the decline.
Minnesota resident population grew from 4,085,000 in 1980 to 4,387,000
in 1990 or, at an average annual compound rate of .7%. In comparison, U.S.
population grew at an annual compound rate of .917% during this period.
Minnesota population is currently forecast by the U.S. Department of Commerce to
grow at an annual compound rate of .8% through 2005.
EMPLOYMENT AND INCOME GROWTH IN MINNESOTA. In the period 1980 to 1990,
overall employment growth in Minnesota lagged behind national growth. However,
manufacturing has been a strong sector, with Minnesota employment outperforming
its U.S. counterpart in both the 1980-1990 and 1990-1995 periods.
In spite of the strong manufacturing sector, during the 1980 to 1990
period, total employment in Minnesota increased 17.9% as compared to 20.1%
nationally. Most of Minnesota's slower growth can be associated with declining
agricultural employment and two recessions in the U.S. economy in the early
1980's which were more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with the nation in the period after the
1981-82 recession ended in late 1982. In the period 1990 to 1997, non-farm
employment growth in Minnesota exceeded national growth. Minnesota's non-farm
employment grew 16.7% compared to 12.2% nationwide.
Since 1980, Minnesota per capita personal income has been within six
percentage points of national per capita personal income. The state's per capita
income, which is computed by dividing personal income by total resident
population, has generally remained above the national average in spite of the
early 1980's recessions and some difficult years in agriculture. In 1997,
Minnesota per capita personal income was 104.9% of its U.S. counterpart.
Another measure of the vitality of Minnesota's economy is its
unemployment rate. During 1996 and 1997, respectively, Minnesota's monthly
unemployment rate was generally less than the national unemployment rate,
averaging 3.3% in 1997, as compared to the national average of 4.9%.
NEW JERSEY SERIES
New Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey's principal manufacturing
industries produce chemicals, pharmaceuticals, electrical equipment and
instruments, printing machinery, business and health and retail trade, food
products, and printing. Other economic activities include services, wholesale
and retail trade, insurance, tourism, petroleum refining and truck farming.
In its seventh year of expansion, New Jersey has benefitted and will
continue to benefit from national growth. While the latest national indicators
show that economic growth strongly accelerated in the first quarter of 1998, the
inflation rate remained low. After a very robust economic growth of 5.5% in the
first quarter for 1998, inflation-adjusted gross domestic product slowed to 1.4%
in the second quarter. This second quarter pace is slower, but is positive and
more sustainable.
Business investment expenditures and consumer spending have increased
substantially in the nation as well as in the State. Capital and consumer
spending may continue to rise due to the sustained character of economic growth
and the interest-sensitive homebuilding industry may continue to provide
stimulus both nationally and in New Jersey. It is expected that the employment
and income growth that has and is taking place will lead to further growth in
consumer outlays. Reasons for continued optimism in New Jersey include
increasing employment levels and higher-than-national level of per capita
personal income. Also, several expansions of existing hotel-casinos and plans
for several new casinos in Atlantic City will mean additional job creation.
While growth is likely to be slower than in the nation, the advantages
afforded by its geographic location that have served New Jersey well for many
years will still be there. Structural changes that have been occurring for years
can be expected to continue, with job creation concentrated most heavily in the
service industries.
In July 1991, S&P lowered New Jersey's general obligation bond rating
from "AAA" to "AA+." As of June 30, 1997, S&P, Moody's and Fitch rate New
Jersey's long-term general obligations "AA+," "Aa1" and "AA+," respectively.
In 1998, New Jersey's employment growth of 2% drove employment to a
level of 3.82 million, more than 116,000 jobs above the 1989 pre-recession high.
Personal income grew 5.5%, better than the 5.3% growth in 1997. Real Gross State
Product increased 3.5% in 1998, the highest growth in 10 years. Employment
growth during 1997-1998 ranged between 1.7 and 2.4%. Construction jobs grew 4.6%
in 1998 continuing the 5% growth seen in 1997. Manufacturing jobs declined by
0.45% in 1998. In 1998, aggregate growth in the service sector remained at 3%
for the second straight year.
The revised estimate as shown in the Governor's fiscal year 2000
Budget forecasts Sales and Use Tax collections for fiscal year 1995 as $5.01
billion. The fiscal year 2000 estimate of $5.3 billion, is a 4.8% increase from
the fiscal year 1999 estimate.
The revised estimate as shown in the Governor's fiscal year 1999
Budget forecasts Gross Income Tax collections for fiscal year 1999 of $6.1
billion. The estimate for fiscal year 2000 as shown in the Governor's fiscal
year 2000 Budget of $6.5 billion, is a 6.8% increase from the fiscal year 1999
estimate.
The revised estimate as shown in the Governor's fiscal year 2000
Budget forecasts Corporation Business Tax collections for fiscal year 1999 of
$1.5 billion. Included in the Corporation Business Tax forecast is a reduction
in the Corporation Business Tax rate from 9.375% to 9.0% of net New Jersey
income as well as two policy changes enacted into law in 1995 which (i)
effective June 30, 1997, allow corporations with multi-state operations to
allocate income to New Jersey using a formula which double weights the sales
receipts factor to give a tax preference to corporations that have a higher
concentration of payroll and facilities in New Jersey and (ii) provide a 7.5%
rather than a 9% tax rate for corporations that have net income up to $100,000.
The fiscal year 2000 forecast as shown in the Governor's Fiscal 2000 Budget of
$1.6 billion, represents a 5.3% increase from the fiscal year 1999 estimate.
Should revenues be less than the amount anticipated in the budget for
a fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent.
The State appropriated approximately $17.158 billion and $18.363
billion for Fiscal 1998 and 1999, respectively. Of the $18.363 billion
appropriated in fiscal year 1999 from the General Fund, the Property Tax Relief
Fund, the Casino Control Fund, the Casino Revenue Fund and Gubernatorial
Elections Fund, $7.515 billion was appropriated for State aid to local
governments, $5.014 billion was appropriated for grants-in-aid (payments to
individuals or public or private agencies for benefits to which a recipient is
entitled by law or for the provision of service on behalf of the State), $4.667
billion for Direct State services, $501.1 million for debt service on State
general obligation bonds and $667.1 million for capital construction.
Should tax revenues be less than the amount anticipated in the Budget
for a fiscal year, the Governor may, pursuant to statutory authority, prevent
any expenditure under any appropriation. The appropriations for fiscal year 1998
and for fiscal year 1999 reflect the amounts contained in the Governor's fiscal
year 1999 Budget.
The State has made appropriations for principal and interest payments
for general obligation bonds for fiscal years 1996 through 1999 in the amounts
of $446.3 million, $446.9 million, $483.7 million and $501.1 million,
respectively. The Governor's fiscal year 2000 Budget for fiscal year 2000
includes an appropriation in the amount of $518.7 million for principal and
interest payments for general obligations bonds.
NORTH CAROLINA SERIES
ECONOMIC CHARACTERISTICS. The economic profile of North Carolina
consists of a combination of industry, agriculture, and tourism.
Non-agricultural wage and salary employment accounted for approximately
3,666,800 jobs in 1997, of which approximately 834,500 were in manufacturing.
According to the North Carolina Bureau of Labor Statistics, in July, 1997, the
State ranked tenth in non-agricultural employment and eighth in manufacturing
employment. During the period from 1990 to 1997, per capita income in the State
grew from $16,674 to $23,174, an increase of 38.9%. The North Carolina
Employment Security Commission estimated the November 1998 seasonally adjusted
unemployment rate to be 3.2%, as compared with a national unemployment rate of
4.1%.
Agriculture is a basic element in North Carolina's economy. Gross
agricultural income in 1997 reached over $8.3 billion, placing the State eighth
in the nation in gross agricultural income. The poultry industry is the leading
source of agricultural income, accounting for approximately 25% of gross
agricultural income. Pork production accounts for approximately 24% of gross
agricultural income. The tobacco industry remains important to North Carolina
providing approximately 4% of gross agricultural income. In 1997, North Carolina
ranked third in the nation in net farm income.
North Carolina's agricultural diversity and a continuing emphasis on
marketing efforts have protected farm income from some of the wide variations
experienced in states where most of the agricultural economy is dependent on a
small number of agricultural commodities. North Carolina has the third most
diversified agricultural economy in the nation. In 1997, there were
approximately 54,000 farms in the State. A strong agribusiness sector also
supports farmers with farm inputs (agricultural chemicals and fertilizer, farm
machinery, and building supplies) and processing of commodities produced by
farmers (vegetable canning and cigarette manufacturing). North Carolina's
agricultural industry, including food, fiber and forest, contributes over $46
billion annually to the State's economy.
The labor force has undergone significant changes during recent years.
The State has moved from an agricultural to a service and goods producing
economy. According to the Employment Security Commission, the labor force has
grown from 2,855,200 in 1980 to 3,884,100 in 1997, an increase of 35%.
More than 734 international firms have established a presence in the
State. Charlotte is the second largest financial center in the nation, based on
assets of banks headquartered there. Bank of America, the nation's largest bank,
is based in Charlotte. The strength of North Carolina's manufacturing sector
also supports a growth in exports. The 1997 annual statistics showed $18.2
billion in exports, placing North Carolina tenth among the states in export
trade.
The Division of Tourism, Film and Sports Development of the North
Carolina Department of Commerce has estimated that approximately $10.1 billion
was spent on tourism in the State in 1997, an increase of approximately 4.1%
over 1996. The Division of Tourism, Film and Sports Development estimates that
approximately 171,000 people, or 4.7% of total non-agricultural employment, were
employed in tourism-related jobs in the State.
REVENUE STRUCTURE. North Carolina's three major operating funds which
receive revenues and from which monies are expended are the General Fund, the
Highway Fund and the Highway Trust Fund. The 1989 General Assembly created the
Highway Trust Fund to provide monies for a major highway construction program
for the State. There are no prohibitions or limitations in the North Carolina
Constitution on the State's power to levy taxes except an income tax rate
limitation of 10% and a prohibition against a capitation or "poll" tax.
A portion of North Carolina's tax revenue is generated from individual
and corporate income taxes, sales and use taxes, highway use tax on certain
short-term motor vehicle rentals, corporate franchise tax, excise taxes on piped
natural gas, taxes on alcoholic beverages, tobacco products and soft drinks,
estate taxes, insurance taxes levied on insurance companies and other taxes,
which revenues are deposited into the State's General Fund. Additional tax
revenue is generated from a motor fuels tax, a highway use tax on long term
rentals and retail sales of motor vehicles and motor vehicle license tax, which
revenue is deposited in the Highway Fund and Highway Trust Fund. Additional
non-tax revenue deposited to the General Fund consists of (i) institutional and
departmental receipts which are deposited with the State Treasurer, including
fees, tuition payments, and Federal funds collected by State agencies, (ii)
interest earned by the State Treasurer on investments of General Fund monies,
and (iii) revenues from the judicial branch. Federal aid is an important source
of non-tax revenue for the Highway Fund and Highway Trust Fund.
STATE BUDGET. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total of receipts during the fiscal period and the surplus remaining in the
State Treasury at the beginning of the period.
The budget is based upon estimated revenues and a multitude of
existing and assumed State and non-State factors, including State and national
economic conditions, international activity and federal government policies and
legislation.
The Executive Budget Act, adopted by the General Assembly in 1925,
sets out the procedure by which the State's budget is adopted and administered.
The Act requires the adoption of a balanced budget. North Carolina General
Statute Section 143-25 provides that the Governor, as ex officio Director of the
Budget, "may reduce all of said appropriations, PRO RATA when necessary, to
prevent an overdraft or deficit to the fiscal period for which such
appropriations are made. The purpose and policy of this Article is to provide
and insure that there shall be no overdraft or deficit in the General Fund of
the State at the end of the fiscal period, growing out of appropriations for
maintenance, and the Director of the Budget is directed and required to so
administer this Article so as to prevent any such overdraft or deficit. Prior to
taking any action under this section to reduce appropriations pro rata, the
Governor may consult with the Advisory Budget Commission." The Governor may take
less drastic action to reduce expenditures to maintain a balanced budget before
the need for across-the-board appropriations reduction arises.
In November 1996, the voters of the State approved a Constitutional
amendment giving the Governor the power to veto budgetary and certain other
legislative matters.
Actual General Fund tax revenue totaled $11,679,700,000 in 1997-98, an
increase of 9.5% over 1996-97. General Fund tax and non-tax revenue totaled
12,097,200,000 in 1997-98, an increase of 8.1% over 1996-97. This tax and
non-tax revenue total includes investment earnings of $447,700,000. The
individual income tax personal exemption was increased from $2,000 to $2,250 for
1995 and further to $2,500 for 1996 and beyond. In addition, a $60 child tax
credit was enacted beginning with the 1995 tax year. The remaining portion of
the State intangibles tax was also repealed as of January 1, 1995.
The State sales and use tax rate on food consumed at home was reduced
from 3.0% to 2.0% beginning January 1, 1997, and has been repealed effective
July 1, 1998. The State corporate income tax rate was reduced from 7.5% to 7.25%
in 1998, 7.0% in 1999, and will be reduced to 6.9% in 2000 and thereafter. The
State homestead exemption was increased, decreasing the ad valorem tax base for
counties. Most privilege license taxes were eliminated as of January 1, 1997.
The Highway Fund revenue collections totaled $1,778,900,000 in fiscal
year 1997-98, an 8.0% increase over 1996-97. Sources of revenues for the Highway
Fund include taxes on the sale of motor fuels as well as registration and
licensing fees for motor vehicles. This gross revenue includes investment
earnings in the amount of $18.5 million.
The Highway Trust Fund is more dependent on consumption-based
revenues, such as taxes and fees derived from sales of motor fuels and vehicles,
than the Highway Fund, which draws upon more stable sources for its revenue,
such as motor vehicle registration and licensing fees. The Highway Trust Fund
revenue collections totaled $862,200,000 in fiscal year 1997-98, an 8.8%
increase over 1996-97. This gross revenue includes investment earnings in the
amount of $62.8 million.
STATE INDEBTEDNESS. The North Carolina Constitution provides in
substance that the State shall not contract a debt, other than refunding debt,
by borrowing money in any biennium and pledge its faith and credit to the
payment thereof for an amount in excess of two-thirds of the amount by which the
outstanding debt of the State was reduced in the preceding biennium unless the
proposed debt is submitted to and approved by the voters at an election.
The State is authorized by the Constitution to borrow in anticipation
of the collection of taxes due and payable within the current fiscal year to an
amount not exceeding 50% of such taxes. The State has not borrowed in
anticipation of taxes since fiscal year 1959-60.
There are no bonds of the State outstanding which contemplate the
appropriation by the General Assembly of such amount as may be necessary to make
up any deficiency in a debt service reserve therefor. Furthermore, no
legislation has been enacted by the General Assembly which would authorize the
issuance of any such bonds.
LITIGATION. The following are cases pending in which the State of
North Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure but which, in the opinion of the Department of State Treasurer,
would not materially adversely affect the State of North Carolina's ability to
meet its financial obligations:
1. LEANDRO, ET AL. V. STATE OF NORTH CAROLINA AND STATE BOARD OF
EDUCATION - SCHOOL FUNDING. On May 25, 1994 students and boards of education in
five counties in the State filed suit in Superior Court requesting a declaration
that the public education system of North Carolina, including its system of
funding, violates the State constitution by failing to provide adequate or
substantially equal educational opportunities and denying due process of law and
violates various statutes relating to public education. Five other North
Carolina counties intervened and now allege claims for relief on behalf of their
students' rights to sound basic education on the basis of the high proportion of
at risk students in the counties' systems.
The suit is similar to a number of suits in other states, some of
which resulted in holdings that the respective systems of public education
funding were unconstitutional under the applicable state law. The State filed a
motion to dismiss, which was denied at the trial court level. On appeal, the
North Carolina Supreme Court upheld the present funding system against the claim
that it unlawfully discriminated against low wealth counties but remanded the
case for trial on the claim for relief based on the Court's conclusion that the
North Carolina Constitution guarantees every child the opportunity to obtain a
sound basic education. Trial on the claim of one plaintiff's County is set for
August of 1999. The North Carolina Attorney General's Office believes that sound
legal arguments support the State's position.
2. BAILEY/EMORY/PATTON CASES -- STATE TAX REFUNDS-STATE AND FEDERAL
RETIREES. State and local government retirees filed a class action suit in 1990
as a result of the repeal of the income tax exemptions for state and local
government retirement benefits. The original suit was dismissed after the North
Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to comply
with state law requirements for challenging unconstitutional taxes and the
United States Supreme Court denied review. In 1992, many of the same plaintiffs
filed a new lawsuit, BAILEY, ET. AL. V. NORTH CAROLINA, ET. AL., alleging
essentially the same claims, including breach of contract, unconstitutional
impairment of contract rights by the State in taxing benefits that were
allegedly promised to be tax-exempt and violation of several state
constitutional provisions.
On May 31, 1995, the Superior Court of Wake County issued an order
ruling in favor of the BAILEY plaintiffs. On May 8, 1998 the North Carolina
Supreme Court affirmed the Superior Court order in favor of the BAILEY
plaintiffs. Several additional cases, also named BAILEY, ET. AL. V. NORTH
CAROLINA, ET. AL., and one named EMORY, ET. AL. V. NORTH CAROLINA, ET. AL., were
filed by State and local government retirees to preserve their refund claims for
subsequent tax years through tax year 1997. The outcome of these cases was
controlled by the outcome of the initial BAILEY case.
In 1995, a group of federal government retirees filed a class action
suit in Wake County Superior Court, PATTON, ET. AL. V. NORTH CAROLINA, ET. AL.,
seeking refunds of State taxes paid on federal pension income since 1989. The
PATTON plaintiffs alleged that, should the plaintiffs in BAILEY prevail, such a
result would re-establish the disparity of treatment between state and federal
pension income which was held unconstitutional in DAVIS V. MICHIGAN (1989). In
DAVIS, the United States Supreme Court ruled that a Michigan income tax statute
which taxed federal retirement benefits while exempting those paid by state and
local governments violated the constitutional doctrine of intergovernmental tax
immunity. At the time of the DAVIS decision, North Carolina law contained
similar exemptions in favor of state and local retirees. Those exemptions were
repealed prospectively, beginning with 1989 tax year, resulting in the BAILEY
case.
On June 10, 1998, the North Carolina General Assembly reached an
agreement settling the BAILEY, EMORY and PATTON cases. The agreement, embodied
in a consent order, provided that the State would pay $799,000,000 in two
installments, one in 1998 and the other in 1999, to extinguish all liability for
refunds for tax years 1989 through 1997 of taxes paid by federal, State and
local government retirees who had five years of creditable service in their
retirement system prior to August 12, 1989, the date of enactment of the statute
repealing the exemptions from taxation of State and local government retirement
benefits, or who had "vested" by that date in certain "defined contribution"
plans such as the State's 401(k) and deferred compensation plans. The consent
order was conditioned upon the North Carolina General Assembly appropriating the
funds to make the payments set forth in the consent order and court approval of
the settlement following notice to class members. The appropriation of the first
installment of $400,000,000 was made, and the Superior Court approved the
settlement on October 7, 1998.
3. SMITH/SHAVER CASES - STATE TAX REFUNDS - INTANGIBLES TAX. The SMITH
case is a class action tax refund lawsuit related to litigation in FULTON
CORPORATION V. FAULKNER, a case filed by a single taxpayer and decided by the
United States Supreme Court in 1996 regarding the constitutionality of certain
taxes previously collected by the State on intangible personal property. On July
7, 1995, while the FULTON case was pending before the United States Supreme
Court, the SMITH class action was commenced in North Carolina Superior Court on
behalf of all other taxpayers who had paid the tax and had complied with the
requirements of the North Carolina tax refund statute and would, therefore, be
entitled to refunds if Fulton prevailed on its refund claim. These original
plaintiffs were later designated Class A when a second group of plaintiffs were
added. The new class, denominated Class B, consisted of taxpayers who had paid
the tax but had failed to comply with the tax refund statute. On February 21,
1996, the United States Supreme Court held in FULTON that the State's
intangibles tax on shares of stock in non-North Carolina corporations (by then
repealed) violated the Commerce Clause of the United States Constitution because
it discriminated against stock issued by corporations that do all or part of
their business outside of North Carolina. It remanded the case to the North
Carolina Supreme Court to consider remedial issues, including whether the
offending provision in the statute (the taxable percentage deduction) was
severable.
On February 10, 1997, the Supreme Court of North Carolina in the
FULTON remand proceeding severed the taxable deduction provision and invited the
General Assembly to determine the appropriate remedy for the discriminatory tax
treatment of eligible taxpayers who paid the tax but did not benefit from the
deduction. While the General Assembly considered the remedial issues raised by
the FULTON remand, the SMITH plaintiffs moved for judgment on their refund
claims. On June 11, 1997, the trial judge in SMITH ordered refunds to be made
for tax years 1991-1994 to the Class A plaintiffs and dismissed the Class B
claims. Refunds to Class A taxpayers, totaling approximately $120,000,000 have
been paid, with interest. The Class B plaintiffs appealed, and on December 4,
1998, the North Carolina Supreme Court reversed the dismissal of their claims.
As a result of the SMITH decision, the State will be required to pay refunds to
the Class B plaintiffs. As of March 31, 1999, the State estimated that its
liability for such tax refunds, with interest through June 30, 1999, would be
approximately $350,000,000.
A second class action tax refund lawsuit, SHAVER, ET. AL. V. NORTH
CAROLINA, ET. AL., was filed on January 16, 1998, by the same taxpayers as the
Class B plaintiffs in SMITH asserting alternative theories of recovery for the
same tax years 1991 through 1994 involved in the SMITH case and claiming refunds
for one additional tax year, 1990. Their additional claim for tax year 1990
totaled approximately $100,000,000.
On July 12, 1999, the General Assembly approved a plan to settle all
outstanding claims in the SMITH and SHAVER cases for a total sum of
$440,000,000. Pursuant to the terms of the settlement plan, $200,000,000 will be
appropriated by the State in October 1999, and the remaining $240,000,000 will
be appropriated no later than July 2000. Final implementation of the settlement
is contingent upon the entrance of a consent order by the presiding judge in the
SMITH and SHAVER cases.
4. N.C. SCHOOL BOARDS ASSOCIATION, ET. AL. V. HARLAN E. BOYLES, STATE
TREASURER, ET. AL. - USE OF ADMINISTRATION PAYMENTS. On December 14, 1998,
plaintiffs, including the county school boards of five counties, filed suit in
Superior Court requesting a declaration that certain payments to State
administrative agencies must be distributed to the public schools on the theory
that such amounts are fines which under the North Carolina Constitution must be
paid to the schools. For the last fiscal year for which information was
available to them, plaintiffs allege liability of approximately $84,000,000.
Until this matter is resolved, any refunds and interest will continue to accrue.
The North Carolina Attorney General's office believes that sound legal arguments
support the State's position on the outstanding claims.
5. FAULKENBURY V. TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM,
PEELE V. TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM AND WOODARD V. LOCAL
GOVERNMENTAL EMPLOYEES' RETIREMENT SYSTEM - DISABILITY RETIREMENT BENEFITS.
Plaintiffs are disability retirees who brought class actions in state court
challenging changes in the formula for payment of disability retirement benefits
and claiming impairment of contract rights, breach of fiduciary duty, violation
of other federal constitutional rights, and violation of state constitutional
and statutory rights. The Superior Court ruled in favor of plaintiffs. The Order
was affirmed by the North Carolina Supreme Court in 1997. The case went back to
the Superior Court for calculations of benefits and payment of retroactive
benefits, along with determination of various remedial issues. As a result of
the remedial proceedings, there are now two appeals pending in the appellate
courts concerning calculation of retroactive benefits. The plaintiffs previously
submitted documentation to the court asserting that the cost in damages and
higher prospective benefit payments to the plaintiffs and class members would
amount to $407.0 million. Calculations and payments so far indicate that
retroactive benefits will be significantly less than estimated, depending in
part on the pending appeals. Payments have been made by the State of
approximately $73.0 million. The remaining liability for retroactive benefits is
estimated by the State not to exceed $42.0 million. All retroactive payments and
future benefit payments are payable from the funds of the Retirement systems.
OHIO SERIES
STATE ECONOMY AND BUDGET. The "non-manufacturing" sector employs
approximately 80% of all non-agricultural payroll workers in the State of Ohio.
Economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture and related agricultural sectors combined also is an important
segment of the Ohio economy. The financial condition of the State has fluctuated
in a pattern related to national economic conditions, with periods of prolonged
stringency characterizing fiscal years 1980 through 1983. Additionally, the
1980-82 recession brought with it a substantial increase in bankruptcies and
foreclosures. While the State's economy improved since 1983, the State
experienced an economic slowdown in 1990-91, consistent with the national
economic conditions during that period. In recent years the State has
experienced an increase in economic activity, fueled in part by employment
growth in the non-manufacturing sector, consistent with the national trend. This
economic upswing served as a basis for temporary personal income tax reductions
in 1996.
The State constitution requires the Ohio General Assembly to "provide
for raising revenue, sufficient to defray the expenses of the State, for each
year, and also a sufficient sum to pay the principal and interest as they become
due on the State debt." The State is effectively precluded by law from ending a
fiscal year or a biennium in a "deficit" position. State borrowing to meet
casual deficits or failures in revenues or to meet expenses not otherwise
provided for is limited by the constitution to $750,000.
The State finances most of its operations through the General Revenue
Fund ("GRF") which receives general state revenues not otherwise dedicated
pursuant to certain constitutional and statutory claims on state revenues. The
GRF sources consist primarily of personal income and sales and use taxes. The
GRF ending (June 30) biennial fund balance is reduced during less-favorable
national economic periods and then increases during more favorable economic
periods.
The Office of Budget and Management ("OBM") reported positive $1,084.4
million and $1,649.0 million ending fund and cash balances, respectively, for
the GRF for fiscal year ended June 30, 1998. As of June 10, 1999, the OBM
reported an estimated positive $232.5 million ending fund balance for the GRF
for the fiscal year ended June 30, 1999. In addition, as of June 1, 1999, the
Budget Stabilization Fund ("BSF") had a cash balance of $906.9 million.
The GRF appropriations act for the biennium beginning July 1, 1997 was
passed on June 25, 1997 and promptly signed (after selective vetoes) by the
Governor. That act provided for total GRF biennial expenditures of over $36.0
billion, an increase over those for the prior biennium. Subsequent legislation
increased by approximately 2.73% the GRF fiscal year 1999 appropriation level
for elementary and secondary education, to be funded in part by mandated small
(0.5-3%) reductions in State appropriations for various State agencies and
institutions; expressly exempt from those reductions are all appropriations for
debt service including lease rental payments. The June 30, 1998 GRF ending fund
balance guaranteed the availability of funds to support an income tax reduction
for calendar year 1998 and educational projects in the State. In accordance with
Ohio General Assembly direction, $701.4 million was transferred to the Income
Tax Reduction Fund to provide a tax cut in the 1998 income tax rates; transfers
of $170.0 million and $30.0 million were made to the Public School Building
Assistance Fund and the School District Solvency Fund, respectively. In
addition, $44.2 million was transferred from the GRF to the Budget Stabilization
Fund.
State statutory provisions provided for effective management by
permitting the adjustment of payment schedules (as was done during some prior
fiscal years) and the use of the Total Operating Fund ("TOF") to manage
temporary GRF cash flow deficiencies. The State has not undertaken external
revenue anticipation borrowing.
TOF includes the total consolidated total cash balances, revenues,
disbursements and transfers of the GRF and several other specified funds. TOF
cash balance at June 30, 1998 was $6.3171 billion. These cash balances are
consolidated only for the purpose of meeting cash flow requirements and, except
for the GRF, a positive cash balance must be maintained for each discrete fund
included in the TOF. The GRF is permitted to incur a temporary cash deficiency
by drawing upon the available consolidated cash balance in the TOF. The amount
of that permitted GRF cash deficiency at any time is limited to 10% of GRF
revenues for the then-preceding fiscal year. GRF cash flow deficiencies occurred
in five months of the fiscal year ending June 30, 1998, the highest being $742.1
million in December 1997. As of June 1, 1999, the OMB reported cash flow
deficiencies in six months of the fiscal year ending June 30, 1999.
STATE DEBT. The Ohio Constitution prohibits the incurrence or
assumption of debt by the State without a popular vote except to (i) cover
causal deficits or failures in revenues limited in amount of $750,000 and (ii)
repel invasion, suppress insurrection or defend the State in war.
From 1921 to June 1, 1999, the voters of Ohio, by fifteen
constitutional amendments, have authorized the incurrence of state borrowing
debt to which taxes or excises were pledged for payment, all of which related to
capital facilities financing, except for three funding veterans' bonuses. The
only such tax-supported debt still authorized to be incurred are highway, local
infrastructure, coal development and natural resources general obligation bonds.
A 1995 constitutional amendment authorized additional Highway Bonds
(superseding a prior Highway Bond authorization, the authority to issue under
which expired in 1996). The amendment authorizes not more than $1.2 billion to
be outstanding at any time and not more than $220.0 million to be issued in a
fiscal year. As of June 1, 1999, $375.0 million of Highway Bonds were issued, of
which $315.0 million were outstanding. As of that same date, an additional $320
million of Highway Bonds are authorized in a pending appropriations bill.
A 1985 constitutional amendment authorized up to $100.0 million in
state full faith and credit obligations for coal research and development to be
outstanding at any one time. In addition, the General Assembly has authorized
the issuance of $150.0 million of Coal Development Bonds. As of June 1, 1999,
$95.0 million of Coal Development Bonds were issued, of which $23.9 million were
outstanding.
A 1987 State constitutional amendment authorized the issuance of $1.2
billion of State full faith and credit obligations for general obligation
Infrastructure Bonds to finance local infrastructure improvements of which no
more than $120.0 million may be issued in any calendar year. A 1995
constitutional amendment extended this authority by authorizing an additional
$1.2 billion of full faith and credit obligations to be issued over ten years,
not more than $120.0 million to be issued in a fiscal year. As of June 1, 1999,
approximately $1.3 billion of such obligations were issued, of which
approximately $1.0 billion were outstanding.
A constitutional amendment adopted in 1990 authorizes greater State
and political subdivision participation in the provision of housing for
individuals and families. This supplements the previously constitutionally
authorized loans-for-lenders and other housing assistance programs, financed in
part with State revenue bonds. The amendment authorizes the General Assembly to
provide for State assistance for housing in a variety of ways. The General
Assembly could authorize State borrowing for the purpose by the issuance of
obligations secured by a pledge of all or such portion as it authorizes of State
revenues or receipts, although the obligations may not be supported by the
State's full faith and credit.
A constitutional amendment approved by the voters in 1993 authorizes
$200.0 million in state general obligation bonds to be outstanding for parks,
recreation and natural resource purposes (no more than $50.0 million to be
issued in any one fiscal year).
A constitutional amendment approved at the November 1994 election
pledges the full faith and credit and taxing power of the State to meet certain
guarantees under the State's tuition credit program. That program provides for
purchase of tuition credits, for the benefit of state residents, guaranteed to
cover a specified amount when applied to the cost of higher education tuition.
Under the amendment, to secure the tuition guarantees the General Assembly shall
appropriate monies sufficient to offset any deficiency that may occur from time
to time in the trust fund that provides for the guarantees and at any time
necessary to make payment of the full amount of any tuition payment or refund
required by a tuition payment contract.
In addition, the State constitution authorizes the issuance, for
certain purposes, of State obligations the owners or holders of which are not
given the right to have taxes or excises levied by the General Assembly to pay
principal and interest. Such special obligations include those issued by, among
others, the Ohio Public Facilities Commission ("OPFC"), the Ohio Building
Authority ("OBA") and certain obligations issued by the Treasurer of State. As
of June 1, 1999, the OPFC had issued approximately $4.718 billion for higher
education facilities, approximately $2.177 billion of which were outstanding,
approximately $1.117 billion for mental health facilities, approximately $360.8
million of which were outstanding and $194.9 million for parks and recreation
facilities, approximately $79.0 million of which were outstanding. As of that
same date, the OBA had issued approximately $3.2 billion of special obligations,
approximately $2.5 billion of which were outstanding. The special obligations
were issued for facilities related to prisons, the Department of Youth Services,
the Department of Administration Services, the Arts and Sports Facilities
Commission, the Ohio Department of Transportation, the Department of Natural
Resources, the Department of Public Safety and the Bureau of Workers'
Compensation. Also as of June 1, 1999, the Treasurer of State had issued
approximately $333.6 million for educational facilities, approximately $286.3
million of which were outstanding.
A statewide economic development program assists, with loans and loan
guarantees, the financing of facilities for industry, commerce, research and
distribution. The law authorizes the issuance of state bonds and loan guarantees
secured by a pledge of portions of the state profits from liquor sales. The
General Assembly has authorized the issuance of these bonds by the State
Treasurer, with a general maximum of $300 million currently authorized to be
outstanding at any one time (excluding bonds issued to meet guarantees, but less
any amount by which 4% of the unpaid principal amount of guaranteed loan
payments exceeds the funded amount applicable to the guarantees). The aggregate
amount from the liquor profits to be used in any fiscal year in connection with
these bonds (except for bonds issued to meet guarantees) may not under present
law exceed $25 million. The total of unpaid guaranteed loan amounts and unpaid
principal of direct loans may not exceed $500 million. A 1996 issue of $168.74
million ($161.16 million outstanding) of taxable bonds refunded outstanding
bonds and provided additional funds for the program. A 1998 issue of
approximately $102.0 million of taxable forward purchase refunding bonds were
issued to refund, as of 2006, term bonds of the 1996 issue stated to mature in
2016 and 2021. The highest future fiscal year debt service on the outstanding
bonds of those issues, which are payable through 2021, is approximately $16.2
million in 2008.
Only a portion of State capital needs can be met by direct GRF
appropriations; therefore, additional State borrowing for capital purposes has
been and will be required. Under present constitutional limitations, most of
that borrowing has been and will continue to be primarily by lease-rental
supported obligations such as those issued by OPFC and OBA and, in some cases,
by the Treasurer.
The capital appropriations act for the 1999-2000 biennium authorizes
additional borrowing, including over $1.4 billion in lease rental obligations
issued by OBA, OPFC and the Treasurer. It authorizes issuance by OPFC of
obligations, in addition to those previously authorized by the General Assembly,
in the amounts $555.6 million for higher education capital facilities projects
(a substantial number of which are renovations of equipment and improvements to
existing facilities), $64.0 million for mental health facilities projects
(including local projects), and $31.2 million for parks and recreation
facilities. It also authorizes the OBA to issue obligations in the amounts of
$224.0 million for local jails and prisons, $25.0 million for Department of
Youth Services facilities, $140.0 million for Department of Administrative
Services facilities, $80.8 million for Ohio Arts and Sports Facilities
Commission facilities. In addition, the Treasurer of State has been authorized
to issue bonds to finance approximately $355.0 million of capital improvements
for elementary and secondary public school facilities and $240.0 million for
local infrastructure projects. As of June 1, 1999, the Commissioners of the
Sinking Fund had additional General Assembly authorization for additional
borrowing of $48.8 million for natural resources facilities.
1997 legislation provided for two new categories of revenue-type
financing. The Ohio Building Authority is authorized to issue lease revenue
obligations to assist in the financing of up to 15% of the estimated cost of
certain Ohio sports facilities. In addition, a revolving fund is created to
assist in financing local transportation facilities, initially funded with a
deposit of $30.0 million of GRF monies.
A State law, originally enacted in 1986 and now amended (the "Rail
Act"), authorizes the Ohio Rail Development Commission (replacing the prior Ohio
High-Speed Rail Authority) to issue obligations to finance the cost of rail
service projects within the State, either directly or by loans to other
entities. The Rail Act originally was limited to inter-city passenger services.
The amendments extend the authority to include freight and commuter service. The
Rail Development Commission (or the predecessor Authority) from time to time has
considered financing plan options and the general possibility of issuing bonds
or notes. The Rail Act prohibits, without express approval by joint resolution
of the General Assembly, the collapse of any escrow of financing proceeds for
any purpose other than payment of the original financing, the substitution of
any other security, and the application of any proceeds to loans or grants. The
Rail Act authorizes the Rail Development Commission, but only with subsequent
General Assembly action, to pledge the faith and credit of the State but not the
State's power to levy and collect taxes (except AD VALOREM property taxes if
subsequently authorized by the General Assembly) to secure debt service on any
post-escrow obligations and, provided it obtains the annual consent of the State
Controlling Board, to pledge to and use for the payment of debt service on any
such obligations all excises, fees, fines and forfeitures and other revenues
(except highway use receipts) of the State after provision for the payment of
certain other State obligations. The Ohio Department of Transportation
appropriations bill for the 1998-1999 biennium, repealed the "full faith and
credit" and use of state revenue provisions.
The General Assembly has placed on the November, 1999, general
election ballot a proposed constitutional amendment dealing with State debt. If
approved by the voters, it will authorize State general obligation debt to pay
costs of facilities for a system of common schools throughout the State and
facilities for state supported and assisted institutions of higher education.
That and other debt represented by direct obligations of the State (such as that
authorized by the OPFC and OBA) could not be issued if future fiscal year total
debt service on those obligations to be paid from the GRF or net lottery
proceeds exceeds 5% of total estimated revenues of the State for the GRF and
from net State lottery proceeds during the fiscal year of issuance.
The State and state agencies have issued revenue bonds that are
payable from net revenues of or relating to revenue-producing facilities or
categories of facilities, such as those issued by the Ohio Turnpike Commission.
Under interpretations by Ohio courts, those revenue bonds are not "debt" within
the meaning of the constitutional provisions prohibiting the incurrence of debt
without popular vote. The Constitution also authorizes State bonds (issued by
the Ohio Housing Finance Agency) for certain housing purposes; tax monies may
not be obligated or pledged to those bonds.
The State is a party to various legal proceedings seeking damages or
injunctive relief. The State also is party to certain litigation questioning the
constitutionality of the State's system of school funding. The Ohio Supreme
Court concluded in 1997 that major aspects of the system are unconstitutional.
It ordered the State to provide for and fund sufficiently a system complying
with the Ohio Constitution, staying its order to permit time for responsive
corrective actions by the General Assembly. The Court has indicated that
property taxes may still play a role in, but "can no longer be the primary
means" of, school funding. The Court remanded the case to the trial court to
hear evidence and render an opinion on the constitutionality of the enacted
legislation which opinion could then be appealed directly to the Ohio Supreme
Court. A hearing in the trial court was subsequently held on the
constitutionality of the legislation enacted since 1992 to enhance school
funding consistent with the Supreme Court decision.
In February 1999, the trial court ruled that the State continues to be
not in compliance with the constitutional requirements, and ordered the State
"forthwith to provide for and fund a system of funding public elementary and
secondary education in compliance with the Ohio Constitution and the 1997
directive of the Ohio Supreme Court." The court also ordered the State Board of
Education and the State Superintendent of Public Instruction to prepare and
submit to the General Assembly proposals for compliance with the trial court
orders and the Supreme Court directive.
The State has filed with the Ohio Supreme Court a notice of appeal of
the trial court's decision. The trial court has granted the State's request for
a stay, pending appeal, of implementation of its order (except that portion
calling for State agency proposals). It is not possible at this time to state
what the results of any appeal might be, or, should plaintiffs prevail on
appeal, the effect on the State's present school funding system.
In addition, there is litigation pending in the Ohio Court of Claims
which contests the Ohio Department of Human Services' (ODHS) prior Medicaid
financial eligibility rules for married couples when one spouse is living in a
nursing facility and the other resides in the community. ODHS promulgated new
eligibility rules effective January 1, 1996. ODHS appealed an order of the
federal court directing it to provide notice to persons potentially affected by
the former rules from 1990 though 1995, and the court of appeals ruled in favor
of ODHS; plaintiff's petition for certiorari was not granted by the U.S. Supreme
Court. As to the Court of Claims case, it is not possible to state the period
(beyond the current fiscal year) during which necessary additional Medicaid
expenditures would have to be made. Plaintiffs have estimated total additional
Medicaid expenditures at $600,000,000 for the retroactive period and, based on
current law, it is estimated that the State's share of those additional
expenditures would be approximately $240,000,000. On April 15, 1999, the Court
of Claims decertified the action there as a class action.
Major offices of the State have had under way extensive efforts and
programs to identify and assess, and remediate when necessary, year 2000
problems involving data processing systems and other systems and equipment
critical to continued and uninterrupted State agency operations. Various
remediation efforts are either under way or complete. For example, OBM is 100%
complete as to the State accounting system. In addition to significant review
and activity by the State Treasurer and State Auditor offices, a Year 2000
Competency Center has been operating in the Division of Computer Services in the
Department of Administrative Services (DAS), serving cabinet-level agencies.
Among the areas addressed by the State Treasurer's office are the
paying agent and trustee relationships with respect to State bonds and
investments (both State funds, and the STAR Ohio program for the State and local
subdivisions). The State Auditor's efforts have in large part involved the State
system of payments, compliance with various grant contracts, and efforts by
local subdivisions to achieve a level of satisfactory compliance. The
Treasurer's office and the Department of Taxation are involved directly in the
collection and processing of State taxes. Particular emphasis has been placed on
those areas.
The DAS Year 2000 Competency Center has been reviewing detailed
written plans and reporting on remediation project completion percentages and
scheduled completion dates. As an example, by late February 1999, it reported
that the Department of Taxation remediation of critical systems was 100%
complete.
Overall, those involved State offices and agencies are satisfied that
material areas for which they are responsible and that may require remediation
have been and are being identified and will be addressed timely and that the
cost of that remediation will be within monies available and appropriated. The
State's remediation efforts have been aimed primarily at ensuring the unimpeded
and uninterrupted operation of State government, including tax collections,
investments and timely payment of State obligations. The State expects to be in
material compliance by January 1, 2000, in most cases. There are agencies
outside the purview of these reviews and efforts, including the State
universities and retirement systems, that are pursuing their own assessment and
remediation activities. The success of remediation efforts by the State and by
prominent outside parties will not be fully determined until the year 2000 and
thereafter.
The outstanding state bonds issued by the OPFC and the OBA are rated
"AA-" by both S&P and Fitch and "Aa3" by Moody's. Certain recent or portions of
issues of OPEC or OBA bonds are the object of municipal bond insurance procured
by the original or subsequent purchasers and bear different ratings.
The outstanding Highway Bonds issued by the Sinking Fund are rated
"Aa1" by Moody's, "AA+" by Fitch and "AAA" by S&P. The outstanding Highway
Obligation Bonds issued by the Sinking Fund are rated "Aa1" by Moody's, "AA+" by
Fitch, and "AAA" by S&P.
The outstanding Natural Resources Bonds and Coal Development Bonds
issued by the Sinking Fund are rated "Aa1" by Moody's, "AA+" by S&P, and "AA+"
by Fitch.
STATE EMPLOYEES AND RETIREMENT SYSTEMS. The State has established five
public retirement systems to provide retirement, disability retirement and
survivor benefits. The Public Employees Retirement System ("PERS"), the largest
of the five, covers both State and local public employees. The State Teachers
Retirement System ("STRS") and School Employees Retirement System ("SERS")
primarily cover school district and public higher education employees. The
Highway Patrol Retirement System ("HPRS") covers State troopers, and the Police
and Firemen's and Disability and Pension Fund System ("PFDPS") covers local
safety forces.
As the most recent year reported by the particular system, the
unfunded accrued liabilities of STRS and SERS were $7.262 billion and $624.0
million, respectively, and the unfunded accrued liabilities of PERS, HPRS and
PFDPS were $2.098 billion, $26.7 million and $1.47 billion, respectively.
STATE MUNICIPALITIES. Ohio has a mixture of urban and rural
population, that is approximately three-quarters urban. There are 943
incorporated cities and villages (municipalities with populations under 5,000)
in the State; six cities have populations of over 100,000 and eighteen over
50,000.
A 1979 act established procedures for identifying and assisting those
few cities and villages experiencing defined "fiscal emergencies." A commission
composed of state and local officials, and private sector members experienced in
business and finance appointed by the Governor, is to monitor the fiscal affairs
of a municipality facing substantial financial problems. That act requires the
municipality to develop, subject to approval and monitoring by its commission, a
financial plan to eliminate deficits and cure any defaults and otherwise remedy
fiscal emergency conditions, and to take other actions required under its
financial plan. It also provides enhanced protection for the municipality's
bonds and notes and, subject to the act's stated standards and controls, permits
the State to purchase limited amounts of the municipality's short-term
obligations (used only once, in 1980).
Over the years, the act's "fiscal emergency" provisions have been
applied to 12 cities and to 14 villages. The situations in 10 cities and 10
villages have been resolved and their commissions terminated. Only the cities of
East Cleveland and Uhrichsville and four villages remain under the procedure. A
new preliminary "fiscal watch" status has recently been added, with two cities
currently in this status.
The fiscal emergency legislation was recently amended to extend its
potential application to counties (88 in the State) and townships. This
extension is on an "if and as needed" basis, and not aimed at particular
identified existing fiscal problems of those subdivisions.
New legislation addresses larger school districts in financial
straits. It is similar to that for municipal "fiscal emergencies," but is
particularly tailored to certain school districts and their present and
potential fiscal problems. It has been applied to nine districts, and ten
districts are currently on preliminary "fiscal watch" status.
Federal courts have ruled that the State shared joint liability with
the local school districts for segregation in Cincinnati, Cleveland, Columbus,
Dayton and Lorain. Subsequent trial court orders directed that remedial costs be
shared equally by the State and the respective local districts. For that purpose
recent biennial appropriations were approximately $119.4 million in 1994-95,
$144.8 million in 1996-97; $50.4 million is appropriated for each year of the
current biennium. A recent settlement agreement in one desegregation case is
reducing annual state payments to one district.
SUMMARY. Many factors affect or could affect the financial condition
of the State and other issuers of debt obligations, many of which are not within
the control of the State or such issuers. There can be no assurance that such
factors and the resulting impact on State and local governmental finances will
not affect adversely the market value of Ohio Municipal Obligations held in the
portfolio of the Fund or the ability of the respective obligors to make required
payments on such obligations.
