- ---------------------------------------------------------------------------
PREMIER STATE MUNICIPAL BOND FUND
(Lion Logo)
PROSPECTUS SEPTEMBER 1, 1994
AS REVISED NOVEMBER 18, 1994
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Premier State Municipal Bond Fund (the "Fund") is an open-end,
non-diversified, management investment company, known as a
mutual fund. Its goal is to maximize current income exempt from Federal and,
where applicable, from State income taxes, without undue risk.
The Fund permits you to invest in any of fifteen separate portfolios
(each, a "Series"): the Arizona Series, the Colorado Series, the Connecticut
Series, the Florida Series, the Georgia Series, the Maryland Series, the
Massachusetts Series, the Michigan Series, the Minnesota Series, the North
Carolina Series, the Ohio Series, the Oregon Series, the Pennsylvania
Series, the Texas Series and the Virginia Series. Each Series seeks to
achieve the Fund's investment objective by investing in Municipal Obligations
primarily issued by issuers in the State after which it is named and believed
to be exempt from Federal and, where applicable, from that State's income
tax. It is anticipated that substantially all dividends paid by each Series
will be exempt from Federal income tax and also, where applicable, will be
exempt from the personal income tax of the State after which the Series is
named.
By this Prospectus, Class A and Class B shares of each Series are
being offered. Class A shares are subject to a sales charge imposed at the
time of purchase and Class B shares are subject to a contingent deferred
sales charge imposed on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights, as described herein.
The Fund offers these alternatives to permit an investor to choose the method
of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and
other circumstances.
The Fund provides free redemption checks with respect to Class A
shares, which you can use in amounts of $500 or more for cash or to pay
bills. You can purchase or redeem shares by telephone using the TELETRANSFER
Privilege.
The Dreyfus Corporation serves as the Fund's investment adviser and,
in that capacity, is responsible for determining whether investing in
particular securities is consistent with the Fund's investment objective,
including whether the securities subject the Fund to undue risk.
This Prospectus sets forth concisely information about the Fund that
you should know before investing. It should be read and retained for future
reference.
Part B (also known as the Statement of Additional Information), dated
September 1, 1994, which may be revised from time to time, provides a
further discussion of certain areas in this Prospectus and other matters
which may be of interest to some investors. It has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
For a free copy, write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or call 1-800-554-4611. When telephoning, ask for
Operator 666.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
November 18, 1994
PREMIER STATE MUNICIPAL BOND FUND
SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 1, 1994
AS REVISED NOVEMBER 18, 1994
THE FOLLOWING ANTICIPATED CHANGES HAVE OCCURRED:
I. CONSUMMATION OF THE MERGER
THE FOLLOWING INFORMATION SUPPLEMENTS AND SUPERSEDES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS.
On August 24, 1994, the previously announced merger between The
Dreyfus Corporation ("Dreyfus") and a subsidiary of Mellon Bank Corporation
("Mellon") was completed, and as a result, Dreyfus now is a wholly-owned
subsidiary of Mellon Bank, N.A. instead of a publicly-owned corporation.
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. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, Mellon managed more than $130 billion in assets as of July
31, 1994, including approximately $6 billion in mutual fund assets. As of
June 30, 1994, various subsidiaries of Mellon provided non-investment
services, such as custodial or administration services, for approximately
$747 billion in assets, including approximately $97 billion in mutual fund
assets.
II. NEW DISTRIBUTOR
THE FOLLOWING INFORMATION SUPERSEDES AND REPLACES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS AND SPECIFICALLY IN THE
SECTION ENTITLED "HOW TO BUY FUND SHARES."
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration services, the parent
company of which is Boston Institutional Group, Inc.
Accordingly, references in the Prospectus to Dreyfus Service
Corporation as the Fund's distributor should be substituted with Premier
Mutual Fund Services, Inc.
(Continued on Next Page)
III.NEW RULE 12B-1 PLAN ARRANGEMENTS IMPLEMENTED
THE FOLLOWING INFORMATION SUPERSEDES AND REPLACES THE INFORMATION
CONTAINED IN THE SECTION IN THE FUND'S PROSPECTUS
ENTITLED "DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN--DISTRIBUTION
PLAN."