PENNSYLVANIA SERIES
GENERAL. Pennsylvania historically has been dependent on heavy
industry, although declines in the coal, steel and railroad industries have led
to diversification of the Commonwealth's economy over the last thirty years.
Recent sources of economic growth in Pennsylvania are in the service sector,
including trade, medical and health services, education and financial
institutions. Agriculture continues to be an important component of the
Commonwealth's economic structure, with nearly one-third of the Commonwealth's
total land area devoted to cropland, pasture and farm woodlands.
In 1998, the population of Pennsylvania was 12 million, ranking fifth
in the nation. According to the U.S. Bureau of the Census, Pennsylvania
experienced a slight increase from the 1989 estimate of 11.87 million.
Pennsylvania has a high proportion of persons 65 or older, and is highly
urbanized, with almost 80% of the 1990 census population residing in the 15
Metropolitan Statistical Areas of the Commonwealth. The cities of Philadelphia
and Pittsburgh, the Commonwealth's largest metropolitan statistical areas,
together comprise approximately 44% of the Commonwealth's total population.
The State's workforce is estimated at 5.9 million people, ranking as
the sixth largest labor pool in the nation. Pennsylvania's average annual
unemployment rate remained below the national average between 1986 and 1990.
Slower economic growth caused the rate to rise to 7.0% in 1991 and 7.6% in 1992.
The resumption of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 7.1% in 1993. From 1994 through 1998,
Pennsylvania's annual average unemployment rate was below that of the Middle
Atlantic Region but slightly higher than that of the United States as a whole.
Seasonally adjusted data for April 1999 shows an unemployment rate of 4.4%,
compared to an unemployment rate of 4.3% for the United States as a whole.
FINANCIAL ACCOUNTING. Pennsylvania utilizes the fund method of
accounting and over 150 funds have been established for the purpose of recording
receipts and disbursements, of which the General Fund is the largest. Most of
the operating and administrative expenses are payable from the General Fund. The
Motor License Fund is a special revenue fund that receives tax and fee revenues
relating to motor fuels and vehicles, and except for one-half cent per gallon of
the liquid fuels tax which is deposited in the Liquid Fuels Tax Fund for
distribution to local municipalities, all such revenues are required to be used
for highway purposes. Other special revenue funds have been established to
receive specified revenues appropriated to specific departments, boards and/or
commissions. Such funds include the Game, Fish, Boat, Banking Department, Milk
Marketing, State Farm Products Show, State Racing and State Lottery Funds. The
General Fund, all special revenue funds, the Debt Service Funds and the Capital
Project Funds combine to form the Governmental Fund Types.
The Tax Stabilization Reserve Fund was established in 1986 and
provided with initial funding from General Fund appropriations. The Tax
Stabilization Reserve Fund receives 15% of any budgetary basis fiscal year-end
surplus of the General Fund and all proceeds from the disposition of assets of
the Commonwealth not designated for deposit elsewhere. It is to be used for
emergencies threatening the health, safety or welfare of citizens or to offset
unanticipated revenue shortfalls due to economic downturns. Assets of the fund
may be used upon recommendation by the Governor and an approving vote by
two-thirds of the members of each house of the General Assembly. The fund
balance is anticipated to be in excess of $932.0 million as of the close of the
fiscal 1999.
Enterprise funds are maintained for departments or programs operated
like private enterprises. The largest of the Enterprise funds is the State
Stores Fund, which is used for the receipts and disbursements of the
Commonwealth's liquor store system. Sale and distribution of all liquor within
Pennsylvania is a government enterprise.
Financial information for the funds is maintained on a budgetary basis
of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
REVENUES AND EXPENDITURES. Pennsylvania's Governmental Fund Types
receive over 57% of their revenues from taxes levied by the Commonwealth.
Interest earnings, licenses and fees, lottery ticket sales, liquor store
profits, miscellaneous revenues, augmentations and federal government grants
supply the balance of the receipts to these funds. Revenues not required to be
deposited in another fund are deposited in the General Fund. The major tax
sources for the General Fund are the 6% sales and use tax (33.9% of General Fund
revenues in fiscal 1998), the 2.8% personal income tax (34.4% of General Fund
revenues in fiscal 1998) and the 9.99% corporate net income tax (9.4% of General
Fund revenues in fiscal 1998). Tax and fee proceeds relating to motor fuels and
vehicles are constitutionally dedicated to highway purposes and are deposited
into the Motor License Fund. The major sources of revenues for the Motor License
Fund include the liquid fuels tax and the oil company franchise tax. That Fund
also receives revenues from fees levied on heavy trucks and from taxes on fuels
used for aviation purposes. These latter revenues are restricted to the repair
and construction of highway bridges and aviation programs, respectively.
Revenues from lottery ticket sales are deposited in the State Lottery Fund and
are reserved by statute for programs to benefit senior citizens.
Pennsylvania's major expenditures include funding for education ($7.5
billion of fiscal 1998 expenditures, and $7.85 billion of the fiscal 1999
budget) and public health and human services ($13.5 billion of fiscal 1998
expenditures, and $15.1 billion of the fiscal 1999 budget).
GOVERNMENTAL FUND TYPES: FINANCIAL CONDITION/RESULTS OF OPERATIONS
(GAAP BASIS). Financial conditions during fiscal years 1991 through 1995 were
distinguished by slow economic growth and a rapid expansion of the costs of
certain governmental programs that together produced a significant stress on the
Commonwealth's budget. These problems were particularly evident during fiscal
years 1990 and 1991 when revenues were significantly below projections, and
expenditures, largely driven by demand for public welfare services, rose above
budgeted amounts. Actions taken during fiscal 1992 to bring the General Fund
back into balance, including tax increases and expenditure restraints, resulted
in a $1.1 billion reduction to the unreserved-undesignated fund deficit for
combined Governmental Fund Types and a return to a positive fund balance. The
fund balance for the governmental fund types, as restated, increased during the
1994 through 1998 fiscal years. As of June 30, 1998, the fund balance totaled
approximately $1,959 million, including an unreserved-undesignated fund balance
of $497.0 million. In view of current budget projections showing higher
expenditures and slower growth in future fiscal years, the fund balance is
expected to decline in future years.
GENERAL FUND: FINANCIAL CONDITION/RESULTS OF OPERATIONS.
FIVE YEAR OVERVIEW (GAAP BASIS). For the five year period FY 1994
through FY 1998, total revenues and other sources rose at a 4.7% average annual
rate while total expenditures and other uses grew by 4.0% annually. The majority
of the increase in total revenues and other sources during this period occurred
during fiscal 1998 due to tax and fee increases. Also, improved financial
results and structural cash flow modifications contributed to lower borrowing.
FISCAL 1997 FINANCIAL RESULTS (GAAP BASIS): For fiscal 1997, assets
increased $563.4 million and liabilities declined $166.3 million to produce a
$729.7 million increase in fund balance at June 30, 1997. The fund balance
increase during fiscal 1997 has brought a restoration of an
undesignated-unreserved balance. The $187.3 million undesignated-unreserved
balance was the first recorded since fiscal 1994. Total revenues and other
sources rose 3.5% for fiscal 1997. An increase of 5.5% in tax revenue aided by
an improving State economy was partially offset by a $175.2 million decline in
intergovernmental revenues. Expenditures and other uses increased 1.0% for the
fiscal year. As in the past several fiscal years, expenditure increases were led
by protection of persons and property program costs. Fiscal 1997 costs for this
program rose by 4.7%, the largest increase for a program. General government
program costs for fiscal 1997 declined by 14.3% from the fiscal year earlier. A
reduction in estimated expenditures for maintaining the Commonwealth's
self-insured worker's compensation program is largely responsible for the
decline.
FISCAL 1997 FINANCIAL RESULTS (BUDGETARY BASIS): The unappropriated
balance of Commonwealth revenues increased during the 1997 fiscal year by $432.9
million; higher than estimated revenues and slightly lower expenditures than
budgeted caused the increase. The unappropriated balance rose from an adjusted
amount of $158.5 million at the beginning of fiscal 1997, to $591.4 million
(prior to reserves for transfer to the Tax Stabilization Reserve Fund) at the
close of the fiscal year. Transfers to the Tax Stabilization Reserve Fund for
fiscal 1997 operations were $188.7 million, of which $88.7 million represents
the normal 15% of the ending unappropriated balance, plus an additional $100.0
million authorized by the General Assembly when it enacted the fiscal 1998
budget. Commonwealth revenues (prior to tax refunds) during the fiscal year
totaled $17.3206 billion, which was $576.1 million (3.4%) above the budget
estimate. Revenue from taxes was the largest contributor to higher than
estimated receipts. Tax revenue in fiscal 1997 grew 6.1% over tax revenues in
fiscal 1996. Personal income collections were $236.3 million over estimate
representing a 6.9% increase over fiscal 1996 receipts. Receipts of the sales
and use tax were $185.6 million over estimate representing a 6.2% increase.
Collections of corporate taxes also exceeded their estimates for the fiscal
year. Non-tax revenues were $19.8 million (5.8%) over estimate mostly due to
higher than anticipated interest earnings. Expenditures from Commonwealth
revenues (excluding pooled financing expenditures) during fiscal 1997 totaled
$16.3477 billion and were close to the estimate made in February 1997.
FISCAL 1998 FINANCIAL RESULTS (GAAP BASIS): For fiscal 1998, general
fund (including the Tax Stabilization Reserve Fund) assets increased $705.1
million and liabilities rose by $111.1 million during the fiscal year. These
changes contributed to a $310.3 million rise in the undesignated-unreserved
balance for June 30, 1998, to $497.6 million, the highest level achieved since
audited GAAP reporting was instituted in 1984. Fiscal 1998 total revenues and
other sources rose 4.3% led by an 11.1% increase in other revenues, largely
charges for sales and services and investment income. Tax revenues rose 4.2%.
Expenditures and other uses during fiscal 1998 rose by 4.5%. Program areas with
the largest percentage increase for the fiscal year were economic development
and assistance (21.3%), transportation (19.3%) and general government (14.3%).
FISCAL 1998 FINANCIAL RESULTS (BUDGETARY BASIS): Operations during the
1998 fiscal year increased the unappropriated balance of Commonwealth revenues
during that period by $86.4 million to $488.7 million at June 30, 1998 (prior to
transfers to the Tax Stabilization Reserve Fund). Higher than estimated
revenues, offset in part by increased reserves for tax refunds and by slightly
lower expenditures than budgeted were responsible for the increase. Transfers to
the Tax Stabilization Reserve Fund for fiscal 1998 operations total $223.3
million consisting of $73.3 million representing the required transfer of 15% of
the ending unappropriated surplus balance, plus an additional $150.0 million
authorized by the General Assembly when it enacted the fiscal 1999 budget. With
these transfers, the balance in the Tax Stabilization Reserve Fund exceeds
$668.0 million and represents 3.7% of fiscal 1998 revenues. Commonwealth
revenues (prior to tax refunds) during the fiscal year totaled $18.1232 billion,
or $676.1 million (3.9%) above the estimate made at the time the budget was
enacted. Tax revenue received in fiscal 1998 grew 4.8% over tax revenues
received during fiscal 1997. This rate of increase includes the effect of
legislated tax reductions that affected receipts during both fiscal years and
therefore understates the actual underlying rate of growth of tax revenue during
fiscal 1998. Personal income tax collections were $416.6 million over estimate
representing an 8.5% increase over fiscal 1997 receipts. Sales and use tax
receipts were $6.2 million over estimate representing a 1.9% increase. Aggregate
receipts from corporate taxes also exceeded the estimate for the fiscal year.
Non-tax revenues were $27.5 million (8.6%) over estimate, mostly due to greater
than anticipated interest earnings for the fiscal year. Reserves established
during fiscal 1998 for tax refunds totaled $910.0 million. This amount is a
$370.0 million increase over tax refund reserves for fiscal 1997 representing an
increase of 68.5% due to a change in which tax refund liabilities are recognized
on a budgetary basis. Expenditures from all fiscal 1998 appropriations of
Commonwealth revenues totaled $17,229.8 million, an increase of 4.5% over fiscal
1997 appropriation expenditures.
FISCAL 1999 BUDGET (BUDGETARY BASIS): At the time the budget for
fiscal 1999 was enacted in April 1998, the official revenue estimate for fiscal
year 1999 was established at $18.4566 billion. Enactment of tax legislation in
November 1998 reduced estimated revenues by a net $2.4 million. The official
revenue estimate, based on an economic forecast for national gross domestic
product, forecasted slowing economic activity based on expectations that
consumers would reduce their pace of spending, particularly on motor vehicles,
housing and other durable goods. Business is also expected to trim its spending
on fixed investments, and foreign demand for domestic goods is expected to
decline in reaction to economic difficulties in Asia and Latin America, while an
economic recovery in Europe is expected to proceed slowly. The underlying growth
rate, excluding any effect of scheduled or proposed tax changes, for the General
Fund fiscal 1999 official revenue estimate is 3.0% over actual fiscal 1998
revenues. When adjusted to include the estimated effect of enacted tax changes,
fiscal 1999 Commonwealth revenues are projected to increase by 1.6% over actual
Commonwealth revenues for fiscal 1998. Tax reductions enacted with the 1999
fiscal year budget totaled an estimated $241.0 million for fiscal 1999,
including among other changes, a reduction of the capital stock and franchise
tax rate from 12.75 mills to 11.99 mills ($72.5 million); elimination of the
personal income tax on gains from the sale of an individual's residence ($30.0
million); extension of the time period from three to ten years over which net
operating loss deductions may be taken for the corporate net income tax ($17.8
million); and expansion of various sales tax exemptions ($40.4 million).
Appropriations enacted for fiscal 1999 were 4.1% ($713.2 million)
above the appropriations enacted for fiscal 1998. Major increases in
expenditures budgeted for fiscal 1999 included: $249.5 million in direct support
of local school district education costs; $60.4 million for higher education;
$56.5 million to fund the correctional system; $121.1 million for long-term care
medical assistance costs; and $14.4 million for technology and Year 2000
investments. In May 1999, along with the adoption of the fiscal 2000 budget,
supplemental fiscal 1999 appropriations totaling $357.8 million were enacted. Of
this amount, $200.0 million was appropriated for general obligation debt service
that will be available to retire outstanding debt and $90.0 million is proposed
to pay additional medical assistance costs anticipated to occur in fiscal 1999.
With these additional amounts, total appropriations for fiscal 1999 represent a
6.2% increase over fiscal 1998 appropriations. An anticipated $180.0 million of
appropriation lapses and anticipated additional revenues provide the funding for
the additional appropriations. Reserves for tax refunds for fiscal 1999 total
$631.0 million, a $26.2 million increase over the budget as enacted. This amount
includes $33.1 million of tax refunds anticipated from the enacted fiscal 1999
tax changes.
Current revenue estimates for fiscal 1999 anticipate $722.0 million of
receipts above the official estimate used at the time of enactment of the fiscal
1999 budget. As of the fiscal year through May 1999, revenues are $627.0 million
over the official estimate, principally due to receipts from the sales tax and
the personal income tax. The higher revenues will more than offset the planned
draw down of the $265.4 million beginning unappropriated balance. The fiscal
year-end unappropriated surplus is projected to rise by $364.3 million to $629.7
million, before transfers to the Tax Stabilization Reserve Fund but this amount
should be exceeded. The transfer to the Tax Stabilization Reserve Fund for
fiscal 1999 is currently estimated at $244.5 million, and with this anticipated
transfer, the Fund will total approximately $932.0 million, representing 4.9% of
General Fund reserves.
PROPOSED FISCAL 2000 BUDGET: The General Fund budget for the 1999-2000
fiscal year was approved by the General Assembly in May 1999. The adopted budget
includes estimated spending of $19.1038 billion and estimated revenues (net of
estimated tax refunds and enacted tax changes) of $18.7185 billion. Funds to
cover the $342.1 million difference between estimated revenues and projected
spending will be obtained from a draw down of the projected fiscal 1999 year-end
balance. The level of proposed spending represents an increase of 3.8% over the
revised spending authorized for fiscal 1999 of $18.3603 billion. Enacted tax
changes effective for fiscal 2000 total a net reduction of $380.2 million for
the General Fund.
The estimate of Commonwealth revenues for fiscal 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4% rate. Growth
of real gross domestic product is expected to be restrained by a slowing of the
rate of consumer spending to a level consistent with personal income gains and
by smaller gains in business investment in response to falling capacity
utilization and profits. Slowing economic growth is expected to cause the
unemployment rate to rise through the fiscal year but inflation is expected to
remain moderate. Trends for the Pennsylvania economy are expected to maintain
their close association with national economic trends. Personal income growth is
anticipated to remain slightly below that of the U.S. while the Pennsylvania
unemployment rate is anticipated to be very close to the national rate.
Commonwealth revenues (excluding the estimated cost of enacted tax
reductions) are projected to increase by 3.1% over revised fiscal 1999
estimates, with tax revenues expected to rise by 2.9%. Appropriations from
Commonwealth funds increase by 3.8% over revised fiscal 1999 appropriations.
Program areas that have been proposed to receive funding increases above the 2.9
% average include corrections, basic education, special education, and medical
assistance. Enacted tax cuts for fiscal 2000 total an estimated $380.2 million
in the General Fund. The major components of the tax reductions are: (i) the tax
rate for the capital stock and franchise taxes by one mill to 10.99 mills ($91.6
million); (ii) repeal the gross receipts tax on regulated gas companies ($78.4
million); (iii) lower the current $300 minimum capital stock and franchise tax
to $200 ($16.2 million); (iv) raise the annual cap on net operating loss credits
per taxpayer from $1.0 million to $2.0 million ($35.5 million); (v) increase the
weighting from 50% to 60% of the sales factor used in the apportionment formula
to calculate Pennsylvania taxable income for corporate net income purposes
($31.5 million); (vi) restructure the public utility realty tax ($54.6 million);
and (vii) expand the income limit to qualify for personal income tax forgiveness
by $500 to $6,500 per dependent ($7.5 million). Most major changes are effective
January 1, 1999.
MOTOR LICENSE FUND: The State Constitution requires that all proceeds
of motor fuels taxes, vehicle registration fees, license taxes, operators'
license fees and other excise taxes imposed on products used in motor
transportation shall be used exclusively for construction, reconstruction,
maintenance and repair of and safety on highways and bridges and for the payment
of debt service on obligations incurred for such purposes. The Motor License
Fund is the fund through which most such revenues are accounted for and
expended. Portions of certain taxes whose receipts are deposited into the Motor
License Fund are legislatively restricted to specific transportation program.
These receipts are accounted for in restricted accounts in the Motor License
Fund and are not included in the budgetary basis presentations or discussion on
the Motor License Fund. The Motor License Fund budgetary basis includes only
unrestricted revenue available for annual appropriation for highway and bridge
purposes.
COMMONWEALTH DEBT. Current constitutional provisions permit
Pennsylvania to issue the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster, (ii) electorate
approved debt, (iii) debt for capital projects subject to an aggregate debt
limit of 1.75 times the annual average tax revenues of the preceding five fiscal
years, (iv) tax anticipation notes payable in the fiscal year of issuance. All
debt except tax anticipation notes must be amortized in substantial and regular
amounts.
General obligation debt totaled $4,724.5 million at June 30, 1998, a
decrease of $70.6 million from June 30, 1997. Over the 10-year period ended June
30, 1998, total outstanding general obligation debt increased at an annual rate
of 0.1%, but for the five years ended June 30, 1998, it has decreased at the
annual rate of 1.3%. All outstanding general obligation bonds of the
Commonwealth are rated "AA" by Standard and Poor's Corporation, "Aa3" by Moody's
Investors Service, and "AA" by Fitch Investors Service. The ratings reflect only
the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, subject to applicable
statutory and constitutional limitations generally imposed on bonds. The
principal amount issued, when added to that already outstanding, may not exceed
in aggregate 20% of the revenues estimated to accrue to the appropriate fund in
the fiscal year. The Commonwealth is not permitted to fund deficits between
fiscal years with any form of debt, and all year-end deficit balances must be
funded within the succeeding fiscal year's budget. Pennsylvania issued a total
of $225.0 million of tax anticipation notes for the account of the General Fund
in fiscal 1998, and none in fiscal 1999. The term of such borrowings may not
exceed three years. As of April 30, 1999, there were $21.4 million of bond
anticipation notes outstanding, all of which must mature by February 2, 2000.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have
statutory authorization to incur debt for which no legislation providing for
state appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of, or revenues derived from, the various
projects financed and the debt of such agencies is not an obligation of
Pennsylvania although some of the agencies are indirectly dependent on
Commonwealth appropriations. The following agencies had debt currently
outstanding as of June 30, 1998: Delaware River Joint Toll Bridge Commission
($51.4 million), Delaware River Port Authority ($504.1 million), Pennsylvania
Economic Development Financing Authority ($1,106.4 million), Pennsylvania Energy
Development Authority ($43.1 million), Pennsylvania Higher Education Assistance
Agency ($1,633.8 million), Pennsylvania Higher Educational Facilities Authority
($3,057.6 million), Pennsylvania Industrial Development Authority ($394.5
million), Pennsylvania Infrastructure Investment Authority ($196.4 million),
Pennsylvania Turnpike Commission ($1,127.9 million), Philadelphia Regional Port
Authority ($59.5 million), and the State Public School Building Authority
($343.3 million). In addition, the Governor is statutorily required to place in
the budget of the Commonwealth an amount sufficient to make up any deficiency in
the capital reserve fund created for, or to avoid default on, bonds issued by
the Pennsylvania Housing Finance Agency ($2,716.4 million of revenue bonds as of
June 30, 1998), and an amount of funds sufficient to alleviate any deficiency
that may arise in the debt service reserve fund for bonds issued by The
Hospitals and Higher Education Facilities Authority of Philadelphia ($1.1
million of the loan principal was outstanding as of June 30, 1998.)
LITIGATION. Certain litigation is pending against the Commonwealth
that could adversely affect the ability of the Commonwealth to pay debt service
on its obligations, including suits relating to the following matters: (i)
Approximately 3,500 tort suits are pending against the Commonwealth pursuant to
the General Assembly's 1978 approval of a limited waiver of sovereign immunity
which permits recovery of damages for any loss up to $250,000 per person and
$1,000,000 per accident ($20 million was appropriated from the Motor License
Fund for fiscal 1999); (ii) The ACLU filed suit in April 1990 in federal court
demanding additional funding for child welfare services (no estimates of
potential liability are available), which the Commonwealth is seeking to have
dismissed based on, among other things, the settlement in a similar Commonwealth
Court action that provided for more funding in fiscal 1991 as well as a
commitment to pay to counties $30.0 million over 5 years. In January 1992, the
district court denied the ACLU's motion for class certification, but that ruling
was overturned in 1994 by the Third Circuit. In July 1998, the plaintiffs
entered into a settlement agreement with the City of Philadelphia and related
parties, and the district court has preliminarily approved the settlement; (iii)
In 1987, the Supreme Court of Pennsylvania held that the statutory scheme for
county funding of the judicial system was in conflict with the Pennsylvania
Constitution but stayed judgment pending enactment by the legislature of funding
consistent with the opinion. In response to an action in mandamus filed by the
State Association of County Commissioner, the Court appointed Senior Judge Frank
J. Montemuro, Jr. as special master to devise and submit a plan for
implementation of its order. In July 1997, Justice Montemuro filed the INTERIM
REPORT OF THE MASTER wherein he recommends a four phase transition to state
funding of a unified Judicial system, during each of which specified court
employees would transfer into the state payroll system. Numerous objections to
the report were filed by September 1, 1997, but the Court has taken no action on
them. As Phase I of his proposed plan, Justice Montemuro recommended that the
General Assembly provide for an administrative structure of local court
administrators to be employed by the Administrative Office of Pennsylvania
Courts, a state agency. In April 1998, the General Assembly enacted the General
Appropriation Act of 1998, including an appropriation to the Supreme Court of
approximately $12.0 million to enable the Commonwealth to implement Phase I of
Justice Montemuro's plan; however, no funds may be expended until legislation
has been approved by the General Assembly providing for the payment of
Commonwealth compensation of county court administrators. Because no such
legislation has yet been enacted, the $12.0 million appropriated to the Judicial
Department cannot be used; (iv) Actions have been filed in both state and
federal court by an association of rural and small schools and several
individual school districts and parents challenging the constitutionality of the
Commonwealth's system for funding local school districts. The federal case has
been stayed pending resolution of the state case. After a lengthy trial, Judge
Pellegrini on July 9, 1998, issued an opinion and decree NISI dismissing the
petitioners' claim in its entirety, holding that Pennsylvania's system for
funding public schools is constitutional under both the education clause and the
equal protection clause of the Pennsylvania Constitution. The petitioners filed
a timely motion for post-trial relief, taking exception to many of the findings
of fact and conclusions of law, and also filed an application with the Supreme
Court of Pennsylvania to assume extraordinary, plenary jurisdiction over the
case to decide one legal issue. The Supreme Court accepted the case, and
indicated that it will not hear oral argument but will decide the petitioners'
motion based on the briefs alone. There is no available estimate of potential
liability; (v) Several banks have filed suit against the Commonwealth contesting
the constitutionality of a 1989 law imposing a bank shares tax on banking
institutions. After the Commonwealth Court ruled in favor of the Commonwealth,
finding no constitutional deficiencies, Fidelity Bank, the Commonwealth, and
certain intervenor banks filed Notices of Appeal to the Pennsylvania Supreme
Court. Pursuant to a Settlement Agreement the Commonwealth agreed to enter a
credit in favor of Fidelity in settlement of the constitutional and
non-constitutional issues including interest. Pursuant to a separate Settlement
Agreement the Commonwealth settled with the intervening banks, referred to as
"New Banks." Although the described settlements have quantified the
Commonwealth's exposure to Fidelity and the intervening banks, other banks filed
protective Petitions, and Royal Bank pursued new constitutional challenges in
the Commonwealth Court. In January 1998, the Commonwealth Court upheld the Act's
constitutionality and in May 1999, the Supreme Court affirmed the ruling; (vi)
In November 1995, the Commonwealth and the Governor, along with the City of
Philadelphia and its Mayor, were joined as additional respondents in an
enforcement action commenced in Commonwealth Court in 1973 by the Pennsylvania
Human Relations Commission against the School District of Philadelphia pursuant
to the Pennsylvania Human Relations Act. The enforcement action was pursued to
remedy unintentional conditions of segregation in the public schools of
Philadelphia. The Commonwealth and the City were joined in the "remedial phase"
of the proceeding to determine their liability, if any, and to pay additional
costs necessary to remedy the unlawful conditions found to exist in the
Philadelphia public schools. After trial, Judge Smith issued an Opinion and
Order, granting in relevant part, judgment in favor of the School District of
Philadelphia and ASPIRA and against the Commonwealth and Governor. The
Commonwealth appealed and requested the Supreme Court to enter judgments in
favor of the Commonwealth and the Governor on all claims. In February 1998, the
Supreme Court heard oral argument on these issues and took the matter under
advisement; (vii) In February 1997, five residents of the City of Philadelphia,
on their own behalf and on behalf of their school-aged children, joined by the
City of Philadelphia, the School District of Philadelphia, and two non-profit
organizations, filed in the Commonwealth Court of Pennsylvania a civil action
for declaratory judgment against the Commonwealth of Pennsylvania and several
state officials. The petitioners claim, INTER ALIA, that Pennsylvania's
statutory financing and funding of the education system is unconstitutional as
applied to the School District of Philadelphia. The respondents filed
preliminary objections seeking dismissal of the action, and in March 1998, the
Commonwealth Court sustained the respondents' preliminary objections and
dismissed the case on the grounds that the issues presented are not justiciable.
An appeal to the Supreme Court of Pennsylvania is pending and briefing is
complete. The Court has indicated that it will decide the case based solely on
the briefs; it will not hear oral argument; and (viii) In March 1997, Rite Aid
filed in the U.S. District Court a civil action against the Secretary of Public
Welfare (Secretary), alleging that the state regulation governing payment rates
for prescription drugs and related services provided to recipients of benefits
under the Pennsylvania Medical Assistance Program (Medicaid) violated various
provisions of Title XIX of the Social Security Act (the Medicaid Act) and
regulations of the U.S. Department of Health and Human Services, as well as
provisions of state law and federal constitutional due process. After allowing
the Pennsylvania Pharmacists Association (PPA) to intervene as a plaintiff, the
district court granted motions of Rite Aid and PPA for summary judgment and
denied a cross-motion of the Secretary. The court declared that the pharmacy
reimbursement rates made effective after October 1, 1995, were adopted by the
Secretary in violation of the Medicaid Act and enjoined the Secretary from using
those rates for reimbursement of any prescription drugs and related services
provided to Medicaid recipients after October 1, 1998. The Secretary timely
appealed the district court's orders, and Rite Aid and PPA filed cross-appeals.
On March 22, 1999, the U.S. Court of Appeals for the Third Circuit reversed the
district court's order and remanded for further proceedings, holding INTER ALIA
that the Secretary had not violated the Medicaid Act in adopting rates in 1995.
The plaintiffs have filed an application for rehearing.
PHILADELPHIA. The City of Philadelphia is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the 1990
Census. Philadelphia functions both as a city of the first class and a county
for the purpose of administering various governmental programs.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to the assisted city concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council and the PICA Board and signed by the Mayor
in January, 1992. At the present time, Philadelphia is operating under a five
year fiscal plan approved by PICA on June 9, 1998.
PICA has issued $2,371.7 million of its Special Tax Revenue Bonds.
This financial assistance has included the refunding of certain City general
obligation bonds, funding of capital projects and the liquidation of the
cumulative general fund balance deficit of Philadelphia as of June 30, 1992, of
$224.9 million. The audited General Fund balance as of June 30, 1998, showed a
surplus of approximately $169.2 million.
TEXAS SERIES
GENERAL. Beginning in late 1982, the decline of the State's oil and
gas industry, the devaluation of the Mexican peso and the generally soft
national economy combined to cause a significant reduction in the rate of growth
of State revenues. During late 1985 and early 1986, the price of oil fell
dramatically worldwide. This drop in oil prices created a ripple that caused
other sectors of the State's economy, such as real estate, to decline. As a
result of an increase in non-performing loans in the energy and real estate
sectors, major Texas bank holding companies, individual banks and savings and
loans experienced losses or sharp downturns in profitability and many sought
Federal assistance from the FDIC.
Since the early 1990's, the State's economy has rebounded in several
areas and has significantly improved its performance since the deep recession of
the 1980's. As a result of budget trimming and increasing taxes, and the
improving Texas economy, the State finished fiscal years 1990, 1991, 1992, 1993,
1994, 1995, 1996, 1997 and 1998 with surpluses in the General Revenue Fund of
$767 million, $1.005 billion, $609 million, $1.623 billion, $2.225 billion,
$2.101 billion, $2.270 billion, $2.685 billion and $3.330 billion, respectively.
In the past decade, the Texas economy has seen a major shift from oil
and gas industry reliance to diversification into the technology and computer
industry. In 1981, the gas, oil and chemical industry accounted for 26% of the
State's total output of goods and services. Today, those businesses account for
less than 12% of the State's economy. Fifteen years ago, the Texas oil and gas
industry was about six times as large as the State's high technology industry.
Today, the oil and gas industry is only slightly larger than the high technology
industry, and depending upon the definition of high technology that one employs,
there are now more Texans employed in high technology industries than there are
in oil and gas related mining and manufacturing activities.
The State's unemployment rate fell for the sixth straight year in
1998, dropping to its lowest level since 1979. After climbing to an average of
over 7.5% in 1992 the unemployment rate successively fell to 6.0% in 1995, 5.6%
in 1996, and 5.4% in 1997, before shrinking even further to a rate of 4.8% in
1998. For the first quarter 1999, the rate stood at 4.6%. The new jobs in Texas
are largely in industries perceived to have better-than-average prospects for
continued growth, such as knowledge-based manufacturing and services. This mix
of job growth in Texas should provide a strong base for sustainable growth in
the future.
In the overall race for new job growth, Texas has been the national
leader for most of the 1990's, adding more jobs than any other state during that
period, and accounting for nearly 12% of the nation's total job growth. Total
employment in Texas has been steadily improving since 1991. After making
seasonal adjustments, total non-farm employment stood at 8.774 million at the
end of 1997. This was an increase of 375,000 non-farm jobs over the number
recorded during the last month of 1996. By the end of 1998, the number had
climbed again, reaching 9.077 million in December of that year.
Over the past 12 months, 91% of the jobs added to Texas employment
rolls were in service-oriented sectors. Service and wholesale and resale trade
industries together account for over half the non-farm employment (51%), but
recent numbers indicate the strongest growth exists in two other sectors. Fueled
by high consumer confidence and a resulting increase in new housing starts, the
construction sector continued to outpace all other categories in job growth
during the 12 months between February 1998 and 1999. The sector's employment
ranks rose to 518,000 persons over that period, for an increase of 36,400 jobs
and a growth rate of 7.5%. Over the past three years, construction employment
has increased at an average rate of 6.7% per year. The finance, insurance, and
real estate (FIRE) sector followed construction to claim the second spot among
sectors in terms of employment growth rate. The FIRE sector responded to strong
investment and real estate markets, by adding 25,300 jobs for the 12 month
period ending in February 1999. This addition yielded a growth rate of 5.2% and
a total number of 510,200 jobs.
Among other sectors, the rapid growth of Internet and cellular
communications helped employment in the transportation, communication, and
public utilities (TCPU) sector to grow 4.7% between February 1998 and February
1999. The number of jobs in the sector expanded from 532,500 in February 1998 to
557,400 jobs a year later. This result was achieved despite no gain in utilities
where expected deregulation put the industry's hiring plans on hold. The ranks
of the health, business, and miscellaneous services sector swelled to over 2.593
million persons during the highlighted period, adding 111,600 jobs between
February 1998 and February 1999. This increase provided the single largest
number of the new jobs in Texas, and yielded a growth rate of 4.5% for the
sector.
On a national scale, Texas was second in job creation during fiscal
1998, climbing one spot to 10th among the fifty states in terms of job growth
(in percentage terms). High-tech manufacturing continues to provide
diversification to the State's economy, along with notable increases in the
financial services and telecommunication sector. Texas' economy, as measured by
its gross State product, accounts for 7.5% of the total economy of the United
States, and growth of the Texas economy has outpaced national GNP growth by more
than a full percentage point for four of the last five years. The Comptroller of
Public Accounts predicts healthy growth in the Texas economy during the next two
years, as measured by increases in the gross state product, but at a slower,
more normal pace of 3.6% per year, compared to an average annual growth rate of
5.4 % in 1997 and 1998. According to the Comptroller, even at this moderate
growth rate, Texas' economic expansion should outpace the annual economic growth
of the nation as a whole by 1.4 percentage points.
STATE DEBT. Except as specifically authorized, the Texas Constitution
generally prohibits the creation of debt by or on behalf of the State, with two
exceptions: (i) debt created to supply casual deficiencies in revenues which
does not exceed in the aggregate, at any one time, $200,000 and (ii) debt to
repel invasion, suppress insurrection, defend the State in war or pay existing
debt. In addition, the State Constitution prohibits the Legislature from lending
the credit of the State to or in aid of any person, including municipalities, or
pledging the credit of the State in any manner for the payment of the
liabilities of any individual, association of individuals, corporation or
municipality. The limitations of the State Constitution do not prohibit the
issuance of revenue bonds. Furthermore, obligations which are payable from funds
expected to be available during the current budget period do not constitute
"debt" within the meaning of the Texas Constitution. Short term obligations such
as the Tax and Revenue Anticipation Notes issued by the State Comptroller, which
mature within the biennium in which the notes were issued, are not deemed to be
debt within the meaning of the state constitutional prohibition.
At various times, State voters, by constitutional amendment, have
authorized the issuance of debt by the State, including general obligation
indebtedness for which the full faith and credit and the taxing power of the
State may be pledged. In some cases, the authorized indebtedness may not be
issued without the approval of the Legislature, but in other cases, the
constitutional amendments are self-operating and the debt may be issued without
specific legislative action. The total amount of general obligation bonds that
have been authorized by the voters is in excess of $8.16 billion.
Issuance of non-self-supporting Texas bonds declined by $96.5 million
in 1998 from the previous fiscal year's total of $2.6463 billion. Conversely,
the amount of non-self-supporting revenue (I.E., non-general obligation) bonds
increased by $231.7 million during the same period for a total of $685.6
million. As a result of this net increase in the issuance of non-self-supporting
bonds, Texas had $3.24 billion in outstanding bonds which must be paid back from
the State's general revenue fund as of August 31, 1998. This number evidences a
recent trend of increases in the State's total of non-self supporting bond (both
general obligation and non-general obligation) debt. The number is up from the
$3.10 billion figure for August 31, 1997, and the $3.04 billion and $3.08
billion figures registered on the same dates in 1996 and 1995, respectively.
Two recent legislative developments regarding State debt should be
noted. On November 4, 1997, a proposition was passed which incorporated the
provisions of Texas Revised Civil Statutes Article 717k-7(8) into Article III of
the Texas Constitution. The statute, which is now contained in Section 49-j of
Article III, prohibits the Legislature from authorizing additional state debt
payable from general revenues, including authorized but unissued bonds and lease
purchase contracts in excess of $250,000 or for a term of greater than five
years, if the resulting annual debt service exceeds 5% of an amount equal to the
average amount of general revenue for the three immediately preceding years,
excluding revenues constitutionally dedicated for purposes other than payment of
debt service. Self-supporting general obligation bonds, although backed by the
full faith and credit of the State, are reasonably expected to be paid from
other revenue sources and are not expected to create a general revenue draw.
Also on November 4, 1997, voters passed a proposition to extend the State's full
faith and credit to the Texas Tomorrow Fund, and established the fund as a
constitutionally protected fund. The Texas Tomorrow fund is dedicated to the
prepayment of higher education tuition and fees.
REVENUE SOURCES AND TAX COLLECTION. Historically, the primary sources
of the State's revenues have been sales taxes, mineral severance taxes and
federal grants. Due to the collapse of oil and gas prices and the resulting
enactment by recent State Legislatures of new tax measures, including those
increasing the rates of existing taxes and expanding the tax base and adding a
component of the corporate (franchise) tax measured by income, there has been a
reordering in the relative importance of the State's taxes in terms of their
contribution to the State's revenue in any year. Because of the State's
expansion in Medicaid spending and other Health and Human Services programs
requiring federal matching revenues, federal grants are the State's single
largest revenue source, accounting for approximately 28.3% of total revenue
during fiscal year 1998. Sales taxes are the State's second largest source of
revenues (and by far the largest source of tax revenue), accounting for
approximately 28.0% of the State's total revenues during fiscal year 1998.
Licenses, fees and permits, motor fuels taxes and net lottery proceeds,
accounted for approximately 9.2%, 5.6% and 3.7%, respectively, of the State's
total revenue in fiscal year 1998. The remainder of the State's revenues are
derived primarily from other taxes. The State has no personal income tax. The
State does impose a corporate franchise tax based on the greater of a
corporation's capital or net earned surplus (I.E., income), from which it
derived approximately 4.4% of total revenues in fiscal 1998. The earned surplus
component of the corporate franchise tax is, in essence, based upon net income
apportionable to the State, and thus works very much like a corporate income
tax. The franchise tax has been an increasing source of revenue in recent years.
Total net revenues and opening cash balances for fiscal years 1994,
1995, 1996, 1997, and 1998 amounted to approximately $40.684 billion, $43.657
billion, $44.696 billion, $49.655 billion, and $49.094 billion, respectively,
while tax collections for the same period amounted to $18.106 billion, $18.859
billion, $19.763 billion, $21.188 billion, and $22.634 billion, respectively.
The 76th State Legislature convened in January 1999 and before
adjourning passed a budget for the 2000-2001 biennium. The 2000-2001 budget
provides for appropriations totaling $61.4 billion from general revenue related
funds and $98.1 billion from all fund sources. The 2000-2001 biennium budget
increases general revenue funding by 15.6 %, while funding from all funding
sources increased by 13.8% over the provisions of the 1998-1999 biennial budget.
For the most part, the Texas legislature maintained its normal expenditure
patterns, allocating agencies of education and health and human services 79.5%
of 2000-2001 general revenue and dedicated general revenue funds. Public safety
and criminal justice is the third largest expenditure of dedicated and
non-dedicated general revenue and will consume 10.7% of these funds in
2000-2001. Texas education agencies will receive an increase of 19.3% over
1998-99 dedicated general revenue and non-dedicated general revenue funding
levels. For health and human services, funding levels from these funds have
increased by 4.2% over the previous biennium.
LIMITATIONS ON TAXING POWERS. The State Constitution prohibits the
State from levying ad valorem taxes on property for general revenue purposes.
Property taxes are levied exclusively by county and local taxing authorities.
There is also a constitutional prohibition on enacting a personal income tax
unless approved by the majority of voters in a referendum.
The State Constitution also limits the rate of growth of
appropriations from tax revenues not dedicated by the Constitution during any
biennium to the estimated rate of growth for the State's economy. The
Legislature may avoid the constitutional limitation if it finds, by a majority
vote of both houses, that an emergency exists. The State Constitution authorizes
the Legislature to provide by law for the implementation of this restriction,
and the Legislature, pursuant to such authorization, has defined the estimated
rate of growth in the State's economy to mean the estimated increase in State
personal income.
PETROLEUM PRODUCTION AND MINING. The Texas economy and the oil and gas
industry have been historically linked since the discovery of the Spindletop
Field in southeast Texas in 1901. Dramatic increases in the price of oil in
1973-74 and 1979-81 propelled Texas into a leadership position in national
economic growth. This situation, however, changed rapidly for Texas during the
1980's. The Texas economy reeled in 1982-83 and again in 1986 as the price of
West Texas Intermediate crude oil declined over 50% from $30 per barrel in
November 1985 to under $12 per barrel in July 1986. The 1986 crash in oil prices
caused economic turmoil, but spawned rapid diversification in the state economy,
and the shrunken importance of oil and gas has made the state's economy more
similar to that of the nation as a whole. Still, at 12% of the State's gross
product, oil and gas remains a major factor in the state's economic mix.
During the first half of this decade, weak market prices, declining
production from Texas fields, and the shifting of exploration activities
overseas translated into job losses in the Texas oil and gas industry. Mining
jobs bottomed out at 154,600 in November 1995, the lowest level since 1977. By
February 1998, the oil and gas industry had taken advantage of firmer prices to
increase its ranks to 170,400 employees in yet another of the endless cycles of
this still rambunctious industry. In a continuing saga of economic cycles, oil
prices fell to a monthly average price below $10.00 per barrel in December 1998
before heading upward again, but the low prices sent employment down to 158,900
by March of 1999.
The status of the state's oil and gas industry is not represented well
by employment numbers alone. Drilling technology and success rates have
improved, thereby increasing the productivity per worker and causing a decrease
in the number of workers needed to perform the same tasks. Also, because Texas
is a headquarters center for exploration worldwide, the state often benefits
from exploration beyond its borders. As a result, the inflation-adjusted gross
product in the Texas mining industry is about the same size as it was during the
1981 energy boom, when oil and gas employment was nearly double today's number.
FINANCIAL INSTITUTIONS. Consolidations and mergers continue to shrink
the number of Texas banks, but balance sheets in recent years have been
predominantly positive. FDIC banking reports appear to show a large drop in
Texas banking employment and assets during 1998, but the change is due primarily
to a large Texas bank merger, which moved a major headquarters out of state. In
general, after a decade of sharp contrasts, the Texas banking industry is
enjoying relative stability and healthy returns on assets. Texas banks have
reduced unnecessary expenses, improved efficiency, enjoyed reduced deposit
insurance premiums, and taken advantage of healthy growth in the State's economy
over the past few years. Texas bank failures peaked in 1989, reaching 134 or
two-thirds of all bank closing in the nation, but then declined to 29 in 1993.
In the five years following 1993, only two banks failed in the State of Texas,
both of which occurred in 1996.
Overall, Texas financial institutions have been profitable in the
1990's. Net bank income has increased progressively in each year from $1.9
billion in 1994 to $2.64 billion in 1997. That number fell to $1.9 billion in
1998, but the drop was more a reflection of the reclassification of a bank
headquarters to an out-of-state location than to an actual loss in banking
income. For 1998, the Texas Department of Banking reported "low past-dues, high
liquidity, strong profit margins, and substantial capital," resulting in an
"excellent" general condition of the State's banking industry. The Texas banking
industry has made substantial strides toward recovery during the 1990's. Total
loans, total equity capital, and total assets rose in 1993, 1994, 1995, 1996,
and 1997 before dropping in 1998 as the result of the relocation of a large bank
headquarters. The ratio of net income to net assets represented an annualized
return on assets of 1.7% in commercial banks at the end of 1998. The value of
non-performing loans increased in 1996, reaching $2.7 billion, but then fell
5.9% in 1997 and an additional 12.2% in 1998 for a final figure of slightly over
$2.2 billion. These loans have increased with growing defaults on credit cards,
but represent only 2.3% of total loans.
A consolidation of banks and other financial institutions is ongoing.
As a result of the trend toward larger banks with multiple branches, Texas had
799 operating banks at the beginning of 1999, down from 1,125 at the beginning
of 1992. It is expected that the number of banking organizations in the State
will continue to shrink, but the number of branch locations will continue to
rise.
The trend toward consolidation is even more evident in the savings and
loan industry. After the real estate debacle of the mid to late 1980's, thrift
institutions were saddled with mountains of foreclosed property worth less than
the original loan values. Texas had 273 savings and loans in 1984, but most of
the State's thrifts lost money each year from 1986 to 1991, and the majority of
them closed their doors. Texas had only 52 savings and loan institutions in
operation at the end of 1998, despite the fact that profits have been healthy
since 1991. Texas savings and loans, benefiting from loan income and a decline
of non-performing assets to 1.0%, saw unprofitable institutions decline to 5.8%
at the end of 1998. Total assets rose to $52.7 billion in 1998, up from $42.9
billion in 1992. Additionally, aggregate increases were seen in loans, deposits,
and equity capital in 1998. The percentage yield on assets declined slightly,
from 8.2% in 1997 to 7.8% in 1998.