Under the Distribution Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor for
distributing the Class B shares of each Series at an annual rate of .50 of 1%
of the value of the average daily net assets of Class B.
IV. RESULTS OF FUND SHAREHOLDER VOTE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SUPERSEDES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS.
On August 3, 1994, the shareholders of each Series of the Fund voted
to (a) approve (i) a new investment advisory agreement with Dreyfus, and (ii)
a new Distribution Plan with respect to Class B, each of which became
effective upon consummation of the merger between Dreyfus and a subsidiary of
Mellon.
PSTEBF/111894
TABLE OF CONTENTS
FEE TABLE.......................................... 3
CONDENSED FINANCIAL INFORMATION.................... 8
ALTERNATIVE PURCHASE METHODS....................... 22
DESCRIPTION OF THE FUND............................ 23
MANAGEMENT OF THE FUND............................. 39
HOW TO BUY FUND SHARES............................. 41
SHAREHOLDER SERVICES............................... 45
HOW TO REDEEM FUND SHARES.......................... 48
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN.... 52
DIVIDENDS, DISTRIBUTIONS AND TAXES................. 53
PERFORMANCE INFORMATION............................ 61
GENERAL INFORMATION................................ 62
APPENDIX........................................... 64
Page 2
<TABLE>
<CAPTION>
FEE TABLE
ARIZONA SERIES COLORADO SERIES
------------------------- ----------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)......... 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge).. -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.................... .55% .55% .55% .55%
12b-1 Fees......................... -- .50% -- .50%
Other Expenses..................... .56% .56% .40% .40%
Total Fund Operating Expenses...... 1.11% 1.61% .95% 1.45%
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
<TABLE>
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR........................... $56 $46 $16 $54 $45 $15
3 YEARS.......................... $79 $71 $51 $74 $66 $46
5 YEARS.......................... $103 $98 $88 $95 $89 $79
10 YEARS**....................... $174 $166 $166 $156 $148 $148
</TABLE>
<TABLE>
CONNECTICUT SERIES FLORIDA SERIES
------------------------- -------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)... -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.................... .55% .55% .55% .55%
12b-1 Fees......................... -- .50% -- .50%
Other Expenses..................... .34% .34% .35% .35%
Total Fund Operating Expenses...... .89% 1.39% .90% 1.40%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR........................... $54 $44 $14 $54 $44 $14
3 YEARS........................... $72 $64 $44 $72 $64 $44
5 YEARS........................... $92 $86 $76 $93 $87 $77
10 YEARS**........................ $150 $141 $141 $151 $142 $142
*Assuming no redemption of Class B shares.
**Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the sixth year following the date of purchase.
</TABLE>
Page 3
<TABLE>
FEE TABLE
GEORGIA SERIES MARYLAND SERIES
----------------------- --------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........ 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge).... -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................... .55% .55% .55% .55%
12b-1 Fees........................ -- .50% -- .50%
Other Expenses.................... .54% .54% .35% .35%
Total Fund Operating Expenses..... 1.09% 1.59% .90% 1.40%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR................... $56 $46 $16 $54 $44 $14
3 YEARS.................. $78 $70 $50 $72 $64 $44
5 YEARS.................. $102 $97 $87 $93 $87 $77
10 YEARS**............... $172 $163 $163 $151 $142 $142
</TABLE>
<TABLE>
MASSACHUSETTS SERIES MICHIGAN SERIES
-------------------------- --------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........ 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)... -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees............ .55% .55% .55% .55%
12b-1 Fees................. -- .50% -- .50%
Other Expenses............. .38% .38% .37% .37%
Total Fund Operating Expenses...... .93% 1.43% .92% 1.42%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
--------- ---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR............ $54 $45 $15 $54 $44 $14
3 Years........... $73 $65 $45 $73 $65 $45
5 Years........... $94 $88 $78 $94 $88 $78
10 Years**........ $154 $145 $145 $153 $144 $144
*Assuming no redemption of Class B shares.
**Ten-year figures assume conversion of Class B shares to Class A shares
at the end of the sixth year following the date of purchase.
</TABLE>
Page 4
<TABLE>
FEE TABLE
MINNESOTA SERIES NORTH CAROLINA SERIES
----------------------------- -----------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
---------- ------- ---------- --------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............. 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)... -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.................... .55% .55% .55% .55%
12b-1 Fees......................... -- .50% -- .50%
Other Expenses..................... .36% .36% .39% .39%
Total Fund Operating Expenses...... .91% 1.41% .94% 1.44%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
--------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year.......... $54 $44 $14 $54 $45 $15
3 Years......... $73 $65 $45 $74 $66 $46
5 Years......... $93 $87 $77 $95 $89 $79
10 Years**...... $152 $143 $143 $155 $146 $146
</TABLE>
<TABLE>
OHIO SERIES OREGON SERIES
------------------------ --------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
------------ ---------- ------- ---------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)... -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.................. .55% .55% .55% .55%
12b-1 Fees....................... -- .50% -- .50%
Other Expenses................... .38% .38% .40% .40%
Total Fund Operating Expenses .93% 1.43% .95% 1.45%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
---------- -------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 Year................... $54 $45 $15 $54 $45 $15
3 Years.................. $73 $65 $45 $74 $66 $46
5 Years.................. $94 $88 $78 $95 $89 $79
10 Years**............... $154 $145 $145 $156 $148 $148
*Assuming no redemption of Class B shares.
**Ten-year figures assume conversion of Class B shares to Class A shares
at the end of the sixth year following the date of purchase.
</TABLE>
Page 5
<TABLE>
FEE TABLE
PENNSYLVANIA SERIES TEXAS SERIES
-------------------------- --------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
---------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....... 4.50% -- 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge).. -- 3.00% -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................. .55% .55% .55% .55%
12b-1 Fees...................... -- .50% -- .50%
Other Expenses.................. .38% .38% .39% .39%
Total Fund Operating Expenses... .93% 1.43% .94% 1.44%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
---------- --------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1 Year........... $54 $45 $15 $54 $45 $15
3 Years.......... $73 $65 $45 $74 $66 $46
5 Years.......... $94 $88 $78 $95 $89 $79
10 Years**....... $154 $145 $145 $155 $146 $146
*Assuming no redemption of Class B shares.
**Ten-year figures assume conversion of Class B shares to Class A shares
at the end of the sixth year following the date of purchase.
</TABLE>
Page 6
<TABLE>
FEE TABLE
VIRGINIA SERIES
--------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
---------- ---------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............. 4.50% --
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)... -- 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................. .55% .55%
12b-1 Fees...................... -- .50%
Other Expenses.................. .46% .46%
Total Fund Operating Expenses... 1.01% 1.51%
</TABLE>
<TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except where
noted, redemption at the end of each time period:
CLASS A CLASS B CLASS B*
------- ------- --------
<S> <C> <C> <C>
1 Year............................... $55 $45 $15
3 Years.............................. $76 $68 $48
5 Years.............................. $98 $92 $82
10 Years**........................... $163 $154 $154
*Assuming no redemption of Class B shares.
**Ten-year figures assume conversion of Class B shares to Class A shares
at the end of the sixth year following the date of purchase.
</TABLE>
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The amounts listed in the examples should not be considered as
representative of past or future expenses and actual expenses may be
greater or less than those indicated. Moreover, while the example assumes a 5%
annual return, each Series' actual performance will vary and may result in an
actual return greater or less than 5%.
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The purpose of the foregoing tables is to assist you in understanding
the various costs and expenses that investors will bear, directly or
indirectly, the payment of which will reduce investors' return on an annual
basis. For Class A, Other Expenses are based on data for the Fund's fiscal
year ended April 30, 1994, except for the Arizona, Colorado and Oregon Series
for which Other Expenses are based on estimated amounts for the current
fiscal year. For Class B, Other Expenses are estimated based on expenses
incurred by Class A. Long-term investors in Class B could pay more in 12b-1
fees than the economic equivalent of paying a front-end sales charge. The
information in the foregoing tables does not reflect any fee waivers or
expense reimbursement arrangements that may be in effect. Certain Service
Agents (as defined below) may charge their clients direct fees for effecting
transactions in the relevant Series' shares; such fees are not reflected in
the foregoing tables. See "Management of the Fund," "How to Buy Fund Shares"
and "Distribution Plan and Shareholder Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited
(except where indicated) by Ernst & Young LLP, the Fund's independent
auditors, whose report thereon appears in the Statement of Additional
Information. Further financial data and related notes are included in the
Statement of Additional Information, available upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data for each Series for the
periods indicated. This information has been derived from information
provided in the Series' financial statements.