PROPERTY VALUES AND TAXES. Various State laws place limits upon the
amounts of tax that can be levied upon the property subject to ad valorem taxes
within various taxing units, such as cities, counties and the districts which
have ad valorem taxing powers (including [without limitation] school and
hospital districts). Similarly, the amounts of sales and use taxes which can be
levied and the types of property and services to which sales and use taxes apply
are subject to legal restrictions.
The total value of real and personal taxable property reached $708.9
billion as of January 1, 1997, according to records maintained by the
Comptroller's property tax division. This represents a 2.3% increase in the tax
base from the previous year, and the fifth consecutive year that total value
rose after previous year-to-year value declines stretching back into the
mid-1980's.
The increase in value of taxable property was broad-based, with 11 of
13 categories of real property posting some increases from 1996 to 1997. Both
single-family and multi-family residential property sectors displayed
significant growth in 1997. The market value of single-family residential
property climbed to $338.3 billion during 1997, a figure that was up 6.0% from
1996 levels. However, on a taxable basis, the value of single-family homes fell
by 5.3% due to increased property tax exemptions. Also in 1997, the value of
multi-family residences soared 8.2% over 1996 levels, reaching a figure of $34.1
billion, and the value of commercial and industrial real estate increased a
strong 8.1% to $154.2 billion in the same period. The value of commercial and
industrial personal property also climbed in 1997, reaching $113.6 billion for a
growth rate of 6.4%. One of the strongest gains by any property category was
seen in the value of oil, gas, and minerals properties, which rose to $37.1
billion, up 23.4% from 1996 levels. It should be cautioned however, that the
strong growth rate in the value of this type of property occurred between 1996
and 1997, and does not reflect changes that have occurred in this volatile
industry since then, including the steep drop in oil prices that occurred as
recently as December 1998.
LITIGATION. The State is a party to various legal proceedings relating
to its operations and governmental functions, but unrelated to the bonds or the
security for the Bonds. In the opinion of the State Comptroller of Public
Accounts, based on information provided by the State Attorney General as to the
existence and legal status of such proceedings, none of such proceedings, if
finally decided adversely to the State, would have a materially adverse effect
on the long-term financial condition of the State.
After protracted litigation over property tax in the early 1990's, the
Texas Legislature (in February 1993) approved proposed constitutional amendments
that were intended to address the constitutional deficiencies in the State's
system of funding public schools that have been noted by the courts. At an
election held on May 1, 1993, the voters of the State rejected all of the
proposed constitutional amendments.
Legislation was enacted in late May 1993 (Senate Bill 7), which
included provisions concerning the operation of school districts as well as
creating a whole new funding system for public education in the State. This bill
provided for a two-tiered education finance structure, known as the Foundation
School Program. Tier I provides that each school district is entitled to a basic
allotment of $2,300.00 per student, financed by ad valorem taxes of $.86 per
$100.00 valuation on property within the district, with any deficiency to be
made up by the state. Tier 2 provides that school districts may levy additional
ad valorem taxes of as much as $.64 per $100.00 valuation. For every cent of the
additional tax levy a district undertakes, the State guarantees of yield of
$20.55 per student, regardless of how much tax revenue is actually collected.
Senate Bill 7 also imposes a cap on a school district's taxable property at a
level of $280,000 per student. School districts with property more valuable than
$280,000 per student have various choices as to how their taxable property may
be brought within the $280,000 cap.
Senate Bill 7 was immediately challenged by numerous groups of
plaintiffs, representing hundreds of school districts, both property-rich and
property-poor, as well as many parents and local officials. After a trial on the
consolidated actions in the case of EDGEWOOD V. MENO, the district court held
that Senate Bill 7 was constitutional, but found that the Legislature had failed
to provide efficiently for facilities. The district court accordingly denied
most of the relief sought by the plaintiffs but ordered by injunction that no
bonds for any school district could be approved, registered, or guaranteed after
September 1, 1995, unless the Legislature had provided for the efficient funding
of educational facilities by that time. On appeal, the Texas Supreme Court
affirmed the constitutionality of the public school finance system enacted in
Senate Bill 7 in all respects. The Supreme Court modified the district court's
judgment to provide that the relief requested by the plaintiffs was denied in
all respects and that the district court's injunction was vacated. In all other
respects, the Supreme Court affirmed the district court's judgment.
There have been attempts to substantially reduce the overall property
tax burden during the last two legislative sessions. These attempts met with
only modest success. Although there were numerous minor changes, no major
property tax reform occurred during the 1999 legislative session.
VIRGINIA SERIES
This series will invest primarily in Virginia Municipal Obligations.
For this reason, the Series is affected by political, economic, regulatory or
other developments that constrain the taxing, revenue-collecting and spending
authority of Virginia issuers or otherwise affect the ability of Virginia
issuers to pay interest, principal, or any premium. The following information
constitutes only a brief summary of certain of these developments and does not
purport to be a complete description of them. The information has been obtained
from recent official statements prepared by the Commonwealth of Virginia
relating to its securities, and no independent investigation has been undertaken
to verify its accuracy. Moreover, the information relates only to the state
itself and not to the numerous special purpose or local government units whose
issues may also be held by the Series. The credits represented by such issues
may be affected by a wide variety of local factors or structuring concerns, and
no disclosure is made here relating to such matters.
The rate of economic growth in the Commonwealth of Virginia has
increased steadily over the past decade. Per capita income in Virginia has been
consistently above national levels during that time. The services sector in
Virginia generates the largest number of jobs, followed by wholesale and retail
trade, state and local government and manufacturing. Because of Northern
Virginia, with its proximity to Washington, D.C., and Hampton Roads, which has
the nation's largest concentration of military installations, the Federal
government has a greater economic impact on Virginia relative to its size than
any states other than Alaska and Hawaii.
According to statistics published by the U.S. Department of Labor,
Virginia typically has one of the lowest unemployment rates in the nation. This
is generally attributed to the balance among the various sectors represented in
the economy. Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. Once an appropriation act becomes
law, revenue collections and expenditures are constantly monitored by the
Governor, assisted by the Secretary of Finance and the Department of Planning
and Budget, to ensure that a balanced budget is maintained. If projected revenue
collections fall below amounts appropriated at any time, the Governor must
reduce expenditures and withhold allotments of appropriations (other than for
debt service and other specified purposes) to restore balance. An amendment to
the State Constitution, effective January 1, 1993, established a Revenue
Stabilization Fund. This Fund is used to offset a portion of anticipated
shortfalls in revenues in years when appropriations based on previous forecasts
exceed expected revenues in subsequent forecasts. The Revenue Stabilization Fund
consists of an amount not to exceed 10% of Virginia's average annual tax
revenues derived from taxes on income and retail sales for the three preceding
fiscal years.
General Fund revenues are principally composed of direct taxes. In
recent fiscal years most of the total tax revenues have been derived from five
major taxes imposed by Virginia on individual and fiduciary income, state sales
and use, corporate income, public service corporations and premiums of insurance
companies.
In September 1991, the Debt Capacity Advisory Committee was created by
the Governor through an executive order. The committee is charged with annually
estimating the amount of tax-supported debt that may prudently be authorized
consistent with the financial goals, capital needs and policies of Virginia. The
committee annually reviews the outstanding debt of all agencies, institutions,
boards and authorities of Virginia for which Virginia has either a direct or
indirect pledge of tax revenues or moral obligation. The Committee provides its
recommendations on the prudent use of such obligations to the Governor and the
General Assembly.
The Constitution of Virginia prohibits the creation of debt by or on
behalf of Virginia that is backed by Virginia's full faith and credit, except as
provided in Section 9 of Article X. Section 9 of Article X contains several
different provisions for the issuance of general obligation and other debt, and
Virginia is well within its limit for each:
Section 9(a)(2) provides that the General Assembly may incur general
obligation debt to meet certain types of emergencies, subject to limitations on
amount and duration; to meet casual deficits in the revenue or in anticipation
of the collection of revenues of Virginia; and to redeem a previous debt
obligation of Virginia. Total indebtedness issued pursuant to this Section may
not exceed 30% of an amount equal to 1.15 times the annual tax revenues derived
from taxes on income and retail sales, as certified by the Auditor of Public
Accounts for the preceding fiscal year.
Section 9(b) provides that the General Assembly may authorize the
creation of general obligation debt for capital projects. Such debt is required
to be authorized by an affirmative vote of a majority of each house of the
General Assembly and approved in a statewide election. The outstanding amount of
such debt is limited to an amount equal to 1.15 times the average annual tax
revenues derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts for the three preceding fiscal years less the total
amount of bonds outstanding. The amount of 9(b) debt that may be authorized in
any single fiscal year is limited to 25% of the limit on all 9(b) debt less the
amount of 9(b) debt authorized in the current and prior three fiscal years.
Section 9(c) provides that the General Assembly may authorize the
creation of general obligation debt for revenue-producing capital projects
(so-called "double-barrel" debt). Such debt is required to be authorized by an
affirmative vote of two-thirds of each house of the General Assembly and
approved by the Governor. The Governor must certify before the enactment of the
authorizing legislation and again before the issuance of the debt that the net
revenues pledged are expected to be sufficient to pay principal of and interest
on the debt. The outstanding amount of 9(c) debt is limited to an amount equal
to 1.15 times the average annual tax revenues derived from taxes on income and
retail sales, as certified by the Auditor of Public Accounts for the three
preceding fiscal years. While the debt limits under Sections 9(b) and 9(c) are
each calculated as the same percentage of the same average tax revenues, these
debt limits are separately computed and apply separately to each type of debt.
Section 9(d) provides that the restrictions of Section 9 are not
applicable to any obligation incurred by Virginia or any of its institutions,
agencies or authorities if the full faith and credit of Virginia is not pledged
or committed to the payment of such obligation. There are currently outstanding
various types of such 9(d) revenue bonds. Certain of these bonds, however, are
paid in part or in whole from revenues received as appropriations by the General
Assembly from general tax revenues, while others are paid solely from revenues
of the applicable project. The debt repayments of the Virginia Public Building
Authority, the Virginia Port Authority, the Virginia College Building Authority
Equipment Leasing Program, the Virginia College Building Authority 21st Century
Program, the Innovative Technology Authority and the Virginia Biotechnology
Research Park Authority have been supported in large part by General Fund
appropriations.
The Commonwealth Transportation Board is a substantial issuer of bonds
for highway projects. These bonds are secured by and payable from funds
appropriated by the General Assembly from the Transportation Trust Fund for such
purpose. The Transportation Trust Fund was established by the General Assembly
in 1986 as a special non-reverting fund administered and allocated by the
Transportation Board to provide increased funding for construction, capital and
other needs of state highways, airports, mass transportation and ports. The
Virginia Port Authority has also issued bonds which are secured by a portion of
the Transportation Trust Fund.
Virginia is involved in numerous leases that are subject to
appropriation of funding by the General Assembly. Virginia also finances the
acquisition of certain personal property and equipment through installment
purchase agreements.
Bonds issued by the Virginia Housing Development Authority, the
Virginia Resources Authority and the Virginia Public School Authority are
designed to be self-supporting from their individual loan programs. A portion of
the Virginia Housing Development Authority, Virginia Public School Authority
bonds and the Virginia Resources Authority bonds are secured in part by a moral
obligation pledge of Virginia. Should the need arise, Virginia may consider
funding deficiencies in the respective debt service reserves for such moral
obligation debt. To date, none of these authorities has advised Virginia that
any such deficiencies exist.
Local government in Virginia is comprised of 95 counties, 40
incorporated cities, and 190 incorporated towns. Virginia is unique in that
cities and counties are independent, and their land areas do not overlap. The
largest expenditures by local governments in Virginia are for education, but
local governments also provide other services such as water and sewer, police
and fire protection and recreational facilities. The Virginia Constitution
imposes numerous restrictions on local indebtedness, affecting both its
incurrence and amount.
In DAVIS V. MICHIGAN (decided March 28, 1989), the United States
Supreme Court ruled unconstitutional states exempting from state income tax the
retirement benefits paid by the state or local governments without exempting
retirement benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal retirement
benefits. At a Special Session held in April 1989, the General Assembly repealed
the exemption of state and local retirement benefits. Following DAVIS, at least
five suits, some with multiple plaintiffs, for refunds of Virginia income taxes,
were filed by federal retirees. These suits were consolidated under the name of
HARPER V. VIRGINIA DEPARTMENT OF TAXATION.
In a Special Session in 1994, the Virginia General Assembly passed
emergency legislation to provide payments in five annual installments to federal
retirees in settlement of their claims as a result of DAVIS. In 1995 and 1996,
the General Assembly passed legislation allowing more retirees to participate in
the settlement. As of June 30, 1997, the estimated total cost to Virginia for
the settlement was approximately $316.2 million.
On September 15, 1995, the Supreme Court of Virginia rendered its
decision in Harper, reversing the judgment of the trial court, entering final
judgment in favor of the taxpayers, directing that the amounts unlawfully
collected be refunded with statutory interest. Virginia issued refund checks on
November 9, 1995, to federal government pensioners who opted out of the
settlement, and interest stopped accruing as of November 3, 1995. The cost of
refunding all Virginia income taxes paid on federal government pensions for
taxable years 1985, 1986, 1987 and 1988 was approximately $78.7 million,
including interest earnings.
The total cost of refunding all Virginia income taxes paid on federal
pensions on account of the settlement (approximately $316.2 million) and the
judgment ($78.7 million) is approximately $394.9 million, of which $329.0
million ($250.2 million in respect of the settlement and the entire $78.7
million in respect of the judgment) had been paid, as of June 30, 1998, leaving
$66.0 million payable in respect of the settlement. During the 1998 Session of
the General Assembly, legislation was passed providing for the early payment of
the remaining balance on September 20, 1998 (subject to appropriation), provided
the undesignated and unreserved general fund balances are met on August 15,
1998. Since such balances were not met, a special installment payment of
52.8592% of the remaining balance (or approximately $34.88 million) was made on
September 30, 1998, with the payment of the final balance ($3.1 million) made on
March 31, 1999.
Most recently, Moody's has rated the long-term general obligation
bonds of Virginia "Aaa," and Standard & Poor's has rated such bonds "AAA." There
can be no assurance that the economic conditions on which these ratings are
based will continue or that particular bond issues may not be adversely affected
by changes in economic or political conditions.
<PAGE>
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 is 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 Obligations 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 pledge 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 Obligations 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" ratings 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 or 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 interest and repayment 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 (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
SP-3
The issuers of these municipal notes exhibit speculative 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. Issues assigned an A 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.
A-3
Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
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 sometime 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 therefor 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
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.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for bonds in each of the generic rating categories Aa,
A, Baa, Ba and B. Moody's also provides numerical modifiers of 2 and 3 in each
of these categories for bond issues in the health care, higher education and
other not-for-profit sectors; the modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates that the
issue is in the mid-range of the generic category; and the modifier 3 indicates
that the issue is in the low end of the generic category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3/VMIG 3
This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will 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.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate 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 reasonable
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 13-36 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.
<PAGE>
December 22, 1999
Dreyfus Premier State Municipal Bond Fund
Supplement to Statement of Additional Information
Dated September 1, 1999
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "How to Buy Shares--
Right of Accumulation - Class A Shares."
Reduced sales loads apply to any purchase of Class A shares, shares of
other funds in the Dreyfus Premier Family of Funds which are sold with a sales
load, shares of certain other funds advised by the Manager or Founders Asset
Management LLC ("Founders"), an affiliate of the Manager, which are sold with a
sales load and shares acquired by a previous exchange of such shares
(hereinafter referred to as "Eligible Funds"), by you and any related
"purchaser" as defined above, where the aggregate investment, including such
purchase, is $50,000 or more.
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "Shareholder Services --
Fund Exchanges."
Clients of certain Service Agents may purchase, in exchange for Class
A, Class B or Class C shares of a Series, shares of the same Class of another
fund in the Dreyfus Premier Family of Funds, shares of the same Class of certain
funds advised by Founders, or shares of certain other funds in the Dreyfus
Family of Funds, to the extent such shares are offered for sale in your state of
residence.
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "Shareholder Services --
Dreyfus Auto-Exchange Privilege."
Dreyfus Auto-Exchange Privilege permits you to purchase (on a semi-
monthly, monthly, quarterly or annual basis), in exchange for Class A, Class B
or Class C shares of a Series, shares of the same Class of another fund in the
Dreyfus Premier Family of Funds, shares of the same Class of certain funds
advised by Founders, or shares of certain other funds in the Dreyfus Family of
Funds, of which you are a shareholder.
Effective December 31, 1999, the following information supersedes and
replaces the first sentence of the first paragraph contained in the section of
the Fund's Statement of Additional Information entitled "Shareholder Services -
Dreyfus Dividend Options."
Dreyfus Dividend Sweep allows you to invest automatically your
dividends or dividends and capital gain distributions, if any, from the Fund in
shares of the same Class of another fund in the Dreyfus Premier Family of Funds,
shares of the same Class of certain funds advised by Founders, or shares of
certain other funds in the Dreyfus Family of Funds, of which you are a
shareholder.
<PAGE>
March 22, 2000
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 1, 1999
1. THE FOLLOWING INFORMATION REPLACES ALL CONTRARY INFORMATION CONTAINED IN THE
SECTIONS OF THE STATEMENT OF ADDITIONAL INFORMATION ENTITLED DESCRIPTION OF THE
FUNDS, MANAGEMENT OF THE FUNDS AND MANAGEMENT ARRANGEMENTS:
Effective March 22, 2000, Dreyfus Service Corporation (DSC) became the
distributor to each Fund. DSC is located at 200 Park Avenue, New York, NY 10166.
2. THE FOLLOWING INFORMATION REPLACES THE INFORMATION CONTAINED IN THE
SECTION OF THE STATEMENT OF ADDITIONAL INFORMATION ENTITLED MANAGEMENT OF THE
FUNDS - OFFICERS OF THE FUND:
STEPHEN E. CANTER, PRESIDENT. President, Chief Operating Officer, and Chief
Investment Officer of the Manager, and an officer of other investment
companies advised and administered by the Manager. Mr. Canter also is a
Director or an Executive Committee Member of the other investment
management subsidiaries of Mellon Financial Corporation, each of which is
an affiliate of the Manager. He is 54 years old.
MARK. JACOBS, VICE PRESIDENT. Vice President, Secretary and General Counsel of
the Manager, and an officer of other investment companies advised and
administered by the Manager. He is 53 years old.
JOSEPH CONNOLLY, VICE PRESIDENT AND TREASURER. Director - Mutual Fund Accounting
of the Manager, and an officer of other investment companies advised and
administered by the Manager. He is 42 years old.
STEVEN F. NEWMAN, ASSISTANT SECRETARY. Associate General Counsel and Assistant
Secretary of the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 50 years old.
JANETTE FARRAGHER, ASSISTANT SECRETARY. Assistant General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. He is 37 years old.
MICHAEL A. ROSENBERG, ASSISTANT SECRETARY. Associate General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. He is 40 years old.
GREGORY S. GRUBER, ASSISTANT TREASURER. Senior Accounting Manager - Municipal
Bond Funds of the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 40 years old.
The address of each Fund officer is 200 Park Avenue, New York, NY 10166.
3. The following information supplements the information contained in the
section of the SAI entitled "Management Arrangements - Distributor":
Disclosure of the amounts retained by "the distributor" on the sale of
shares of the Fund refers to amounts retained by Premier Mutual Fund Services,
Inc. ("Premier"), the Fund's distributor prior to March 22, 2000. No information
is provided for Dreyfus Service Corporation, as it was not the Fund's
distributor as of the Fund's last fiscal year end.
4. The clause "Pursuant to an agreement with the Distributor" hereby is deleted
in the following sections of the SAI; (i) the last sentence of the second
paragraph of the section of the SAI entitled "How to Buy Shares - Class A
Shares", and (ii) the first sentence of the section entitled "How to Buy Shares
- - Class B and C Shares".
<PAGE>
Dreyfus
Premier Municipal
Bond Fund
ANNUAL REPORT
April 30, 1999
Year 2000 Issues
(Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
8 Statement of Investments
17 Statement of Assets and Liabilities
18 Statement of Operations
19 Statement of Changes in Net Assets
21 Financial Highlights
24 Notes to Financial Statements
28 Report of Independent Auditors
29 Important Tax Information
FOR MORE INFORMATION
Back Cover
The Fund
Dreyfus Premier Municipal Bond Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Premier Municipal Bond
Fund, covering the 12-month period from May 1, 1998 through April 30, 1999.
Inside, you'll find valuable information about how the Fund was managed during
the period, including a discussion with the Fund's portfolio manager, Sam
Weinstock.
The past year has generally been rewarding for municipal bond investors. Lower
short-term interest rates adopted by the Federal Reserve Board and other central
banks in the fall of 1998 appear to have helped many U.S. businesses withstand
the effects of economic weakness in Japan, Asia and Latin America. At the same
time, the U.S. economy has entered its eighth year of expansion in an
environment characterized by low inflation and high levels of consumer spending.
In the second half of the reporting period, tax-exempt fixed-income securities
provided good results, especially relative to taxable U.S. Treasury securities.
While prices of U.S. Treasury securities declined significantly through the
second half of the reporting period, a lack of new issuance relative to robust
investor demand supported most municipal bond prices, which have remained
relatively unchanged over the past six months. As a result, the differences in
valuations between taxable U.S. Treasury securities and tax-exempt bonds, which
reached historically wide levels last October, have since narrowed to a more
historically normal relationship.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Premier Municipal Bond Fund.
Sincerely,
/s/Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
DISCUSSION OF FUND PERFORMANCE
Sam Weinstock, Portfolio Manager
How did Dreyfus Premier Municipal Bond Fund perform?
The Fund's Class A shares produced a total return of 3.96% over the 12-month
period ended April 30, 1999, 1 compared to a total return of 5.78% for the
Lipper General Municipal Debt Funds category.2 The Fund produced a total return
of 3.43% for Class B shares and 3.16% for Class C shares over the 12-month
period ended April 30, 1999. 1
The Fund's performance during the period was negatively impacted by two large
positions that significantly lagged the market. One position was sold during the
period. The second position remains in the portfolio based on its continuing
high credit rating and our belief regarding its potential for improved
performance in the future.
What is the Fund's investment approach?
Our goal is to seek as high a level of federally tax-exempt income as is
practical from a diversified portfolio of municipal bonds. To achieve this
objective, we employ four primary strategies. First, we strive to identify the
maturity range that we believe will provide the most favorable returns over the
next year or two. Second, we evaluate issuers' credit quality to find bonds that
we believe provide the best risk-reward trade-off at an attractive price. Third,
we look for bonds with attractively high interest payments, even if they sell at
a premium to face value. Fourth, we assess individual bonds' early redemption
features, focusing on those that cannot be redeemed soon by their issuers.
Typically, the bonds we select for the portfolio will have several of these
qualities.
We also evaluate bonds' likely performance under various market scenarios. When
we find securities that we believe will provide the best expected returns over
an anticipated market range, we select them. Other securities may be held
because they both participate in market rallies and provide protection against
market declines.
What other factors influenced the Fund's performance?
When the Asian currency and credit crisis spread to Russia and threatened Latin
America last summer and fall, investors flocked to U.S. Treasury securities. As
a result, yields on taxable Treasuries fell briefly in October to levels that
were roughly equivalent to yields on comparable tax-exempt bonds.
However, the Federal Reserve Board and other central banks moved quickly to
stimulate global economic growth. Because investors feared that a stronger
economy might reignite inflationary pressures, yields on longer term bonds rose
throughout the first four months of 1999. However, the extent of that rise was
much greater for taxable U.S. Treasury securities than for tax-free municipal
bonds.
In addition, because of strong economic conditions throughout the country, many
states and municipalities have had less need to borrow. Yet, demand from
investors seeking to minimize their income tax liabilities has remained high.
This balance between supply and demand helped keep municipal bond prices
relatively stable while U.S. Treasury bond prices fell sharply. As a result, as
of April 30, long-term tax-exempt bonds provided about 90% of the yield of
taxable U.S. Treasury securities.
What is the Fund's current strategy?
We continue to search for bonds with attractive characteristics. We have found
such securities, in our opinion, in intermediate-maturity bonds. In our view,
these bonds have represented better values than longer term bonds because they
provided most of the yield with substantially less potential volatility. Their
returns are favorable due to the expected slightly lower yields realized as the
maturities of the bonds shorten over time. Accordingly, we have structured the
portfolio to emphasize bonds with maturities in the 15- to 20-year range, which
can achieve this advantage.
1 Total return includes reinvestment of dividends and any capital gains paid,
and does not take into consideration the maximum initial sales charge in the
case of Class A shares, or the applicable contingent deferred sales charge
imposed on redemptions in the case of Class B and Class C shares. Some income
may be subject to the Federal Alternative Minimum Tax (AMT) for certain
shareholders.
2 Source: Lipper Analytical Services, Inc.
FUND PERFORMANCE
[INSERT GRAPH]
$21,615
Lehman Brothers Municipal
Bond Index*
$20,577
Dreyfus Premier Municipal Bond Fund (Class A Shares)
Comparison of change in value of $10,000 investment in the Fund's Class A shares
and the Lehman Brothers Municipal Bond Index
* Source: Lehman Brothers.
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Class A shares of Dreyfus
Premier Municipal Bond Fund (the "Fund") on 4/30/89 to a $10,000 investment made
in the Lehman Brothers Municipal Bond Index (the "Index") on that date. All
dividends and capital gain distributions are reinvested. Performance for Class B
and Class C shares will vary from the performance of Class A shares shown above
due to differences in charges and expenses. The Fund invests primarily in
municipal securities and its performance shown in the line graph takes into
account the maximum initial sales charge on Class A shares and all other
applicable fees and expenses. The Index, unlike the Fund, is an unmanaged total
return performance benchmark for the long-term, investment-grade tax exempt bond
market, calculated by using municipal bonds selected to be representative of the
municipal market overall. The Index does not take into account charges, fees and
other expenses which can contribute to the Index potentially outperforming or
underperforming the Fund. Further information relating to Fund performance,
including expense reimbursements, if applicable, is contained in the Financial
Highlights section of the Prospectus and elsewhere in this report.
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 4/30/99
Inception From
Date 1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Class A Shares
with sales charge
(4.5%) (11/26/86) (0.70)% 6.06% 7.48% --
without sales charge (11/26/86) 3.96% 7.04% 7.98% --
Class B Shares
with redemption* (1/15/93) (0.48)% 6.17% -- 6.12%
without redemption (1/15/93) 3.43% 6.49% -- 6.12%
Class C Shares
with redemption** (7/13/95) 2.18% -- -- 5.55%
without redemption (7/13/95) 3.16% -- -- 5.55%
Past performance is not predicitive of future performance.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
STATEMENT OF INVESTMENTS
April 30, 1999
- --------------------------------------------------------------------------------
Principal
Long-Term Municipal Investments--100.3% Amount($) Value ($)
- --------------------------------------------------------------------------------
Arizona--1.0%
Maricopa County Pollution Control Corporation,
PCR, Refunding
(Public Service Co.--New Mexico Project)
6.30%, 12/1/2026 5,000,000 5,262,300
California--3.5%
Foothill/Eastern Transportation Corridor Agency,
Toll Road Revenue:
6%, 1/1/2034 5,000,000 5,372,050
5%, 1/1/2035 8,000,000 7,610,560
San Joaquin Hills Transportation Corridor Agency,
Toll Road Revenue
(Senior Lien) 5%, 1/1/2033 6,500,000 6,189,950
Colorado--9.2%
Arapahoe County Capital Improvement Trust Fund,
Highway Revenue (E-470 Project):
Zero Coupon, 8/31/2005 2,530,000 1,946,860
Zero Coupon, 8/31/2007 (Prerefunded 8/31/2005)a 4,000,000 2,746,840
7%, 8/31/2026 (Prerefunded 8/31/2005)a 11,000,000 13,096,490
Dawson Ridge, Metropolitan District Number 1,
Refunding:
Zero Coupon, 10/1/2017 9,930,000 3,492,083
Zero Coupon, 10/1/2022 47,535,000 12,587,268
Denver City and County, Airport Revenue:
7.50%, 11/15/2023 (Prerefunded 11/15/2004)a 2,060,000 2,448,804
7.50%, 11/15/2023 9,715,000 11,094,044
7%, 11/15/2025 3,405,000 3,601,741
Connecticut--4.4%
Connecticut Clean Water Fund, Revenue:
4.75%, 9/1/2017 3,000,000 2,943,990
4.875%, 9/1/2022 3,000,000 2,946,450
Connecticut Development Authority:
First Mortgage Gross Revenue
(Elim Park Baptist Home, Inc. Project)
9%, 12/1/2020 (Prerefunded 12/1/1999)a 3,000,000 3,185,250
PCR, Refunding (Connecticut Light & Power)
5.85%, 9/1/2028 8,000,000 8,084,880
Connecticut Health and Educational Facilities Authority,
Revenue, Refunding (Norwalk Hospital):
4.625%, 7/1/2013 (Insured; FSA) 670,000 661,055
4.70%, 7/1/2014 (Insured; FSA) 535,000 528,398
5%, 7/1/2019 (Insured; FSA) 1,000,000 991,780
Connecticut (continued)
Mashantucket Western Pequot Tribe, Special Revenue
5.75%, 9/1/2027d 4,750,000 4,881,860
Delaware--.7%
Delaware Housing Authority, MFMR 7%, 5/1/2025 3,725,000 4,035,292
Florida--6.5%
Florida Department of Transportation,
Refunding (Right of Way) 4.75%, 7/1/2020 9,875,000 9,436,155
Lee County Industrial Development Authority,
Health Care Facilities Revenue
(Cypress Cove Health Park):
5.625%, 10/1/2002 2,000,000 2,027,460
5.875%, 10/1/2004 2,000,000 2,058,200
6.25%, 10/1/2017 3,000,000 3,122,160
Palm Beach County, Solid Waste IDR:
(Okeelanta Power LP Project) 6.85%, 2/15/2021b 6,750,000 5,163,750
(Osceola Power LP) 6.95%, 1/1/2022b 7,500,000 5,662,500
Santa Rosa Bay Bridge Authority, Revenue
6.25%, 7/1/2028 3,000,000 3,295,050
Tampa Bay Water Utilities Systems Revenue, Refunding
5.125%, 10/1/2017 (Insured; FGIC) 5,350,000 5,433,514
Georgia--1.3%
Burke County Development Authority, PCR
(Georgia Power Co.--Plant Vogtle)
5.45%, 5/1/2034 7,000,000 6,951,280
Hawaii--.3%
Hawaii Department of Transportation,
Special Facilities Revenue
(Continental Airlines, Inc.) 5.625%, 11/15/2027 1,850,000 1,843,432
Illinois--2.4%
Carol Stream, First Mortgage Revenue, Refunding
(Windsor Park Manor Project) 6.50%, 12/1/2007 2,000,000 2,155,580
Chicago O'Hare International Airport,
Special Facility Revenue:
6.386%, 4/1/2011c,d 2,725,000 2,794,923
Refunding (United Airlines Project)
5.20%, 4/1/2011 50,000 50,641
East Chicago, PCR, Refunding
(Inland Steel Co. Project) 7.125%, 6/1/2007 3,000,000 3,111,480
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facility):
8.75%, 3/1/2010 177,000 182,347
8.50%, 9/1/2010 1,550,000 1,628,601
8.25%, 8/1/2012 3,815,000 3,393,595
Indiana--3.5%
Indiana Development Finance Authority:
Environmental Improvement Revenue,
Refunding (USX Corp. Project)
6.15%, 7/15/2022 4,000,000 4,231,720
Exempt Facilities Revenue, Refunding
(Inland Steel) 5.75%, 10/1/2011 11,500,000 10,851,400
PCR, Refunding (Inland Steel Co., Project
Number 12)
6.85%, 12/1/2012 4,000,000 4,080,360
Kentucky--1.7%
Kentucky Economic Development Finance Authority,
Hospital System Improvement Revenue, Refunding
(Appalachian Regional Health Center)
5.85%, 10/1/2017 3,000,000 3,055,080
Perry County, SWDR (TJ International Project):
7%, 6/1/2024 3,500,000 3,798,830
6.55%, 4/15/2027 2,500,000 2,678,750
Louisiana--.8%
Louisiana Housing Finance Agency, MFHR, Refunding
(LaBelle Projects) 9.75%, 10/1/2020 4,130,000 4,420,174
Maryland--.6%
Maryland Energy Financing Administration, SWDR
(Wheelabrator Water Projects) 6.45%, 12/1/2016 3,000,000 3,272,100
Massachusetts--2.1%
Massachusetts Industrial Finance Agency:
Health Care Facility Revenue
(Metro Health Foundation, Inc. Project)
6.75%, 12/1/2027 8,000,000 8,502,160
Water Treatment Revenue (American Hingham)
6.95%, 12/1/2035 2,640,000 2,895,420
Michigan--2.0%
Michigan Hospital Finance Authority, HR, Refunding
(Genesys Regional Medical--A)
5.375%, 10/1/2013 4,000,000 4,052,040
Wayne Charter County, Special Airport
Facilities Revenue, Refunding
(Northwest Airlines, Inc.) 6.75%, 12/1/2015 4,985,000 5,409,273
Wayne County Building Authority 8%, 3/1/2017
(Prerefunded 3/1/2002)a 1,500,000 1,694,070
New Jersey--5.3%
New Jersey Building Authority,
Building Revenue, Refunding:
5%, 6/15/2011 45,000 46,386
6.301%, 6/15/2011c,d 6,400,000 6,804,864
New Jersey (continued)
New Jersey Economic Development Authority,
First Mortgage Gross Revenue
(The Evergreens) 9.25%, 10/1/2022
(Prerefunded 10/1/2002)a 15,000,000 17,811,300
New Jersey Sports and Exposition Authority,
Revenue, Refunding (Monmouth Park)
8%, 1/1/2025 (Prerefunded 1/1/2005)a 4,000,000 4,835,040
New Mexico--1.5%
Farmington, PCR:
Refunding (Public Service Co.
--San Juan Project)
6.375%, 4/1/2022 5,000,000 5,326,850
(Tucson Electric Power Co.
of San Juan) 6.95%, 10/1/2020 3,000,000 3,268,350
New York--18.2%
Long Island Power Authority, Electric System Revenue
5.125%, 4/1/2012 (Insured; MBIA) 7,000,000 7,255,220
New York City:
7.10%, 2/1/2009 560,000 612,668
5.25%, 3/15/2011 200,000 209,262
6.604%, 3/15/2011c,d 3,900,000 4,268,472
5.25%, 3/15/2012 200,000 208,340
6.604%, 3/15/2012c,d 1,900,000 2,061,994
5%, 3/15/2021 3,925,000 3,805,445
New York City Industrial Development Agency
IDR, Refunding (Laguardia Associates LP Project)
5.80%, 11/1/2013 8,710,000 8,760,866
New York City Transitional Finance Authority,
Future Tax Secondary Revenue:
5.25%, 11/15/2011 5,000,000 5,284,350
5.25%, 11/15/2012 5,000,000 5,251,400
New York State Dormitory Authority, Revenues,
Refunding:
(Special Act School Districts Program)
5.25%, 7/1/2013 (Insured; FSA) 3,000,000 3,132,990
(State University Educational Facilities)
5.50%, 5/15/2013 3,000,000 3,230,190
New York State Energy Research and Development
Authority, Electric Facilities
Revenue (Long Island Lighting Co.):
7.15%, 9/1/2019 2,535,000 2,748,346
7.15%, 9/1/2019 (Prerefunded 6/15/2002)a 1,115,000 1,241,497
7.15%, 6/1/2020 2,980,000 3,230,797
7.15%, 6/1/2020 (Prerefunded 6/15/2002)a 1,020,000 1,135,719
7.15%, 12/1/2020 1,320,000 1,431,091
7.15%, 12/1/2020 (Prerefunded 6/15/2002)a 3,680,000 4,103,274
7.15%, 2/1/2022 (Prerefunded 6/15/2002)a 7,500,000 8,350,875
New York (continued)
New York State Local Government
Assistance Corporation:
6.252%, 4/1/2012c,d 6,900,000 7,286,262
Refunding:
5%, 4/1/2012 (Insured; FGIC) 105,000 107,801
5.25%, 4/1/2013 (Insured; AMBAC) 6,000,000 6,271,620
New York State Thruway Authority
Service Contract Revenue:
6.754%, 4/1/2010c,d 4,950,000 5,373,423
Refunding (Local Highway and Bridge)
5.25%, 4/1/2010 100,000 104,196
New York State Urban Development Corporation, Revenue
(Correctional Facilities Service Contract)
4.75%, 1/1/2018 (Insured; AMBAC) 1,850,000 1,784,381
Port Authority of New York and New Jersey,
Special Obligation Revenue
4.75%, 1/15/2026 (Insured; AMBAC) 800,000 758,784
(Special Project--JFK International
Airport Terminal)
6.25%, 12/1/2013 (Insured; MBIA) 6,000,000 6,942,480
Scotia Housing Authority, Housing Revenue
(Coburg Village, Inc. Project)
6.10%, 7/1/2018 5,400,000 5,451,732
North Carolina--2.9%
Charlotte, Special Facilities Revenue, Refunding
(Charlotte/Douglas International Airport)
5.60%, 7/1/2027 5,000,000 4,996,050
North Carolina Eastern Municipal Power Agency,
Power System Revenue, Refunding:
7%, 1/1/2013 3,500,000 4,089,925
6%, 1/1/2014 6,750,000 7,009,943
Ohio--1.6%
Ohio Water Development Authority,
Pollution Control Facilities Revenue, Refunding
(Cleveland Electric) 6.10%, 8/1/2020 8,500,000 8,733,750
Oklahoma--1.4%
Holdenville Industrial Authority,
Correctional Facility Revenue:
6.60%, 7/1/2010 (Prerefunded 7/1/2006)a 2,045,000 2,390,932
6.70%, 7/1/2015 (Prerefunded 7/1/2006)a 4,625,000 5,435,855
Oregon--.4%
Oregon, EDR, Refunding (Georgia Pacific
Corp. Project)
5.70%, 12/1/2025 2,000,000 2,040,520
Pennsylvania--4.1%
Blair County Hospital Authority, Revenue
(Altoona Hospital)
8.292%, 7/1/2013 (Insured; AMBAC)c 5,000,000 5,787,800
Dauphin County General Authority,
Office and Parking Revenue
(Riverfront Office) 5.50%, 1/1/2008 4,205,000 4,180,359
Pennsylvania (continued)
Lancaster County Hospital Authority,
Revenue (Health Center--United Church
Homes Project) 9.125%, 10/1/2014
(Prerefunded 10/1/1999)a 1,465,000 1,528,259
Montgomery County Higher Education and
Health Authority,
First Mortgage Revenue
(AHF/Montgomery, Inc. Project) 10.50%, 9/1/2020 3,430,000 3,661,491
Pennsylvania Intergovernmental Cooperative Authority,
Special Tax Revenue
(Philadelphia Funding Program) 6.80%, 6/15/2022
(Prerefunded 6/15/2002)a 2,000,000 2,184,680
Philadelphia, Water and Sewer Revenue
7.35%, 9/1/2004 4,900,000 5,526,612
Rhode Island--.6%
Providence, Special Tax Increment
Obligation 6.65%, 6/1/2016 3,000,000 3,275,130
Tennessee--2.6%
Memphis Center Revenue Finance Corporation,
Sports Facility Revenue
(Memphis Redbirds) 6.50%, 9/1/2028 8,000,000 8,138,320
Shelby County Health Educational and Housing
Facilities, Multi-Family Housing Board Revenue
(Cameron Kirby):
5.90%, 7/1/2018 3,000,000 3,142,260
7.25%, 7/1/2023 3,100,000 3,273,011
Texas--10.0%
Alliance Airport Authority, Special Facilities
Revenue:
8.736%, 4/1/2021c,d 2,500,000 2,894,000
(Federal Express Corp. Project) 6.375%, 4/1/2021 40,000 43,152
Austin, Revenue, Refunding
5.25%, 5/15/2025 (Insured; MBIA) 12,040,000 12,430,818
Gulf Coast Waste Disposal Authority, Revenue
(Waste Disposal--Valero Energy Corp.)
5.60%, 4/1/2032 6,000,000 5,919,720
Houston Airport System,
Special Facilities Improvement Revenue
(Continental Airlines Terminal):
6.125%, 7/15/2017 (Guaranteed; Continental
Airlines, Inc.) 8,375,000 8,610,421
6.125%, 7/15/2027 (Guaranteed; Continental
Airlines, Inc.) 6,800,000 6,968,776
Rio Grande City Consolidated Independent
School District,
Public Facilities Corp. LR
6.75%, 7/15/2010 6,000,000 6,559,620
Texas Public Property Finance Corp., Revenue
(Mental Health and Retardation Center)
8.20%, 10/1/2012 (Prerefunded 10/1/2002)a 7,745,000 8,958,642
Tyler Health Facilities Development Corporation,
HR, Refunding
(Mother Frances Hospital) 5.625%, 7/1/2013 2,680,000 2,694,794
Utah--2.4%
Carbon County, SWDR, Refunding:
(East Carbon Development Corp.) 9%, 7/1/2012 3,900,000 4,190,433
(Sunnyside Cogeneration) 9.25%, 7/1/2018b 15,000,000 9,003,000
Virginia--.4%
Henrico County Industrial Development Authority,
Solid Waste Revenue
(Browning Ferris Industry, Inc.) 5.875%, 3/1/2017 2,000,000 2,001,320
West Virginia--1.4%
Upshur County, SWDR (TJ International Project)
7%, 7/15/2025 7,000,000 7,725,760
U.S. Related--7.5%
Puerto Rico Commonwealth:
Public Improvement:
5.25%, 7/1/2014 (Insured; MBIA) 2,925,000 3,132,441
Refunding:
5.50%, 7/1/2012 (Insured; MBIA) 1,000,000 1,094,830
5.50%, 7/1/2013 (Insured; MBIA) 5,000,000 5,483,500
6.50%, 7/1/2014 (Insured; MBIA) 5,000,000 6,031,900
Zero Coupon, 7/1/2015 (Insured; MBIA) 2,400,000 1,112,856
Refunding:
6.25%, 7/1/2013 (Insured; MBIA) 3,000,000 3,522,960
5.65%, 7/1/2015 (Insured; MBIA) 10,690,000 11,849,758
Puerto Rico Commonwealth Highway and
Transportation Authority, Highway Revenue
5%, 7/1/2036 5,000,000 4,962,050
Puerto Rico Telephone Authority, Revenue, Refunding
6.44%, 1/25/2007
(Insured; MBIA, Prerefunded 1/1/2003)a,c 3,950,000 4,394,375
Total Long-Term Municipal Investments
(cost $534,502,000) 554,436,278
- --------------------------------------------------------------------------------
Principal
Short-Term Municipal Investments--1.4% Amount ($) Value ($)
- --------------------------------------------------------------------------------
Connecticut--.3%
Connecticut Development Authority, Health Care
Revenue, VRDN
(Independent Living Project) 3.80%
(LOC; Chase Manhattan Bank)e 1,665,000 1,665,000
Minnesota--.1%
Beltrami County, Environmental Control Revenue, VRDN
(Northwood Panelboard Co. Project) 3.35%
(LOC; Union Bank of Switzerlande 300,000 300,000
Minneapolis Community Development Agency, PCR, VRDN
(Northern States Power Co. Project) 4.05%
(LOC; Union Bank of Switzerland)e 510,000 510,000
New York--.8%
Long Island Power Authority, Electric
System Revenue,
VRDN 4.25% (LOC; ABN AMRO Bank)e 4,400,000 4,400,000
U.S. Related--.2%
Puerto Rico Commonwealth Government
Development Bank,
Refunding, VRDN 3.80% (Insured; MBIA)e 1,300,000 1,300,000
Total Short-Term Municipal Investments
(cost $8,175,000) 8,175,000
- --------------------------------------------------------------------------------
Total Investments (cost $542,677,000) 101.7% 562,611,278
Liabilities, Less Cash and Receivables (1.7%) (9,657,122)
Net Assets 100.0% 552,954,156
STATEMENT OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
Summary of Abbreviations
AMBAC American Municipal Bond MBIA Municipal Bond
Assurance Corporation Investors Assurance
EDR Economic Development Revenue Insurance Corporation
FGIC Financial Guaranty MFHR Multi-Family
Insurance Company Housing Revenue
FSA Financial Security MFMR Multi-Family
Assurance Mortgage Revenue
HR Hospital Revenue PCR Pollution Control Revenue
IDR Industrial Development Revenue SWDR Solid Waste
LOC Letter of Credit Disposal Revenue
LR Lease Revenue VRDN Variable Rate Demand Notes
- --------------------------------------------------------------------------------
Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value(%)
- --------------------------------------------------------------------------------
AAA Aaa AAA 26.0
AA Aa AA 3.6
A A A 9.4
BBB Baa BBB 17.1
BB Ba BB 8.7
B B B 3.1
F-1+ & F-1 MIG1, VMIG1 & P1SP1 & A1 1.4
Not Rated (f) Not Rated (f) Not Rated (f) 30.7
100.0
a Bonds which are prerefunded are collateralized by U.S. Government securities
which are held in escrow and are used to pay principal and interest on the
municipal issue and to retire the bonds in full at the earliest refunding
date.
b Non-income producing security; interest payments in default.
c Inverse floater security - the interest rate is subject to change
periodically.
d Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At April 30, 1999, these
securities amounted to $36,365,798 or 6.6% of net assets.
e Securities payable on demand. Variable interest rate--subject to periodic
change.
f Securities which, while not rated by Fitch, Moody's and Standard & Poor's,
have been determined by the Manager to be of comparable quality to those rated
securities in which the Fund may invest.
See notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
- --------------------------------------------------------------------------------
Cost Value
- --------------------------------------------------------------------------------
Assets ($):
Investments in securities--
See Statement of Investments 542,677,000 562,611,278
Interest receivable 8,242,280
Receivable for shares of Beneficial
Interest subscribed 207,805
Prepaid expenses 34,905
571,096,268
- --------------------------------------------------------------------------------
Liabilities ($):
Due to The Dreyfus Corporation and affiliates 272,168
Due to Distributor 166,426
Cash overdraft due to Custodian 4,259,570
Payable for investment securities purchased 12,883,802
Payable for shares of Beneficial Interest redeemed 194,751
Accrued expenses 365,395
18,142,112
- --------------------------------------------------------------------------------
Net Assets ($) 552,954,156
- --------------------------------------------------------------------------------
Composition of Net Assets ($):
Paid-in capital 527,278,756
Accumulated net realized gain (loss) on investments 5,741,122
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 19,934,278
- --------------------------------------------------------------------------------
Net Assets ($) 552,954,156
- --------------------------------------------------------------------------------
Net Asset Value Per Share
Class A Class B Class C
- --------------------------------------------------------------------------------
Net Assets ($) 432,276,105 112,583,364 8,094,687
Shares Outstanding 30,165,711 7,854,603 564,093
- --------------------------------------------------------------------------------
Net Asset Value Per Share ($) 14.33 14.33 14.35
See notes to financial statements.
STATEMENT OF OPERATIONS
Year Ended April 30,1999
- --------------------------------------------------------------------------------
Investment Income ($)
- --------------------------------------------------------------------------------
Income
Interest Income 33,513,976
Expenses:
Management fee--Note 3 (a) 3,144,295
Shareholder servicing costs--Note 3 (c) 1,786,392
Distribution fees--Note 3 (b) 652,029
Professional fees 64,987
Custodian fees 62,307
Registration fees 55,739
Prospectus and shareholders' reports 36,950
Trustees' fees and expenses--Note 3 (d) 31,951
Loan commitment fees--Note 2 3,390
Miscellaneous 26,471
Total Expenses 5,864,511
Investment Income--Net 27,649,465
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments--Note 4: Net realized gain
(loss) on investments 8,312,856 Net unrealized appreciation (depreciation) on
investments (14,148,587) Net Realized and Unrealized Gain (Loss) on Investments
(5,835,731) Net Increase in Net Assets Resulting From Operations 21,813,734
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended April 30,
-----------------------------------
1999 1998
- --------------------------------------------------------------------------------
Operations ($):
Investment income--net 27,649,465 30,469,152
Net realized gain (loss) on investments 8,312,856 10,610,253
Net unrealized appreciation (depreciation)
on investments (14,148,587) 15,681,076
Net Increase (Decrease) in Net Assets
Resulting from Operations 21,813,734 56,760,481
- --------------------------------------------------------------------------------
Dividends to Shareholders From ($):
Investment income--net:
Class A shares (22,022,212) (24,679,815)
Class B shares (5,367,735) (5,696,047)
Class C shares (259,518) (93,290)
Net realized gain on investments:
Class A shares (6,305,305) (2,600,891)
Class B shares (1,759,660) (670,463)
Class C shares (100,844) (13,085)
Total Dividends (35,815,274) (33,753,591)
- --------------------------------------------------------------------------------
Beneficial Interest Transactions ($): Net proceeds from shares sold:
Class A shares 152,264,177 113,213,669
Class B shares 21,488,965 17,652,592
Class C shares 6,589,948 1,951,053
Dividends reinvested:
Class A shares 16,928,404 15,608,787
Class B shares 4,048,469 3,578,795
Class C shares 93,487 41,919
Cost of shares redeemed:
Class A shares (174,041,478) (156,745,426)
Class B shares (29,371,046) (15,746,393)
Class C shares (1,389,501) (79,409)
Increase (Decrease) in Net Assets from
Beneficial Interest Transactions (3,388,575) (20,524,413)
Total Increase (Decrease) in Net Assets (17,390,115) 2,482,477
- --------------------------------------------------------------------------------
Net Assets ($):
Beginning of Period 570,344,271 567,861,794
End of Period 552,954,156 570,344,271
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS (continued)
- --------------------------------------------------------------------------------
Year Ended April 30,
---------------------------------
1999 1998
- --------------------------------------------------------------------------------
Capital Share Transactions:
Class A
Shares sold 10,430,316 7,726,113
Shares issued for dividends reinvested 1,160,521 1,065,410
Shares redeemed (11,923,145) (10,709,000)
Net Increase (Decrease) in Shares Outstanding (332,308) (1,917,477)
- --------------------------------------------------------------------------------
Class B
Shares sold 1,467,908 1,206,389
Shares issued for dividends reinvested 277,529 244,184
Shares redeemed (2,023,258) (1,077,080)
Net Increase (Decrease) in Shares Outstanding (277,821) 373,493
- --------------------------------------------------------------------------------
Class C
Shares sold 448,068 133,508
Shares issued for dividends reinvested 6,406 2,854
Shares redeemed (95,671) (5,369)
Net Increase (Decrease) in Shares Outstanding 358,803 130,993
See notes to financial statements.
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the
fiscal periods indicated. Certain information reflects financial results for a
single fund share. "Total return" shows how much your investment in the Fund
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been derived from
the Fund's financial statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended April 30,
- -----------------------------------------------------------------------------------------
Class A Shares: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
Per Share Data ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.69 14.11 13.85 13.86 13.81
Investment Operations:
Investment income--net .72 .79 .82 .86 .84
Net realized and unrealized gain (loss)
on investments (.15) .66 .27 (.01) .05
Total from Investment Operations .57 1.45 1.09 .85 .89
Distributions:
Dividends from investment income-net (.72) (.79) (.82) (.86) (.84)
Dividends from net realized gain
on investments (.21) (.08) (.01) -- --
Total Distributions (.93) (.87) (.83) (.86) (.84)
Net asset value, end of period 14.33 14.69 14.11 13.85 13.86
- -----------------------------------------------------------------------------------------
Total Return (%)* 3.96 10.52 8.03 6.08 6.72
- -----------------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average net assets .91 .91 .91 .92 .92
Ratio of net investment income to average
net assets 4.96 5.42 5.84 5.98 6.16
Portfolio Turnover Rate 46.84 26.33 28.17 36.59 38.60
- -----------------------------------------------------------------------------------------
Net Assets, end of period ($x1,000) 432,276 447,869 457,327 474,044 495,616
* Exclusive of sales load. See notes to financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended April 30,
- -----------------------------------------------------------------------------------------
Class B Shares: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
Per Share Data ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.69 14.11 13.85 13.86 13.81
Investment Operations:
Investment income--net .65 .72 .75 .78 .77
Net realized and unrealized gain (loss)
on investments (.15) .66 .27 (.01) .05
Total from Investment Operations .50 1.38 1.02 .77 .82
Distributions:
Dividends from investment income-net (.65) (.72) (.75) (.78) (.77)
Dividends from net realized gain
on investments (.21) (.08) (.01) -- --
Total Distributions (.86) (.80) (.76) (.78) (.77)
Net asset value, end of period 14.33 14.69 14.11 13.85 13.86
- -----------------------------------------------------------------------------------------
Total Return (%)* 3.43 9.95 7.49 5.53 6.15
- -----------------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average net assets 1.42 1.42 1.43 1.43 1.44
Ratio of net investment income to average
net assets 4.44 4.89 5.33 5.46 5.62
Portfolio Turnover Rate 46.84 26.33 28.17 36.59 38.60
- -----------------------------------------------------------------------------------------
Net Assets, end of period ($x1,000) 112,583 119,457 109,485 106,931 99,411
* Exclusive of sales load. See notes to financial statements.
</TABLE>
- --------------------------------------------------------------------------------
Year Ended April 30,
- --------------------------------------------------------------------------------
Class C Shares: 1999 1998 1997 1996 a
- --------------------------------------------------------------------------------
Per Share Data ($):
Net asset value, beginning of period 14.71 14.12 13.87 14.28
Investment Operations:
Investment income--net .61 .68 .72 .60
Net realized and unrealized gain (loss)
on investments (.15) .67 .26 (.41)
Total from Investment Operations .46 1.35 .98 .19
Distributions:
Dividends from investment income-net (.61) (.68) (.72) (.60)
Dividends from net realized gain
on investments (.21) (.08) (.01) --
Total Distributions (.82) (.76) (.73) (.60)
Net asset value, end of period 14.35 14.71 14.12 13.87
- --------------------------------------------------------------------------------
Total Return (%) b 3.16 9.73 7.16 1.56 c
- --------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average net assets 1.67 1.69 1.64 1.77c
Ratio of net investment income to average
net assets 4.11 4.55 5.01 4.84c
Portfolio Turnover Rate 46.84 26.33 28.17 36.59
- --------------------------------------------------------------------------------
Net Assets, end of period ($x1,000) 8,095 3,019 1,049 340
a From July 13, 1995 (commencement of initial offering) to April 30, 1996.
b Exclusive of sales load.
c Annualized.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Premier Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified
open-end management investment company. The Fund's investment objective is to
maximize current income exempt from Federal income tax to the extent consistent
with the preservation of capital. The Dreyfus Corporation (the "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") is the distributor of the
Fund's shares. The Fund is authorized to issue an unlimited number of $.001 par
value shares in each of the following classes of shares: Class A, Class B and
Class C. Class A shares are subject to a sales charge imposed at the time of
purchase, Class B shares are subject to a contingent deferred sales charge
("CDSC") imposed on Class B share redemptions made within six years of purchase
(five years for shareholders beneficially owning Class B shares on November 30,
1996) and Class C shares are subject to a CDSC imposed on Class C shares
redeemed within one year of purchase. Other differences between the classes
include the services offered to and the expenses borne by each class and certain
voting rights.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (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. Under the terms of the custody
agreement, the Fund receives net earnings credits based on available cash
balances left on deposit.
(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 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 of 1986, as amended (the
"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 Code, and to make distributions
of income and net realized capital gain sufficient to relieve it from
substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The Fund participates with other Dreyfus-managed Funds in a $600 million
redemption credit facility ("Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of the borrowings. During the period ended
April 30, 1999, the Fund did not borrow under the line of credit.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is
computed at the annual rate of .55 of 1% of the value of the Fund's average
daily net assets and is payable monthly.
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager, retained
$2,988 during the period ended April 30, 1999 from commissions earned on sales
of the Fund's shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act,
Class B and Class C shares pay the Distributor for distributing their shares at
an annual rate of .50 of 1% of the value of the average daily net assets of
Class B shares and .75 of 1% of the value of the average daily net assets of
Class C shares. During the period ended April 30, 1999, Class B and Class C
shares were charged $604,681 and $47,348, respectively, pursuant to the
Distribution Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay
the Distributor at an annual rate of .25 of 1% of the value of the average daily
net assets of their shares for the provision of certain services. 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. The Distributor may make payments to Service Agents (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended April 30, 1999, Class A, Class B and Class C
shares were charged $1,111,102, $302,340 and $15,783, respectively, pursuant to
the Shareholder Services Plan.
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. During the period
ended April 30, 1999, the Fund was charged $217,146 pursuant to the transfer
agency agreement.
(d) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended April 30, 1999 amounted to
$264,748,008 and $264,012,711, respectively.
At April 30, 1999, accumulated net unrealized appreciation on investments was
$19,934,278, consisting of $32,397,594 gross unrealized appreciation and
$12,463,316 gross unrealized depreciation.
At April 30, 1999, 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).
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Premier Municipal Bond Fund
We have audited the accompanying statement of assets and liabilities of Dreyfus
Premier Municipal Bond Fund, including the statement of investments, as of April
30, 1999 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 April
30, 1999 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 Premier Municipal Bond Fund at April 30, 1999, 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 & Young LLP
New York, New York
June 2, 1999
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the Fund hereby makes the following
designations regarding its fiscal year ended April 30, 1999:
-- all the dividends paid from investment income-net are "exempt-interest
dividends" (not generally subject to regular Federal income tax), and
-- the Fund hereby designates $.1869 per share as a long-term capital gain
distribution of the $.2067 per share paid on December 8, 1998.
As required by Federal tax law rules, shareholders will receive notification of
their portion of the Fund's taxable ordinary dividends (if any) and capital gain
distributions (if any) paid for the 1999 calendar year on Form 1099-DIV which
will be mailed by January 31, 2000.
FOR MORE INFORMATION
Dreyfus Premier
Municipal Bond Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
By telephone
Call your financial
representative or
1-800-554-4611
By mail Write to:
The Dreyfus Premier
Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
(C) 1999 Dreyfus Service Corporation 022/662AR994
Dreyfus
Premier Municipal
Bond Fund
SEMIANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
--------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Statement of Investments
14 Statement of Assets and Liabilities
15 Statement of Operations
16 Statement of Changes in Net Assets
18 Financial Highlights
21 Notes to Financial Statements
FOR MORE INFORMATION
---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus Premier
Municipal Bond Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Premier Municipal
Bond Fund, covering the six-month period from May 1, 1999 through October 31,
1999. Inside, you' ll find valuable information about how the fund was managed
during the reporting period, including a discussion with the fund's portfolio
manager, Samuel Weinstock.
When the reporting period began, evidence had emerged that the U.S. economy was
growing strongly in an environment characterized by high levels of consumer
spending and low levels of unemployment. Concerns that inflationary pressures
might re-emerge caused the Federal Reserve Board to raise short-term interest
rates twice during the summer of 1999, effectively offsetting most of last fall'
s interest-rate cuts. Higher interest rates led to some erosion of municipal
bond prices, especially toward the end of the reporting period.
In this environment, however, the yields of tax-exempt bonds have recently been
quite attractive compared to the after-tax yields of taxable bonds of comparable
maturity and credit quality. This is especially true for investors in the higher
federal income tax brackets.
We appreciate your confidence over the past six months, and we look forward to
your continued participation in Dreyfus Premier Municipal Bond Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF FUND PERFORMANCE
Samuel Weinstock, Portfolio Manager
How did Dreyfus Premier Municipal Bond Fund perform during the period?
For the six-month period ended October 31, 1999, Dreyfus Premier Municipal Bond
Fund' s Class A shares provided a -6.21% total return; its Class B shares
provided a -6.46% total return and its Class C shares provided a -6.56% total
return.(1) This compares to a -5.32% total return(2) for the Lipper General
Municipal Debt Funds category average for the same period.
We attribute the fund's relative underperformance compared to its benchmark over
the past six months to a declining municipal bond market and a rising
interest-rate environment. When the market is down, spreads between securities
open up or widen. This phenomenon will also occur in the opposite direction when
markets are rising. During the current period, this credit-widening environment
negatively impacted the fund.
What is the fund's investment approach?
Our goal is to seek as high a level of federally tax-exempt income as is
practical from a diversified portfolio of municipal bonds without undue risk.
Maximizing total returns, which includes both income and changes in share price,
is a secondary goal.
To achieve our objectives, we employ four primary strategies. First, we strive
to identify the maturity range that we believe will provide the most favorable
returns over the next two years. Second, we evaluate issuers' credit quality to
find bonds that we believe provide high yields at an attractive price. Third, we
look for bonds with attractively high interest payments, even if they sell at a
premium to face value. Fourth, we assess individual bonds' early redemption
features, focusing on those that cannot be redeemed soon by their issuers.
Typically, the bonds we select for the fund will have several of these
qualities.
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
What other factors influenced the fund's performance?
The fund and the municipal bond marketplace were adversely affected by rising
interest rates over the past six months. When the reporting period began on May
1, 1999, investors were concerned that economic recovery in overseas markets and
continued economic strength in the United States might rekindle long-dormant
inflationary pressures. In fact, in an attempt to forestall a potential
reacceleration of inflation, the Federal Reserve Board raised short-term
interest rates twice during the summer of 1999. This change in monetary policy
caused municipal bond prices to fall.
In addition, strong economic conditions have contributed to the nation's first
federal budget surplus in many years. While the government has had less need to
issue U.S. Treasury securities, demand has remained high from domestic and
overseas investors. This imbalance between supply and demand has recently
constrained the rise of taxable bond yields relative to tax-exempt bonds. As a
result, municipal bonds offered tax-exempt yields during the period that
compared very favorably with taxable yields after adjusting for taxes.
The DE MINIMIS tax effect on market discount bonds in municipals can also
accelerate downward pressure on existing holdings. Once a bond falls below its
DE MINIMIS cutoff level, the next owner of the bond pays an ordinary tax rate on
the appreciation instead of a capital gains rate. To compensate buyers, these
securities are offered at a greater discount to face value (lower prices) as the
market heads lower. Depending on how many shares are owned and if the market is
passing below the cutoff level for a particular bond fund, performance can lag.
What is the fund's current strategy?
In a rising interest-rate environment, an important part of our strategy has
been to focus on maintaining the fund's average duration within the neutral
range. Because a fund's duration naturally extends as interest rates rise and
some bonds' prices fall below levels at which issuers might redeem them early,
bond funds tend to become more sensitive to the adverse short-term effects of
higher interest rates. Accordingly, we sold some of our longer maturity bonds,
including those priced at discounts to face value.
We attempted to reinvest the proceeds of those sales in tax-exempt bonds that we
believed would remain highly liquid in a declining market. Accordingly, new
purchases focused on insured(3) and highly rated bonds in the 10-year maturity
range. We also took steps to upgrade the fund by using high quality bonds to
replace pre-refunded bonds as well as bonds that are near their redemption
dates. Typically, these new purchases were available at face value or modest
premiums, and had maturities of seven years or less. Because of uncertainties in
the pre-refunded bond market sector, these new purchases often gave us the
potential to enhance the fund's income stream.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
AND DOES NOT TAKE INTO CONSIDERATION THE MAXIMUM INITIAL SALES CHARGE IN THE
CASE OF CLASS A SHARES, OR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE
IMPOSED ON REDEMPTIONS IN THE CASE OF CLASS B AND CLASS C SHARES. HAD THESE
CHARGES BEEN REFLECTED, RETURNS WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND INVESTMENT RETURN FLUCTUATE
SUCH THAT UPON REDEMPTION FUND SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND SOME INCOME
MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT) FOR CERTAIN
INVESTORS. CAPITAL GAINS, IF ANY, ARE FULLY TAXABLE.
(2) SOURCE: LIPPER ANALYTICAL SERVICES, INC.
(3) PORTFOLIO INSURANCE EXTENDS TO THE REPAYMENT OF PRINCIPAL AND PAYMENT OF
INTEREST IN THE EVENT OF DEFAULT. IT DOES NOT EXTEND TO THE MARKET VALUE OF
PORTFOLIO SECURITIES OR TO THE VALUE OF THE FUND'S SHARES.
STATEMENT OF INVESTMENTS
October 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
LONG-TERM MUNICIPAL INVESTMENTS Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
ALABAMA--.9%
<S> <C> <C> <C>
Courtland Industrial Development Board, SWDR
(Champion International Corporation Project) 6%, 8/1/2029 4,750,000 4,325,825
ARIZONA--1.0%
Maricopa County Pollution Control Corporation, PCR
(Public Service Co. - New Mexico Project) 6.30%, 12/1/2026 5,000,000 4,766,150
CALIFORNIA--1.8%
Foothill/Eastern Transportation Corridor Agency,
Toll Road Revenue 6%, 1/1/2034 5,000,000 5,380,450
Riverside County Public Finance Authority, COP 5.75%, 5/15/2019 3,500,000 3,123,015
COLORADO--7.7%
Arapahoe County Capital Improvement Trust Fund,
Highway Revenue (E-470 Project): Zero Coupon, 8/31/2005 2,530,000 1,894,338
Zero Coupon, 8/31/2007 (Prerefunded 8/31/2005) 4,000,000(a) 2,672,720
7%, 8/31/2026 (Prerefunded 8/31/2005) 11,000,000(a) 12,489,510
Dawson Ridge, Metropolitan District Number 1 Zero Coupon, 10/1/2017 9,930,000 2,951,692
Denver City and County, Airport Revenue: 7.50%, 11/15/2023 (Prerefunded 11/15/2004) 2,060,000(a) 2,345,413
7.50%, 11/15/2023 9,715,000 10,642,880
7%, 11/15/2025 3,405,000 3,506,401
CONNECTICUT--4.5%
Connecticut Clean Water Fund, Revenue: 5.125%, 9/1/2013 10,000 9,635
7.375%, 9/1/2013 995,000(b,c) 920,594
5.125%, 9/1/2014 10,000 9,493
7.375%, 9/1/2014 1,745,000(b,c) 1,564,637
5.125%, 9/1/2016 40,000 37,107
7.375%, 9/1/2016 1,760,000(b,c) 1,501,843
Connecticut Development Authority, PCR
(Connecticut Light & Power) 5.85%, 9/1/2028 8,000,000 7,340,160
Mashantucket Western Pequot Tribe, Special Revenue 5.75%, 9/1/2027 10,750,000 9,762,290
DELAWARE--.8%
Delaware Housing Authority, MFMR 7%, 5/1/2025 3,725,000 3,903,949
Lee County Industrial Development Authority,
Health Care Facilities Revenue (Cypress Cove
Health Park): 5.625%, 10/1/2002 2,000,000 1,987,440
5.875%, 10/1/2004 2,000,000 1,974,340
FLORIDA--3.3%
Palm Beach County, Solid Waste IDR:
(Okeelanta Power LP Project) 6.85%, 2/15/2021 6,750,000(d) 4,134,375
(Osceola Power LP) 6.95%, 1/1/2022 7,500,000(d) 4,518,750
Santa Rosa Bay Bridge Authority, Revenue 6.25%, 7/1/2028 3,000,000 2,966,160
GEORGIA--1.3%
Burke County Development Authority, PCR
(Georgia Power Plant) 5.45%, 5/1/2034 (Insured; MBIA) 7,000,000 6,245,330
HAWAII--.3%
Hawaii Department of Transportation,
Special Facilities Revenue (Continental
Airlines, Inc.) 5.625%, 11/15/2027 1,850,000 1,577,236
ILLINOIS--2.6%
Carol Stream, First Mortgage Revenue
(Windsor Park Manor Project) 6.50%, 12/1/2007 2,000,000 2,015,580
Chicago O'Hare International Airport,
Special Facility Revenue: 6.386%, 4/1/2011 2,725,000(b,c) 2,225,126
(United Airlines Project) 5.20%, 4/1/2011 50,000 45,604
East Chicago, PCR
(Inland Steel Co. Project) 7.125%, 6/1/2007 3,000,000 2,990,190
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facility): 8.75%, 3/1/2010 177,000 180,122
8.50%, 9/1/2010 1,550,000 1,600,592
8.25%, 8/1/2012 2,835,000 3,048,050
INDIANA--5.8%
Indiana Development Finance Authority:
Environmental Improvement Revenue
(USX Corp. Project) 6.15%, 7/15/2022 4,000,000 3,749,080
Exempt Facilities Revenue (Inland Steel) 5.75%, 10/1/2011 11,500,000 10,121,150
PCR (Inland Steel Co., Project Number 12) 6.85%, 12/1/2012 4,000,000 3,843,040
Indianapolis Airport Authority, Special
Facilities Revenue
(United Airlines Project) 6.50%, 11/15/2031 10,000,000 9,698,800
KENTUCKY--1.8%
Kentucky Economic Development Finance Authority,
Hospital System Improvement Revenue
(Appalachian Regional Health Center) 5.85%, 10/1/2017 3,000,000 2,631,150
Perry County, SWDR (TJ International Project): 7%, 6/1/2024 3,500,000 3,614,030
6.55%, 4/15/2027 2,500,000 2,520,050
The Fund
LOUISIANA--2.7%
DeSoto Parish, PCR (Cleco Utility
Group, Inc. Project) 5.875%, 9/1/2029 (Insured; AMBAC) 3,110,000 3,020,308
Louisiana Housing Finance Agency, MFHR
(LaBelle Projects) 9.75%, 10/1/2020 4,100,000 4,563,259
Saint Charles Parish, PCR: 6.35%, 10/1/2003 5,100,000(b,c) 5,056,905
(Entergy, Inc. Project) 5.35%, 10/1/2029 50,000 49,788
MAINE--.6%
Jay, SWDR (International Paper Co.) 6.20%, 9/1/2019 3,250,000 3,109,763
MARYLAND--.7%
Maryland Energy Financing Administration, SWDR
(Wheelabrator Water Projects) 6.45%, 12/1/2016 3,000,000 3,083,790
MASSACHUSETTS--2.2%
Massachusetts Industrial Finance Agency:
Health Care Facility Revenue (Metro Health
Foundation, Inc. Project) 6.75%, 12/1/2027 8,000,000 7,731,200
Water Treatment Revenue (American Hingham) 6.95%, 12/1/2035 2,640,000 2,778,310
MICHIGAN--3.0%
Michigan Hospital Finance Authority, HR
(Genesys Regional Medical - A) 5.375%, 10/1/2013 4,000,000 3,881,640
Wayne Charter County, Special Airport
Facilities Revenue:
(Metropolitan Wayne County) 5.25%, 12/1/2014 (Insured; MBIA) 3,965,000 3,700,217
(Northwest Airlines, Inc.) 6.75%, 12/1/2015 4,985,000 5,025,628
Wayne County Building Authority 8%, 3/1/2017 (Prerefunded 3/1/2002) 1,500,000(a) 1,643,805
NEBRASKA-1.0%
Nebraska Investment Finance Authority, SFHR 5.70%, 9/1/2029 5,000,000 4,726,250
NEW JERSEY-2.6%
Cherry Hill Township School District 4.75%, 2/15/2019 (Insured; FSA) 1,630,000 1,419,860
New Jersey Building Authority, Building Revenue: 5%, 6/15/2011 45,000 43,590
6.301%, 6/15/2011 6,400,000(b,c) 5,988,096
New Jersey Sports and Exposition Authority,
Revenue
(Monmouth Park) 8%, 1/1/2025 (Prerefunded 1/1/2005) 4,000,000(a) 4,651,320
NEW MEXICO--1.7%
Farmington, PCR:
(Public Service Co. - San Juan Project) 6.375%, 4/1/2022 5,000,000 4,798,500
(Tucson Electric Power Co. of San Juan) 6.95%, 10/1/2020 3,000,000 3,054,600
NEW YORK--17.0%
New York City: 7.10%, 2/1/2009 350,000 372,239
7.10%, 2/1/2009 (Prerefunded 2/1/2002) 210,000(a) 224,954
New York City Industrial Development Agency
IDR, (Laguardia Associates LP Project) 5.80%, 11/1/2013 8,710,000 8,227,466
New York State Dormitory Authority, Revenues: 6.63%, 2/15/2013 (Insured; MBIA) 6,400,000(b,c) 5,688,192
(Bronx/Lebanon Hospital) 5.20%, 2/15/2013 (Insured; MBIA) 60,000 56,717
(Mental Health Services Facilities) 5.125%, 2/15/2012 (Insured; MBIA) 3,365,000 3,196,784
(Special Act School Districts Program) 5.25%, 7/1/2013 (Insured; FSA) 3,000,000 2,863,140
New York State Energy Research and
Development Authority,
Electric Facilities Revenue (Long Island
Lighting Co.): 7.15%, 9/1/2019 2,535,000 2,673,715
7.15%, 9/1/2019 (Prerefunded 6/15/2002) 1,115,000(a) 1,204,178
7.15%, 6/1/2020 2,980,000 3,143,065
7.15%, 6/1/2020 (Prerefunded 6/15/2002) 1,020,000(a) 1,101,579
7.15%, 12/1/2020 1,320,000 1,392,230
7.15%, 12/1/2020 (Prerefunded 6/15/2002) 3,680,000(a) 3,981,024
7.15%, 2/1/2022 (Prerefunded 6/15/2002) 7,500,000(a) 8,099,850
New York State Thruway Authority
Service Contract Revenue: 6.754%, 4/1/2010 4,950,000(b,c) 4,720,716
(Local Highway and Bridge) 5.25%, 4/1/2010 100,000 97,761
New York State Urban Development Corporation,
Revenue
(Correctional Facilities Service Contract): 5.25%, 1/1/2010 (Insured; AMBAC) 5,000,000 4,955,000
5.25%, 1/1/2011 (Insured; AMBAC) 4,000,000 3,921,920
5.25%, 1/1/2012 (Insured; AMBAC) 3,500,000 3,397,135
5.25%, 1/1/2013 (Insured; AMBAC) 3,660,000 3,506,939
Port Authority of New York and New Jersey: 5.35%, 9/15/2014 (Insured; FGIC) 6,750,000 6,557,490
Special Obligation Revenue (JFK
International Airport Terminal) 6.25%, 12/1/2013 (Insured; MBIA) 6,000,000 6,337,200
Scotia Housing Authority, Housing Revenue
(Coburg Village, Inc. Project) 6.10%, 7/1/2018 5,400,000 4,925,988
NORTH CAROLINA--1.7%
Charlotte, Special Facilities Revenue
(Charlotte/Douglas International Airport) 5.60%, 7/1/2027 5,000,000 4,070,650
North Carolina Eastern Municipal Power Agency,
Power System Revenue 7%, 1/1/2013 3,500,000 3,769,115
OHIO--1.7%
Ohio Water Development Authority, Pollution
Control Facilites Revenue (Cleveland Electric) 6.10%, 8/1/2020 8,500,000 7,900,155
OKLAHOMA--1.5%
Holdenville Industrial Authority, Correctional
Facility Revenue: 6.60%, 7/1/2010 (Prerefunded 7/1/2006) 2,045,000(a) 2,247,516
6.70%, 7/1/2015 (Prerefunded 7/1/2006) 4,625,000(a) 5,108,914
OREGON--.1%
Oregon, EDR (Georgia Pacific Corp. Project) 5.70%, 12/1/2025 500,000 440,100
PENNSYLVANIA--4.2%
Beaver County Industrial Development Authority,
PCR (Ohio Edison Company Project) 4.65%, 6/1/2033 5,000,000 4,829,450
Blair County Hospital Authority, Revenue
(Altoona Hospital) 8.292%, 7/1/2013 (Insured; AMBAC) 5,000,000(b) 5,324,350
Dauphin County General Authority, Office
and Parking Revenue
(Riverfront Office) 5.50%, 1/1/2008 4,205,000 3,960,269
Montgomery County Higher Education and
Health Authority
First Mortgage Revenue (AHF/Montgomery,
Inc. Project) 10.50%, 9/1/2020 3,395,000 3,555,889
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue (Philadelphia
Funding Program) 6.80%, 6/15/2022 (Prerefunded 6/15/2002) 2,000,000(a) 2,118,820
RHODE ISLAND--.7%
Providence, Special Tax Increment Obligation 6.65%, 6/1/2016 3,000,000 3,085,620
TENNESSEE-2.9%
Memphis Center Revenue Finance Corporation,
Sports Facility Revenue (Memphis Redbirds) 6.50%, 9/1/2028 8,000,000 7,531,520
Shelby County Health Educational and Housing
Facilities, Multi-Family Housing Board
Revenue (Cameron Kirby): 5.90%, 7/1/2018 3,000,000 2,979,600
7.25%, 7/1/2023 3,055,000 3,096,884
TEXAS--7.9%
Alliance Airport Authority, Special Facilities
Revenue: 8.736%, 4/1/2021 2,500,000(b,c) 2,288,900
(Federal Express Corp. Project) 6.375%, 4/1/2021 40,000 38,420
Brazo River Authority, PCR
(Utilities Electric Company) 5.55%, 6/1/2030 5,000,000 4,213,400
Dallas-Fort Worth International Airport Facility
Improvement Corporation, Revenue (American
Airlines, Inc.) 6.375%, 5/1/2035 7,500,000 7,210,350
Gulf Coast Waste Disposal Authority, Revenue
(Waste Disposal - Valero Energy Corp.) 5.60%, 4/1/2032 6,000,000 5,034,780
Houston Airport System, Special Facilities
Improvement Revenue (Continental Airline
Terminal) 6.125%, 7/15/2017 8,375,000 7,837,827
(Guaranteed; Continental Airline, Inc.)
Rio Grande City Consolidated Independent School
District Public Facilities Corporation, LR 6.75%, 7/15/2010 6,000,000 6,256,800
Texas Public Property Finance Corporation, Revenue
(Mental Health and Retardation Center) 8.20%, 10/1/2012 (Prerefunded 10/1/2002) 1,900,000(a) 2,131,800
Tyler Health Facilities Development Corporation,
HR (Mother Frances Hospital) 5.625%, 7/1/2013 2,680,000 2,427,705
UTAH--2.5%
Carbon County, SWDR:
(East Carbon Development Corp.) 9%, 7/1/2012 3,800,000 3,985,136
(Sunnyside Cogeneration--A) 7.10%, 8/15/2023 7,600,000 7,572,944
(Sunnyside Cogeneration--B) Zero Coupon, 8/15/2024 2,320,000 381,942
VIRGINIA--1.0%
Virginia Housing Development Authority,
Commonwealth Mortgage 5.50%, 1/1/2022 3,000,000 2,796,270
Henrico County Industrial Development Authority,
Solid Waste Revenue (Browning Ferris Industry,
Inc.) 5.875%, 3/1/2017 2,000,000 1,773,100
WEST VIRGINIA--1.6%
Upshur County, SWDR (TJ International Project) 7%, 7/15/2025 7,000,000 7,438,200
U.S. RELATED-7.5%
Puerto Rico Commonwealth: 6.25%, 7/1/2013 (Insured; MBIA) 3,000,000 3,224,460
5.65%, 7/1/2015 (Insured; MBIA) 690,000 693,864
Public Improvement: 5.50%, 7/1/2012 (Insured; MBIA) 8,000,000 8,105,120
5.50%, 7/1/2013 (Insured; MBIA) 5,000,000 5,016,300
5.25%, 7/1/2014 (Insured; MBIA) 2,925,000 2,818,998
6.50%, 7/1/2014 (Insured; MBIA) 5,000,000 5,469,400
5.25%, 7/1/2015 (Insured; MBIA) 3,000,000 2,862,570
Zero Coupon, 7/1/2015 (Insured; MBIA) 2,400,000 981,120
Puerto Rico Commonwealth Highway and
Transportation Authority, Highway Revenue 5%, 7/1/2036 2,500,000 2,097,150
Puerto Rico Telephone Authority, Revenue 6.44%, 1/25/2007 (Insured; MBIA, 3,950,000(a,b) 4,157,375
Prerefunded 1/1/2003)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $470,721,809) 96.6% 456,639,191
CASH AND RECEIVABLES (NET) 3.4% 15,954,159
NET ASSETS 100.0% 472,593,350
</TABLE>
<TABLE>
<CAPTION>
Summary of Abbreviations
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance MBIA Municipal Bond Investors Assurance
Corporation Insurance Corporation
EDR Economic Development Revenue MFHR Multi-Family Housing Revenue
FGIC Financial Guaranty Insurance Company MSMR Multi-Family Mortgage Revenue
FSA Financial Security Assurance PCR Pollution Control Revenue
HR Hospital Revenue SWDR Solid Waste Disposal Revenue
IDR Industrial Development Revenue
LR Lease Revenue
</TABLE>
Summary of Combined Ratings (Unaudited)
<TABLE>
<CAPTION>
Fitch or Moody's or Standard & Poor's Value (%)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AAA Aaa AAA 31.6
AA Aa AA .6
A A A 6.3
BBB Baa BBB 24.6
BB Ba BB 7.1
B B B 3.5
Not Rated(e) Not Rated(e) Not Rated(e) 26.3
100.0
</TABLE>
(A) BONDS WHICH ARE PREREFUNDED ARE COLLATERALIZED BY U.S. GOVERNMENT
SECURITIES WHICH ARE HELD IN ESCROW AND ARE USED TO PAY PRINCIPAL AND
INTEREST ON THE MUNICIPAL ISSUE AND TO RETIRE THE BONDS IN FULL AT THE
EARLIEST REFUNDING DATE.
(B) INVERSE FLOATER SECURITY -- THE INTEREST RATE IS SUBJECT TO CHANGE
PERIODICALLY.
(C) SECURITIES EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT
OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT OCTOBER 31,
1999, THESE SECURITIES AMOUNTED TO $29,955,009 OR 6.3% OF NET ASSETS.
(D) NON-INCOME PRODUCING SECURITY; INTEREST PAYMENTS IN DEFAULT.
(E) SECURITIES WHICH, WHILE NOT RATED BY FITCH, MOODY'S AND STANDARD & POOR'S
HAVE BEEN DETERMINED BY THE MANAGER TO BE OF COMPARABLE QUALITY TO THOSE
RATED SECURITIES IN WHICH THE FUND MAY INVEST.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999 (Unaudited)
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 470,721,809 456,639,191
Cash 7,908,684
Receivable for investment securities sold 17,356,283
Interest receivable 8,008,687
Receivable for shares of Beneficial Interest subscribed 85,187
Prepaid expenses 27,986
490,026,018
- -------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 243,080
Due to Distributor 137,092
Payable for investment securities purchased 16,000,000
Payable for shares of Beneficial Interest redeemed 569,404
Accrued expenses 483,092
17,432,668
- -------------------------------------------------------------------------------
NET ASSETS ($) 472,593,350
- -------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 492,656,180
Accumulated net realized gain (loss) on investments (5,980,212)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 (14,082,618)
- -------------------------------------------------------------------------------
NET ASSETS ($) 472,593,350
NET ASSET VALUE PER SHARE
Class A Class B Class C
- -------------------------------------------------------------------------------
Net Assets 392,221,235 73,734,665 6,637,450
Shares Outstanding 29,935,692 5,627,288 505,807
- -------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ($) 13.10 13.10 13.12
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Six Months Ended October 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 15,407,211
EXPENSES:
Management fee--Note 3(a) 1,417,783
Shareholder servicing costs--Note 3(c) 829,055
Distribution fees--Note 3(b) 257,214
Registration fees 31,280
Professional fees 23,120
Custodian fees 21,352
Trustees' fees and expenses--Note 3(d) 17,866
Prospectus and shareholders' reports 7,994
Loan commitment fees--Note 2 1,727
Miscellaneous 14,511
TOTAL EXPENSES 2,621,902
INVESTMENT INCOME--NET 12,785,309
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (11,721,334)
Net unrealized appreciation (depreciation) on investments (34,016,896)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (45,738,230)
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (32,952,921)
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
October 31, 1999 Year Ended
(Unaudited) April 30, 1999
- -------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 12,785,309 27,649,465
Net realized gain (loss) on investments (11,721,334) 8,312,856
Net unrealized appreciation (depreciation)
on investments (34,016,896) (14,148,587)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (32,952,921) 21,813,734
- -------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net:
Class A shares (10,546,317) (22,022,212)
Class B shares (2,080,917) (5,367,735)
Class C shares (158,075) (259,518)
Net realized gain on investments:
Class A shares -- (6,305,305)
Class B shares -- (1,759,660)
Class C shares -- (100,844)
TOTAL DIVIDENDS (12,785,309) (35,815,274)
- -------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold:
Class A shares 67,081,134 152,264,177
Class B shares 5,478,375 21,488,965
Class C shares 1,121,464 6,589,948
Dividends reinvested:
Class A shares 5,957,946 16,928,404
Class B shares 1,083,217 4,048,469
Class C shares 36,229 93,487
Cost of shares redeemed:
Class A shares (76,162,894) (174,041,478)
Class B shares (37,252,957) (29,371,046)
Class C shares (1,965,090) (1,389,501)
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS (34,622,576) (3,388,575)
TOTAL INCREASE (DECREASE) IN NET ASSETS (80,360,806) (17,390,115)
- -------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 552,954,156 570,344,271
END OF PERIOD 472,593,350 552,954,156
SEE NOTES TO FINANCIAL STATEMENTS.
Six Months Ended
October 31, 1999 Year Ended
(Unaudited) April 30, 1999
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A(A)
Shares sold 4,902,640 10,430,316
Shares issued for dividends reinvested 437,463 1,160,521
Shares redeemed (5,570,122) (11,923,145)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 230,019 (332,308)
- -------------------------------------------------------------------------------
CLASS B(A)
Shares sold 393,884 1,467,908
Shares issued for dividends reinvested 79,355 277,529
Shares redeemed (2,700,554) (2,023,258)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (2,227,315) (277,821)
- -------------------------------------------------------------------------------
CLASS C
Shares sold 82,591 448,068
Shares issued for dividends reinvested 2,659 6,406
Shares redeemed (143,536) (95,671)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (58,286) 358,803
A FOR THE PERIOD ENDED OCTOBER 31, 1999, 1,780,069 CLASS B SHARES REPRESENTING
$24,567,779 WERE AUTOMATICALLY CONVERTED TO 1,781,087 CLASS A SHARES.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the
fiscal periods indicated. All information (except portfolio turnover rate)
reflects financial results for a single fund share. Total return shows how much
your investment in the fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
figures have been derived from the fund's financial statements.
<TABLE>
<CAPTION>
Six Months Ended
October 31, 1999 Year Ended April 30,
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES (Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.33 14.69 14.11 13.85 13.86 13.81
Investment Operations:
Investment income--net .35 .72 .79 .82 .86 .84
Net realized and unrealized gain
(loss) on investments (1.23) (.15) .66 .27 (.01) .05
Total from Investment Operations (.88) .57 1.45 1.09 .85 .89
Distributions:
Dividends from investment
income--net (.35) (.72) (.79) (.82) (.86) (.84)
Dividends from net realized gain
on investments -- (.21) (.08) (.01) -- --
Total Distributions (.35) (.93) (.87) (.83) (.86) (.84)
Net asset value, end of period 13.10 14.33 14.69 14.11 13.85 13.86
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(A) (12.32)(b) 3.96 10.52 8.03 6.08 6.72
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to
average net assets .96(b) .91 .91 .91 .92 .92
Ratio of net investment income
to average net assets 5.33(b) 4.96 5.42 5.84 5.98 6.16
Portfolio Turnover Rate 50.70(c) 46.84 26.33 28.17 36.59 38.60
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 392,221 432,276 447,869 457,327 474,044 495,616
</TABLE>
(A) EXCLUSIVE OF SALES CHARGE.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Six Months Ended
October 31, 1999 Year Ended April 30,
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (Unaudited) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value,
<S> <C> <C> <C> <C> <C> <C>
beginning of period 14.33 14.69 14.11 13.85 13.86 13.81
Investment Operations:
Investment income--net .31 .65 .72 .75 .78 .77
Net realized and unrealized gain
(loss) on investments (1.23) (.15) .66 .27 (.01) .05
Total from Investment Operations (.92) .50 1.38 1.02 .77 .82
Distributions:
Dividends from investment
income--net (.31) (.65) (.72) (.75) (.78) (.77)
Dividends from net realized gain
on investments -- (.21) (.08) (.01) -- --
Total Distributions (.31) (.86) (.80) (.76) (.78) (.77)
Net asset value, end of period 13.10 14.33 14.69 14.11 13.85 13.86
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(A) (12.81)(b) 3.43 9.95 7.49 5.53 6.15
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to
average net assets 1.77(b) 1.42 1.42 1.43 1.43 1.44
Ratio of net investment income
to average net assets 5.60(b) 4.44 4.89 5.33 5.46 5.62
Portfolio Turnover Rate 50.70(c) 46.84 26.33 28.17 36.59 38.60
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 73,735 112,583 119,457 109,485 106,931 99,411
</TABLE>
(A) EXCLUSIVE OF SALES CHARGE.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS (Unaudited) (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
October 31, 1999 Year Ended April 30,
- --------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (Unaudited) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.35 14.71 14.12 13.87 14.28
Investment Operations:
Investment income--net .30 .61 .68 .72 .60
Net realized and unrealized gain (loss)
on investments (1.23) (.15) .67 .26 (.41)
Total from Investment Operations (.93) .46 1.35 .98 .19
Distributions:
Dividends from investment income--net (.30) (.61) (.68) (.72) (.60)
Dividends from net realized gain
on investments -- (.21) (.08) (.01) --
Total Distributions (.30) (.82) (.76) (.73) (.60)
Net asset value, end of period 13.12 14.35 14.71 14.12 13.87
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B) (13.01)(c) 3.16 9.73 7.16 1.56(c)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.81(c) 1.67 1.69 1.64 1.77(c)
Ratio of net investment income to
average net assets 4.72(c) 4.11 4.55 5.01 4.84(c)
Portfolio Turnover Rate 50.70(d) 46.84 26.33 28.17 36.59
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 6,637 8,095 3,019 1,049 340
</TABLE>
(A) FROM JULY 13, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(B) EXCLUSIVE OF SALES CHARGE.
(C) ANNUALIZED.
(D) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Dreyfus Premier Municipal Bond Fund (the "fund" ) is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified
open-end management investment company. The fund's investment objective is to
maximize current income exempt from Federal income tax to the extent consistent
with the preservation of capital. The Dreyfus Corporation (the "Manager") serves
as the fund's investment adviser. The Manager is a direct subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Financial Corporation.
Premier Mutual Fund Services, Inc. (the "Distributor") is the distributor of the
fund' s shares. The fund is authorized to issue an unlimited number of $.001 par
value shares in each of the following classes of shares: Class A, Class B and
Class C. Class A shares are subject to a sales charge imposed at the time of
purchase, Class B shares are subject to a contingent deferred sales charge ("
CDSC") imposed on Class B share redemptions made within six years of purchase
(five years for shareholders beneficially owning Class B shares on November 30,
1996) and Class C shares are subject to a CDSC imposed on Class C shares
redeemed within one year of purchase. Other differences between the classes
include the services offered to and the expenses borne by each class and certain
voting rights.
The fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (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. Under the terms of the custody
agreement, the fund receives net earnings credits based on available cash
balances left on deposit.
(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 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 of 1986, as amended (the
" Code" ). To the extent that net realized capital gain can be offset by capital
loss carryovers, if any, 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 Code, and to make distributions
of income and net realized capital gain sufficient to relieve it from
substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $500 million
redemption credit facility (the "Facility" ) to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the fund at rates based on prevailing
market rates in effect at the time of the borrowings. During the period ended
October 31, 1999, the fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(A) Pursuant to a management agreement with the Manager, the management fee is
computed at the annual rate of .55 of 1% of the value of the fund's average
daily net assets and is payable monthly.