<TABLE>
ARIZONA SERIES
-------------------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------------------- ----------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------- -----------------------
PER SHARE DATA: 1993(1) 1994 1993(2) 1994
---------- --------- ------- ------
<S> <C> <C> <C> <C>
Net asset value, beginning of year..... $12.50 $13.12 $12.65 $13.12
------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income-net.................. .51 .75 .21 .68
Net realized and unrealized gain (loss)
on investments..................... .62 (.51) .47 (.50)
------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS..... 1.13 .24 .68 .18
------- ------- ------- -------
DISTRIBUTIONS:
Dividends from investment income-net...... (.51) (.75) (.21) (.68)
Dividends from net realized gain on investments -- (.01) -- (.01)
------- ------- ------- -------
TOTAL DISTRIBUTIONS................ (.51) (.76) (.21) (.69)
------- ------- ------- -------
Net asset value, end of year........... $13.12 $12.60 $13.12 $12.61
======= ======= ======= ======
TOTAL INVESTMENT RETURN(3)................. 14.01%(4) 1.61% 18.49%(4) 1.16%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.... -- -- .50%(4) .50%
Ratio of net investment income
to average net assets............... 5.71%(4) 5.51% 4.61%(4) 4.95%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation...... 1.87%(4) 1.26% 1.68%(4) 1.27%
Portfolio Turnover Rate............. 5.94%(5) 3.65% 5.94%(5) 3.65%
Net Assets, end of year (000's omitted).... $5,671 $12,506 $1,745 $6,569
(1) From September 3, 1992 (commencement of operations) to April 30, 1993.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 8
<TABLE>
COLORADO SERIES
--------------------------------
CLASS A SHARES CLASS B SHARES
--------------- -----------------
PERIOD ENDED JUNE 30, 1994
PER SHARE DATA: (UNAUDITED)(1)
<S> <C> <C>
Net asset value, beginning of period............ $12.50 $12.50
-------- -------
INVESTMENT OPERATIONS:
Investment income-net........................... .12 .11
Net realized and unrealized (loss) on investments... (.05) (.06)
-------- -------
TOTAL FROM INVESTMENT OPERATIONS................ .07 .05
-------- -------
DISTRIBUTIONS:
Dividends from investment income-net................ (.12) (.11)
-------- -------
Net asset value, end of period...................... $12.45 $12.44
====== =======
TOTAL INVESTMENT RETURN(2).............................. 3.78%(3) 2.74(3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............. -- .50%(3)
Ratio of net investment income to average net assets... 5.70%(3) 3.92%(3)
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation........... 3.75%(3) 3.60%(3)
Portfolio Turnover Rate............................... 13.50%(4) 13.50%(4)
Net Assets, end of period (000's omitted)............. $450 $1,260
(1) From May 6, 1994 (commencement of operations) to June 30, 1994.
(2) Exclusive of sales load.
(3) Annualized.
(4) Not annualized.
</TABLE>
Page 9
<TABLE>
CONNECTICUT SERIES
--------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------ --------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ --------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
-------- ------ ----- ----- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.... $11.00 $10.72 $11.05 $10.88 $11.28 $11.45 $12.26 $11.89 $12.26
------ ------ ------ ------ ----- ----- ----- ------- -----
INVESTMENT OPERATIONS:
Investment income-net................. .76 .81 .80 .77 .72 .71 .68 .18 .61
Net realized and unrealized gain
(loss) on investments................ (.28) .38 (.15) .40 .17 .81 (.42) .37 (.43)
------ ------ ------ ------ ----- ----- ----- ------- -----
TOTAL FROM INVESTMENT OPERATIONS.... .48 1.19 .65 1.17 .89 1.52 .26 .55 .18
------ ------ ------ ------ ----- ----- ----- ------- -----
DISTRIBUTIONS:
Dividends from investment income-net.. (.76) (.81) (.80) (.77) (.72) (.71) (.68) (.18) (.61)
Dividends from net realized gain
on investments....................... -- (.05) (.02) -- -- -- (.03) -- (.03)
Dividends from excess net realized
gain on investments -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ----- ----- ----- ------- -----
TOTAL DISTRIBUTIONS................. (.76) (.86) (.82) (.77) (.72) (.71) (.71) (.18) (.64)
------ ------ ------ ------ ----- ----- ----- ------- -----
Net asset value, end of year........ $10.72 $11.05 $10.88 $11.28 $11.45 $12.26 $11.81 $12.26 $11.80
======== ======= ======= ====== ====== ====== ======== ======= ======
TOTAL INVESTMENT RETURN(3)............ 5.00%(4) 11.54% 5.93% 11.10% 8.14% 13.62% 1.92% 16.08%(4) 1.26%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.. -- -- -- .21% .52% .69% .80% 1.12%(4) 1.36%
Ratio of net investment income to
average net assets..................... 7.31%(4) 7.24% 7.05% 6.81% 6.30% 5.93% 5.44% 4.57%(4) 4.78%
Decrease reflected in above expense
ratios due to undertakings by
The Dreyfus Corporation (limited to
the expense limitation provision of
the Management Agreement).............. 1.50%(4) 1.42% 1.10% .75% .41% .21% .09% .12%(4) .08%
Portfolio Turnover Rate........... 91.09%(5) 72.52% 12.62% 6.30% 8.53% 24.22% 10.83% 24.22% 10.83%
Net Assets, end of year
(000's omitted)........... $11,641 $ 31,056 $83,206 $183,788 $280,305 $360,020 $364,182 $9,492 $32,246
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 10
<TABLE>
FLORIDA SERIES
----------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------------------ ------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
----------------------------------------------------------------------------- --------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
---------- ------ ------- ------- ------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $12.00 $12.85 $13.48 $13.34 $13.93 $14.33 $15.02 $14.59 $15.01
------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net.............. .92 1.02 1.02 .99 .95 .92 .85 .24 .77
Net realized and unrealized gain
(loss) on investments............. .85 .63 (.11) .61 .41 .86 (.51) .42 (.51)
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS.. 1.77 1.65 .91 1.60 1.36 1.78 .34 .66 .26
DISTRIBUTIONS:
Dividends from investment income-net.. (.92) (1.02) (1.02) (.99) (.95) (.92) (.85) (.24) (.77)
------ ------ ------ ------ ------ ------ ------ ------ ------
Dividends from net realized
gain on investments................ -- -- (.03) (.02) (.01) (.17) (.04) -- (.04)
Dividends from excess net realized
gain on investments............... -- -- -- -- -- -- (.04) -- (.04)
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS........ (.92) (1.02) (1.05) (1.01) (.96) (1.09) (.93) (.24) (.85)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year... $12.85 $13.48 $13.34 $13.93 $14.33 $15.02 $14.43 $15.01 $14.42
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN(3)..... 16.24%(4) 13.32% 6.83% 12.40% 10.09% 12.84% 2.14% 15.60%(4) 1.54%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets......... -- -- -- .21% .52% .69% .80% 1.12%(4) 1.34%
Ratio of net investment income
to average net assets...... 7.76%(4) 7.26% 7.24% 7.11% 6.65% 6.21% 5.61% 4.87%(4) 4.91%
Decrease reflected in above expense ratios
due to undertakings by The Dreyfus Corporation