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager, retained
$7,973 during the period ended October 31, 1999 from commissions earned on sales
of the fund's shares.
(B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule 12b-1
under the Act, Class B and Class C shares pay the Distributor for distributing
their shares at an annual rate of .50 of 1% of the value of the average daily
net assets of Class B shares and .75 of 1% of the value of the average daily net
assets of Class C shares. During the period ended October 31, 1999, Class B and
Class C shares were charged $229,797 and $27,417, respectively, pursuant to the
Plan.
(C) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay
the Distributor at an annual rate of .25 of 1% of the value of the average daily
net assets of their shares for the provision of certain services. 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. The Distributor may make payments to Service Agents (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended October 31, 1999, Class A, Class B and Class C
shares were charged $520,409, $114,899 and $9,139, respectively, pursuant to the
Shareholder Services Plan.
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. During the period
ended October 31, 1999, the fund was charged $78,080 pursuant to the transfer
agency agreement.
(D) Each trustee who is not an "affiliated person" as defined in the Act
receives from the fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended October 31, 1999 amounted to
$256,345,632 and $308,647,757, respectively.
At October 31, 1999, accumulated net unrealized depreciation on investments was
$14,082,618, consisting of $11,965,979 gross unrealized appreciation and
$26,048,597 gross unrealized depreciation.
At October 31, 1999, 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).
For More Information
Dreyfus Premier Municipal Bond Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent & Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call your financial representative or 1-800-554-4611
BY MAIL Write to: The Dreyfus Premier Family of Funds 144 Glenn Curtiss
Boulevard Uniondale, NY 11556-0144
(c) 1999 Dreyfus Service Corporation 022/662SA9910
<PAGE>
Dreyfus Premier State
Municipal Bond Fund
Georgia Series
ANNUAL REPORT
April 30, 1999
[DREYFUS LOGO]
<PAGE>
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
- --------------------------------------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
8 Statement of Investments
11 Statement of Assets and Liabilities
12 Statement of Operations
13 Statement of Changes in Net Assets
15 Financial Highlights
18 Notes to Financial Statements
23 Report of Independent Auditors
24 Important Tax Information
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Back Cover
<PAGE>
Dreyfus Premier The Fund
State Municipal Bond Fund,
Georgia Series
Letter From The President
- -------------------------
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Premier State Municipal
Bond Fund, Georgia Series, covering the 12-month period from May 1, 1998 through
April 30, 1999. Inside, you'll find valuable information about how the Fund was
managed during the period, including a discussion with the Fund's portfolio
manager, Stephen Kris.
The past year has generally been rewarding for municipal bond investors. Lower
short-term interest rates adopted by the Federal Reserve Board and other central
banks in the fall of 1998 appear to have helped many U.S. businesses withstand
the effects of economic weakness in Japan, Asia and Latin America. At the same
time, the U.S. economy has entered its eighth year of expansion in an
environment characterized by low inflation and high levels of consumer spending.
In the second half of the reporting period, tax-exempt fixed-income securities
provided good results, especially relative to taxable U.S. Treasury securities.
While prices for U.S. Treasury securities declined significantly through the
second half of the reporting period, a lack of new issuance relative to robust
investor demand supported most municipal bond prices, which have remained
relatively unchanged over the past six months. As a result, the differences in
valuations between taxable U.S. Treasury securities and tax-exempt bonds, which
reached historically wide levels last October, have since narrowed to a more
historically normal relationship.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Premier State Municipal Bond Fund, Georgia
Series.
Sincerely,
/s/Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
May 13, 1999
DISCUSSION OF FUND PERFORMANCE
- ------------------------------
Stephen Kris, Portfolio Manager
How did Dreyfus Premier State Municipal Bond Fund, Georgia Series perform?
The Fund's Class A shares produced a total return of 5.74% for the
12-month period ended April 30, 1999,1 compared to a total return of 5.86% for
the average of the Lipper Georgia Municipal Debt Funds category.2 The Fund
produced a total return of 5.29% for Class B shares and 4.59% for Class C shares
over the 12-month period ended April 30, 1999.1
What is the Fund's investment approach?
Our goal is to seek a high level of federally and Georgia tax-exempt
income from a diversified portfolio of municipal bonds. To achieve this
objective, we employ two primary strategies. First, we attempt to add value by
selecting the tax-exempt bonds that we believe are most likely to provide the
highest yields. Using a "bottom up" approach that focuses primarily on
individual securities rather than economic trends, we constantly search for
securities that, in our opinion, represent better values than we currently hold
in the portfolio. When we find securities that we believe will help us enhance
the Fund's yield without sacrificing quality, we buy them and sell less
attractive securities.
Second, we tactically manage the portfolio's average duration -- a
measure of sensitivity to changes in interest rates -- in anticipation of
temporary supply-and-demand changes. If we expect the supply of newly issued
bonds to increase, we may reduce the portfolio's average duration to make cash
available for the purchase of higher yielding securities. Conversely, if we
expect demand for municipal bonds to surge at a time when we anticipate little
issuance, we may increase the portfolio's average duration to maintain current
yields for as long as practical. At other times, we try to maintain a "neutral"
average duration of about seven years, which is consistent with our benchmark
index.
What other factors influenced the Fund's performance?
When the Asian currency and credit crisis spread to Russia and
threatened Latin America last summer and fall, investors flocked to U.S.
Treasury securities. As a result, yields on taxable Treasuries fell briefly in
October to levels that were roughly equivalent to yields on comparable
tax-exempt bonds.
However, the Federal Reserve Board and other central banks moved
quickly to stimulate global economic growth by reducing key short-term interest
rates. Because investors feared that greater economic growth might reignite
inflationary pressures, yields on longer-term bonds rose. However, the extent of
that rise was much greater for taxable U.S. Treasury securities than for
tax-free municipal bonds.
In addition, because of strong economic conditions, Georgia and its
municipalities have had less need to borrow. Yet, demand from investors seeking
to minimize their income tax liabilities remained high. This imbalance helped
keep municipal bond prices relatively stable while U.S. Treasury bond prices
fell sharply.
What is the Fund's current strategy?
As the period came to a close, we continued to search for the most
attractive values in Georgia's municipal bond market. However, the scarcity of
new bonds, has made such values difficult to find. Accordingly, the portfolio
continues to contain bonds that it has held for years. Because these bonds were
issued when interest rates were higher, these older bonds provide more income
than newer issues. In addition, whenever possible, we have strived to take
advantage of opportunities to purchase bonds selling at a discount to their face
values. As of April 30, more than 10% of the portfolio was composed of discount
bonds.
We have continued to focus on high-quality, insured bonds. Because the
differences in yields between the highest quality bonds and lower quality bonds
are narrow by historical standards, we see little reason to assume additional
credit risk. Accordingly, we have focused on issuers that we believe are
extremely creditworthy, including the state's general obligations as well as
essential services bonds financing facilities for education, water and sewer
projects and electricity generation. On the other hand, we have tended to avoid
hospital bonds because of financial and government regulatory pressures in the
health care industry. We expect these strategies to help us continue to maximize
tax-exempt returns for our shareholders.
May 13, 1999
1 Total return includes reinvestment of dividends and any capital gains paid,
and does not take into consideration the maximum initial sales charge in the
case of Class A shares, or the applicable contingent deferred sales charge
imposed on redemptions in the case of Class B and Class C shares. Income may
be subject to state and local income taxes for non-Georgia residents. Some
income may be subject to the Federal Alternative Minimum Tax (AMT) for
certain shareholders.
2 Source: Lipper Analytical Services, Inc.
FUND PERFORMANCE
$15,739
Lehman Brothers Municipal Bond Index*
[CHART]
$14,752
Dreyfus Premier State Municipal
Bond Fund, Georgia Series
(Class A Shares)
Comparison of change in value of $10,000 investment in the Fund's Class A shares
and the Lehman Brothers Municipal Bond Index
* Source: Lehman Brothers.
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Class A shares
of Dreyfus Premier State Municipal Bond Fund, Georgia Series (the "Fund") on
9/3/92 (Inception Date) to a $10,000 investment made in the Lehman Brothers
Municipal Bond Index (the "Index") on that date. For comparative purposes, the
value of the Index on 8/31/92 is used as the beginning value on 9/3/92. All
dividends and capital gain distributions are reinvested. Performance for Class B
and Class C shares will vary from the performance of Class A shares shown above
due to differences in charges and expenses. The Fund invests primarily in
Georgia municipal securities and its performance shown in the line graph takes
into account the maximum initial sales charge on Class A shares and all other
applicable fees and expenses. The Index is not limited to investments
principally in Georgia municipal obligations and does not take into account
charges, fees and other expenses. The Index, unlike the Fund, is an unmanaged
total return performance benchmark for the long-term, investment-grade,
geographically unrestricted tax exempt bond market, calculated by using
municipal bonds selected to be representative of the municipal market overall.
These factors can contribute to the Index potentially outperforming or
underperforming the Fund. Further information relating to Fund performance,
including expense reimbursements, if applicable, is contained in the Financial
Highlights section of the Prospectus and elsewhere in this report.
<PAGE>
- -----------------------------------------------------------------------------
Average Annual Total Returns as of 4/30/99
Inception From
Date 1 Year 5 Years Inception
- -----------------------------------------------------------------------------
Class A Shares
with sales charge (4.5%) (9/3/92) 0.99% 5.75% 6.01%
without sales charge (9/3/92) 5.74% 6.73% 6.75%
Class B Shares
with redemption* (1/15/93) 1.29% 5.90% 5.96%
without redemption (1/15/93) 5.29% 6.22% 5.96%
Class C Shares
with redemption** (8/15/95) 3.59% -- 5.66%
without redemption (8/15/95) 4.59% -- 5.66%
Past performance is not predictive of future performance.
* The maximum contingent deferred sales charge for Class B shares is 4%
and is reduced to 0% after six years.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
<PAGE>
STATEMENT OF INVESTMENTS
April 30, 1999
- -----------------------------------------------------------------------------
Principal
Long-Term Municipal Investments--93.9% Amount ($) Value ($)
- -----------------------------------------------------------------------------
Atlanta Urban Residential Finance Authority, MFHR
(New Community) 5.50%, 11/20/2027
(Collateralized; GNMA) 1,325,000 1,351,354
Barrow County School District 5.60%, 2/1/2015
(Insured; MBIA) 1,000,000 1,061,460
Brunswick & Glynn County Development Authority,
Revenue, Refunding
(Pacific Corp. Project) 5.55%, 3/1/2026 1,000,000 998,670
Carroll County Water Authority,
Water and Sewer Revenue, Refunding
4.75%, 7/1/2022 (Insured; AMBAC) 1,000,000 950,720
Cherokee County, Water and Sewer Revenue,
4.75%, 8/1/2028 (Insured; FGIC) 1,000,000 941,960
Clayton County and Clayton County Water Authority,
Water and Sewer Revenue, Refunding
5.60%, 5/1/2013 (Insured; AMBAC) 1,200,000 1,286,460
Colquitt County Hospital Authority, Refunding
5.50%, 3/1/2016 (Insured; FSA) 1,000,000 1,039,270
Columbia County, Water and Sewer Revenue,
Refunding 5.40%, 6/1/2011
(Insured; AMBAC) 750,000 801,015
Fayette County School District
6.125%, 3/1/2015 500,000 550,455
Fulton County, Water and Sewer Revenue, Refunding:
6.375%, 1/1/2014 (Insured; FGIC,
Escrowed to Maturity) 260,000 304,054
6.375%, 1/1/2014 (Insured; FGIC) 30,000 34,808
Gainesville, Water and Sewer Revenue,
Refunding 6%, 11/15/2012 (Insured; FGIC) 300,000 341,814
Georgia:
6.65%, 3/1/2009 1,000,000 1,187,240
5.65%, 3/1/2012 1,000,000 1,105,480
Georgia Housing and Finance Authority, SFMR:
7%, 12/1/2015 (Insured; FHA) 620,000 622,691
6.50%, 12/1/2017 (Insured; FHA) 1,000,000 1,065,850
Georgia Municipal Gas Authority,
Gas Revenue (Warner Robins Project)
5.80%, 1/1/2015 (Insured; MBIA) 1,000,000 1,077,730
Glynn-Brunswick Memorial Hospital Authority
(Southeast Georgia Health)
5.25%, 8/1/2013 (Insured; MBIA) 1,000,000 1,038,150
<PAGE>
- -----------------------------------------------------------------------------
Principal
Long-Term Municipal Investments (continued) Amount ($) Value ($)
- -----------------------------------------------------------------------------
Marietta Development Authority, Revenue,
Refunding (First Mortgage-Life College)
5.75%, 9/1/2014 (Insured; FSA) 850,000 911,753
Marietta School 4.50%, 2/1/2019 1,000,000 925,200
Meriwether County School District
5.50%, 2/1/2016 (Insured; FSA) 1,000,000 1,051,140
Metropolitan Atlanta Rapid Transportation Authority,
Sales Tax Revenue, Refunding
6.25%, 7/1/2020 (Insured; AMBAC) 300,000 349,692
Private Colleges and Universities Authority, Revenue,
Refunding (Spellman College Project)
6.20%, 6/1/2014 (Insured; FGIC) 1,000,000 1,107,130
Total Long-Term Municipal Investments
(cost $18,968,941) 20,104,096
- -----------------------------------------------------------------------------
Short-Term Municipal Investments--4.7%
- -----------------------------------------------------------------------------
Heard County Development Authority, PCR, VRDN
(Georgia Power Co., Plant Wansley)
4.25% (a) (cost $1,000,000) 1,000,000 1,000,000
- -----------------------------------------------------------------------------
Total Investments (cost $19,968,941) 98.6% 21,104,096
Cash and Receivables (Net) 1.4% 303,434
Net Assets 100.0% 21,407,530
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Summary of Abbreviations
<S> <C> <C> <C>
AMBAC American Municipal Bond MBIA Municipal Bond Investors Assurance
Assurance Corporation Insurance Corporation
FGIC Financial Guaranty Insurance Company MFHR Multi-Family Housing Revenue
FHA Federal Housing Administration PCR Pollution Control Revenue
FSA Financial Security Assurance SFMR Single Family Mortgage Revenue
GNMA Government National Mortgage VRDN Variable Rate Demand Notes
Association
</TABLE>
- -----------------------------------------------------------------------------
Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value (%)
- -----------------------------------------------------------------------------
AAA Aaa AAA 83.6
AA Aa AA 7.0
BBB Baa BBB 4.7
F1+, F-1 MIG1, VMIG1 & P1 SP1, A1 4.7
100.0
a Security payable on demand. Variable interest rate subject to periodic
change.
b At April 30, 1999, the fund had $5,738,561 (26.8% of net assets) invested in
securities whose payment of principal and interest is dependent upon revenues
generated from utility-water and sewer projects.
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
- -----------------------------------------------------------------------------
Cost Value
- -----------------------------------------------------------------------------
Assets ($):
Investments in securities--See Statement of Investments 19,968,941 21,104,096
Interest receivable 354,610
Prepaid expenses 14,626
21,473,332
- -----------------------------------------------------------------------------
Liabilities ($):
Due to The Dreyfus Corporation and affiliates 11,591
Due to Distributor 9,982
Cash overdraft due to Custodian 44,229
65,802
- -----------------------------------------------------------------------------
Net Assets ($): 21,407,530
- -----------------------------------------------------------------------------
Composition of Net Assets ($):
Paid-in capital 20,339,650
Accumulated net realized gain (loss) on investments (67,275)
Accumulated net unrealized appreciation (depreciation)
of investments--Note 4 1,135,155
- -----------------------------------------------------------------------------
Net Assets ($) 21,407,530
- ------------------------------------------------------------------------------
Net Asset Value Per Share
Class A Class B Class C
- ------------------------------------------------------------------------------
Net Assets ($) 8,768,551 12,592,463 46,516
Shares Outstanding 634,941 911,4 89 3,370
- ------------------------------------------------------------------------------
Net Asset Value Per Share ($) 13.81 13.82 13.80
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Year Ended April 30, 1999
- ------------------------------------------------------------------------------
Investment Income ($)
- ------------------------------------------------------------------------------
Income:
Interest Income 1,212,087
Expenses:
Management fee--Note 3(a) 126,319
Distribution fees--Note 3(b) 80,905
Shareholder servicing costs--Note 3(c) 70,422
Prospectus and shareholders' reports 10,181
Registration fees 8,297
Professional fees 4,657
Custodian fees 1,741
Trustees' fees and expenses--Note 3(d) 316
Loan commitment fees--Note 2 85
Miscellaneous 5,036
Total Expenses 307,959
Investment Income--Net 904,128
- -----------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments--Note 4:
Net realized gain (loss) on investments 544,900
Net unrealized appreciation (depreciation) on investments (214,880)
Net Realized and Unrealized Gain (Loss) on Investments 330,020
Net Increase in Net Assets Resulting From Operations 1,234,148
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
Year Ended April 30,
-------------------------------
1999 1998
- ------------------------------------------------------------------------------
Operations ($):
Investment income--net 904,128 1,014,157
Net realized gain (loss) from investments 544,900 52,283
Net unrealized appreciation (depreciation)
on investments (214,880) 723,425
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,234,148 1,789,865
- -----------------------------------------------------------------------------
Dividends to Shareholders From ($):
Investment income--net:
Class A shares (290,432) (307,129)
Class B shares (612,746) (705,439)
Class C shares (950) (1,589)
Total Dividends (904,128) (1,014,157)
- -----------------------------------------------------------------------------
Beneficial Interest Transactions ($): Net proceeds from shares sold:
Class A shares 3,073,890 1,034,483
Class B shares 630,199 1,001,862
Class C shares 35,401 14,318
Dividends reinvested:
Class A shares 186,394 210,772
Class B shares 298,894 349,972
Class C shares 409 1,014
Cost of shares redeemed:
Class A shares (784,843) (1,833,199)
Class B shares (6,162,616) (2,556,894)
Class C shares (32,325) (79,498)
Increase (Decrease) in Net Assets from
Beneficial Interest Transactions (2,754,597) (1,857,170)
Total Increase (Decrease) in Net Assets (2,424,577) (1,081,462)
- -----------------------------------------------------------------------------
Net Assets ($):
Beginning of Period 23,832,107 24,913,569
End of Period 21,407,530 23,832,107
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- ------------------------------------------------------------------------------
Year Ended April 30,
-------------------------------
1999 1998
- ------------------------------------------------------------------------------
Capital Share Transactions:
Class A
Shares sold 220,547 76,833
Shares issued for dividends reinvested 13,383 15,405
Shares redeemed (56,295) (134,087)
Net Increase (Decrease) in Shares Outstanding 177,635 (41,849)
- -----------------------------------------------------------------------------
Class B
Shares sold 45,364 72,878
Shares issued for dividends reinvested 21,439 25,567
Shares redeemed (443,237) (187,669)
Net Increase (Decrease) in Shares Outstanding (376,434) (89,224)
- -----------------------------------------------------------------------------
Class C
Shares sold 2,553 1,041
Shares issued for dividends reinvested 29 74
Shares redeemed (2,305) (5,938)
Net Increase (Decrease) in Shares Outstanding 277 (4,823)
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for
the fiscal periods indicated. Certain information reflects financial results for
a single Fund share. "Total return" shows how much your investment in the Fund
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been derived from
the Fund's financial statements.
- -------------------------------------------------------------------------------
Year Ended April 30,
--------------------------------------
Class A Shares 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Per Share Data ($)
Net asset value, beginning of period 13.63 13.22 13.05 12.80 12.69
Investment Operations:
Investment income--net .60 .61 .62 .66 .73
Net realized and unrealized gain
(loss) on investments .18 .41 .17 .25 .11
Total from investment operations .78 1.02 .79 .91 .84
Distributions:
Dividends from investment
income--net (.60) (.61) (.62) (.66) (.73)
Net asset value, end of period 13.81 13.63 13.22 13.05 12.80
- -------------------------------------------------------------------------------
Total Return (%)* 5.74 7.76 6.16 7.14 6.87
- -------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average net assets .99 .95 .98 .74 .25
Ratio of net investment income
to average net assets 4.27 4.44 4.71 5.00 5.80
Decrease reflected in above
expense ratios due to
undertakings by the Manager -- -- -- .21 .78
Portfolio Turnover Rate 69.13 36.64 50.96 33.09 34.04
- -------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 8,769 6,232 6,598 8,346 8,985
* Exclusive of sales load.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- ------------------------------------------------------------------------------
Year Ended April 30,
-------------------------------------
Class B Shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Per Share Data ($)
Net asset value, beginning of period 13.63 13.22 13.06 12.80 12.69
Investment Operations:
Investment income--net .53 .54 .56 .59 .66
Net realized and unrealized gain
(loss) on investments .19 .41 .16 .26 .11
Total from investment operations .72 .95 .72 .85 .77
Distributions:
Dividends from investment
income--net (.53) (.54) (.56) (.59) (.66)
Net asset value, end of period 13.82 13.63 13.22 13.06 12.80
- -------------------------------------------------------------------------------
Total Return (%)* 5.29 7.24 5.55 6.69 6.33
- -------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average net assets 1.49 1.44 1.47 1.24 .75
Ratio of net investment income
to average net assets 3.79 3.94 4.20 4.46 5.27
Decrease reflected in above
expense ratios due to
undertakings by the Manager -- -- -- .20 .80
Portfolio Turnover Rate 69.13 36.64 50.96 33.09 34.04
- -------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 12,592 17,558 18,211 20,106 19,249
* Exclusive of sales load.
See notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------
Year Ended April 30,
--------------------------------
Class C Shares 1999 1998 1997 1996 a
- -------------------------------------------------------------------------
Per Share Data ($)
Net asset value, beginning of period 13.62 13.22 13.05 12.85
Investment Operations:
Investment income--net .44 .47 .51 .38
Net realized and unrealized gain
(loss) on investments .18 .40 .17 .20
Total from investment operations .62 .87 .68 .58
Distributions:
Dividends from investment
income--net (.44) (.47) (.51) (.38)
Net asset value, end of period 13.80 13.62 13.22 13.05
- --------------------------------------------------------------------------
Total Return (%) b 4.59 6.61 5.30 6.28 c
- --------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average net assets 1.99 1.91 1.80 1.98 c
Ratio of net investment income
to average net assets 3.28 3.48 3.87 3.73 c
Portfolio Turnover Rate 69.13 36.64 50.96 33.09
- --------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 47 42 105 88
a From August 15, 1995 (commencement of initial offering) to April 30, 1996.
b Exclusive of sales load.
c Annualized.
See notes to financial statements.
START HERE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Premier State Municipal Bond Fund (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a non-
diversified, open-end management investment company, and operates as a series
company currently offering thirteen series including the Georgia Series (the
"Fund"). The fund's investment objective is to maximize current income exempt
from Federal and, where applicable, from State income taxes, without undue risk.
The Dreyfus Corporation (the "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") is the
distributor of the Fund's shares. The Fund is authorized to issue an unlimited
number of $.001 par value shares in the following classes of shares: Class A,
Class B and Class C shares. Class A shares are subject to a sales charge imposed
at the time of purchase, Class B shares are subject to a contingent deferred
sales charge ("CDSC") imposed on Class B share redemptions made within six years
of purchase (five years for shareholders beneficially owning Class B shares on
November 30, 1996) and Class C shares are subject to a CDSC imposed on Class C
shares redeemed within one year of purchase. Other differences between the
classes include the services offered to and the expenses borne by each class and
certain voting rights.
The Trust accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are charged
to that fund's operations; expenses which are applicable to all funds are
allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (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. Under the terms of the custody
agreement, the Fund received net earnings credits of $357 during the period
ended April 30, 1999 based on available cash balances left on deposit. Income
earned under this arrangement is included in interest income.
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 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 of 1986, as
amended (the "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 Code, and to make
distributions of income and net realized capital gain sufficient to relieve it
from substantially all Federal income and excise taxes.
The Fund has an unused capital loss carryover of approximately $68,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to April 30, 1999. If not
applied, $51,000 of the carryover expires in fiscal 2004 and $17,000 expires in
fiscal 2005.
NOTE 2--Bank Line of Credit:
The Fund participates with other Dreyfus-managed funds in a $600
million redemption credit facility ("Facility") to be utilized for temporary or
emergency purposes, including the financing of re-demptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended April
30, 1999, the Fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the
management fee is computed at the annual rate of .55 of 1% of the value of the
Funds' average daily net assets and is payable monthly.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under
the Act, Class B and Class C shares pay the Distributor for distributing their
shares at an annual rate of .50 of 1% of the value of the average daily net
assets of Class B shares and .75 of 1% of the value of the average daily net
assets of Class C shares. During the period ended April 30, 1999, Class B and
Class C shares were charged $80,687 and $218, respectively, pursuant to the
Distribution Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C
shares pay the Distributor at an annual rate of .25 of 1% of the value of their
average daily net assets for the provision of certain services. 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. The Distributor may make payments to Service Agents (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended April 30, 1999, Class A, Class B and Class C
shares were charged $17,002, $40,344 and $72, respectively, pursuant to the
Shareholder Services Plan.
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. During the period
ended April 30, 1999, the Fund was charged $11,362 pursuant to the transfer
agency agreement.
(d) Each trustee who is not an "affiliated person" as defined in the
Act receives from the Trust an annual fee of $2,500 and an attendance fee of
$250 per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended April 30, 1999 amounted
to $15,480,260 and $19,204,133, respectively.
At April 30, 1999, accumulated net unrealized appreciation on
investments was $1,135,155, consisting of $1,228,391 gross unrealized
appreciation and $93,236 gross unrealized depreciation.
At April 30, 1999, 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).
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Premier State Municipal Bond Fund, Georgia Series
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Dreyfus Premier State Municipal Bond Fund,
Georgia Series (the "Fund") (one of the Funds constituting the Dreyfus Premier
State Municipal Bond Fund) as of April 30, 1999, 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 and financial highlights. Our procedures included confirmation of
securities owned as of April 30, 1999, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund at April 30, 1999, 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 & Young LLP
New York, New York
June 2, 1999
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the Fund hereby designates all the
dividends paid from investment income-net during its fiscal year ended April 30,
1999 as "exempt-interest dividends" (not subject to regular Federal and, for
individuals who are Georgia residents, Georgia personal income taxes). As
required by Federal tax law rules, shareholders will receive notification of
their portion of the Fund's taxable ordinary dividends (if any) and capital
gains distributions (if any) paid for the 1999 calendar year on form 1099-DIV
which will be mailed by January 31, 2000.
<PAGE>
For More Information
Dreyfus Premier
State Municipal Bond Fund,
Georgia Series
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
By telephone
Call your financial representative or
1-800-554-4611
By mail Write to:
The Dreyfus Premier
Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
(C) 1999, Dreyfus Service Corporation 068AR994
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS PREMIER STATE
MUNICIPAL BOND FUND, GEORGIA SERIES CLASS A SHARES AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
<PAGE>
EXHIBIT A:
DREYFUS
PREMIER STATE
PERIOD LEHMAN BROTHERS MUNICIPAL BOND FUND,
MUNICIPAL GEORGIA SERIES
BOND INDEX * (CLASS A SHARES)
9/3/92 10,000 9,549
4/30/93 10,736 10,548
4/30/94 10,968 10,650
4/30/95 11,698 11,382
4/30/96 12,627 12,195
4/30/97 13,465 12,946
4/30/98 14,717 13,951
4/30/99 15,739 14,752
*Source: Lehman Brothers
<PAGE>
Dreyfus Premier
State Municipal
Bond Fund
Georgia Series
SEMIANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
2 Letter from the President
3 Discussion of Fund Performance
6 Statement of Investments
9 Statement of Assets and Liabilities
10 Statement of Operations
11 Statement of Changes in Net Assets
13 Financial Highlights
16 Notes to Financial Statements
FOR MORE INFORMATION
Back Cover
The Fund
Dreyfus Premier
State Municipal Bond Fund,
Georgia Series
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Premier State
Municipal Bond Fund, Georgia Series, covering the six-month period from May 1,
1999 through October 31, 1999. Inside, you'll find valuable information about
how the fund was managed during the reporting period, including a discussion
with the fund's portfolio manager, Paul Disdier.
When the reporting period began, evidence had emerged that the U.S. economy was
growing strongly in an environment characterized by high levels of consumer
spending and low levels of unemployment. Concerns that inflationary pressures
might re-emerge caused the Federal Reserve Board to raise short-term interest
rates twice during the summer of 1999, effectively offsetting most of last fall'
s interest-rate cuts. Higher interest rates led to some erosion of municipal
bond prices, especially toward the end of the reporting period.
In this environment, however, the yields of tax-exempt bonds have recently been
quite attractive compared to the after-tax yields of taxable bonds of comparable
maturity and credit quality. This is especially true for investors in the higher
federal income tax brackets.
We appreciate your confidence over the past six months, and we look forward to
your continued participation in Dreyfus Premier State Municipal Bond Fund,
Georgia Series.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF FUND PERFORMANCE
Paul Disdier, Portfolio Manager
How did Dreyfus Premier State Municipal Bond Fund, Georgia Series perform during
the period?
For the six-month period ended October 31, 1999, the fund's Class A
shares provided a -5.54% total return; its Class B shares provided a -5.85%
total return; and its Class C shares provided a -5.90% total return.(1 )In
comparison, the Lipper Georgia Municipal Debt Funds category average provided a
- -5.14% total return(2) for the same period.
We attribute the fund's negative absolute returns over the past six
months to a declining municipal bond market and a rising interest-rate
environment. Our modest relative underperformance compared to the fund's
benchmark is primarily the result of a longer average maturity profile compared
to the benchmark, as well as to a relatively small Georgia bond market, where
the recent scarcity of new issuance limited our investment choices.
What is the fund's investment approach?
Our goal is to seek as high a level of federal and Georgia tax-exempt
income as is practical from a diversified portfolio of municipal bonds without
undue risk. To achieve this objective, we look for bonds that we expect to
provide consistently high income streams. We strive to find such opportunities
through rigorous analyses of individual bonds' structures. Within the context of
our bond structure analysis, we pay particularly close attention to each bond's
maturity and early redemption features.
What other factors influenced the fund's performance?
The fund was adversely affected by rising interest rates over the past
six months. When the reporting period began on May 1, 1999, investors were
concerned that continued economic strength might rekindle long-dormant
inflationary pressures. In fact, in an attempt to forestall a potential
reacceleration of inflation, the Federal Reserve Board raised short-term
interest rates twice during the summer of 1999.
As interest rates rose, taxable fixed-income investments such as
corporate bonds became more attractive to institutional investors such as hedge
funds and insurance companies. Accordingly, many of these investors sold large
numbers of municipal bonds into the secondary market, putting pressure on
prices. Some, but not all, of this increased supply was absorbed by increased
demand from individual investors seeking to manage their income tax liabilities.
In addition, strong economic conditions have contributed to the
nation's first federal budget surplus in many years. While the government has
had less need to issue U.S. Treasury securities, demand has remained high from
domestic and overseas investors. This imbalance between supply and demand has
recently constrained the rise of taxable bond yields relative to tax-exempt
bonds. As a result, municipal bonds -- including those from Georgia issuers --
are currently offering tax-exempt yields that compare very favorably with
taxable yields after adjusting for taxes.
What is the fund's current strategy?
We have recently attempted to position the fund for opportunities to
upgrade its holdings and maintain or enhance its income distributions. More
specifically, we have raised cash in anticipation of potentially higher interest
rates by selling long-term bonds that were priced at discounts to their face
values. We redeployed some of those assets in higher yielding, investment grade
bonds with shorter maturities. By replacing longer duration bonds with shorter
duration bonds, we effectively reduced the fund's sensitivity to the adverse
effects of rising interest rates.
We have invested the remainder of the proceeds from longer term bond
sales in very short-term, tax-exempt money market securities. We expect to put
that cash to work when we feel the market stabilizes and opportunities to lock
in high yields arise. We believe that such opportunities are likely to occur
toward the end of the year, when a relative lack of new bond issuance may drive
yields higher. In our view, issuers are likely to wait until after January 1,
2000 to raise capital in the municipal debt markets in order to avoid potential
Y2K-related market disruptions. Yet demand for municipal bonds should remain
high from individuals seeking to minimize their income tax liabilities.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
AND DOES NOT TAKE INTO CONSIDERATION THE MAXIMUM INITIAL SALES CHARGE IN THE
CASE OF CLASS A SHARES, OR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE
IMPOSED ON REDEMPTIONS IN THE CASE OF CLASS B AND CLASS C SHARES. HAD THESE
CHARGES BEEN REFLECTED, RETURNS WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND INVESTMENT RETURN FLUCTUATE
SUCH THAT UPON REDEMPTION FUND SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES FOR NON-GEORGIA
RESIDENTS. SOME INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX
(AMT) FOR CERTAIN INVESTORS. CAPITAL GAINS, IF ANY, ARE FULLY TAXABLE. RETURN
FIGURES PROVIDED REFLECT THE ABSORPTION OF FUND EXPENSES BY THE DREYFUS
CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH 4/30/00, AT WHICH TIME IT
MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE EXPENSES NOT BEEN ABSORBED,
THE FUND'S RETURNS WOULD HAVE BEEN LOWER.
(2) SOURCE: LIPPER ANALYTICAL SERVICES, INC.
STATEMENT OF INVESTMENTS
October 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
LONG-TERM MUNICIPAL INVESTMENTS--88.0% Amount
($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Atlanta Urban Residential Finance Authority,
<S> <C> <C> <C>
MFHR (New Community) 5.50%, 11/20/2027 (Collateralized; GNMA) 1,325,000 1,202,318
Barrow County School District 5.60%, 2/1/2015 (Insured; MBIA) 1,000,000 985,300
Brunswick & Glynn County Development Authority, Revenue
(Pacific Corp. Project) 5.55%, 3/1/2026 1,000,000 855,780
Carroll County Water Authority, Water and Sewer Revenue 4.75%, 7/1/2022 (Insured; AMBAC) 1,000,000 832,600
Cherokee County, Water and Sewer Revenue, 4.75%, 8/1/2028 (Insured; FGIC) 1,000,000 811,580
Clayton County and Clayton County Water Authority,
Water and Sewer Revenue 5.60%, 5/1/2013 (Insured; AMBAC) 900,000 905,139
Columbia County, Water and Sewer Revenue 5.40%, 6/1/2011 (Insured; AMBAC) 750,000 751,905
Fayette County School District 6.125%, 3/1/2015 500,000 536,525
Fulton County, Water and Sewer Revenue 6.375%, 1/1/2014 (Insured; FGIC,
Escrowed to Maturity) 260,000 283,184
Gainesville, Water and Sewer Revenue 6%, 11/15/2012 (Insured; FGIC) 300,000 315,969
Georgia: 6.65%, 3/1/2009 1,000,000 1,118,270
5.65%, 3/1/2012 1,000,000 1,025,400
Georgia Housing and Finance Authority, SFMR 6.50%, 12/1/2017 (Insured; FHA) 1,000,000 1,026,810
Georgia Municipal Gas Authority,
Gas Revenue (Warner Robins Project) 5.80%, 1/1/2015 (Insured; MBIA) 1,000,000 1,000,870
Marietta Development Authority, Revenue
(First Mortgage-Life College) 5.75%, 9/1/2014 (Insured; FSA) 850,000 850,723
Marietta School 4.50%, 2/1/2019 1,000,000 821,570
Meriwether County School District 5.50%, 2/1/2016 (Insured; FSA) 750,000 723,772
Metropolitan Atlanta Rapid Transportation Authority,
Sales Tax Revenue 6.25%, 7/1/2020 (Insured; AMBAC) 300,000 314,439
Private Colleges and Universities Authority, Revenue
(Emory University Project) 5.50%, 11/1/2019 750,000 714,615
(Spellman College Project) 6.20%, 6/1/2014 (Insured; FGIC) 1,000,000 1,046,900
Royston Hospital Authority, HR
(Ty Cobb Healthcare System, Inc.) 6.50%, 7/1/2027 700,000 665,959
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $17,255,466) 16,789,628
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS--10.0%
- -----------------------------------------------------------------------------------------------------------------------------------
GEORGIA--4.7%
Hapeville Development Authority, VRDN
(Hapeville Hotel, Ltd.) 3.55% 900,000(a) 900,000
U. S. RELATED--5.3%
Puerto Rico Commonwealth Highway and
Transportation Authority, VRDN 3.10% 1,000,000(a) 1,000,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $1,900,000) 1,900,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $19,155,466) 98.0% 18,689,628
CASH AND RECEIVABLES (NET) 2.0% 382,141
NET ASSETS 100.0% 19,071,769
</TABLE>
Summary of Abbreviations
AMBAC American Municipal Bond Assurance Corporation
HR Hospital Revenue
MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company Insurance Corporation
FHA Federal Housing Administration Revenue
MFHR Multi-Family Housing
FSA Financial Security Assurance
Mortgage Revenue
SFMR Single Family
GNMA Government National Mortgage
Notes Association
VRDN Variable Rate Demand
Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value (%)
- -------------------------------------------------------------------------------
AAA Aaa AAA 70.6
AA Aa AA 11.1
BBB Baa BBB 8.1
F1+, F-1 MIG1, VMIG1 & P1SP1, A1 10.2
100.0
(A) SECURITY PAYABLE ON DEMAND. VARIABLE INTEREST RATE SUBJECT TO PERIODIC
CHANGE.
(B) AT OCTOBER 31, 1999, THE FUND HAD $4,901,247 (25.7% OF NET ASSETS) INVESTED
IN SECURITIES WHOSE PAYMENT OF PRINCIPAL AND INTEREST IS DEPENDENT UPON
REVENUES GENERATED FROM UTILITY-WATER AND SEWER PROJECTS.
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999 (Unaudited)
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of Investments 19,155,466 18,689,628
Cash 83,035
Interest receivable 293,641
Prepaid expenses 12,104
Due from The Dreyfus Corporation 4,255
19,082,663
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to Distributor 7,409
Payable for shares of Beneficial Interest redeemed 13
Accrued expenses 3,472
10,894
- --------------------------------------------------------------------------------
NET ASSETS ($) 19,071,769
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 19,579,124
Accumulated net realized gain (loss) on investments (41,517)
Accumulated net unrealized appreciation (depreciation) (465,838)
on investments--Note 4
- --------------------------------------------------------------------------------
NET ASSETS 19,071,769
NET ASSET VALUE PER SHARE
<TABLE>
<CAPTION>
Class A Class B Class C
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Assets ($) 10,857,472 8,151,884 62,413
Shares Outstanding 850,981 638,719 4,895
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ($) 12.76 12.76 12.75
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Six Months Ended October 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 535,271
EXPENSES:
Management fee--Note 3(a) 54,731
Shareholder servicing costs--Note 3(c) 31,970
Distribution fees--Note 3(b) 24,899
Registration fees 16,306
Professional fees 13,780
Prospectus and shareholders' reports 9,678
Custodian fees 651
Trustees' fees and expenses--Note 3(d) 156
Loan commitment fees--Note 2 70
Miscellaneous 3,311
TOTAL EXPENSES 155,552
Less-reduction in management fee due to
undertaking--Note 3(a) (30,621)
NET EXPENSES 124,931
INVESTMENT INCOME-NET 410,340
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments 25,758
Net unrealized appreciation (depreciation) on investments (1,600,993)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (1,575,235)
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,164,895)
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
October 31, 1999 Year Ended
(Unaudited) April 30, 1999
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 410,340 904,128
Net realized gain (loss) on investments 25,758 544,900
Net unrealized appreciation (depreciation)
on investments (1,600,993) (214,880)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (1,164,895) 1,234,148
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net:
Class A shares (218,478) (290,432)
Class B shares (191,259) (612,746)
Class C shares (603) (950)
TOTAL DIVIDENDS (410,340) (904,128)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold:
Class A shares 3,782,002 3,073,890
Class B shares 1,893,866 630,199
Class C shares 84,450 35,401
Dividends reinvested:
Class A shares 136,555 186,394
Class B shares 106,514 298,894
Class C shares 265 409
Cost of shares redeemed:
Class A shares (1,039,949) (784,843)
Class B shares (5,658,983) (6,162,616)
Class C shares (65,246) (32,325)
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS (760,526) (2,754,597)
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,335,761) (2,424,577)
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 21,407,530 23,832,107
END OF PERIOD 19,071,769 21,407,530
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Six Months Ended
October 31, 1999 Year Ended
(Unaudited) April 30, 1999
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A (A)
Shares sold 280,705 220,547
Shares issued for dividends reinvested 10,360 13,383
Shares redeemed (75,025) (56,295)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 216,040 177,635
- --------------------------------------------------------------------------------
CLASS B (A)
Shares sold 139,569 45,364
Shares issued for dividends reinvested 8,065 21,439
Shares redeemed (420,404) (443,237)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (272,770) (376,434)
- --------------------------------------------------------------------------------
CLASS C
Shares sold 6,444 2,553
Shares issued for dividends reinvested 20 29
Shares redeemed (4,939) (2,305)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,525 277
(A) DURING THE PERIOD ENDED OCTOBER 31, 1999, 183,711 CLASS B SHARES
REPRESENTING $2,462,065 WERE AUTOMATICALLY CONVERTED TO 183,813 CLASS A
SHARES.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for
the fiscal periods indicated. All information (except portfolio turnover rate)
reflects financial results for a single fund share. Total return shows how much
your investment in the fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
figures have been derived from the fund's financial statements.
<TABLE>
<CAPTION>
Six Months Ended
October 31, 1999 Year Ended April 30,
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES (Unaudited) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.81 13.63 13.22 13.05 12.80 12.69
Investment Operations:
Investment income--net .29 .60 .61 .62 .66 .73
Net realized and unrealized
gain (loss) on investments (1.05) .18 .41 .17 .25 .11
Total from Investment Operations (.76) .78 1.02 .79 .91 .84
Distributions:
Dividends from investment
income--net (.29) (.60) (.61) (.62) (.66) (.73)
Net asset value, end of period 12.76 13.81 13.63 13.22 13.05 12.80
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (10.99)(b) 5.74 7.76 6.16 7.14 6.87
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets .99(b) .99 .95 .98 .74 .25
Ratio of net investment income
to average net assets 4.38(b) 4.27 4.44 4.71 5.00 5.80
Decrease reflected in
above expense ratios due to
undertakings by the Manager .35(b) -- -- -- .21 .78
Portfolio Turnover Rate 16.95(c) 69.13 36.64 50.96 33.09 34.04
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 10,857 8,769 6,232 6,598 8,346 8,985
</TABLE>
(A) EXCLUSIVE OF SALES CHARGE.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Six Months Ended
October 31, 1999 Year Ended April 30,
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.82 13.63 13.22 13.06 12.80 12.69
Investment Operations:
Investment income--net .26 .53 .54 .56 .59 .66
Net realized and
unrealized gain (loss)
on investments (1.06) .19 .41 .16 .26 .11
Total from Investment Operations (.80) .72 .95 .72 .85 .77
Distributions:
Dividends from investment income-net (.26) (.53) (.54) (.56) (.59) (.66)
Net asset value, end of period 12.76 13.82 13.63 13.22 13.06 12.80
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (11.60)(b) 5.29 7.24 5.55 6.69 6.33
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.51(b) 1.49 1.44 1.47 1.24 .75
Ratio of net investment income
to average net assets 3.85(b) 3.79 3.94 4.20 4.46 5.27
Decrease reflected in
above expense ratios due to
undertakings by the Manager .27(b) -- -- -- .20 .80
Portfolio Turnover Rate 16.95(c) 69.13 36.64 50.96 33.09 34.04
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 8,152 12,592 17,558 18,211 20,106 19,429
</TABLE>
(A) EXCLUSIVE OF SALES CHARGE.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Six Months Ended
October 31, 1999 Year Ended April 30,
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (Unaudited) 1999 1998 1997 1996(a)
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.80 13.62 13.22 13.05 12.85
Investment Operations:
Investment income--net .24 .44 .47 .51 .38
Net realized and unrealized gain (loss)
on investments (1.05) .18 .40 .17 .20
Total from Investment Operations (.81) .62 .87 .68 .58
Distributions:
Dividends from investment income-net (.24) (.44) (.47) (.51) (.38)
Net asset value, end of period 12.75 13.80 13.62 13.22 13.05
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) (11.70)(c) 4.59 6.61 5.30 6.28(c)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.71(c) 1.99 1.91 1.80 1.98(c)
Ratio of net investment income to average net assets 3.61(c) 3.28 3.48 3.87 3.73(c)
Decrease reflected in above expense
ratios due to undertakings by the Manager .44(c) -- -- -- --
Portfolio Turnover Rate 16.95(d) 69.13 36.64 50.96 33.09
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 62 47 42 105 88
</TABLE>
(A) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(B) EXCLUSIVE OF SALES CHARGE.
(C) ANNUALIZED.
(D) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Dreyfus Premier State Municipal Bond Fund (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
non-diversified, open-end management investment company, and operates as a
series company currently offering thirteen series including the Georgia Series
(the "fund"). The fund' s investment objective is to maximize current income
exempt from Federal and, where applicable, from State income taxes, without
undue risk. The Dreyfus Corporation (the "Manager") serves as the fund's
investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the fund' s shares. The fund is authorized to issue an unlimited
number of $.001 par value shares in the following classes of shares: Class A,
Class B and Class C shares. Class A shares are subject to a sales charge imposed
at the time of purchase, Class B shares are subject to a contingent deferred
sales charge (" CDSC") imposed on Class B share redemptions made within six
years of purchase (five years for shareholders beneficially owning Class B
shares on November 30, 1996) and Class C shares are subject to a CDSC imposed on
Class C shares redeemed within one year of purchase. Other differences between
the classes include the services offered to and the expenses borne by each class
and certain voting rights.
The Trust accounts separately for the assets, liabilities and
operations of each series. Expenses directly attributable to each series are
charged to that series' operations; expenses which are applicable to all series
are allocated among them on a pro rata basis.
The fund' s financial statements are prepared in accordance with
generally accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding options
and financial futures on municipal and U.S. treasury securities) are 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. Under the terms of the custody
agreement, the fund received net earnings credits of $1,287 during the period
ended October 31, 1999 based on available cash balances left on deposit. Income
earned under this arrangement is included in interest income.
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 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 of 1986, as
amended (the " 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 Code, and to make
distributions of income and net realized capital gain sufficient to relieve it
from substantially all Federal income and excise taxes.
The fund has an unused capital loss carryover of approximately $68,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to April 30, 1999. If not
applied, $51,000 of the carryover expires in fiscal 2004 and $17,000 expires in
fiscal 2005.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $500
million redemption credit facility (the "Facility" ) to be utilized for
temporary or emergency purposes, including the financing of redemptions. In
connection therewith, the fund has agreed to pay commitment fees on its pro rata
portion of the Facility. Interest is charged to the fund at rates based on
prevailing market rates in effect at the time of borrowings. During the period
ended October 31, 1999, the fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(A) Pursuant to a management agreement with the Manager, the
management fee is computed at the annual rate of .55 of 1% of the value of the
fund' s average daily net assets and is payable monthly. The Manager has
undertaken from July 29, 1999 to April 30, 2000, to reduce the management fee
paid by the fund, to the extent that the fund's aggregate expenses, excluding
12b-1 distribution fees, taxes, brokerage, commitment fees, interest on
borrowings and extraordinary expenses, exceed an annual rate of .89 of 1% of the
value of the fund's average daily net assets. The reduction in management fee,
pursuant to the undertaking, amounted to $30,621 during the period ended October
31, 1999.
(B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule
12b-1 under the Act, Class B and Class C shares pay the Distributor for
distributing their shares at an annual rate of .50 of 1% of the value of the
average daily net assets of Class B shares and .75 of 1% of the value of the
average daily net assets of Class C shares. During the period ended October 31,
1999, Class B and Class C shares were charged $24,774 and $125, respectively,
pursuant to the Plan.
(C) Under the Shareholder Services Plan, Class A, Class B and Class C
shares pay the Distributor at an annual rate of .25 of 1% of the value of their
average daily net assets for the provision of certain services. 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. The Distributor may make payments to Service Agents (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended October 31, 1999, Class A, Class B and Class C
shares were charged $12,449, $12,387 and $41, respectively, pursuant to the
Shareholder Services Plan.
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. During the period
ended October 31, 1999, the fund was charged $5,083 pursuant to the transfer
agency agreement.
(D) Each trustee who is not an "affiliated person" as defined in the
Act receives from the Trust an annual fee of $2,500 and an attendance fee of
$250 per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended October 31, 1999,
amounted to $3,131,509 and $4,871,448, respectively.
At October 31, 1999, accumulated net unrealized depreciation on
investments was $465,838, consisting of $293,246 gross unrealized appreciation
and $759,084 gross unrealized depreciation.
At October 31, 1999, 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).
For More Information
Dreyfus Premier State Municipal Bond Fund, Georgia
Series
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent & Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE
Call your financial representative or 1-800-554-4611
BY MAIL Write to:
The Dreyfus Premier Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
(c) 1999 Dreyfus Service Corporation 068SA9910
<PAGE>
DREYFUS PREMIER MUNICIPAL BOND FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
The response to this item is incorporated by reference to Item 25 of
Part C of Post-Effective Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A, filed on August 12, 1999.
ITEM 16. Exhibits - All references are to Post-Effective Amendment No. 21 to
the Registrant's Registration Statement on Form N-1A, filed on
August 12, 1999 (File No. 33-07496) (the "Registration Statement") unless
otherwise noted.
(1) Registrant's Amended and Restated Agreement and Declaration
of Trust are incorporated by reference to Exhibit (1) of
Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A filed on July 12, 1995 and Exhibit
(1)(b) of Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A filed on August 13, 1997.
(2) Registrant's Bylaws, as amended.
(3) Not Applicable.
*(4) Form of Agreement and Plan of Reorganization.
(5) Not Applicable.
(6) Management Agreement is incorporated by reference to Exhibit
(5) of Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A, filed on July 12, 1995.
(7) Distribution Agreement.
(8) Not Applicable.
(9)(a) Amended and Restated Custody Agreement is incorporated by
reference to Exhibit 8(a) of Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A, filed on July
12, 1996.
(9)(b) Sub-Custodian Agreements are incorporated by reference to
Exhibit 8(b) of Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A, filed on June 22, 1994.
(10)(a) Distribution Plan (Rule 12b-1 Plan) is incorporated by
reference to Exhibit (15) of Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A, filed on July 12,
1995.
(10)(b) Rule 18f-3 Plan is incorporated by refernce to Exhibit (18)
of Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A, filed on August 13, 1997.
(11)(a) Opinion and consent of Registrant's counsel is incorporated
by reference to Exhibit (10) of Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A, filed on July
12, 1995.
(11)(b) Consent of Stroock & Stroock & Lavan LLP.
(12) Form of Opinion and Consent of Stroock & Stroock & Lavan LLP
regarding tax matters.+
(13) Not Applicable.
(14) Consent of Independent Auditors.
(15) Not Applicable.
**(16) Powers of Attorney.
***(17)(a) Form of Proxy.
(17)(b) Registrant's Prospectus dated September 1, 1999, as revised
December 23, 1999, and revised, March 22, 2000.
(17)(c) Dreyfus Premier State Municipal Bond Fund's Prospectus dated
September 1, 1999, as revised December 22, 1999 and revised
March 22, 2000.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as amended,
the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial
bona fide offering of them.
(3) The undersigned registrant agrees to file by post-effective
amendment the final opinion of counsel regarding tax matters (the
form of which is filed herewith as Exhibit 12) within a
reasonable period of time after receiving such opinion, that
every prospectus that is filed under paragraph (1) above will be
filed as a part of an amendment to the registration statement and
will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
- --------
* Filed herewith as Exhibit A to the Prospectus/Proxy Statement.
** Incorporated by reference to the signature page hereto.
*** Filed herewith as part of the Prospectus/Proxy Statement.
+ To be filed by amendment.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York, State of
New York, on the 17th day of April, 2000.
DREYFUS PREMIER MUNICIPAL BOND FUND
By:/s/ STEPHEN E. CANTER
-----------------------------
Stephen E. Canter, President
Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints Stephen E. Canter, Mark N. Jacobs,
Joseph Connolly, Steven F. Newman, James Bitetto, Michael A. Rosenberg, Janette
Farragher and Gregory S. Gruber, and each of them, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for and in the name of, place and
stead, of such person, in any and all capacities (until revoked in writing) to
sign any and all amendments to this Registration Statement (including
post-effective amendments and amendments thereto), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/S/STEPHEN E. CANTER President (Principal April 17, 2000
- ---------------------------- Executive Officer)
Stephen E. Canter
/S/JOSEPH CONNOLLY Vice President April 17, 2000
- ---------------------------- and Treasurer
Joseph Connolly (Principal Accounting
and Financial Officer)
/S/JOSEPH S. DIMARTINO Chairman of the Board April 17, 2000
- -----------------------------
Joseph S. DiMartino
/S/CLIFFORD L. ALEXANDER, JR Board Member April 17, 2000
- -----------------------------
Clifford L. Alexander, Jr
/S/PEGGY C. DAVIS Board Member April 17, 2000
- -----------------------------
Peggy C. Davis
/S/ERNEST KAFKA Board Member April 17, 2000
- -----------------------------
Ernest Kafka
/S/SAUL B. KLAMAN Board Member April 17, 2000
- -----------------------------
Saul B. Klaman
/S/NATHAN LEVENTHAL Board Member April 17, 2000
- -----------------------------
Nathan Leventhal
<PAGE>
EXHIBIT INDEX
Exhibit 2 Bylaws
Exhibit 7 Distribution Agreement
Exhibit 11(b) Consent of Stroock & Stroock & Lavan LLP
Exhibit 12 Form of Opinion and Consent of Stroock & Stroock & Lavan LLP
regarding tax matters
Exhibit 14 Consent of Independent Auditors
Exhibit 17(b) Registrant's Prospectus dated September 1, 1999, as revised
December 23, 1999 and on March 22, 2000.
Exhibit 17(c) Dreyfus Premier State Municipal Bond Fund's Prospectus dated
September 1, 1999 as revised December 22, 1999, and on
March 22, 2000.
EXHIBIT (2)
BY-LAWS
OF
DREYFUS PREMIER MUNICIPAL BOND FUND
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1. AGREEMENT AND DECLARATION OF TRUST. These By- Laws shall be
subject to the Agreement and Declaration of Trust, as from time to time in
effect (the "Declaration of Trust"), of the above-captioned Massachusetts
business trust established by the Declaration of Trust (the "Trust").
1.2. PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust
shall be located in New York, New York. Its resident agent in Massachusetts
shall be CT Corporation System, 2 Oliver Street, Boston, Massachusetts 02109, or
such other person as the Trustees from time to time may select.
ARTICLE 2
Meetings of Trustees
2.1. REGULAR MEETINGS. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees from
time to time may determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2. SPECIAL MEETINGS. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the President or the Treasurer or by two or more Trustees, sufficient notice
thereof being given to each Trustee by the Secretary or an Assistant Secretary
or by the officer or the Trustees calling the meeting.
2.3. NOTICE OF SPECIAL MEETINGS. It shall be sufficient notice to a
Trustee of a special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or residence address or to
give notice to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting.
2.4. NOTICE OF CERTAIN ACTIONS BY CONSENT. If in accordance with the
provisions of the Declaration of Trust any action is taken by the Trustees by a
written consent of less than all of the Trustees, then prompt notice of any such
action shall be furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not be impaired by
any delay or failure to furnish such notice.
ARTICLE 3
Officers
3.1. ENUMERATION; QUALIFICATION. The officers of the Trust shall be a
President, a Treasurer, a Secretary, and such other officers, if any, as the
Trustees from time to time may in their discretion elect. The Trust also may
have such agents as the Trustees from time to time may in their discretion
appoint. An officer may be but need not be a Trustee or shareholder. Any two or
more offices may be held by the same person.
3.2. ELECTION. The President, the Treasurer and the Secretary shall be
elected by the Trustees upon the occurrence of any vacancy in any such office.
Other officers, if any, may be elected or appointed by the Trustees at any time.
Vacancies in any such other office may be filled at any time.
3.3. TENURE. The President, Treasurer and Secretary shall hold office
in each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4. POWERS. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as commonly are incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation or such other duties and powers as the
Trustees may from time to time designate.
3.5. PRESIDENT. Unless the Trustees otherwise provide, the President
shall preside at all meetings of the shareholders and of the Trustees. Unless
the Trustees otherwise provide, the President shall be the chief executive
officer.
3.6. TREASURER. The Treasurer shall be the chief financial and
accounting officer of the Trust, and, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, shall be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
3.7. SECRETARY. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an Assistant
Secretary, or if there be none or if he or she is absent, a temporary Secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.8. RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at
any time by written instrument signed by him or her and delivered to the
President or Secretary or to a meeting of the Trustees. Such resignation shall
be effective upon receipt unless specified to be effective at some other time.
The Trustees may remove any officer elected by them with or without cause.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee or officer resigning and no officer removed shall have any right to
any compensation for any period following his or her resignation or removal, or
any right to damages on account of such removal.
ARTICLE 4
Committees
4.1. APPOINTMENT. The Trustees may appoint from their number an
executive committee and other committees. Except as the Trustees otherwise may
determine, any such committee may make rules for conduct of its business.
4.2. QUORUM; VOTING. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present).
ARTICLE 5
Reports
The Trustees and officers shall render reports at the time and in the
manner required by the Declaration of Trust or any applicable law. Officers and
Committees shall render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
The fiscal year of the Trust shall be fixed, and shall be subject to
change, by the Board of Trustees.
ARTICLE 7
Seal
The seal of the Trust shall consist of a flat-faced die with the word
"Massachusetts," together with the name of the Trust and the year of its
organization cut or engraved thereon but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and in its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
Except as the Trustees generally or in particular cases may authorize
the execution thereof in some other manner, all deeds, leases, contracts, notes
and other obligations made by the Trustees shall be signed by the President, any
Vice President, or by the Treasurer and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share Certificates
9.1. SALE OF SHARES. Except as otherwise determined by the Trustees,
the Trust will issue and sell for cash or securities from time to time, full and
fractional shares of its shares of beneficial interest, such shares to be issued
and sold at a price of not less than net asset value per share, as from time to
time determined in accordance with the Declaration of Trust and these By-Laws
and, in the case of fractional shares, at a proportionate reduction in such
price. In the case of shares sold for securities, such securities shall be
valued in accordance with the provisions for determining value of assets of the
Trust as stated in the Declaration of Trust and these By- Laws. The officers of
the Trust are severally authorized to take all such actions as may be necessary
or desirable to carry out this Section 9.1.
<PAGE>
9.2. SHARE CERTIFICATES. In lieu of issuing certificates for shares,
the Trustees or the transfer agent either may issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
who shall in either case, for all purposes hereunder, be deemed to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
The Trustees at any time may authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the President or Vice President and by the Treasurer or Assistant Treasurer.
Such signatures may be facsimile if the certificate is signed by a transfer
agent, or by a registrar, other than a Trustee, officer or employee of the
Trust. In case any officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he or she were such officer at the time of its issue.
9.3. LOSS OF CERTIFICATES. The Trust, or if any transfer agent is
appointed for the Trust, the transfer agent with the approval of any two
officers of the Trust, is authorized to issue and countersign replacement
certificates for the shares of the Trust which have been lost, stolen or
destroyed subject to the deposit of a bond or other indemnity in such form and
with such security, if any, as the Trustees may require.
9.4. DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees at any
time may discontinue the issuance of share certificates and by written notice to
each shareholder, may require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Indemnification
10.1. TRUSTEES, OFFICERS, ETC. The Trust shall indemnify each of its
Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in a decision on the merits
in any such action, suit or other proceeding not to have acted in good faith in
the reasonable belief that such Covered Person's action was in the best
interests of the Trust and except that no Covered Person shall be indemnified
against any liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition or any such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article, PROVIDED
THAT (a) such Covered Person shall provide security for his or her undertaking,
(b) the Trust shall be insured against losses arising by reason of such Covered
Person's failure to fulfill his or her undertaking, or (c) a majority of the
Trustees who are disinterested persons and who are not Interested Persons (as
that term is defined in the Investment Company Act of 1940) (provided that a
majority of such Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts (but not a full trial-type inquiry), that there is
reason to believe such Covered Person ultimately will be entitled to
indemnification.
10.2. COMPROMISE PAYMENT. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication in a decision on the merits by a court, or by any other body before
which the proceeding was brought, that such Covered Person either (a) did not
act in good faith in the reasonable belief that such Covered Person's action was
in the best interests of the Trust or (b) is liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office, indemnification shall be provided if (a) approved as in the
best interest of the Trust, after notice that it involves such indemnification,
by at least a majority of the Trustees who are disinterested persons and are not
Interested Persons (provided that a majority of such Trustees then in office act
on the matter), upon a determination, based upon a review of readily available
facts (but not a full trial-type inquiry) that such Covered Person acted in good
faith in the reasonable belief that such Covered Person's action was in the best
interests of the Trust and is not liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office, or (b)
there has been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (but not a full trial-type
inquiry) to the effect that such Covered Person appears to have acted in good
faith in the reasonable belief that such Covered Person's action was in the best
interests of the Trust and that such indemnification would not protect such
Covered Person against any liability to the Trust to which such Covered Person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
10.3. INDEMNIFICATION NOT EXCLUSIVE. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
any such Covered Person may be entitled. As used in this Article 10, the term
"Covered Person" shall include such person's heirs, executors and
administrators, and a "disinterested person" is a person against whom none of
the actions, suits or other proceedings in question or another action, suit, or
other proceeding on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of such person.
10.4. LIMITATION. Notwithstanding any provisions in the Declaration of
Trust and these By-Laws pertaining to indemnification, all such provisions are
limited by the following undertaking set forth in the rules promulgated by the
Securities and Exchange Commission:
In the event that a claim for indemnification is
asserted by a Trustee, officer or controlling person of the
Trust in connection with the registered securities of the
Trust, the Trust will not make such indemnification unless
(i) the Trust has submitted, before a court or other body,
the question of whether the person to be indemnified was
liable by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties, and has
obtained a final decision on the merits that such person was
not liable by reason of such conduct or (ii) in the absence
of such decision, the Trust shall have obtained a reasonable
determination, based upon a review of the facts, that such
person was not liable by virtue of such conduct, by (a) the
vote of a majority of Trustees who are neither interested
persons as such term is defined in the Investment Company
Act of 1940, nor parties to the proceeding or (b) an
independent legal counsel in a written opinion.
The Trust will not advance attorneys' fees or other
expenses incurred by the person to be indemnified unless (i)
the Trust shall have received an undertaking by or on behalf
of such person to repay the advance unless it is ultimately
determined that such person is entitled to indemnification
and (ii) one of the following conditions shall have
occurred: (x) such person shall provide security for his
undertaking, (y) the Trust shall be insured against losses
arising by reason of any lawful advances or (z) a majority
of the disinterested, non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall have
determined that based on a review of readily available facts
there is reason to believe that such person ultimately will
be found entitled to indemnification.
ARTICLE 11
Shareholders
11.1. MEETINGS. A meeting of the shareholders shall be called by the
Secretary whenever ordered by the Trustees, or requested in writing by the
holder or holders of at least 10% of the outstanding shares entitled to vote at
such meeting. If the meeting is a meeting of the shareholders of one or more
series or class of shares, but not a meeting of all shareholders of the Trust,
then only the shareholders of such one or more series or classes shall be
entitled to notice of and to vote at the meeting. If the Secretary, when so
ordered or requested, refuses or neglects for more than five days to call such
meeting, the Trustees, or the shareholders so requesting may, in the name of the
Secretary, call the meeting by giving notice thereof in the manner required when
notice is given by the Secretary.
11.2. ACCESS TO SHAREHOLDER LIST. Shareholders of record may apply to
the Trustees for assistance in communicating with other shareholders for the
purpose of calling a meeting in order to vote upon the question of removal of a
Trustee. When ten or more shareholders of record who have been such for at least
six months preceding the date of application and who hold in the aggregate
shares having a net asset value of at least $25,000 or at least 1% of the
outstanding shares, whichever is less, so apply, the Trustees shall within five
business days either:
(i) afford to such applicants access to a list of names and
addresses of all shareholders as recorded on the books of the Trust; or
(ii) inform such applicants of the approximate number of
shareholders of record and the approximate cost of mailing material to them and,
within a reasonable time thereafter, mail materials submitted by the applicants
to all such shareholders of record. The Trustees shall not be obligated to mail
materials which they believe to be misleading or in violation of applicable law.
11.3. RECORD DATES. For the purpose of determining the shareholders of
any series or class who are entitled to vote or act at any meeting or any
adjournment thereof, or who are entitled to receive payment of any dividend or
of any other distribution, the Trustees from time to time may fix a time, which
shall be not more than 90 days before the date of any meeting of shareholders or
the date of payment of any dividend or of any other distribution, as the record
date for determining the shareholders of such series or class having the right
to notice of and to vote at such meeting and any adjournment thereof or the
right to receive such dividend or distribution, and in such case only
shareholders of record on such record date shall have such right notwithstanding
any transfer of shares on the books of the Trust after the record date; or
without fixing such record date the Trustees may for any such purposes close the
register or transfer books for all or part of such period.
11.4. PLACE OF MEETINGS. All meetings of the shareholders shall be
held at the principal office of the Trust or at such other place within the
United States as shall be designated by the Trustees or the President of the
Trust.
11.5. NOTICE OF MEETINGS. A written notice of each meeting of
shareholders, stating the place, date and hour and the purposes of the meeting,
shall be given at least ten days before the meeting to each shareholder entitled
to vote thereat by leaving such notice with him or at his residence or usual
place of business or by mailing it, postage prepaid, and addressed to such
shareholder at his address as it appears in the records of the Trust. Such
notice shall be given by the Secretary or an Assistant Secretary or by an
officer designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed before or
after the meeting by such shareholder or his attorney thereunto duly authorized,
is filed with the records of the meeting.
11.6. BALLOTS. No ballot shall be required for any election unless
requested by a shareholder present or represented at the meeting and entitled to
vote in the election.
11.7. PROXIES. Shareholders entitled to vote may vote either in person
or by proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the Secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not be
valid after the final adjournment of such meeting. The placing of a
shareholder's name on a proxy pursuant to telephonic or electronically
transmitted instructions obtained pursuant to procedures reasonably designed to
verify that such instructions have been authorized by such shareholder shall
constitute execution of such proxy by or on behalf of such shareholder.
ARTICLE 12
Amendments to the By-Laws
These By-Laws may be amended or repealed, in whole or in part, by a
majority of the Trustees then in office at any meeting of the Trustees, or by
one or more writings signed by such a majority.
Dated: September 5, 1986
Amended: December 31, 1999
EXHIBIT (7)
DISTRIBUTION AGREEMENT
DREYFUS PREMIER MUNICIPAL BOND FUND
200 Park Avenue
New York, New York 10166
March 22, 2000
Dreyfus Service Corporation
200 Park Avenue
New York, New York 10166
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund") has
agreed that you shall be, for the period of this agreement, the distributor of
(a) shares of each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, a "Series") or (b) if no Series
are set forth on such Exhibit, shares of the Fund. For purposes of this
agreement the term "Shares" shall mean the authorized shares of the relevant
Series, if any, and otherwise shall mean the Fund's authorized shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by,
and in accordance with, the registration statement and prospectus then in effect
under the Securities Act of 1933, as amended, and will transmit promptly any
orders received by you for purchase or redemption of Shares to the Transfer and
Dividend Disbursing Agent for the Fund of which the Fund has notified you in
writing.
1.2 You agree to use your best efforts to solicit orders for the sale
of Shares. It is contemplated that you will enter into sales or servicing
agreements with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms, and in so doing you will act only on your own behalf as principal.
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitation, all rules
and regulations made or adopted pursuant to the Investment Company Act of 1940,
as amended, by the Securities and Exchange Commission or any securities
association registered under the Securities Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted by market,
economic or political conditions, or by abnormal circumstances of any kind, the
Fund's officers may decline to accept any orders for, or make any sales of, any
Shares until such time as they deem it advisable to accept such orders and to
make such sales and the Fund shall advise you promptly of such determination.
1.5 The Fund agrees to pay all costs and expenses in connection with
the registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; provided, however,
that nothing contained herein shall be deemed to require the Fund to pay any of
the costs of advertising the sale of Shares.
1.6 The Fund agrees to execute any and all documents and to furnish
any and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Fund's officers in connection with
the qualification of Shares for sale in such states as you may designate to the
Fund and the Fund may approve, and the Fund agrees to pay all expenses which may
be incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this agreement.
1.7 The Fund shall furnish you from time to time, for use in
connection with the sale of Shares, such information with respect to the Fund or
any relevant Series and the Shares as you may reasonably request, all of which
shall be signed by one or more of the Fund's duly authorized officers; and the
Fund warrants that the statements contained in any such information, when so
signed by the Fund's officers, shall be true and correct. The Fund also shall
furnish you upon request with: (a) semi- annual reports and annual audited
reports of the Fund's books and accounts made by independent public accountants
regularly retained by the Fund, (b) quarterly earnings statements prepared by
the Fund, (c) a monthly itemized list of the securities in the Fund's or, if
applicable, each Series' portfolio, (d) monthly balance sheets as soon as
practicable after the end of each month, and (e) from time to time such
additional information regarding the Fund's financial condition as you may
reasonably request.
1.8 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, with respect to the Shares have been carefully prepared in
conformity with the requirements of said Acts and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus, including the statement of additional information
incorporated by reference therein, filed with the Securities and Exchange
Commission and any amendments and supplements thereto which at any time shall
have been filed with said Commission. The Fund represents and warrants to you
that any registration statement and prospectus, when such registration statement
becomes effective, will contain all statements required to be stated therein in
conformity with said Acts and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The Fund may
but shall not be obligated to propose from time to time such amendment or
amendments to any registration statement and such supplement or supplements to
any prospectus as, in the light of future developments, may, in the opinion of
the Fund's counsel, be necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
days after receipt by the Fund of a written request from you to do so, you may,
at your option, terminate this agreement or decline to make offers of the Fund's
securities until such amendments are made. The Fund shall not file any amendment
to any registration statement or supplement to any prospectus without giving you
reasonable notice thereof in advance; provided, however, that nothing contained
in this agreement shall in any way limit the Fund's right to file at any time
such amendments to any registration statement and/or supplements to any
prospectus, of whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional.
1.9 The Fund authorizes you to use any prospectus in the form
furnished to you from time to time, in connection with the sale of Shares. The
Fund agrees to indemnify, defend and hold you, your several officers and
directors, and any person who controls you within the meaning of Section 15 of
the Securities Act of 1933, as amended, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which you, your officers and directors,
or any such controlling person, may incur under the Securities Act of 1933, as
amended, or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact contained in
any registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Fund's
agreement to indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement or prospectus in reliance
upon and in conformity with written information furnished to the Fund by you
specifically for use in the preparation thereof. The Fund's agreement to
indemnify you, your officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Fund's being notified of any action
brought against you, your officers or directors, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Fund at
its address set forth above within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund of any
such action shall not relieve the Fund from any liability which the Fund may
have to the person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
1.9. The Fund will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Fund and approved
by you. In the event the Fund elects to assume the defense of any such suit and
retain counsel of good standing approved by you, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Fund does not elect to assume the defense of any
such suit, or in case you do not approve of counsel chosen by the Fund, the Fund
will reimburse you, your officers and directors, or the controlling person or
persons named as defendant or defendants in such suit, for the fees and expenses
of any counsel retained by you or them. The Fund's indemnification agreement
contained in this paragraph 1.9 and the Fund's representations and warranties in
this agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of you, your officers and directors, or
any controlling person, and shall survive the delivery of any Shares. This
agreement of indemnity will inure exclusively to your benefit, to the benefit of
your several officers and directors, and their respective estates, and to the
benefit of any controlling persons and their successors. The Fund agrees
promptly to notify you of the commencement of any litigation or proceedings
against the Fund or any of its officers or Board members in connection with the
issue and sale of Shares.
1.10 You agree to indemnify, defend and hold the Fund, its several
officers and Board members, and any person who controls the Fund within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or Board members, or any such controlling person, may incur
under the Securities Act of 1933, as amended, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the Fund, its
officers or Board members, or such controlling person resulting from such claims
or demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
you to the Fund specifically for use in the Fund's registration statement and
used in the answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. Your agreement to indemnify the Fund, its officers and Board
members, and any such controlling person, as aforesaid, is expressly conditioned
upon your being notified of any action brought against the Fund, its officers or
Board members, or any such controlling person, such notification to be given by
letter or telegram addressed to you at your address set forth above within ten
days after the summons or other first legal process shall have been served. You
shall have the right to control the defense of such action, with counsel of your
own choosing, satisfactory to the Fund, if such action is based solely upon such
alleged misstatement or omission on your part, and in any other event the Fund,
its officers or Board members, or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure so to notify you of any such action shall not relieve you
from any liability which you may have to the Fund, its officers or Board
members, or to such controlling person by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account of
your indemnity agreement contained in this paragraph 1.10. This agreement of
indemnity will inure exclusively to the Fund's benefit, to the benefit of the
Fund's officers and Board members, and their respective estates, and to the
benefit of any controlling persons and their successors.
You agree promptly to notify the Fund of the commencement of any
litigation or proceedings against you or any of your officers or directors in
connection with the issue and sale of Shares.
1.11 No Shares shall be offered by either you or the Fund under any of
the provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.11 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase any Shares from any shareholder
in accordance with the provisions of the Fund's prospectus or charter documents.
1.12 The Fund agrees to advise you immediately in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect
or for additional information;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event which makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
2. Offering Price
Shares of any class of the Fund offered for sale by you shall be
offered for sale at a price per share (the "offering price") approximately equal
to (a) their net asset value (determined in the manner set forth in the Fund's
charter documents) plus (b) a sales charge, if any and except to those persons
set forth in the then-current prospectus, which shall be the percentage of the
offering price of such Shares as set forth in the Fund's then-current
prospectus. The offering price, if not an exact multiple of one cent, shall be
adjusted to the nearest cent. In addition, Shares of any class of the Fund
offered for sale by you may be subject to a contingent deferred sales charge as
set forth in the Fund's then-current prospectus. You shall be entitled to
receive any sales charge or contingent deferred sales charge in respect of the
Shares. Any payments to dealers shall be governed by a separate agreement
between you and such dealer and the Fund's then-current prospectus.
3. Term
This agreement shall continue until the date (the "Reapproval Date")
set forth on Exhibit A hereto (and, if the Fund has Series, a separate
Reapproval Date shall be specified on Exhibit A for each Series), and thereafter
shall continue automatically for successive annual periods ending on the day
(the "Reapproval Day") of each year set forth on Exhibit A hereto, provided such
continuance is specifically approved at least annually by (i) the Fund's Board
or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of
the Shares of the Fund or the relevant Series, as the case may be, provided that
in either event its continuance also is approved by a majority of the Board
members who are not "interested persons" (as defined in said Act) of any party
to this agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This agreement is terminable without penalty, on 60
days' notice, (a) by vote of holders of a majority of the Fund's or, as to any
relevant Series, such Series' outstanding voting securities, or (b) by the
Fund's Board as to the Fund or the relevant Series, as the case may be, or (c)
by you. This agreement also will terminate automatically, as to the Fund or
relevant Series, as the case may be, in the event of its assignment (as defined
in said Act).
4. Miscellaneous
4.1 The Fund recognizes that from time to time your directors,
officers, and employees may serve as trustees, directors, partners, officers,
and employees of other business trusts, corporations, partnerships, or other
entities (including other investment companies) and that such other entities may
include the name "Dreyfus" as part of their name, and that your corporation or
its affiliates may enter into distribution or other agreements with such other
entities. If you cease to act as the distributor of the Fund's shares or if The
Dreyfus Corporation ceases to act as the Fund's investment adviser, the Fund
agrees that, at the request of The Dreyfus Corporation, the Fund will take all
necessary action to change the name of the Fund to a name not including
"Dreyfus" in any form or combination of words.
4.2 This agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his or her capacity as an officer of the
Fund. The obligations of this agreement shall only be binding upon the assets
and property of the Fund and shall not be binding upon any Board member, officer
or shareholder of the Fund individually.
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding agreement between us.
Very truly yours,
DREYFUS PREMIER MUNICIPAL BOND FUND
By:
-----------------------------------
Accepted:
DREYFUS SERVICE CORPORATION
By:
-----------------------------------
<PAGE>
EXHIBIT A
REAPPROVAL DATE REAPPROVAL DAY
September 5, 2000 September 5th
EXHIBIT (11)(b)
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
April 17, 2000
We hereby consent to the use of our legal opinion regarding the legality of
issuance of shares and other matters filed as Exhibit (10) of Post-Effective
Amendment No. 13 to the Registrant's Registration Statement on Form N-1A filed
on July 12, 1995, which opinion is incorporated by reference as an exhibit to
this Registration Statement on Form N-14. In giving such permission, we do not
admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
EXHIBIT (12)
FORM OF OPINION
__________, 2000
Dreyfus Premier Municipal Bond Fund
200 Park Avenue
New York, New York 10166
Dreyfus Premier State Municipal Bond Fund
200 Park Avenue
New York, New York 10166
Re: Registration Statement on Form N-14
(REGISTRATION NO. 333- ___________)
Ladies and Gentlemen:
You have requested our opinion as to certain Federal income tax consequences of
the reorganization contemplated by the Agreement and Plan of Reorganization,
substantially in the form included as Exhibit A to the Registration Statement on
Form N-14 of Dreyfus Premier Municipal Bond Fund, a Massachusetts business trust
(the "Fund")(Reg. No. 333-_____) (the "Registration Statement"), between the
Fund and Dreyfus State Municipal Bond Fund, a Massachusetts business trust (the
"Trust"), on behalf of its Georgia Series (the "Series") (the "Acquired Fund").
You have advised us that the Fund and the Acquired Fund have each qualified and
will qualify as "regulated investment companies" within the meaning of
Subchapter M of Chapter 1 of the Internal Revenue Code of 1986, as amended (the
"Code"), for each of their taxable years ending on or before or including the
Closing Date.
In rendering this opinion, we have examined the Agreement and Plan of
Reorganization, the Registration Statement, the Fund's Declaration of Trust, as
amended from time to time (the "Fund's Charter"), the Acquired Fund's
Declaration of Trust, as amended from time to time (the "Acquired Fund's
Charter"), the Fund's Prospectus and Statement of Additional Information,
incorporated by reference in the Registration Statement, the Acquired Fund's
Prospectus and Statement of Additional Information and such other documents as
we have deemed necessary or relevant for the purpose of this opinion. In issuing
our opinion, we have relied upon the representation of the Acquired Fund that
the Acquired Fund's Charter is the document pursuant to which it has operated to
date and that it has operated in accordance with all laws applicable to such
entity and the statements and representations made herein and in the
Registration Statement. We also have relied upon the representation of the Fund
that the Fund's Charter is the document pursuant to which it has operated to
date and will operate following the reorganization and that it has operated and
will operate following the reorganization in accordance with all laws applicable
to such entity and the statements and representations made herein and in the
Registration Statement. As to various questions of fact material to this
opinion, where relevant facts were not independently established by us, we have
relied upon statements of, and written information provided by, representatives
of the Fund. We also have examined such matters of law as we have deemed
necessary or appropriate for the purpose of this opinion. We note that our
opinion is based on our examination of such law, our review of the documents
described above, the statements and representations referred to above and in the
Registration Statement and the Agreement and Plan of Reorganization, the
provisions of the Code, the regulations, published rulings and announcements
thereunder, and the judicial interpretations thereof currently in effect. Any
change in applicable law or any of the facts and circumstances described in the
Registration Statement, or inaccuracy of any statements or representations on
which we have relied, may affect the continuing validity of our opinion.
Capitalized terms not defined herein have the respective meanings given such
terms in the Agreement and Plan of Reorganization.
Based on the foregoing, it is our opinion that for Federal income tax purposes:
a) The transfer of all of the Acquired Fund's assets in exchange for the
Fund Shares and the assumption by the Fund of certain identified liabilities of
the Acquired Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code;
b) No gain or loss will be recognized by the Fund upon the receipt of the
assets of the Acquired Fund solely in exchange for the Fund Shares and the
assumption by the Fund of certain identified liabilities of the Acquired Fund;
c) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Fund in exchange for the Fund
Shares and the assumption by the Fund of certain identified liabilities of the
Acquired Fund or upon the distribution of the Fund Shares to Acquired Fund
Shareholders in exchange for their shares of the Acquired Fund;
d) No gain or loss will be recognized by Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Fund Shares;
e) The aggregate tax basis for the Fund Shares received by an Acquired Fund
Shareholder pursuant to the reorganization will be the same as the aggregate tax
basis of the Acquired Fund shares held by such shareholder immediately prior to
the reorganization, and the holding period of the Fund Shares to be received by
the Acquired Fund Shareholder will include the period during which the Acquired
Fund shares exchanged therefor were held by such shareholder (provided the
Acquired Fund shares were held as capital assets on the date of the
reorganization); and
f) The tax basis of the Acquired Fund's assets acquired by the Fund will be
the same as the tax basis of such assets to the Acquired Fund immediately prior
to the reorganization, and the holding period of the assets of the Acquired Fund
in the hands of the Fund will include the period during which those assets were
held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus/Proxy
Statement included in the Registration Statement, and to the filing of this
opinion as an exhibit to the Registration Statement, and to the filing of this
opinion as an exhibit to any application made by or on behalf of the Fund or any
distributor or dealer in connection with the registration and qualification of
the Fund, on behalf of the Fund, or the Fund Shares under the securities laws of
any state or jurisdiction. In giving such permission, we do not admit hereby
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements
and Experts" and to the use of our reports dated June 2, 1999 with respect
to Dreyfus Premier Municipal Bond Fund and June 2, 1999 with respect to
Dreyfus Premier State Municipal Bond Fund, which are incorporated by reference,
in this Registration Statement on Form N-14 of Dreyfus Premier Municipal Bond
Fund.
/s/ Ernst and Young LLP
Ernst & Young LLP
New York, New York
April __, 2000
Exhibit 17(b)
Dreyfus Premier Municipal Bond Fund
Investing for income exempt
from federal income tax
Prospectus September 1, 1999, as revised December 23, 1999, and on March
22, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
The Fund
Dreyfus Premier Municipal Bond Fund
Ticker Symbols Class A: PTEBX
Class B: PMUBX
Class C: DMBCX
Contents
The Fund
Goal/Approach Inside cover
Main Risks 1
Past Performance 1
Expenses 2
Management 3
Financial Highlights 4
Your Investment
Account Policies 6
Distributions and Taxes 8
Services for Fund Investors 9
Instructions for Regular Accounts 10
For More Information
Information on the fund's recent strategies and holdings can be found in the
current annual/semiannual report. See back cover.
Goal/Approach
The fund seeks to maximize current income exempt from federal income tax to
the extent consistent with the preservation of capital. To pursue this goal,
the fund normally invests substantially all of its assets in municipal bonds
that provide income exempt from federal income tax.
The fund will invest at least 70% of its assets in investment grade municipal
bonds or the unrated equivalent as determined by Dreyfus. For additional
yield, it may invest up to 30% of its assets in municipal bonds rated below
investment grade ("high yield" or "junk" bonds) or the unrated equivalent as
determined by Dreyfus.
The portfolio manager buys and sells bonds based on credit quality, financial
outlook and yield potential. Bonds with deteriorating credit quality are
potential sell candidates, while those offering
higher yields are potential buy candidates.
Concepts to understand
Municipal bonds: debt securities that provide income free from federal income
tax. Municipal bonds are typically divided into two types:
* general obligation bonds, which are secured by the full
faith and credit of the issuer and its taxing power
* revenue bonds, which are payable from the revenue derived
from a specific revenue source, such as charges for water and
sewer service or highway tolls
Investment grade bonds: independent rating organizations analyze and evaluate
a bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or
Baa and above are considered investment grade.
Main Risks
Prices of bonds tend to move inversely with changes in interest rates. While
a rise in rates may allow the fund to invest for higher yields, the most
immediate effect is usually a drop in bond prices and, therefore, in the
fund's share price as well. As a result, the value of your investment in the
fund could go up and down, which means that you could lose money.
Other risk factors could have an effect on the fund's performance:
* if an issuer fails to make timely interest or
principal payments, or if there is a decline in the
credit quality of a bond or a perception of a decline, the
bond's value could fall, potentially lowering the fund's
share price
* lower-rated, higher-yielding municipal obligations are
subject to greater credit risk, including the risk of
default, than investment grade obligations; lower-rated bonds
tend to be more volatile and less liquid
Although the fund's objective is to generate income exempt from federal
income tax, interest from some of its holdings may be subject to the federal
alternative minimum tax.
Other potential risks
The fund, at times, may invest in certain derivatives, such as futures and
options. Derivatives can be illiquid and highly sensitive to changes in their
underlying security, interest rate or index and, as a result, can be highly
volatile. A small investment in certain derivatives could have a potentially
large impact on the fund's performance.
Past Performance
The tables below show some of the risks of investing in the fund. The first
table shows the changes in the fund's Class A performance from year to year. T
he performance figures do not reflect sales loads, and would be lower if they
did. The second table compares the fund's performance over time to that of
the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of municipal bond performance. These returns include applicable sales loads.
Both tables assume the reinvestment of dividends. Of course, past performance
is no guarantee of future results.
Year-by-year total return as of 12/31 each year (%)
Class A shares
9.94 7.33 13.89 10.00 14.40 -6.41 17.46 3.96 9.59 4.48
89 90 91 92 93 94 95 96 97 98
Best Quarter: Q1 '95 +6.60%
Worst Quarter: Q1 '94 -6.33%
The fund's Class A year-to-date total return as of 6/30/99 was -2.03%.
Average annual total return as of 12/31/98
<TABLE>
Since
Inception date 1 Year 5 Years 10 Years inception
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (11/26/86) -0.25% 4.56% 7.77% -
Class B (1/15/93) 0.02% 4.65% - 6.25%
Class C (7/13/95) 2.64% - - 5.96%
Lehman Brothers
Municipal Bond Index 6.48% 6.22% 8.22% 7.21%*
* Based on the life of Class B. For comparative purposes, the value of the
index on 12/31/92 is used as the beginning value on 1/15/93.
</TABLE>
What this fund is - and isn't
This fund is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. It
strives to reach its stated goal, although as with all mutual funds, it
cannot offer guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
The Fund
Expenses
As an investor, you pay certain fees and expenses in connection with the
fund, which are described in the tables below.
Fee table
<TABLE>
Class A Class B Class C
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder transaction fees (fees paid from your account)
Maximum front-end sales charge on purchases as a % of offering price 4.50 none none
Maximum contingent deferred sales charge (CDSC)
as a % of purchase or sale price, whichever is less none* 4.00 1.00
Annual fund operating expenses (expenses paid from fund assets)
% of average daily net assets
Management fees .55 .55 .55
Rule 12b-1 fee none .50 .75
Shareholder services fee .25 .25 .25
Other expenses .11 .12 .12
Total .91 1.42 1.67
* Shares bought without an initial sales charge as part of an investment of
$1 million or more may be charged a CDSC of 1.00% if redeemed within one year.
</TABLE>
<TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $539 $727 $931 $1,519
Class B
with redemption $545 $749 $976 $1,436**
without redemption $145 $449 $776 $1,436**
Class C
with redemption $270 $526 $907 $1,976
without redemption $170 $526 $907 $1,976
** Assumes conversion of Class B to Class A at end of the sixth year
following the date of purchase.
</TABLE>
This example shows what you could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses.
Because actual return and expenses will be different, the example is for
comparison only.
Concepts to understand
Management fee: the fee paid to Dreyfus for managing the fund's portfolio and
assisting in all aspects of the fund's operation.
Rule 12b-1 fee: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets
on an ongoing basis, over time it will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Shareholder services fee: a fee paid to the fund's distributor for
shareholder account service and maintenance.
Other expenses: fees paid by the fund for miscellaneous items such as
transfer agency, custody, professional and registration fees.
Management
The investment adviser for the fund is The Dreyfus Corporation, 200 Park
Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than
$120 billion in over 160 mutual fund portfolios. For the past fiscal year,
the fund paid Dreyfus a management fee at the annual rate of 0.55% of the
fund's average daily net assets. Dreyfus is the primary mutual fund business
of Mellon Bank Corporation, a broad-based financial services company with a
bank at its core. With more than $389 billion of assets under management and
$1.9 trillion of assets under administration and custody, Mellon provides a
full range of banking, investment and trust products and services to
individuals, businesses and institutions. Mellon is headquartered in
Pittsburgh, Pennsylvania.
The Dreyfus asset management philosophy is based on the belief that
discipline and consistency are important to investment success. For each
fund, Dreyfus seeks to establish clear guidelines for portfolio management
and to be systematic in making decisions. This approach is designed to
provide each fund with a distinct, stable identity.
Samuel J. Weinstock has managed the fund since August 1987 and has been
employed by Dreyfus since March 1987.
Dreyfus has a personal securities trading policy (the "Policy") which
restricts the personal securities transactions of its employees. Its primary
purpose is to ensure that personal trading by Dreyfus employees does not
disadvantage any Dreyfus-managed fund. Dreyfus portfolio managers and other
investment personnel who comply with the Policy's preclearance and disclosure
procedures may be permitted to purchase, sell or hold certain types of
securities which also may be or are held in the fund(s) they advise.
Concepts to understand
Year 2000 issues: the fund could be adversely affected if the computer
systems used by Dreyfus and the fund's other service providers do not
properly process and calculate date-related information from and after
January 1, 2000.
Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by year 2000-related problems. This could have an impact
on the value of the fund's investments and its share price.
Financial Highlights
The following tables describe the performance of each share class for the
fiscal periods indicated. "Total return" shows how much your investment in
the fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
Year Ended April 30,
Class A 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period 14.69 14.11 13.85 13.86 13.81
Investment operations: Investment income - net .72 .79 .82 .86 .84
Net realized and unrealized gain (loss)
on investments (.15) .66 .27 (.01) .05
Total from investment operations .57 1.45 1.09 .85 .89
Distributions: Dividends from investment income - net (.72) (.79) (.82) (.86) (.84)
Dividends from net realized gain
on investments (.21) (.08) (.01) - -
Total distributions (.93) (.87) (.83) (.86) (.84)
Net asset value, end of period 14.33 14.69 14.11 13.85 13.86
Total return (%)* 3.96 10.52 8.03 6.08 6.72
Ratios/Supplemental Data
Ratio of expenses to average net assets (%) .91 .91 .91 .92 .92
Ratio of net investment income to average net assets (%) 4.96 5.42 5.84 5.98 6.16
Portfolio turnover rate (%) 46.84 26.33 28.17 36.59 38.60
Net assets, end of period ($ x 1,000) 432,276 447,869 457,327 474,044 495,616
* Exclusive of sales load.
Year Ended April 30,
Class B 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Per-Share Data ($)
Net asset value, beginning of period 14.69 14.11 13.85 13.86 13.81
Investment operations: Investment income - net .65 .72 .75 .78 .77
Net realized and unrealized gain
(loss) on investments (.15) .66 .27 (.01) .05
Total from investment operations .50 1.38 1.02 .77 .82
Distributions: Dividends from investment income - net (.65) (.72) (.75) (.78) (.77)
Dividends from net realized gain
on investments (.21) (.08) (.01) - -
Total distributions (.86) (.80) (.76) (.78) (.77)
Net asset value, end of period 14.33 14.69 14.11 13.85 13.86
Total return (%)* 3.43 9.95 7.49 5.53 6.15
Ratios/Supplemental Data
Ratio of expenses to average net assets (%) 1.42 1.42 1.43 1.43 1.44
Ratio of net investment income to average net assets (%) 4.44 4.89 5.33 5.46 5.62
Portfolio turnover rate (%) 46.84 26.33 28.17 36.59 38.60
Net assets, end of period ($ x 1,000) 112,583 119,457 109,485 106,931 99,411
* Exclusive of sales load.