(limited to the expense limitation provision
of the Management Agreement).... 1.50%(4) 1.50% 1.08% .74% .41% .21% .10% .12%(4) .09%
Portfolio Turnover Rate.......... 31.25%(5) 17.16% 27.69% .28% 20.99% 33.18% 20.84% 33.18% 20.84%
Net Assets, end of year
(000's omitted)........... $1,493 $15,061 $67,416 $177,927 $245,474 $299,775 $289,791 $5,916 22,476
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 11
<TABLE>
GEORGIA SERIES
-------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
---------------------- ------------------------
PER SHARE DATA: 1993(1) 1994 1993(2) 1994
--------- -------- ------- ------
<S> <C> <C> <C> <C>
Net asset value, beginning of year.... $12.50 $13.27 $12.71 $13.27
-------- -------- ------- ------
INVESTMENT OPERATIONS:
Investment income-net................. .51 .73 .20 .67
Net realized and unrealized gain
(loss) on investments............... .77 (.58) .56 (.58)
-------- -------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS... 1.28 .15 .76 .09
-------- -------- ------- ------
DISTRIBUTIONS:
Dividends from investment income-net... (.51) (.73) (.20) (.67)
-------- -------- ------- ------
Net asset value, end of year........... $13.27 $12.69 $13.27 $12.69
======= ======= ======= ======
TOTAL INVESTMENT RETURN(3)................. 15.91%(4) .97% 20.66%(4) .46%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.. -- .07% .50%(4) .58%
Ratio of net investment income to
average net assets...................... 5.55%(4) 5.41% 4.60%(4) 4.85%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation.. 1.46%(4) 1.02% 1.37%(4) 1.02%
Portfolio Turnover Rate............... 37.79%(5) 6.76% 37.79%(5) 6.76%
Net Assets, end of year (000's omitted).. $7,304 $10,058 $6,319 $16,243
(1) From September 3, 1992 (commencement of operations) to April 30, 1993.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 12
<TABLE>
MARYLAND SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------ ---------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ -------------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
----------- -------- ------- ------ -------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $12.50 $11.38 $11.72 $11.61 $12.13 $12.43 $13.02 $12.64 $13.02
------ ------ ------ ------ ------ ------ ------ ------- ------
INVESTMENT OPERATIONS:
Investment income-net............... .80 .87 .86 .85 .79 .76 .73 .20 .65
Net realized and unrealized gain
(loss) on investments.............. (1.12) .34 (.09) .53 .35 .68 (.53) .38 (.53)
------ ------ ------ ------ ------ ------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS... (.32) 1.21 .77 1.38 1.14 1.44 .20 .58 .12
------ ------ ------ ------ ------ ------ ------ ------- ------
DISTRIBUTIONS:
Dividends from investment income-net.. (.80) (.87) (.86) (.85) (.79) (.76) (.73) (.20) (.65)
Dividends from net realized gain
on investments....................... -- -- (.02) (.01) (.05) (.09) (.03) -- (.03)
Dividends from excess net realized
gain on investments................. -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------
TOTAL DISTRIBUTIONS................. (.80) (.87) (.88) (.86) (.84) (.85) (.76) (.20) (.68)
------ ------ ------ ------ ------ ------ ------ ------- ------
Net asset value, end of year... $11.38 $11.72 $11.61 $12.13 $12.43 $13.02 $12.46 $13.02 $12.46
====== ====== ====== ====== ====== ====== ====== ======= =======
TOTAL INVESTMENT RETURN(3)... (2.50%)(4) 11.05% 6.69% 12.24% 9.68% 11.93% 1.33% 15.74%(4) .75%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets........... -- -- -- .21% .53% .69% .80% 1.09%(4) 1.37%
Ratio of net investment income
to average net assets....... 7.44%(4) 7.26% 7.12% 6.98% 6.40% 5.93% 5.51% 4.55%(4) 4.82%
Decrease reflected in above expense
ratios due to undertakings by The Dreyfus Corporation
(limited to the expense limitation provision
of the Management Agreement)...... 1.50%(4) 1.50% 1.11% .75% .41% .22% .10% .12%(4) .08%
Portfolio Turnover Rate........... 75.21%(5) 8.67% 30.03% 1.45% 16.21% 17.92% 10.27% 17.92% 10.27%
Net Assets, end of year
(000's omitted)................. $4,353 $24,383 $85,794 $179,959 $254,240 $337,307 $335,518 $5,931 $30,527
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 13
<TABLE>