Year Ended April 30,
Class C 1999 1998 1997 1996 (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Per-Share Data ($)
Net asset value, beginning of period 14.71 14.12 13.87 14.28
Investment operations: Investment income - net .61 .68 .72 .60
Net realized and unrealized gain (loss)
on investments (.15) .67 .26 (.41)
Total from investment operations .46 1.35 .98 .19
Distributions: Dividends from investment income - net (.61) (.68) (.72) (.60)
Dividends from net realized gain on investments (.21) (.08) (.01) -
Total distributions (.82) (.76) (.73) (.60)
Net asset value, end of period 14.35 14.71 14.12 13.87
Total return (%) (2) 3.16 9.73 7.16 1.56 (3)
Ratios/Supplemental Data
Ratio of expenses to average net assets (%) 1.67 1.69 1.64 1.77 (3)
Ratio of net investment income to average net assets (%) 4.11 4.55 5.01 4.84 (3)
Portfolio turnover rate (%) 46.84 26.33 28.17 36.59
Net assets, end of period ($ x 1,000) 8,095 3,019 1,049 340
1 From July 13, 1995 (commencement of initial offering) to April 30, 1996.
2 Exclusive of sales load.
3 Annualized.
</TABLE>
Your Investment
Account Policies
The Dreyfus Premier Funds are designed primarily for people who are investing
through a third party, such as a bank, broker-dealer or financial adviser. Third
parties with whom you open a fund account may impose policies, limitations and
fees which are different from those described here.
You will need to choose a share class before making your initial investment.
In making your choice, you should weigh the impact of all potential costs
over the length of your investment, including sales charges and annual fees.
For example, in some cases, it can be more economical to pay an initial sales
charge than to choose a class with no initial sales charge but higher annual
fees and a contingent deferred sales charge (CDSC).
* Class A shares may be appropriate for investors who prefer to pay
the fund's sales charge up front rather than upon the sale of their
shares, want to take advantage of the reduced sales charges
available on larger investments and/or have a longer-term investment
horizon
* Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately and/or have a longer-term investment horizon
* Class C shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately and/or have a shorter-term investment horizon
Your financial representative can help you choose the share class that is
appropriate for you.
Share class charges
Each share class has its own fee structure. In some cases, you may not have
to pay a sales charge to buy or sell shares. Consult your financial
representative or the SAI to see if this may apply to you. Shareholders
owning Class B shares on or prior to November 30, 1996, may be eligible for a
lower CDSC.
Sales charges
Class A - charged when you buy shares
Sales charge Sales charge
deducted as a % as a % of your
Your investment of offering price net investment
- ------------------------------------------------------------------------------
Less than $50,000 4.50% 4.70%
$50,000 - $99,999 4.00% 4.20%
$100,000 - $249,999 3.00% 3.10%
$250,000 - $499,999 2.50% 2.60%
$500,000 - $999,999 2.00% 2.00%
$1 million or more* 0.00% 0.00%
* A 1.00% CDSC may be charged on any shares sold within one year of purchase
(except shares bought through dividend reinvestment).
Class B - charged when you sell shares
CDSC as a % of your initial
Time since you bought investment or your redemption
the shares you are selling (whichever is less)
- ------------------------------------------------------------------------------
Up to 2 years 4.00%
2 - 4 years 3.00%
4 - 5 years 2.00%
5 - 6 years 1.00%
More than 6 years Shares will automatically
convert to Class A
Class B shares also carry an annual Rule 12b-1 fee of 0.50% of the class's
average daily net assets.
Class C - charged when you sell shares
A 1.00% CDSC is imposed on redemptions made within the first year of purchase.
Class C shares also carry an annual Rule 12b-1 fee of 0.75% of the class's
average daily net assets.
Reduced Class A sales charge
Letter of intent: lets you purchase Class A shares over a 13-month period and
receive the same sales charge as if all shares had been purchased at once.
Right of accumulation: lets you add the value of any Class A, B or C shares in
this fund or any other Dreyfus Premier fund sold with a sales load that you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
Consult the Statement of Additional Information (SAI) or your financial
representative for more details.
Buying shares
The net asset value (NAV) of each class is generally calculated as of the
close of trading on the New York Stock Exchange ("NYSE") (usually 4:00 p.m.
Eastern time) every day the exchange is open. Your order will be priced at the
next NAV calculated after your order is accepted by the fund's transfer agent or
other authorized entity. The fund's investments are generally valued based on
fair value as determined by an independent pricing service approved and
supervised by the fund's board. Because the fund seeks tax-exempt income, it is
not recommended for purchase in IRAs or other qualified plans.
Orders to buy and sell shares received by dealers by the close of trading on
the NYSE and transmitted to the distributor or its designee by the close of
its business day (normally 5:15 p.m. Eastern time) will be based on the NAV
determined as of the close of trading on the NYSE that day.
Minimum investments
Initial Additional
- ------------------------------------------------------------------
Regular accounts $1,000 $100; $500 for
TeleTransfer investments
Dreyfus automatic $100 $100
investment plans
All investments must be in U.S. dollars. Third-party checks cannot be
accepted. You may be charged a fee for any check that does not clear. Maximum
TeleTransfer purchase is $150,000 per day.
Concepts to understand
Net asset value (NAV): the market value of one share, computed by dividing
the total net assets of a fund or class by its shares outstanding. The fund's
Class Ashares are offered to the public at NAV plus a sales charge. Classes B
and C are offered at NAV, but generally are subject to higher annual
operating expenses and a CDSC.
Selling shares
You may sell (redeem) shares at any time through your financial
representative, or you can contact the fund directly. Your shares will be
sold at the next NAV calculated after your order is accepted by the fund's
transfer agent or other authorized entity. Any certificates representing fund
shares being sold must be returned with your redemption request. Your order
will be processed promptly, and you will generally receive the proceeds within
a week.
To keep your CDSC as low as possible, each time you request to sell shares we
will first sell shares that are not subject to a CDSC, and then those subject
to the lowest charge. The CDSC is based on the lesser of the original
purchase cost or the current market value of the shares being sold, and is
not charged on shares you acquired by reinvesting your dividends. There are
certain instances when you may qualify to have the CDSC waived. Consult your
financial representative or the SAI for details.
Before selling or writing a check against recently purchased shares, please
note that if the fund has not yet collected payment for the shares you are
selling, it may delay sending the proceeds for up to eight business days or
until it has collected payment.
Written sell orders
Some circumstances require written sell orders along with signature
guarantees. These include:
* amounts of $1,000 or more on accounts whose address
has been changed within the last 30 days
* requests to send the proceeds to a different payee or
address Written sell orders of $100,000 or more must
also be signature guaranteed.
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public. For joint
accounts, each signature must be guaranteed. Please call us to ensure that your
signature guarantee will be processed correctly.
Account Policies (continued)
General policies
Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.
The fund reserves the right to:
* refuse any purchase or exchange request that could
adversely affect the fund or its operations, including
those from any individual or group who, in the fund's
view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the fund within a
calendar year)
* refuse any purchase or exchange request in excess of 1%
of the fund's total assets
* change or discontinue its exchange privilege, or
temporarily suspend this privilege during
unusual market conditions
* change its minimum investment amounts
* delay sending out redemption proceeds for up to
seven days (generally applies only in cases of very
large redemptions, excessive trading or during
unusual market conditions)
The fund also reserves the right to make a "redemption in kind" - payment in
portfolio securities rather than cash - if the amount you are redeeming is
large enough to affect fund operations (for example, if it represents more than
1% of the fund's assets).
Small account policies
To offset the relatively higher costs of servicing smaller accounts, the fund
charges regular accounts with balances below $2,000 an annual fee of $12. The
fee will be imposed during the fourth quarter of each calendar year.
The fee will be waived for: any investor whose aggregate Dreyfus mutual fund
investments total at least $25,000; accounts participating in automatic
investment programs; accounts opened through a financial institution.
If your account falls below $500, the fund may ask you to increase your
balance. If it is still below $500 after 30 days, the fund may close your
account and send you the proceeds.
Distributions and Taxes
The fund usually pays its shareholders dividends from its net investment
income once a month, and distributes any net capital gains it has realized
once a year. Each share class will generate a different dividend because each
has different expenses. Your distributions will be reinvested in the fund
unless you instruct the fund otherwise. There are no fees or sales charges on
reinvestments.
The fund anticipates that virtually all of its income dividends will be
exempt from federal income tax. You may, however, have to pay state and
local taxes. In addition, any dividends paid from interest on taxable
investments or short-term capital gains will be taxable as ordinary income.
Any distributions of long-term capital gains will be taxable as such. The tax
status of any distribution is the same regardless of how long you have been
in the fund and whether you reinvest your distributions or take them in cash.
In general, distributions are federally taxable as follows:
Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
- ------------------------------------------------------------------------
Income Generally Generally
dividends tax exempt tax exempt
Short-term Ordinary Ordinary
capital gains income rate income rate
Long-term
capital gains 10% 20%
The tax status of your dividends and distributions will be detailed in your
annual tax statement from the fund.
Because everyone's tax situation is unique, always consult your tax
professional about federal, state and local tax consequences.
Taxes on transactions
Any sale or exchange of fund shares, including through the checkwriting
privilege, may generate a tax liability.
The table above also can provide a guide for your potential tax liability
when selling or exchanging fund shares. "Short-term capital gains" applies to
fund shares sold or exchanged up to 12 months after buying them. "Long-term
capital gains" applies to shares sold or exchanged after 12 months.
Services for fund Investors
The third party through whom you purchased fund shares may impose different
restrictions on these services and privileges offered by the fund, or may not
make them available at all. Consult your financial representative for more
information on the availability of these services and privileges.
Automatic services
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to
certain restrictions. You can set up most of these services with your
application, or by calling your financial representative or 1-800-554-4611.
For investing
Dreyfus Automatic
Asset Builder For making automatic investments
Registration Mark from a designated bank account.
Dreyfus Government For making automatic investments
Direct Deposit from your federal employment,
Privilege Social Security or other regular
federal government check.
Dreyfus Dividend For automatically reinvesting the
Sweep dividends and distributions from
one Dreyfus fund into another
(not available for IRAs).
For exchanging shares
Dreyfus Auto- For making regular exchanges
Exchange Privilege from one Dreyfus fund into
another.
For selling shares
Dreyfus Automatic For making regular withdrawals
Withdrawal Plan from most Dreyfus funds. There will
be no CDSC on Class B shares, as long as the
amounts withdrawn do not exceed 12% annually of the
account value at the time the
shareholder elects to participate in the plan.
Checkwriting privilege (Class A only)
You may write redemption checks against your account for Class A shares in
amounts of $500 or more. These checks are free; however, a fee will be
charged if you request a stop payment or if the transfer agent cannot honor a
redemption check due to insufficient funds or another valid reason. Please do
not postdate your checks or use them to close your account.
Exchange privilege
You can exchange shares worth $500 or more from one class of the fund into
the same class of another Dreyfus Premier fund. You can request your exchange
by contacting your financial representative. Be sure to read the current
prospectus for any fund into which you are exchanging before investing. Any
new account established through an exchange will generally have the same
privileges as your original account (as long as they are available). There is
currently no fee for exchanges, although you may be charged a sales load when
exchanging into any fund that has a higher one.
TeleTransfer privilege
To move money between your bank account and your Dreyfus fund account with a
phone call, use the TeleTransfer privilege. You can set up TeleTransfer on
your account by providing bank account information and following the
instructions on your application, or contacting your financial
representative.
Reinvestment privilege
Upon written request you can reinvest up to the number of Class A or B shares
you redeemed within 45 days of selling them at the current share price
without any sales charge. If you paid a CDSC, it will be credited back to
your account. This privilege may be used only once.
Account statements
Every fund investor automatically receives regular account statements. You'll
also be sent a yearly statement detailing the tax characteristics of any
dividends and distributions you have received.
Instructions for regular accounts
TO OPEN AN ACCOUNT
In Writing
Complete the application.
Mail your application and a check to:
Name of Fund
P.O. Box 6587, Providence, RI 02940-6587
Attn: Institutional Processing
By Telephone
Wire Have your bank send your
investment to The Bank of New York,
with these instructions:
* ABA# 021000018
* DDA# 8900119292
* the fund name
* the share class
* your Social Security or tax ID number
* name(s) of investor(s)
* dealer number if applicable
Call us to obtain an account number.
Return your application with the
account number on the application.
Automatically
With an initial investment Indicate
on your application which automatic
service(s) you want. Return your
application with your investment.
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your
account number on your check.
Mail the slip and a check to:
Name of Fund
P.O. Box 6587,
Providence, RI 02940-6587
Attn: Institutional Processing
Wire Have your bank send your
investment to The Bank of New York,
with these instructions:
* ABA# 021000018
* DDA# 8900119292
* the fund name
* the share class
* your account number
* name(s) of investor(s)
* dealer number if applicable
Electronic check Same as wire, but insert
"1111" before your account number.
TeleTransfer Request TeleTransfer on your
application. Call us to request your transaction.
All services Call us or your financial
representative to request a form to add any
automatic investing service (see "Services
for Fund Investors"). Complete and return
the form along with any other required
materials.
TO SELL SHARES
Write a redemption check (Class A only) or
write a letter of instruction that includes:
* your name(s) and signature(s)
* your account number
* the fund name
* the dollar amount you want to sell
* how and where to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see page 7).
Mail your request to:
The Dreyfus Family of Funds
P.O. Box 6587,
Providence, RI 02940-6587
Attn: Institutional Processing
Wire Call us or your financial representative
to request your transaction. Be sure the fund
has your bank account information on file.
Proceeds will be wired to your bank.
TeleTransfer Call us or your financial
representative to request your transaction.
Be sure the fund has your bank account
information on file. Proceeds will be sent to
your bank by electronic check.
Check Call us or your financial representative
to request your transaction. A check will be
sent to the address of record.
Automatic Withdrawal Plan Call us or your
financial representative to request a form to
add the plan. Complete the form, specifying
the amount and frequency of withdrawals
you would like.
Be sure to maintain an account balance of
$5,000 or more.
To open an account, make subsequent investments or to
sell shares, please contact your financial representative
or call toll free in the U.S. 1-800-554-4611.
Make checks payable to: The Dreyfus Family of Funds.
Concepts to understand
Wire transfer: for transferring money from one financial institution to
another. Wiring is the fastest way to move money, although your bank may
charge a fee to send or receive wire transfers. Wire redemptions from the
fund are subject to a $1,000 minimum.
Electronic check: for transferring money out of a bank account. Your
transaction is entered electronically, but may take up to eight business days
to clear. Electronic checks usually are available without a fee at all
Automated Clearing House (ACH) banks.
[Application p1]
[Application p2]
NOTES
For More Information
Dreyfus Premier
Municipal Bond Fund
SEC file number: 811-4764
More information on this fund is available free
upon request, including the following:
Annual/Semiannual Report
Describes the fund's performance, lists portfolio
holdings and contains a letter from the fund's
manager discussing recent market conditions,
economic trends and fund strategies that significantly
affected the fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the fund and its policies.
A current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is
legally considered part of this prospectus).
To obtain information:
By telephone
Call your financial representative or 1-800-554-4611
By mail Write to:
The Dreyfus Premier Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
On the Internet Text-only versions of fund documents can
be viewed online or downloaded from:
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public
Reference Room in Washington, DC (phone 1-800-SEC-0330)
or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.
(c) 1999 Dreyfus Service Corporation 022P0999
<PAGE>
December 23, 1999
Dreyfus Premier Municipal Bond Fund
Supplement to Prospectus
Dated September 1, 1999
Effective December 31, 1999, the following information supplements and
supersedes any contrary information contained in the sections of the Fund's
Prospectus entitled "Your Investment - Account Policies" and "Your Investment -
Services for Fund Investors."
Right of Accumulation: lets you add the value of any Class A, Class B or
Class C shares in this fund, any other Dreyfus Premier fund, or any other fund
that is advised by Founders Asset Management LLC ("Founders"), an affiliate of
Dreyfus, sold with a sales load (that you already own) to the amount of your
next Class A investment for purposes of calculating the sales charge.
Dreyfus Dividend Sweep: for automatically reinvesting the dividends and
distributions from one Dreyfus fund into another Dreyfus fund or certain
Founders-advised funds (not available for IRAs).
Dreyfus Auto-Exchange Privilege: for making regular exchanges from one
Dreyfus fund into another Dreyfus fund or certain Founders-advised funds.
Exchange Privilege: you can exchange shares worth $500 or more from one
class of the Fund into the same class of another Dreyfus Premier fund or
Founders-advised fund.
<PAGE>
March 22, 2000
DREYFUS PREMIER MUNICIPAL BOND FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 1, 1999
1. The following information replaces all contrary information
contained in the sections of the Statement of Additional Information ("SAI")
entitled "Description of the Fund", "Management of the Fund" and "Management
Arrangements":
Effective March 22, 2000, Dreyfus Service Corporation ("DSC") became
the distributor to the Fund. DSC is located at 200 Park Avenue, New York, NY
10166.
2. The following information replaces the information contained in the
section of the Statement of Additional Information ("SAI") entitled "Management
of the Fund - Officers of the Fund":
Stephen E. Canter, President. President, Chief Operating Officer, and Chief
Investment Officer of the Manager, and an officer of other investment
companies advised and administered by the Manager. Mr. Canter also is
a Director or an Executive Committee Member of the other investment
management subsidiaries of Mellon Financial Corporation, each of which
is an affiliate of the Manager. He is 54 years old.
Mark N. Jacobs, Vice President. Vice President, General Counsel and
Secretary to the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 53 years old.
Joseph Connolly, Vice President and Treasurer. Director - Mutual Fund
Accounting of the Manager, and an officer of other investment
companies advised and administered by the Manager. He is 42 years old.
Steven F. Newman, Secretary. Associate General Counsel and Assistant
Secretary of the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 50 years old.
Michael A. Rosenberg, Assistant Secretary. Associate General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. He is 40 years old.
Janette Farragher, Assistant Secretary. Assistant General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. She is 37 years old.
Gregory S. Gruber, Assistant Treasurer. Senior Accounting Manager - Municipal
Bond Funds of the Manager, and an officer of other investment
companies advised and administered by the Manager. He is 40 years old.
The address of each Fund officer is 200 Park Avenue, New York, NY
10166.
3. The following information supplements the information contained in
the section of the SAI entitled "Management Arrangements - Distributor":
Disclosure of the amounts retained by "the distributor" on the sale of
shares of the Fund refers to amounts retained by Premier Mutual Fund Services,
Inc. ("Premier"), the Fund's distributor prior to March 22, 2000. No information
is provided for Dreyfus Service Corporation, as it was not the Fund's
distributor as of the Fund's last fiscal year end.
<PAGE>
Exhibit 17(c)
Dreyfus Premier State Municipal Bond Fund
Investing for income exempt from federal and, where applicable, from state
income taxes
PROSPECTUS September 1, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Contents
The Fund
- --------------------------------------------------------------------------------
Goal/Approach 2
Main Risks 3
Connecticut Series 4
Florida Series 6
Georgia Series 8
Maryland Series 10
Massachusetts Series 12
Michigan Series 14
Minnesota Series 16
New Jersey Series 18
North Carolina Series 20
Ohio Series 22
Pennsylvania Series 24
Texas Series 26
Virginia Series 28
Financial Highlights 30
Management 56
Your Investment
- --------------------------------------------------------------------------------
Account Policies 57
Distributions and Taxes 59
Services for Fund Investors 60
Instructions for Accounts 61
For More Information
- --------------------------------------------------------------------------------
INFORMATION ON EACH SERIES' RECENT PERFORMANCE AND HOLDINGS CAN BE FOUND IN ITS
CURRENT ANNUAL/SEMIANNUAL REPORT (SEE BACK COVER).
<PAGE>
Dreyfus Premier State Municipal Bond Fund
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal income tax and,
where applicable, from state income tax, without undue risk. The fund permits
you to invest in any of thirteen separate series:
Connecticut series New Jersey series
Florida series North Carolina series
Georgia series Ohio series
Maryland series Pennsylvania series
Massachusetts series Texas series
Michigan series Virginia series
Minnesota series
To pursue the fund's goal, each series normally invests substantially all of its
assets in municipal bonds that provide income exempt from federal income tax
and, where applicable, from the income tax of the state for which the series is
named.
Each series will invest at least 70% of its assets in investment grade municipal
bonds or the unrated equivalent as determined by Dreyfus. For additional yield,
each series may invest up to 30% of its assets in municipal bonds rated below
investment grade ("high yield" or "junk" bonds) or the unrated equivalent as
determined by Dreyfus. Each series' dollar-weighted average portfolio maturity
normally exceeds ten years.
The portfolio manager buys and sells bonds based on credit quality, financial
outlook and yield potential. Bonds with deteriorating credit quality are
potential sell candidates, while those offering higher yields are potential buy
candidates.
Concepts to understand
MUNICIPAL BONDS: debt securities that provide income free from federal income
taxes. Municipal bonds are typically divided into two types:
* GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of
the issuer and its taxing power
* REVENUE BONDS, which are payable from the revenues derived from a specific
revenue source, such as charges for water and sewer service or highway tolls
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa
and above are considered investment grade.
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow a series to invest for higher yields, the most immediate
effect is usually a drop in bond prices and, therefore, in the series' share
price as well. As a result, the value of your investment in the series could go
up and down, which means that you could lose money.
Other risk factors could have an effect on a series' performance:
* if an issuer fails to make timely interest or principal payments, or there is
a decline in the credit quality of a bond or a perception of a decline, the
bond's value could fall, potentially lowering the series' share price
* the relevant state's economy and revenues underlying its municipal bonds may
decline
* investing primarily in a single state may make a series' portfolio securities
more sensitive to risks specific to the state
* lower-rated, higher-yielding municipal bonds are subject to greater credit
risk, including the risk of default, than investment grade obligations;
lower-rated bonds tend to be more volatile and less liquid
Although the fund's objective is to generate income exempt from federal income
tax and, where applicable, from state income tax, interest from some of a
series' holdings may be subject to the federal alternative minimum tax. In
addition, a series occasionally may invest in taxable bonds or municipal bonds
that are exempt only from federal personal income tax.
Other potential risks
Each series may, at times, invest in certain derivatives, such as futures and
options. Derivatives can be illiquid and highly sensitive to changes in their
underlying security, interest rate or index and, as a result, can be highly
volatile. A small investment in certain derivatives could have a potentially
large impact on a series' performance.
Each series is non-diversified, which means that a relatively high percentage of
the series' assets may be invested in a limited number of issuers. Therefore,
its performance may be more vulnerable to changes in the market value of a
single issuer or a group of issuers.
The Fund
<PAGE>
CONNECTICUT SERIES
- ---------------
Ticker Symbols CLASS A: PSCTX
CLASS B: PMCBX
CLASS C: PMCCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit A]
BEST QUARTER: Q1 '95 +6.30%
WORST QUARTER: Q1 '94 -5.22%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.11%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 1.56% 4.78% 7.25% --
CLASS B (1/15/93) 1.79% 4.85% -- 6.17%
CLASS C (8/15/95) 4.51% -- -- 6.93%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Connecticut series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .09 .10 .10
- ------------------------------------------------------------------------------------------------------------------
TOTAL .89 1.40 1.65
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $537 $721 $921 $1,497
CLASS B
WITH REDEMPTION $543 $743 $966 $1,414**
WITHOUT REDEMPTION $143 $443 $766 $1,414**
CLASS C
WITH REDEMPTION $268 $520 $897 $1,955
WITHOUT REDEMPTION $168 $520 $897 $1,955
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Connecticut Series
Florida Series
- ---------------
Ticker Symbols CLASS A: PSFLX
CLASS B: PSFBX
CLASS C: PSFCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit B]
BEST QUARTER: Q1 '95 +7.13%
WORST QUARTER: Q1 '94 -4.73%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.13%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 0.84% 3.99% 7.20% --
CLASS B (1/15/93) 1.01% 4.09% -- 5.41%
CLASS C (8/15/95) 3.68% -- -- 5.10%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Florida series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- -------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .12 .12 .20
- -------------------------------------------------------------------------------------------------------------------
TOTAL .92 1.42 1.75
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------
CLASS A $540 $730 $936 $1,530
CLASS B
WITH REDEMPTION $545 $749 $976 $1,442**
WITHOUT REDEMPTION $145 $449 $776 $1,442**
CLASS C
WITH REDEMPTION $278 $551 $949 $2,062
WITHOUT REDEMPTION $178 $551 $949 $2,062
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Florida Series
Georgia Series
- ---------------
Ticker Symbols CLASS A: PGAXX
CLASS B: PGABX
CLASS C: PGACX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit C]
BEST QUARTER: Q1 '95 +8.33%
WORST QUARTER: Q1 '94 -6.98%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -2.02%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/3/92) 0.13% 4.23% -- 6.25%
CLASS B (1/15/93) 0.38% 4.35% -- 6.12%
CLASS C (8/15/95) 2.75% -- -- 6.19%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% -- 7.23%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 8/31/92 IS USED AS THE
BEGINNING VALUE ON 9/3/92.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Georgia series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ----------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .19 .19 .44
- ------------------------------------------------------------------------------------------------------------
TOTAL .99 1.49 1.99
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
CLASS A $546 $751 $972 $1,608
CLASS B
WITH REDEMPTION $552 $771 $1,013 $1,521**
WITHOUT REDEMPTION $152 $471 $813 $1,521**
CLASS C
WITH REDEMPTION $302 $624 $1,073 $2,317
WITHOUT REDEMPTION $202 $624 $1,073 $2,317
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Georgia Series
Maryland Series
- ---------------
Ticker Symbols CLASS A: PSMDX
CLASS B: PMDBX
CLASS C: PMDCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit D]
BEST QUARTER: Q1 '95 +6.49%
WORST QUARTER: Q1 '94 -4.65%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -0.73%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 0.90% 4.97% 7.43% --
CLASS B (1/15/93) 1.14% 5.05% -- 6.16%
CLASS C (8/15/95) 3.84% -- -- 6.79%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Maryland series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- -------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .10 .12 .11
- -------------------------------------------------------------------------------------------------------------------
TOTAL .90 1.42 1.66
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
CLASS A $538 $724 $926 $1,508
CLASS B
WITH REDEMPTION $545 $749 $976 $1,431**
WITHOUT REDEMPTION $145 $449 $776 $1,431**
CLASS C
WITH REDEMPTION $269 $523 $902 $1,965
WITHOUT REDEMPTION $169 $523 $902 $1,965
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Maryland Series
Massachusetts Series
- ---------------------
Ticker Symbols CLASS A: PSMAX
CLASS B: PBMAX
CLASS C: PCMAX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit E]
BEST QUARTER: Q1 '95 +5.68%
WORST QUARTER: Q1 '94 -4.20%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.44%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 1.04% 4.62% 7.24% --
CLASS B (1/15/93) 1.31% 4.72% -- 5.91%
CLASS C (8/15/95) 4.11% -- -- 6.49%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Massachusetts series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ---------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .13 .13 .15
- ---------------------------------------------------------------------------------------------------------------
TOTAL .93 1.43 1.70
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
CLASS A $541 $733 $944 $1,542
CLASS B
WITH REDEMPTION $546 $752 $982 $1,453**
WITHOUT REDEMPTION $146 $452 $782 $1,453**
CLASS C
WITH REDEMPTION $273 $536 $923 $2,009
WITHOUT REDEMPTION $173 $536 $923 $2,009
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Massachusetts Series
Michigan Series
- --------------------
Ticker Symbols CLASS A: PSMIX
CLASS B: PMIBX
CLASS C: PCMIX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit F]
BEST QUARTER: Q1 '95 +6.85%
WORST QUARTER: Q1 '94 -4.73%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.24%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 0.86% 4.85% 7.64% --
CLASS B (1/15/93) 1.14% 4.96% -- 6.43%
CLASS C (8/15/95) 3.79% -- -- 6.67%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Michigan series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .12 .12 .12
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .92 1.42 1.67
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
CLASS A $540 $730 $936 $1,530
CLASS B
WITH REDEMPTION $545 $749 $976 $1,442**
WITHOUT REDEMPTION $145 $449 $776 $1,442**
CLASS C
WITH REDEMPTION $270 $526 $907 $1,976
WITHOUT REDEMPTION $170 $526 $907 $1,976
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Michigan Series
Minnesota Series
- ----------------
Ticker Symbols CLASS A: PSMNX
CLASS B: PMMNX
CLASS C: PMNCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit G]
BEST QUARTER: Q2 '89 +6.61%
WORST QUARTER: Q1 '94 -5.06%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.16%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 0.51% 4.26% 7.20% --
CLASS B (1/15/93) 0.72% 4.35% -- 5.76%
CLASS C (8/15/95) 3.36% -- -- 5.74%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Minnesota series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .11 .13 .19
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .91 1.43 1.74
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------
CLASS A $539 $727 $931 $1,519
CLASS B
WITH REDEMPTION $546 $752 $982 $1,442**
WITHOUT REDEMPTION $146 $452 $782 $1,442**
CLASS C
WITH REDEMPTION $277 $548 $944 $2,052
WITHOUT REDEMPTION $177 $548 $944 $2,052
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Minnesota Series
New Jersey Series
- -----------------
Ticker Symbols CLASS A: PSNAX
CLASS B: PSNBX
CLASS C: PSMJX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit H]
BEST QUARTER: Q1 '95 +7.34%
WORST QUARTER: Q1 '96 -2.97%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.88%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/3/94) 0.96% -- -- 5.81%
CLASS B (5/3/94) 1.10% -- -- 5.97%
CLASS C (12/4/95) 3.77% -- -- 4.79%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% -- -- 7.78%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/94 IS USED AS THE
BEGINNING VALUE ON 5/3/94.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the New Jersey series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .28 .28 .33
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 1.08 1.58 1.88
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
CLASS A $555 $778 $1,019 $1,708
CLASS B
WITH REDEMPTION $561 $799 $1,060 $1,622**
WITHOUT REDEMPTION $161 $499 $860 $1,622**
CLASS C
WITH REDEMPTION $291 $591 $1,016 $2,201
WITHOUT REDEMPTION $191 $591 $1,016 $2,201
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
New Jersey Series
North Carolina Series
- ---------------------
Ticker Symbols CLASS A: PSNOX
CLASS B: PMNBX
CLASS C: PNCCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit I]
BEST QUARTER: Q1 '95 +7.60%
WORST QUARTER: Q1 '94 -7.03%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.44%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (8/1/91) 0.98% 4.53% -- 7.23%
CLASS B (1/15/93) 1.22% 4.63% -- 6.21%
CLASS C (8/15/95) 4.15% -- -- 7.43%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% -- 7.86%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 7/31/91 IS USED AS THE
BEGINNING VALUE ON 8/1/91.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the North Carolina series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .14 .14 .08
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .94 1.44 1.63
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------
CLASS A $542 $736 $947 $1,553
CLASS B
WITH REDEMPTION $547 $756 $987 $1,464**
WITHOUT REDEMPTION $147 $456 $787 $1,464**
CLASS C
WITH REDEMPTION $266 $514 $887 $1,933
WITHOUT REDEMPTION $166 $514 $887 $1,933
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
North Carolina Series
Ohio Series
- -----------
Ticker Symbols CLASS A: PSOHX
CLASS B: POHBX
CLASS C: POHCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit J]
BEST QUARTER: Q2 '89 +6.60%
WORST QUARTER: Q1 '94 -3.96%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.00%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 0.50% 4.60% 7.48% --
CLASS B (1/15/93) 0.72% 4.71% -- 6.00%
CLASS C (8/15/95) 3.44% -- -- 6.41%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Ohio series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .11 .12 .11
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .91 1.42 1.66
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
CLASS A $539 $727 $931 $1,519
CLASS B
WITH REDEMPTION $545 $749 $976 $1,436**
WITHOUT REDEMPTION $145 $449 $776 $1,436**
CLASS C
WITH REDEMPTION $269 $523 $902 $1,965
WITHOUT REDEMPTION $169 $523 $902 $1,965
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Ohio Series
Pennsylvania Series
- -------------------
Ticker Symbols CLASS A: PTPAX
CLASS B: PPABX
CLASS C: PPACX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit K]
BEST QUARTER: Q1 '95 +7.31%
WORST QUARTER: Q1 '94 -5.07%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.14%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (7/30/87) 1.00% 5.13% 7.92% --
CLASS B (1/15/93) 1.24% 5.24% -- 6.52%
CLASS C (8/15/95) 3.91% -- -- 7.12%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Pennsylvania series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .12 .13 .14
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .92 1.43 1.69
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
CLASS A $540 $730 $936 $1,530
CLASS B
WITH REDEMPTION $546 $752 $982 $1,448**
WITHOUT REDEMPTION $146 $452 $782 $1,448**
CLASS C
WITH REDEMPTION $272 $533 $918 $1,998
WITHOUT REDEMPTION $172 $533 $918 $1,998
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Pennsylvania Series
Texas Series
- ------------
Ticker Symbols CLASS A: PTXBX
CLASS B: PSTBX
CLASS C: PTXCX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit L]
BEST QUARTER: Q1 '95 +7.64%
WORST QUARTER: Q1 '94 -5.37%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.59%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) 1.20% 5.61% 8.31% --
CLASS B (1/15/93) 1.50% 5.72% -- 7.09%
CLASS C (8/15/95) 4.20% -- -- 7.59%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% 8.22% 7.21%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Texas series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .12 .13 .16
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .92 1.43 1.71
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------
CLASS A $540 $730 $936 $1,530
CLASS B
WITH REDEMPTION $546 $752 $982 $1,448**
WITHOUT REDEMPTION $146 $452 $782 $1,448**
CLASS C
WITH REDEMPTION $274 $539 $928 $2,019
WITHOUT REDEMPTION $174 $539 $928 $2,019
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation. For the fiscal year ended April
30, 1999, Dreyfus assumed certain fund expenses pursuant to an undertaking,
reducing total expenses from .92% to .85% for Class A, from 1.43% to 1.35% for
Class B, and from 1.71% to 1.60% for Class C shares. This undertaking is
voluntary and may be terminated at any time.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Texas Series
Virginia Series
- ---------------
Ticker Symbols CLASS A: PSVAX
CLASS B: PVABX
CLASS C: PVACX
PAST PERFORMANCE
The tables below show some of the risks of investing in this series of the fund.
The first table shows the changes in the series' Class A performance from year
to year. The performance figures do not reflect sales loads, and would be lower
if they did. The second table compares the series' performance over time to that
of the Lehman Brothers Municipal Bond Index, a widely recognized unmanaged index
of bond performance. These returns include applicable sales loads. Both tables
assume the reinvestment of dividends. Of course, past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
[Exhibit M]
BEST QUARTER: Q1 '95 +7.53%
WORST QUARTER: Q1 '94 -6.65%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.09%.
- --------------------------------------------------------------------------------
Average annual total return AS OF 12/31/98
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (8/1/91) 1.03% 4.91% -- 7.61%
CLASS B (1/15/93) 1.30% 5.01% -- 6.54%
CLASS C (8/15/95) 4.03% -- -- 7.37%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* 6.48% 6.22% -- 7.86%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 7/31/91 IS USED AS THE
BEGINNING VALUE ON 8/1/91.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this fund, but you also have the
potential to make money.
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Virginia series in the tables below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
<S> <C> <C> <C>
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .12 .13 .11
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL .92 1.43 1.66
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
</TABLE>
Expense example
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
CLASS A $540 $730 $936 $1,530
CLASS B
WITH REDEMPTION $546 $752 $982 $1,448**
WITHOUT REDEMPTION $146 $452 $782 $1,448**
CLASS C
WITH REDEMPTION $269 $523 $902 $1,965
WITHOUT REDEMPTION $169 $523 $902 $1,965
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing each portfolio of the fund
and assisting in all aspects of its operation.