MASSACHUSETTS SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ --------------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
--------- ------- ------ ------- ------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $11.50 $10.54 $10.92 $10.69 $11.05 $11.41 $12.13 $11.79 $12.13
-------- ------- ------ ------ ------- ------- ------- -------- ------
INVESTMENT OPERATIONS:
Investment income-net............... .76 .83 .82 .79 .75 .73 .71 .19 .64
Net realized and unrealized gain
(loss) on investments.............. (.96) .38 (.23) .37 .36 .73 (.44) .34 (.45)
-------- ------- ------ ------ ------- ------- ------- -------- ------
TOTAL FROM INVESTMENT OPERATIONS... (.20) 1.21 .59 1.16 1.11 1.46 .27 .53 .19
-------- ------- ------ ------ ------- ------- ------- -------- ------
DISTRIBUTIONS:
Dividends from investment income-net.. (.76) (.83) (.82) (.79) (.75) (.73) (.71) (.19) (.64)
Dividends from net realized gain
on investments...................... -- -- -- (.01) -- (.01) (.05) -- (.05)
Dividends from excess net gain
on investments...................... -- -- -- -- -- -- -- -- --
-------- ------- ------ ------ ------- ------- ------- -------- ------
TOTAL DISTRIBUTIONS................ (.76) (.83) (.82) (.80) (.75) (.74) (.76) (.19) (.69)
-------- ------- ------ ------ ------- ------- ------- -------- ------
Net asset value, end of year... $10.54 $10.92 $10.69 $11.05 $11.41 $12.13 $11.64 $12.13 $11.63
====== ======= ====== ====== ====== ====== ====== ======= ======
TOTAL INVESTMENT RETURN(3)....... (1.67%)(4) 11.91% 5.49% 11.23% 10.32% 13.14% 2.08% 15.56%(4) 1.44%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets.................... -- -- -- .19% .55% .69% .82% 1.15%(4) 1.36%
Ratio of net investment income to
average net assets............ 7.63%(4) 7.58% 7.40% 7.21% 6.65% 6.16% 5.80% 4.92%(4) 5.18%
Decrease reflected in above expense ratios
due to undertakings by The
Dreyfus Corporation (limited to the expense
limitation provision of
the Management Agreement)........... 1.50%(4) 1.48% 1.11% .78% .41% .24% .11% .13%(4) .10%
Portfolio Turnover Rate............. 36.11%(5) 17.76% 28.44% 47.07% 24.75% 11.36% 12.04% 11.36% 12.04%
Net Assets, end of year
(000's omitted)................... $5,174 $21,578 $43,375 $57,328 $66,873 $79,701 $76,865 $1,066 $3,702
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 14
<TABLE>
MICHIGAN SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------- -------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ -------------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
------------ ------- ------- ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $13.00 $13.45 $14.10 $13.80 $14.34 $14.80 $15.65 $15.20 $15.64
-------- ------- ------- ------ ------ ------ ------ ------- --------
NVESTMENT OPERATIONS:
Investment income-net............... 1.00 1.07 1.05 1.01 .95 .92 .89 .24 .80
Net realized and unrealized gain
(loss) on investments.............. .45 .65 (.27) .54 .46 .98 (.30) .44 (.29)
-------- ------- ------- ------ ------ ------ ------ ------- --------
TOTAL FROM INVESTMENT OPERATIONS.. 1.45 1.72 .78 1.55 1.41 1.90 .59 .68 .51
-------- ------- ------- ------ ------ ------ ------ ------- --------
DISTRIBUTIONS:
Dividends from investment income-net.. (1.00) (1.07) (1.05) (1.01) (.95) (.92) (.89) (.24) (.80)
Dividends from net realized gain
on investments....................... -- -- (.03) -- -- (.13) (.08) -- (.08)
-------- ------- ------- ------ ------ ------ ------ ------- --------
TOTAL DISTRIBUTIONS.................. (1.00) (1.07) (1.08) (1.01) (.95) (1.05) (.97) (.24) (.88)
-------- ------- ------- ------ ------ ------ ------ ------- --------
Net asset value, end of year.......... $13.45 $14.10 $13.80 $14.34 $14.80 $15.65 $15.27 $15.64 $15.27
====== ====== ======= ====== ====== ======= ====== ====== =======
TOTAL INVESTMENT RETURN(3).............. 12.32%(4) 13.25% 5.59% 11.61% 10.12% 13.25% 3.65% 15.50%(4) 3.11%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.. -- -- -- .20% .53% .69% .81% 1.18%(4) 1.38%
Ratio of net investment income to
average net assets...................... 7.97%(4) 7.49% 7.23% 7.07% 6.47% 6.01% 5.56% 4.85%(4) 4.88%
Decrease reflected in above expense ratios