RULE 12B-1 FEE: the fee paid to the fund's distributor to finance the sale of
Class B and Class C shares. Because this fee is paid out of the fund's assets on
an ongoing basis, over time it will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Virginia Series
FINANCIAL HIGHLIGHTS
Connecticut Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 12.23 11.81 11.90 11.76 11.81
Investment operations: Investment income -- net .61 .62 .64 .66 .67
Net realized and unrealized gain (loss) on investments .19 .47 .16 .14 (.05)
Total from investment operations .80 1.09 .80 .80 .62
Distributions: Dividends from investment income -- net (.61) (.62) (.64) (.66) (.67)
Dividends from net realized gain on investments (.16) (.05) (.25) -- --
Total distributions (.77) (.67) (.89) (.66) (.67)
Net asset value, end of period 12.26 12.23 11.81 11.90 11.76
Total return (%)* 6.70 9.44 6.84 6.85 5.47
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .89 .90 .93 .92 .89
Ratio of net investment income to average net assets (%) 4.94 5.12 5.32 5.45 5.77
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 21.95 33.31 30.66 28.83 10.48
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 317,923 310,343 313,881 321,559 335,964
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 12.23 11.80 11.89 11.76 11.80
Investment operations: Investment income -- net .55 .56 .57 .60 .61
Net realized and unrealized gain (loss) on investments .19 .48 .16 .13 (.04)
Total from investment operations .74 1.04 .73 .73 .57
Distributions: Dividends from investment income -- net (.55) (.56) (.57) (.60) (.61)
Dividends from net realized gain on investments (.16) (.05) (.25) -- --
Total distributions (.71) (.61) (.82) (.60) (.61)
Net asset value, end of period 12.26 12.23 11.80 11.89 11.76
Total return (%)* 6.15 8.97 6.28 6.20 4.99
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.40 1.42 1.45 1.44 1.41
Ratio of net investment income to average net assets (%) 4.42 4.59 4.79 4.92 5.21
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 21.95 33.31 30.66 28.83 10.48
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 58,416 59,315 54,661 38,838 35,425
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 12.22 11.79 11.89 11.84
Investment operations: Investment income -- net .52 .53 .54 .40
Net realized and unrealized gain (loss) on investments .19 .48 .15 .05
Total from investment operations .71 1.01 .69 .45
Distributions: Dividends from investment income -- net (.52) (.53) (.54) (.40)
Dividends from net realized gain on investments (.16) (.05) (.25) --
Total distributions (.68) (.58) (.79) (.40)
Net asset value, end of period 12.25 12.22 11.79 11.89
Total return (%)(2) 5.88 8.68 5.93 5.31(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.65 1.68 1.70 1.64(3)
Ratio of net investment income to average net assets (%) 4.15 4.29 4.56 4.31(3)
Portfolio turnover rate (%) 21.95 33.31 30.66 28.83
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 4,970 2,583 1,290 1,007
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Connecticut Series
FINANCIAL HIGHLIGHTS
Florida Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.17 14.06 14.48 14.51 14.43
Investment operations: Investment income -- net .65 .66 .76 .79 .81
Net realized and unrealized gain (loss) on investments .05 .26 (.08) .17 .12
Total from investment operations .70 .92 .68 .96 .93
Distributions: Dividends from investment income -- net (.65) (.66) (.76) (.79) (.81)
Dividends from net realized gain on investments (.19) (.15) (.34) (.20) (.04)
Total distributions (.84) (.81) (1.10) (.99) (.85)
Net asset value, end of period 14.03 14.17 14.06 14.48 14.51
Total return (%)* 5.00 6.73 4.74 6.63 6.71
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .92 .91 .92 .91 .90
Ratio of net investment income to average net assets (%) 4.53 4.67 5.27 5.29 5.67
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 88.48 91.18 71.68 54.37 50.62
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 149,185 167,793 202,503 227,478 252,406
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.17 14.05 14.47 14.51 14.42
Investment operations: Investment income -- net .57 .59 .69 .71 .73
Net realized and unrealized gain (loss) on investments .04 .27 (.08) .16 .13
Total from investment operations .61 .86 .61 .87 .86
Distributions: Dividends from investment income -- net (.57) (.59) (.69) (.71) (.73)
Dividends from net realized gain on investments (.19) (.15) (.34) (.20) (.04)
Total distributions (.76) (.74) (1.03) (.91) (.77)
Net asset value, end of period 14.02 14.17 14.05 14.47 14.51
Total return (%)* 4.40 6.26 4.21 6.01 6.21
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.42 1.41 1.42 1.41 1.41
Ratio of net investment income to average net assets (%) 4.02 4.16 4.76 4.77 5.13
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 88.48 91.18 71.68 54.37 50.62
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 26,693 32,545 35,802 27,023 25,282
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 14.17 14.05 14.47 14.65
Investment operations: Investment income -- net .53 .55 .65 .48
Net realized and unrealized gain (loss) on investments .05 .27 (.08) .02
Total from investment operations .58 .82 .57 .50
Distributions: Dividends from investment income -- net (.53) (.55) (.65) (.48)
Dividends from net realized gain on investments (.19) (.15) (.34) (.20)
Total distributions (.72) (.70) (.99) (.68)
Net asset value, end of period 14.03 14.17 14.05 14.47
Total return (%)(2) 4.13 5.94 3.95 4.69(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.75 1.71 1.97 1.99(3)
Ratio of net investment income to average net assets (%) 3.69 3.69 4.60 4.20(3)
Portfolio turnover rate (%) 88.48 91.18 71.68 54.37
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 394 366 58 35
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Florida Series
FINANCIAL HIGHLIGHTS
Georgia Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.63 13.22 13.05 12.80 12.69
Investment operations: Investment income -- net .60 .61 .62 .66 .73
Net realized and unrealized gain (loss) on investments .18 .41 .17 .25 .11
Total from investment operations .78 1.02 .79 .91 .84
Distributions: Dividends from investment income -- net (.60) (.61) (.62) (.66) (.73)
Net asset value, end of period 13.81 13.63 13.22 13.05 12.80
Total return (%)* 5.74 7.76 6.16 7.14 6.87
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .99 .95 .98 .74 .25
Ratio of net investment income to average net assets (%) 4.27 4.44 4.71 5.00 5.80
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- .21 .78
Portfolio turnover rate (%) 69.13 36.64 50.96 33.09 34.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 8,769 6,232 6,598 8,346 8,985
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.63 13.22 13.06 12.80 12.69
Investment operations: Investment income -- net .53 .54 .56 .59 .66
Net realized and unrealized gain (loss) on investments .19 .41 .16 .26 .11
Total from investment operations .72 .95 .72 .85 .77
Distributions: Dividends from investment income -- net (.53) (.54) (.56) (.59) (.66)
Net asset value, end of period 13.82 13.63 13.22 13.06 12.80
Total return (%)* 5.29 7.24 5.55 6.69 6.33
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.49 1.44 1.47 1.24 .75
Ratio of net investment income to average net assets (%) 3.79 3.94 4.20 4.46 5.27
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- .20 .80
Portfolio turnover rate (%) 69.13 36.64 50.96 33.09 34.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 12,592 17,558 18,211 20,106 19,429
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 13.62 13.22 13.05 12.85
Investment operations: Investment income -- net .44 .47 .51 .38
Net realized and unrealized gain (loss) on investments .18 .40 .17 .20
Total from investment operations .62 .87 .68 .58
Distributions: Dividends from investment income -- net (.44) (.47) (.51) (.38)
Net asset value, end of period 13.80 13.62 13.22 13.05
Total return (%)(2) 4.59 6.61 5.30 6.28(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.99 1.91 1.80 1.98(3)
Ratio of net investment income to average net assets (%) 3.28 3.48 3.87 3.73(3)
Portfolio turnover rate (%) 69.13 36.64 50.96 33.09
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 47 42 105 88
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Georgia Series
<PAGE>
FINANCIAL HIGHLIGHTS
Maryland Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.05 12.70 12.69 12.54 12.46
Investment operations: Investment income -- net .65 .67 .68 .67 .70
Net realized and unrealized gain (loss) on investments .09 .50 .18 .23 .08
Total from investment operations .74 1.17 .86 .90 .78
Distributions: Dividends from investment income -- net (.65) (.67) (.68) (.67) (.70)
Dividends from net realized gain on investments (.20) (.15) (.17) (.08) --
Total distributions (.85) (.82) (.85) (.75) (.70)
Net asset value, end of period 12.94 13.05 12.70 12.69 12.54
Total return (%)* 5.76 9.40 6.91 7.24 6.52
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .90 .90 .90 .90 .90
Ratio of net investment income to average net assets (%) 4.97 5.12 5.29 5.23 5.69
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 29.30 18.12 43.63 41.65 35.39
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 264,255 262,560 266,658 283,878 301,834
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.05 12.70 12.69 12.54 12.46
Investment operations: Investment income -- net .58 .60 .61 .61 .63
Net realized and unrealized gain (loss) on investments .09 .50 .18 .23 .08
Total from investment operations .67 1.10 .79 .84 .71
Distributions: Dividends from investment income -- net (.58) (.60) (.61) (.61) (.63)
Dividends from net realized gain on investments (.20) (.15) (.17) (.08) --
Total distributions (.78) (.75) (.78) (.69) (.63)
Net asset value, end of period 12.94 13.05 12.70 12.69 12.54
Total return (%)* 5.20 8.83 6.34 6.66 5.94
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.42 1.42 1.43 1.43 1.44
Ratio of net investment income to average net assets (%) 4.44 4.59 4.75 4.68 5.13
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 29.30 18.12 43.63 41.65 35.39
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 59,806 50,141 45,329 41,179 35,090
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 13.06 12.71 12.69 12.67
Investment operations: Investment income -- net .55 .57 .58 .41
Net realized and unrealized gain (loss) on investments .09 .50 .19 .10
Total from investment operations .64 1.07 .77 .51
Distributions: Dividends from investment income -- net (.55) (.57) (.58) (.41)
Dividends from net realized gain on investments (.20) (.15) (.17) (.08)
Total distributions (.75) (.72) (.75) (.49)
Net asset value, end of period 12.95 13.06 12.71 12.69
Total return (%)(2) 4.93 8.55 6.16 5.57(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.66 1.67 1.64 1.80(3)
Ratio of net investment income to average net assets (%) 4.15 4.29 4.47 4.59(3)
Portfolio turnover rate (%) 29.30 18.12 43.63 41.65
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 3,235 1,618 202 27
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Maryland Series
<PAGE>
FINANCIAL HIGHLIGHTS
Massachusetts Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 11.75 11.40 11.50 11.53 11.64
Investment operations: Investment income -- net .59 .61 .63 .66 .69
Net realized and unrealized gain (loss) on investments .11 .40 .17 -- (.06)
Total from investment operations .70 1.01 .80 .66 .63
Distributions: Dividends from investment income -- net (.59) (.61) (.63) (.66) (.69)
Dividends from net realized gain on investments (.18) (.05) (.27) (.03) --
Dividends in excess of net realized gain
on investments -- -- -- -- (.05)
Total distributions (.77) (.66) (.90) (.69) (.74)
Net asset value, end of period 11.68 11.75 11.40 11.50 11.53
Total return (%)* 6.08 9.04 7.08 5.69 5.72
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .93 .91 .92 .92 .94
Ratio of net investment income to average net assets (%) 4.97 5.23 5.46 5.57 6.04
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 47.11 48.69 24.45 34.86 13.62
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 62,958 60,529 65,809 68,812 72,731
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 11.75 11.40 11.49 11.52 11.63
Investment operations: Investment income -- net .53 .55 .57 .60 .63
Net realized and unrealized gain (loss) on investments .10 .40 .18 -- (.06)
Total from investment operations .63 .95 .75 .60 .57
Distributions: Dividends from investment income -- net (.53) (.55) (.57) (.60) (.63)
Dividends from net realized gain on investments (.18) (.05) (.27) (.03) --
Dividends in excess of net realized gain on investments -- -- -- -- (.05)
Total distributions (.71) (.60) (.84) (.63) (.68)
Net asset value, end of period 11.67 11.75 11.40 11.49 11.52
Total return (%)* 5.46 8.49 6.63 5.15 5.15
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.43 1.42 1.43 1.43 1.45
Ratio of net investment income to average net assets (%) 4.46 4.71 4.94 5.03 5.47
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 47.11 48.69 24.45 34.86 13.62
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 6,733 6,584 6,064 5,255 4,220
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 11.76 11.41 11.48 11.59
Investment operations: Investment income -- net .50 .52 .54 .40
Net realized and unrealized gain (loss) on investments .11 .40 .20 (.08)
Total from investment operations .61 .92 .74 .32
Distributions: Dividends from investment income -- net (.50) (.52) (.54) (.40)
Dividends from net realized gain on investments (.18) (.05) (.27) (.03)
Total distributions (.68) (.57) (.81) (.43)
Net asset value, end of period 11.69 11.76 11.41 11.48
Total return (%)(2) 5.28 8.22 6.55 3.76(3)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.70 1.64 1.65 1.69(3)
Ratio of net investment income to average net assets (%) 4.06 4.51 4.64 4.72(3)
Portfolio turnover rate (%) 47.11 48.69 24.45 34.86
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 345 1 1 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Massachusetts Series
<PAGE>
START
FINANCIAL HIGHLIGHTS
Michigan Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 15.61 15.14 15.15 15.14 15.27
Investment operations: Investment income -- net .78 .80 .81 .83 .85
Net realized and unrealized gain (loss) on investments .12 .48 .21 .20 .11
Total from investment operations .90 1.28 1.02 1.03 .96
Distributions: Dividends from investment income -- net (.78) (.80) (.81) (.83) (.85)
Dividends from net realized gain on investments (.16) (.01) (.22) (.19) (.24)
Total distributions (.94) (.81) (1.03) (1.02) (1.09)
Net asset value, end of period 15.57 15.61 15.14 15.15 15.14
Total return (%)* 5.89 8.55 6.89 6.81 6.65
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .92 .92 .91 .93 .92
Ratio of net investment income to average net assets (%) 4.96 5.12 5.34 5.35 5.66
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 36.17 41.46 22.32 56.88 48.30
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 145,764 149,221 155,568 166,538 176,604
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 15.61 15.13 15.15 15.13 15.27
Investment operations: Investment income -- net .70 .72 .74 .75 .77
Net realized and unrealized gain (loss) on investments .11 .49 .20 .21 .10
Total from investment operations .81 1.21 .94 .96 .87
Distributions: Dividends from investment income -- net (.70) (.72) (.74) (.75) (.77)
Dividends from net realized gain on investments (.16) (.01) (.22) (.19) (.24)
Total distributions (.86) (.73) (.96) (.94) (1.01)
Net asset value, end of period 15.56 15.61 15.13 15.15 15.13
Total return (%)* 5.29 8.08 6.27 6.33 6.01
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.42 1.42 1.42 1.44 1.44
Ratio of net investment income to average net assets (%) 4.44 4.61 4.82 4.82 5.10
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 36.17 41.46 22.32 56.88 48.30
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 22,338 20,938 19,338 19,031 16,471
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 15.61 15.14 15.16 15.18
Investment operations: Investment income -- net .66 .67 .69 .50
Net realized and unrealized gain (loss) on investments .12 .48 .20 .17
Total from investment operations .78 1.15 .89 .67
Distributions: Dividends from investment income -- net (.66) (.67) (.69) (.50)
Dividends from net realized gain on investments (.16) (.01) (.22) (.19)
Total distributions (.82) (.68) (.91) (.69)
Net asset value, end of period 15.57 15.61 15.14 15.16
Total return (%)(2) 5.08 7.70 5.94 6.12(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.67 1.69 1.72 1.70(3)
Ratio of net investment income to average net assets (%) 4.16 4.26 4.47 4.47(3)
Portfolio turnover rate (%) 36.17 41.46 22.32 56.88
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 1,877 640 241 133
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Michigan Series
<PAGE>
FINANCIAL HIGHLIGHTS
Minnesota Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 15.30 15.03 14.98 14.90 14.72
Investment operations: Investment income -- net .78 .82 .82 .82 .83
Net realized and unrealized gain (loss) on investments .04 .27 .09 .08 .18
Total from investment operations .82 1.09 .91 .90 1.01
Distributions: Dividends from investment income -- net (.78) (.82) (.82) (.82) (.83)
Dividends from net realized gain on investments (.04) -- (.04) -- --
Total distributions (.82) (.82) (.86) (.82) (.83)
Net asset value, end of period 15.30 15.30 15.03 14.98 14.90
Total return (%)* 5.41 7.36 6.16 6.11 7.14
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .91 .90 .91 .90 .90
Ratio of net investment income to average net assets (%) 5.05 5.32 5.42 5.41 5.68
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 41.27 13.37 25.82 35.47 51.95
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 134,314 126,115 129,031 138,058 145,444
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 15.33 15.06 15.01 14.92 14.74
Investment operations: Investment income -- net .70 .74 .74 .74 .75
Net realized and unrealized gain (loss) on investments .04 .27 .09 .09 .18
Total from investment operations .74 1.01 .83 .83 .93
Distributions: Dividends from investment income -- net (.70) (.74) (.74) (.74) (.75)
Dividends from net realized gain on investments (.04) -- (.04) -- --
Total distributions (.74) (.74) (.78) (.74) (.75)
Net asset value, end of period 15.33 15.33 15.06 15.01 14.92
Total return (%)* 4.86 6.79 5.60 5.62 6.57
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.43 1.42 1.44 1.43 1.44
Ratio of net investment income to average net assets (%) 4.52 4.79 4.90 4.87 5.13
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 41.27 13.37 25.82 35.47 51.95
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 29,562 28,568 26,004 25,617 23,217
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 15.33 15.06 15.01 14.96
Investment operations: Investment income -- net .65 .69 .70 .50
Net realized and unrealized gain (loss) on investments .04 .27 .09 .05
Total from investment operations .69 .96 .79 .55
Distributions: Dividends from investment income -- net (.65) (.69) (.70) (.50)
Dividends from net realized gain on investments (.04) -- (.04) --
Total distributions (.69) (.69) (.74) (.50)
Net asset value, end of period 15.33 15.33 15.06 15.01
Total return (%)(2) 4.53 6.46 5.34 5.15(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.74 1.73 1.67 1.42(3)
Ratio of net investment income to average net assets (%) 4.16 4.40 4.62 4.00(3)
Portfolio turnover rate (%) 41.27 13.37 25.82 35.47
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,422 667 307 373
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Minnesota Series
<PAGE>
FINANCIAL HIGHLIGHTS
New Jersey Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
APRIL 30, APRIL 30, YEAR ENDED JULY 31,
CLASS A 1999 1998 1997(1) 1996 1995 1994(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.08 12.63 12.79 12.71 12.58 12.50
Investment operations: Investment income -- net .57 .61 .42 .59 .71 .18
Net realized and unrealized
gain (loss) on investments .15 .56 (.02) .08 .13 .08
Total from investment operations .72 1.17 .40 .67 .84 .26
Distributions: Dividends from investment
income -- net (.57) (.61) (.42) (.59) (.71) (.18)
Dividends from net realized gain on investments (.09) (.11) (.14) -- -- --
Total distributions (.66) (.72) (.56) (.59) (.71) (.18)
Net asset value, end of period 13.14 13.08 12.63 12.79 12.71 12.58
Total return (%)(3) 5.52 9.48 4.25(4) 5.31 7.01 2.07(5)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.08 1.02 1.20(4) 1.14 .10 --
Ratio of net investment income to average net assets (%) 4.28 4.73 4.39(4) 4.55 5.60 5.25(4)
Decrease reflected in above expense ratios
due to actions by the manager (%) -- .03 .10(4) .08 1.35 2.50(4)
Portfolio turnover rate (%) 64.40 50.78 110.12(5) 28.14 43.48 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 5,179 4,454 4,837 5,212 4,981 2,318
(1) THE FUND CHANGED ITS FISCAL YEAR END FROM JULY 31 TO APRIL 30.
(2) FROM MAY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO JULY 31, 1994.
(3) EXCLUSIVE OF SALES LOAD.
(4) ANNUALIZED.
(5) NOT ANNUALIZED.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
APRIL 30, APRIL 30, YEAR ENDED JULY 31,
CLASS B 1999 1998 1997(1) 1996 1995 1994(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.07 12.63 12.79 12.71 12.58 12.50
Investment operations: Investment income -- net .50 .55 .37 .52 .65 .16
Net realized and unrealized gain (loss) on investments .16 .55 (.02) .08 .13 .08
Total from investment operations .66 1.10 .35 .60 .78 .24
Distributions: Dividends from investment income -- net (.50) (.55) (.37) (.52) (.65) (.16)
Dividends from net realized gain on investments (.09) (.11) (.14) -- -- --
Total distributions (.59) (.66) (.51) (.52) (.65) (.16)
Net asset value, end of period 13.14 13.07 12.63 12.79 12.71 12.58
Total return (%)(3) 5.08 8.85 3.74(4) 4.79 6.48 1.94(5)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.58 1.53 1.69(4) 1.63 .61 .50(4)
Ratio of net investment income to average net assets (%) 3.78 4.20 3.88(4) 4.04 5.00 4.69(4)
Decrease reflected in above expense ratios
due to actions by the manager (%) -- .03 .09(4) .08 1.29 2.50(4)
Portfolio turnover rate (%) 64.40 50.78 110.12(5) 28.14 43.48 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 11,628 10,533 8,680 8,910 6,852 2,373
(1) THE FUND CHANGED ITS FISCAL YEAR END FROM JULY 31 TO APRIL 30.
(2) FROM MAY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO JULY 31, 1994.
(3) EXCLUSIVE OF SALES LOAD.
(4) ANNUALIZED.
(5) NOT ANNUALIZED.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED
APRIL 30, APRIL 30, JULY 31,
CLASS C 1999 1998 1997(1) 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 13.09 12.64 12.78 13.21
Investment operations: Investment income -- net .46 .50 .35 .32
Net realized and unrealized gain (loss) on investments .15 .56 -- (.43)
Total from investment operations .61 1.06 .35 (.11)
Distributions: Dividends from investment income -- net (.46) (.50) (.35) (.32)
Dividends from net realized gain on investments (.09) (.11) (.14) --
Total distributions (.55) (.61) (.49) (.32)
Net asset value, end of period 13.15 13.09 12.64 12.78
Total return (%)(3) 4.67 8.55 3.72(4) (1.21)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.88 1.91 1.97(4) 1.95(4)
Ratio of net investment income to average net assets (%) 3.42 3.65 3.62(4) 3.68(4)
Decrease reflected in above expense ratios
due to actions by the manager (%) -- .06 .76(4) .02(4)
Portfolio turnover rate (%) 64.40 50.78 110.12(5) 28.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 349 118 1 6
(1) THE FUND CHANGED ITS FISCAL YEAR END FROM JULY 31 TO APRIL 30.
(2) FROM DECEMBER 4, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO JULY 31, 1996.
(3) EXCLUSIVE OF SALES LOAD.
(4) ANNUALIZED.
(5) NOT ANNUALIZED.
</TABLE>
New Jersey Series
<PAGE>
FINANCIAL HIGHLIGHTS
North Carolina Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.91 13.23 12.91 12.72 12.73
Investment operations: Investment income -- net .66 .67 .67 .67 .70
Net realized and unrealized gain (loss) on investments .11 .68 .32 .19 (.01)
Total from investment operations .77 1.35 .99 .86 .69
Distributions: Dividends from investment income -- net (.66) (.67) (.67) (.67) (.70)
Dividends from net realized gain on investments (.07) -- -- -- --
Total distributions (.73) (.67) (.67) (.67) (.70)
Net asset value, end of period 13.95 13.91 13.23 12.91 12.72
Total return (%)* 5.63 10.39 7.81 6.79 5.70
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .94 .87 1.04 .98 .65
Ratio of net investment income to average net assets (%) 4.68 4.89 5.10 5.11 5.63
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- .02 .31
Portfolio turnover rate (%) 41.15 32.28 44.91 47.15 12.02
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 47,794 41,592 42,130 47,042 50,205
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 13.90 13.22 12.90 12.71 12.72
Investment operations: Investment income -- net .59 .60 .60 .60 .64
Net realized and unrealized gain (loss) on investments .11 .68 .32 .19 (.01)
Total from investment operations .70 1.28 .92 .79 .63
Distributions: Dividends from investment income -- net (.59) (.60) (.60) (.60) (.64)
Dividends from net realized gain on investments (.07) -- -- -- --
Total distributions (.66) (.60) (.60) (.60) (.64)
Net asset value, end of period 13.94 13.90 13.22 12.90 12.71
Total return (%)* 5.10 9.84 7.27 6.25 5.12
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.44 1.38 1.54 1.49 1.18
Ratio of net investment income to average net assets (%) 4.16 4.39 4.59 4.59 5.08
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- .02 .30
Portfolio turnover rate (%) 41.15 32.28 44.91 47.15 12.02
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 39,535 45,296 43,979 42,668 42,310
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 13.90 13.22 12.90 12.76
Investment operations: Investment income -- net .56 .57 .57 .40
Net realized and unrealized gain (loss) on investments .13 .68 .32 .14
Total from investment operations .69 1.25 .89 .54
Distributions: Dividends from investment income -- net (.56) (.57) (.57) (.40)
Dividends from net realized gain on investments (.07) -- -- --
Total distributions (.63) (.57) (.57) (.40)
Net asset value, end of period 13.96 13.90 13.22 12.90
Total return (%)(2) 5.02 9.58 7.00 5.92(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.63 1.62 1.77 1.73(3)
Ratio of net investment income to average net assets (%) 3.83 4.08 4.31 4.31(3)
Portfolio turnover rate (%) 41.15 32.28 44.91 47.15
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 434 44 11 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
North Carolina Series
<PAGE>
FINANCIAL HIGHLIGHTS
Ohio Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 12.86 12.65 12.58 12.62 12.70
Investment operations: Investment income -- net .65 .67 .69 .71 .73
Net realized and unrealized gain (loss) on investments .08 .34 .17 .14 (.05)
Total from investment operations .73 1.01 .86 .85 .68
Distributions: Dividends from investment income -- net (.65) (.67) (.69) (.71) (.73)
Dividends from net realized gain on investments (.14) (.13) (.10) (.18) (.03)
Total distributions (.79) (.80) (.79) (.89) (.76)
Net asset value, end of period 12.80 12.86 12.65 12.58 12.62
Total return (%)* 5.72 8.09 6.91 6.77 5.63
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .91 .90 .91 .89 .92
Ratio of net investment income to average net assets (%) 5.00 5.17 5.40 5.49 5.84
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 40.36 24.73 29.65 43.90 39.53
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 237,027 237,618 242,572 257,639 273,225
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 12.87 12.65 12.59 12.63 12.71
Investment operations: Investment income -- net .58 .60 .62 .64 .66
Net realized and unrealized gain (loss) on investments .08 .35 .16 .14 (.05)
Total from investment operations .66 .95 .78 .78 .61
Distributions: Dividends from investment income -- net (.58) (.60) (.62) (.64) (.66)
Dividends from net realized gain on investments (.14) (.13) (.10) (.18) (.03)
Total distributions (.72) (.73) (.72) (.82) (.69)
Net asset value, end of period 12.81 12.87 12.65 12.59 12.63
Total return (%)* 5.17 7.62 6.27 6.19 5.06
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.42 1.41 1.42 1.42 1.44
Ratio of net investment income to average net assets (%) 4.47 4.65 4.87 4.94 5.29
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 40.36 24.73 29.65 43.90 39.53
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 54,929 50,453 44,746 40,476 32.797
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 12.88 12.66 12.59 12.68
Investment operations: Investment income -- net .55 .57 .59 .43
Net realized and unrealized gain (loss) on investments .08 .35 .17 .09
Total from investment operations .63 .92 .76 .52
Distributions: Dividends from investment income -- net (.55) (.57) (.59) (.43)
Dividends from net realized gain on investments (.14) (.13) (.10) (.18)
Total distributions (.69) (.70) (.69) (.61)
Net asset value, end of period 12.82 12.88 12.66 12.59
Total return (%)(2) 4.92 7.35 6.07 5.66(3)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.66 1.66 1.64 1.63(3)
Ratio of net investment income to average net assets (%) 4.20 4.38 4.44 4.66(3)
Portfolio turnover rate (%) 40.36 24.73 29.65 43.90
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,793 579 694 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Ohio Series
<PAGE>
FINANCIAL HIGHLIGHTS
Pennsylvania Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 16.68 16.23 16.17 16.12 16.01
Investment operations: Investment income -- net .82 .85 .85 .87 .91
Net realized and unrealized gain (loss) on investments .16 .71 .24 .32 .11
Total from investment operations .98 1.56 1.09 1.19 1.02
Distributions: Dividends from investment income -- net (.82) (.85) (.87) (.91) (.91)
Dividends from net realized gain on investments (.28) (.26) (.18) (.27) --
Total distributions (1.10) (1.11) (1.03) (1.14) (.91)
Net asset value, end of period 16.56 16.68 16.23 16.17 16.12
Total return (%)* 5.97 9.83 6.89 7.46 6.65
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .92 .92 .92 .92 .92
Ratio of net investment income to average net assets (%) 4.90 5.09 5.22 5.28 5.77
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 48.14 34.82 60.57 52.69 55.19
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 195,728 196,055 201,229 216,802 219,949
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 16.67 16.23 16.16 16.11 16.01
Investment operations: Investment income -- net .74 .77 .77 .79 .83
Net realized and unrealized gain (loss) on investments .16 .70 .25 .32 .10
Total from investment operations .90 1.47 1.02 1.11 .93
Distributions: Dividends from investment income -- net (.74) (.77) (.77) (.79) (.83)
Dividends from net realized gain on investments (.28) (.26) (.18) (.27) --
Total distributions (1.02) (1.03) (.95) (1.06) (.83)
Net asset value, end of period 16.55 16.67 16.23 16.16 16.11
Total return (%)* 5.43 9.20 6.41 6.92 6.02
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.43 1.43 1.43 1.43 1.44
Ratio of net investment income to average net assets (%) 4.39 4.57 4.71 4.76 5.22
Decrease reflected in above expense ratios
due to actions by the manager (%) -- -- -- -- .01
Portfolio turnover rate (%) 48.14 34.82 60.57 52.69 55.19
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 68,869 74,855 71,671 72,610 70,062
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 16.69 16.23 16.16 16.18
Investment operations: Investment income -- net .69 .70 .69 .53
Net realized and unrealized gain (loss) on investments .16 .72 .25 .25
Total from investment operations .85 1.42 .94 .78
Distributions: Dividends from investment income -- net (.69) (.70) (.69) (.53)
Dividends from net realized gain on investments (.28) (.26) (.18) (.27)
Total distributions (.97) (.96) (.87) (.80)
Net asset value, end of period 16.57 16.69 16.23 16.16
Total return (%)(2) 5.16 8.91 5.92 6.71(3)
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.69 1.69 1.83 1.70(3)
Ratio of net investment income to average net assets (%) 4.07 3.98 4.28 4.46(3)
Portfolio turnover rate (%) 48.14 34.82 60.57 52.69
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 898 463 32 21
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Pennsylvania Series
FINANCIAL HIGHLIGHTS
Texas Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 21.68 20.99 20.84 20.69 20.41
Investment operations: Investment income -- net 1.00 1.08 1.17 1.20 1.22
Net realized and unrealized gain (loss) on investments .21 .99 .41 .45 .28
Total from investment operations 1.21 2.07 1.58 1.65 1.50
Distributions: Dividends from investment income -- net (1.00) (1.08) (1.17) (1.20) (1.22)
Dividends from net realized gain on investments (.52) (.30) (.26) (.30) --
Total distributions (1.52) (1.38) (1.43) (1.50) (1.22)
Net asset value, end of period 21.37 21.68 20.99 20.84 20.69
Total return (%)* 5.66 10.03 7.74 8.06 7.63
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .85 .72 .37 .37 .37
Ratio of net investment income to average net assets (%) 4.59 4.96 5.54 5.64 6.01
Decrease reflected in above expense ratios
due to actions by the manager (%) .07 .18 .55 .55 .55
Portfolio turnover rate (%) 49.67 27.18 61.22 49.24 38.68
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 60,516 59,758 60,849 62,864 68,103
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 21.68 20.98 20.84 20.69 20.41
Investment operations: Investment income -- net .89 .97 1.06 1.09 1.10
Net realized and unrealized gain (loss) on investments .21 1.00 .40 .45 .28
Total from investment operations 1.10 1.97 1.46 1.54 1.38
Distributions: Dividends from investment income -- net (.89) (.97) (1.06) (1.09) (1.10)
Dividends from net realized gain on investments (.52) (.30) (.26) (.30) --
Total distributions (1.41) (1.27) (1.32) (1.39) (1.10)
Net asset value, end of period 21.37 21.68 20.98 20.84 20.69
Total return (%)* 5.13 9.53 7.15 7.51 7.05
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.35 1.23 .88 .88 .89
Ratio of net investment income to average net assets (%) 4.09 4.44 5.03 5.13 5.46
Decrease reflected in above expense ratios
due to actions by the manager (%) .08 .18 .55 .55 .55
Portfolio turnover rate (%) 49.67 27.18 61.22 49.24 38.68
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 17,031 20,454 17,396 17,461 16,818
* EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 21.67 20.97 20.83 20.78
Investment operations: Investment income -- net .83 .91 .99 .73
Net realized and unrealized gain (loss) on investments .21 1.00 .40 .35
Total from investment operations 1.04 1.91 1.39 1.08
Distributions: Dividends from investment income -- net (.83) (.91) (.99) (.73)
Dividends from net realized gain on investments (.52) (.30) (.26) (.30)
Total distributions (1.35) (1.21) (1.25) (1.03)
Net asset value, end of period 21.36 21.67 20.97 20.83
Total return (%)(2) 4.86 9.24 6.79 7.29(3)
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.60 1.52 1.19 1.18(3)
Ratio of net investment income to average net assets (%) 3.79 4.10 4.57 4.77(3)
Decrease reflected in above expense ratios
due to actions by the manager (%) .11 .15 .54 .58(3)
Portfolio turnover rate (%) 49.67 27.18 61.22 49.24
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 620 261 129 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Texas Series
FINANCIAL HIGHLIGHTS
Virginia Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 17.37 16.61 16.27 16.03 16.02
Investment operations: Investment income -- net .85 .88 .94 .93 .94
Net realized and unrealized gain (loss) on investments .17 .76 .34 .24 .04
Total from investment operations 1.02 1.64 1.28 1.17 .98
Distributions: Dividends from investment income -- net (.85) (.88) (.94) (.93) (.94)
Dividends from net realized gain on investments (.23) (.00)(1) -- -- --
Dividends in excess of net realized gain on investments -- -- -- -- (.03)
Total distributions (1.08) (.88) (.94) (.93) (.97)
Net asset value, end of period 17.31 17.37 16.61 16.27 16.03
Total return (%)(2) 5.98 10.05 8.02 7.32 6.39
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .92 .75 .39 .50 .39
Ratio of net investment income to average net assets (%) 4.83 5.10 5.67 5.58 5.93
Decrease reflected in above expense ratios
due to actions by the manager (%) -- .14 .55 .55 .55
Portfolio turnover rate (%) 30.19 21.25 45.29 50.06 21.60
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 71,612 65,086 61,099 61,149 62,428
(1) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(2) EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 17.37 16.60 16.27 16.03 16.02
Investment operations: Investment income -- net .76 .79 .86 .84 .85
Net realized and unrealized gain (loss) on investments .17 .77 .33 .24 .04
Total from investment operations .93 1.56 1.19 1.08 .89
Distributions: Dividends from investment income -- net (.76) (.79) (.86) (.84) (.85)
Dividends from net realized gain on investments (.23) (.00)(1) -- -- --
Dividends in excess of net realized gain on investments -- -- -- -- (.03)
Total distributions (.99) (.79) (.86) (.84) (.88)
Net asset value, end of period 17.31 17.37 16.60 16.27 16.03
Total return (%)(2) 5.44 9.56 7.41 6.77 5.83
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.43 1.26 .90 1.01 .90
Ratio of net investment income to average net assets (%) 4.32 4.58 5.15 5.06 5.40
Decrease reflected in above expense ratios
due to actions by the manager (%) -- .14 .55 .55 .55
Portfolio turnover rate (%) 30.19 21.25 45.29 50.06 21.60
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 34,912 40,100 35,787 33,120 28,813
(1) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(2) EXCLUSIVE OF SALES LOAD.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 1999 1998 1997 1996(1)
- ----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C> <C> <C> <C>
Net asset value, beginning of period 17.36 16.60 16.26 16.17
Investment operations: Investment income -- net .72 .75 .81 .57
Net realized and unrealized gain (loss) on investments .17 .76 .34 .09
Total from investment operations .89 1.51 1.15 .66
Distributions: Dividends from investment income -- net (.72) (.75) (.81) (.57)
Dividends from net realized gain on investments (.23) -- -- --
Total distributions (.95) (.75) (.81) (.57)
Net asset value, end of period 17.30 17.36 16.60 16.26
Total return (%)(2) 5.19 9.22 7.18 5.64(3)
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.66 1.54 1.17 1.21(3)
Ratio of net investment income to average net assets (%) 4.06 4.24 4.83 4.55(3)
Decrease reflected in above expense ratios
due to actions by the manager (%) -- .11 .54 .52(3)
Portfolio turnover rate (%) 30.19 21.25 45.29 50.06
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 3,188 1,996 674 166
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES LOAD.
(3) ANNUALIZED.
</TABLE>
Virginia Series
MANAGEMENT
The investment adviser for the fund is The Dreyfus Corporation, 200 Park Avenue,
New York, New York 10166. Founded in 1947, Dreyfus manages more than $120
billion in over 160 mutual fund portfolios. Dreyfus is the primary mutual fund
business of Mellon Bank Corporation, a broad-based financial services company
with a bank at its core. With more than $389 billion of assets under management
and $1.9 trillion of assets under administration and custody, Mellon provides a
full range of banking, investment and trust products and services to
individuals, businesses and institutions. Mellon is headquartered in Pittsburgh,
Pennsylvania.
For the past fiscal year, the fund paid Dreyfus a monthly management fee at the
annual rate shown below as a percentage of each series' average daily net
assets. These fees reflect any fee waivers or expense reimbursements that may
have been in effect.
- -------------------------------------------------------------------------------
EFFECTIVE ANNUAL RATE OF
NAME OF SERIES MANAGEMENT FEE PAID
- -------------------------------------------------------------------------------
Connecticut 0.55%
Florida 0.55%
Georgia 0.55%
Maryland 0.55%
Massachusetts 0.55%
Michigan 0.55%
Minnesota 0.55%
New Jersey 0.55%
North Carolina 0.55%
Ohio 0.55%
Pennsylvania 0.55%
Texas 0.48%
Virginia 0.55%
Samuel J. Weinstock has managed the Connecticut series since August 1987 and has
managed the Virginia series since August 1991. Mr. Weinstock has been employed
by Dreyfus since March 1987.
Douglas J. Gaylor has managed the Florida series since August 1999 and has
managed each of the Maryland series, Pennsylvania series and Texas series since
he joined Dreyfus in January 1996. Prior to joining Dreyfus, Mr. Gaylor was a
municipal portfolio manager at PNC Bank since 1993 and from 1989 to September
1993 was a municipal portfolio manager at Wilmington Trust Company.
A. Paul Disdier has managed the Georgia series since August 1999. Mr. Disdier
has been employed by Dreyfus since February 1988.
W. Michael Petty has managed each of the Massachusetts series, Michigan series,
Minnesota series, New Jersey series, North Carolina series, and Ohio series
since August 1997. Mr. Petty has been employed by Dreyfus since June 1997. Prior
to joining Dreyfus, Mr. Petty was vice president and portfolio manager of
municipal bond funds at Merrill Lynch Asset Management, Inc. since 1992.
Dreyfus has a personal securities trading policy (the "Policy") which restricts
the personal securities transactions of its employees. Its primary purpose is to
ensure that personal trading by Dreyfus employees does not disadvantage any
Dreyfus-managed fund. Dreyfus portfolio managers and other investment personnel
who comply with the Policy's preclearance and disclosure procedures may be
permitted to purchase, sell or hold certain types of securities which also may
be or are held in the fund(s) they advise.
Concepts to understand
YEAR 2000 ISSUES: the fund could be adversely affected if the computer systems
used by Dreyfus and the fund's other service providers do not properly process
and calculate date-related information from and after January 1, 2000.
Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Your Investment
ACCOUNT POLICIES
THE DREYFUS PREMIER FUNDS are designed primarily for people who are investing
through a third party, such as a bank, broker-dealer or financial adviser. Third
parties with whom you open a fund account may impose policies, limitations and
fees which are different from those described here.
YOU WILL NEED TO CHOOSE A SHARE CLASS before making your initial investment. In
making your choice, you should weigh the impact of all potential costs over the
length of your investment, including sales charges and annual fees. For example,
in some cases, it can be more economical to pay an initial sales charge than to
choose a class with no initial sales charge but higher annual fees and a
contingent deferred sales charge (CDSC).
* CLASS A shares may be appropriate for investors who prefer to pay the fund's
sales charge up front rather than upon the sale of their shares, want to take
advantage of the reduced sales charges available on larger investments and/or
have a longer-term investment horizon
* CLASS B shares may be appropriate for investors who wish to avoid a front-end
sales charge, put 100% of their investment dollars to work immediately and/or
have a longer-term investment horizon
* CLASS C shares may be appropriate for investors who wish to avoid a front-end
sales charge, put 100% of their investment dollars to work immediately and/or
have a shorter-term investment horizon
Your financial representative can help you choose the share class that is
appropriate for you.
Share class charges
EACH SHARE CLASS has its own fee structure. In some cases, you may not have to
pay a sales charge to buy or sell shares. Consult your financial representative
or the SAI to see if this may apply to you. Shareholders owning Class B shares
on or prior to November 30, 1996 may be eligible for a lower CDSC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sales charges
CLASS A -- CHARGED WHEN YOU BUY SHARES
Sales charge Sales charge
deducted as a % as a % of your
Your investment of offering price net investment
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 4.50% 4.70%
$50,000 -- $99,999 4.00% 4.20%
$100,000 -- $249,999 3.00% 3.10%
$250,000 -- $499,999 2.50% 2.60%
$500,000 -- $999,999 2.00% 2.00%
$1 million or more* 0.00% 0.00%
* A 1.00% CDSC may be charged on any shares sold within one year of purchase
(except shares bought through dividend reinvestment).
</TABLE>
- ------------------------------------------------------------------------------
CLASS B -- CHARGED WHEN YOU SELL SHARES
CDSC as a % of your initial
Time since you bought investment or your redemption
the shares you are selling (whichever is less)
- -------------------------------------------------------------------------------
Up to 2 years 4.00%
2 -- 4 years 3.00%
4 -- 5 years 2.00%
5 -- 6 years 1.00%
More than 6 years Shares will automatically
convert to Class A
Class B shares also carry an annual Rule 12b-1 fee of 0.50% of the class's
average daily net assets.
- -------------------------------------------------------------------------------
CLASS C -- CHARGED WHEN YOU SELL SHARES
A 1.00% CDSC is imposed on redemptions made within the first year of purchase.
Class C shares also carry an annual Rule 12b-1 fee of 0.75% of the class's
average daily net assets.
Reduced Class A sales charge
LETTER OF INTENT: lets you purchase Class A shares over a 13-month period and
receive the same sales charge as if all shares had been purchased at once.
RIGHT OF ACCUMULATION: lets you add the value of any Class A, B or C shares in
this fund or any other Dreyfus Premier fund sold with a sales load that you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SAI) OR YOUR FINANCIAL
REPRESENTATIVE FOR MORE DETAILS.
Your Investment
ACCOUNT POLICIES (CONTINUED)
Buying shares
THE NET ASSET VALUE (NAV) of each class is generally calculated as of the close
of trading on the New York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern
time) every day the exchange is open. Your order will be priced at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
authorized entity. Each series' investments are generally valued based on fair
value as determined by an independent pricing service approved and supervised by
the fund's board. Because each series seeks tax-exempt income, the series are
not recommended for purchase in IRAs or other qualified plans.
ORDERS TO BUY AND SELL SHARES received by dealers by the close of trading on the
NYSE and transmitted to the distributor or its designee by the close of its
business day (normally 5:15 p.m. Eastern time) will be based on the NAV
determined as of the close of trading on the NYSE that day.
- -------------------------------------------------------------------------------
Minimum investments
Initial Additional
- -------------------------------------------------------------------------------
REGULAR ACCOUNTS $1,000 $100; $500 FOR
TELETRANSFER INVESTMENTS
DREYFUS AUTOMATIC $100 $100
INVESTMENT PLANS
All investments must be in U.S. dollars. Third-party checks cannot be accepted.
You may be charged a fee for any check that does not clear. Maximum TeleTransfer
purchase is $150,000 per day
Concepts to understand
NET ASSET VALUE (NAV): the market value of one share, computed by dividing the
total net assets of a fund or class by its shares outstanding. Each series'
Class A shares are offered to the public at NAV plus a sales charge. Classes B
and C are offered at NAV, but generally are subject to higher annual operating
expenses and a CDSC.
Selling shares
YOU MAY SELL (REDEEM) SHARES AT ANY TIME through your financial representative,
or you can contact the fund directly. Your shares will be sold at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
authorized entity. Any certificates representing series shares being sold must
be returned with your redemption request. Your order will be processed promptly,
and you will generally receive the proceeds within a week.
TO KEEP YOUR CDSC AS LOW AS POSSIBLE, each time you request to sell shares we
will first sell shares that are not subject to a CDSC, and then those subject to
the lowest charge. The CDSC is based on the lesser of the original purchase cost
or the current market value of the shares being sold, and is not charged on
shares you acquired by reinvesting your dividends. There are certain instances
when you may qualify to have the CDSC waived. Consult your financial
representative or the SAI for details.
BEFORE SELLING OR WRITING A CHECK against recently purchased shares, please note
that if the fund has not yet collected payment for the shares you are selling,
it may delay sending the proceeds for up to eight business days or until it has
collected payment.
Written sell orders
Some circumstances require written sell orders along with signature guarantees.
These include:
* amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
* requests to send the proceeds to a different payee or address
Written sell orders of $100,000 or more must also be signature guaranteed.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
General policies
UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.
THE FUND RESERVES THE RIGHT TO:
* refuse any purchase or exchange request that could adversely affect the fund
or its operations, including those from any individual or group who, in the
fund's view, is likely to engage in excessive trading (usually defined as more
than four exchanges out of the fund within a calendar year)
* refuse any purchase or exchange request in excess of 1% of a series'
total assets
* change or discontinue its exchange privilege, or temporarily suspend
this privilege during unusual market conditions
* change its minimum investment amounts
* delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or during
unusual market conditions)
The fund also reserves the right to make a "redemption in kind" -- payment in
portfolio securities rather than cash -- if the amount you are redeeming is
large enough to affect a series' operations (for example, if it represents more
than 1% of a series' assets).
Small account policies
To offset the relatively higher costs of servicing smaller accounts, the fund
charges regular accounts with balances below $2,000 an annual fee of $12. The
fee will be imposed during the fourth quarter of each calendar year.
The fee will be waived for: any investor whose aggregate Dreyfus mutual fund
investments total at least $25,000; accounts participating in automatic
investment programs; accounts opened through a financial institution.
If your account falls below $500, the fund may ask you to increase your balance.
If it is still below $500 after 30 days, the fund may close your account and
send you the proceeds.
DISTRIBUTIONS AND TAXES
EACH SERIES GENERALLY PAYS ITS SHAREHOLDERS dividends from its net investment
income once a month, and distributes any net capital gains it has realized once
a year. Each share class of a series will generate a different dividend because
each has different expenses. Your distributions will be reinvested in your
series unless you instruct the fund otherwise. There are no fees or sales
charges on reinvestments.
EACH SERIES ANTICIPATES that virtually all of its income dividends will be
exempt from federal income tax and exempt also from the income tax of the state
for which the series is named. However, any dividends paid from interest on
taxable investments or short-term capital gains will be taxable as ordinary
income. Any distributions of long-term capital gains will be taxable as such.
The tax status of any distribution is the same regardless of how long you have
been in the series and whether you reinvest your distributions or take them in
cash. In general, distributions are federally taxable as follows:
- --------------------------------------------------------------------------------
Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
- --------------------------------------------------------------------------------
INCOME GENERALLY GENERALLY
DIVIDENDS TAX EXEMPT TAX EXEMPT
SHORT-TERM ORDINARY ORDINARY
CAPITAL GAINS INCOME RATE INCOME RATE
LONG-TERM
CAPITAL GAINS 10% 20%
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
Taxes on transactions
Except for tax-deferred accounts, any sale or exchange of series shares,
including through the checkwriting privilege, may generate a tax liability. Of
course, withdrawals or distributions from tax-deferred accounts are taxable when
received.
The table above also can provide a guide for potential tax liability when
selling or exchanging series shares. "Short-term capital gains" applies to
series shares sold or exchanged up to 12 months after buying them. "Long-term
capital gains" applies to shares sold or exchanged after 12 months.
Your Investment
SERVICES FOR FUND INVESTORS
THE THIRD PARTY THROUGH WHOM YOU PURCHASE series shares may impose different
restrictions on these services and privileges offered by the fund, or may not
make them available at all. Consult your financial representative for more
information on the availability of these services and privileges.
Automatic services
BUYING OR SELLING SHARES AUTOMATICALLY is easy with the services described
below. With each service, you select a schedule and amount, subject to certain
restrictions. You can set up most of these services with your application, or by
calling your financial representative or 1-800-554-4611.
- --------------------------------------------------------------------------------
For investing
DREYFUS AUTOMATIC For making automatic investments ASSET BUILDER((reg.tm)) from
a designated bank account.
DREYFUS GOVERNMENT For making automatic investments
DIRECT DEPOSIT from your federal employment,
PRIVILEGE Social Security or other regular
federal government check.
DREYFUS DIVIDEND For automatically reinvesting the
SWEEP dividends and distributions from
one Dreyfus fund into another
(not available for IRAs).
- --------------------------------------------------------------------------------
For exchanging shares
DREYFUS AUTO- For making regular exchanges
EXCHANGE PRIVILEGE from one Dreyfus fund into
another.
- --------------------------------------------------------------------------------
For selling shares
DREYFUS AUTOMATIC For making regular withdrawals WITHDRAWAL PLAN from most
Dreyfus funds. There will be no CDSC on Class B shares, as long as the amounts
withdrawn do not exceed 12% annually of the account value at the time the
shareholder elects to participate in the plan.
Checkwriting privilege (Class A only)
YOU MAY WRITE REDEMPTION CHECKS against your account for Class A shares in
amounts of $500 or more. These checks are free; however, a fee will be charged
if you request a stop payment or if the transfer agent cannot honor a redemption
check due to insufficient funds or another valid reason. Please do not postdate
your checks or use them to close your account.
Exchange privilege
YOU CAN EXCHANGE SHARES WORTH $500 OR MORE from one class of a series into the
same class of another Dreyfus Premier fund. You can request your exchange by
contacting your financial representative. Be sure to read the current prospectus
for any fund into which you are exchanging before investing. Any new account
established through an exchange will generally have the same privileges as your
original account (as long as they are available). There is currently no fee for
exchanges, although you may be charged a sales load when exchanging into any
fund that has a higher one.
TeleTransfer privilege
TO MOVE MONEY BETWEEN YOUR BANK ACCOUNT and your Dreyfus fund account with a
phone call, use the TeleTransfer privilege. You can set up TeleTransfer on your
account by providing bank account information and following the instructions on
your application, or contacting your financial representative.
Reinvestment privilege
UPON WRITTEN REQUEST YOU CAN REINVEST up to the number of Class A or B shares
you redeemed within 45 days of selling them at the current share price without
any sales charge. If you paid a CDSC, it will be credited back to your account.
This privilege may be used only once.
Account statements
EVERY FUND INVESTOR automatically receives regular account statements. You'll
also be sent a yearly statement detailing the tax characteristics of any
dividends and distributions you have received.
INSTRUCTIONS FOR ACCOUNTS
TO OPEN AN ACCOUNT
In Writing
Complete the application.
Mail your application and a check to:
Name of Fund
P.O. Box 6587, Providence, RI 02940-6587
Attn: Institutional Processing
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your account number on your check.
Mail the slip and a check to: Name of Fund
P.O. Box 6587, Providence, RI 02940-6587 Attn: Institutional Processing
By Telephone
WIRE Have your bank send your
investment to The Bank of New York, with these instructions:
* ABA# 021000018
* DDA# (see below)
* the fund and series names
* the share class
* your Social Security or tax ID number
* name(s) of investor(s)
* dealer number if applicable
Call us to obtain an account number. Return your application with the account
number on the application.
WIRE Have your bank send your investment to The Bank of New York, with these
instructions:
* ABA# 021000018
* DDA# (see below)
* the fund and series names
* the share class
* your account number
* name(s) of investor(s)
* dealer number if applicable
ELECTRONIC CHECK Same as wire, but insert "1111" before your account number.
TELETRANSFER Request TeleTransfer on your application. Call us to request your
transaction.
Automatically
WITH AN INITIAL INVESTMENT Indicate
on your application which automatic service(s) you want. Return your application
with your investment.
ALL SERVICES Call us or your financial representative to request a form to add
any automatic investing service (see "Services for Fund Investors"). Complete
and return the form along with any other required materials.
TO SELL SHARES
Write a redemption check (Class A only) OR write a letter of instruction that
includes:
* your name(s) and signature(s)
* your account number
* the fund and series names
* the dollar amount you want to sell
* how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see page 58)
Mail your request to: The Dreyfus Family of Funds P.O. Box 6587, Providence, RI
02940-6587 Attn: Institutional Processing
WIRE Call us or your financial representative to request your transaction. Be
sure the fund has your bank account information on file. Proceeds will be wired
to your bank.
TELETRANSFER Call us or your financial representative to request your
transaction. Be sure the fund has your bank account information on file.
Proceeds will be sent to your bank by electronic check.
CHECK Call us or your financial representative to request your transaction. A
check will be sent to the address of record.
AUTOMATIC WITHDRAWAL PLAN Call us or your financial representative to request a
form to add the plan. Complete the form, specifying the amount and frequency of
withdrawals you would like.
Be sure to maintain an account balance of $5,000 or more.
To open an account, make subsequent investments or to sell shares, please
contact your financial representative or call toll free in the U.S.
1-800-554-4611. Make checks payable to: THE DREYFUS FAMILY OF FUNDS.
SELECT THE APPROPRIATE DDA# FOR YOUR SERIES:
Connecticut DDA# 8900119489
Florida DDA# 8900119381
Georgia DDA# 8900117087
Maryland DDA# 8900119403
Massachusetts DDA# 8900119470
Michigan DDA# 8900119411
Minnesota DDA# 8900119438
New Jersey DDA# 8900088389
North Carolina DDA# 8900208635
Ohio DDA# 8900119446
Pennsylvania DDA# 8900119454
Texas DDA# 8900119462
Virginia DDA# 8900208678
Your Investment
Application page 1 here
Application page 2 here
NOTES
For More Information
Dreyfus Premier State
Municipal Bond Fund
- --------------------------------------
SEC file number: 811-4906
More information on this fund is available free upon request, including the
following:
Annual/Semiannual Report
Describes the fund's performance, lists portfolio holdings and contains a letter
from the fund's manager discussing recent market conditions, economic trends and
fund strategies that significantly affected the fund's performance during the
last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
To obtain information:
BY TELEPHONE Call your financial representative or 1-800-554-4611
BY MAIL Write to: The Dreyfus Premier Family of Funds 144 Glenn Curtiss
Boulevard Uniondale, NY 11556-0144
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from: http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
(c) 1999 Dreyfus Service Corporation
PSTMB/P0999