due to undertakings by The Dreyfus Corporation
(limited to the expense limitation provision of the
Management Agreement).................. 1.50%(4) 1.50% 1.16% .79% .42% .25% .11% .14%(4) .09%
Portfolio Turnover Rate................. 48.80%(5) 32.72% 20.23% 27.31% 21.42% 14.99% 19.96% 14.99% 19.96%
Net Assets, end of year
(000's omitted)........................ $1,671 $8,548 $56,699 $111,696 $145,159 $184,138 $187,405 $3,581 $13,861
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 15
<TABLE>
MINNESOTA SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------ --------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ -----------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
-------- ------ ------ ------ ------- ------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $13.50 $13.37 $13.92 $13.74 $14.28 $14.63 $15.31 $14.86 $15.32
------- ------- ------- ------ ------ ------- ------ ------- -------
INVESTMENT OPERATIONS:
Investment income-net................ .97 1.07 1.04 1.02 .96 .92 .87 .24 .78
Net realized and unrealized
gain (loss) on investments.......... (.13) .55 (.13) .56 .36 .77 (.53) .46 (.52)
------- ------- ------- ------ ------ ------- ------ ------- -------
TOTAL FROM INVESTMENT OPERATIONS.... .84 1.62 .91 1.58 1.32 1.69 .34 .70 .26
------- ------- ------- ------ ------ ------- ------ ------- -------
DISTRIBUTIONS:
Dividends from investment income-net.. (.97) (1.07) (1.04) (1.02) (.96) (.92) (.87) (.24) (.78)
Dividends from net realized
gain on investment................... -- -- (.05) (.02) (.01) (.09) (.06) -- (.06)
------- ------- ------- ------ ------ ------- ------ ------- -------
TOTAL DISTRIBUTIONS................. (.97) (1.07) (1.09) (1.04) (.97) (1.01) (.93) (.24) (.84)
------- ------- ------- ------ ------ ------- ------ ------- -------
Net asset value, end of year......... $13.37 $13.92 $13.74 $14.28 $14.63 $15.31 $14.72 $15.32 $14.74
====== ====== ====== ====== ======= ====== ====== ====== =======
TOTAL INVESTMENT RETURN(3)............. 7.01%(4) 12.57% 6.67% 11.89% 9.45% 11.96% 2.08% 16.32%(4) 1.55%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets.......................... -- -- -- .20% .53% .69% .80% 1.16%(4) 1.38%
Ratio of net investment income
to average net assets............... 7.79%(4) 7.66% 7.25% 7.19% 6.53% 6.13% 5.61% 4.83%(4) 4.91%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation
(limited to the expense limitation provision
of the Management Agreement)........ 1.50%(4) 1.50% 1.16% .79% .41% .24% .11% .14%(4) .09%
Portfolio Turnover Rate.............. 70.26%(5) 31.64% 23.48% 14.04% 12.32% 23.42% 12.21% 23.42% 12.21%
Net Assets, end of year
(000's omitted)........... $4,331 $13,019 $46,428 $85,066 $122,782 $148,765 $155,657 $4,633 $21,004
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 16
<TABLE>
NORTH CAROLINA SERIES
---------------------------------------------------------
CLASS A SHARES CLASS B SHARES
---------------------------------------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
---------------------------------------------------------
PER SHARE DATA: 1992(1) 1993 1994 1993(2) 1994
-------- ------- ------ ---------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......... $12.00 $12.39 $13.40 $12.90 $13.39
------- ------- ------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net....................... .62 .78 .74 .20 .66
Net realized and unrealized gain
(loss) on investments...................... .39 1.02 (.67) .49 (.67)
------- ------- ------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS........... 1.01 1.80 .07 .69 (.01)
------- ------- ------- -------- --------
DISTRIBUTIONS:
Dividends from investment income-net........ (.62) (.78) (.74) (.20) (.66)
Dividends from net realized gain on investments... -- (.01) -- -- --
------- ------- ------- -------- --------
TOTAL DISTRIBUTIONS.............................. (.62) (.79) (.74) (.20) (.66)
------- ------- ------- -------- --------
Net asset value, end of year................. $12.39 $13.40 $12.73 $13.39 $12.72
======= ====== ====== ====== =======
TOTAL INVESTMENT RETURN(3)..................... 11.36%(4) 14.97% .29% 18.53%(4) (.27%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets....... -- .29% .44% .79%(4) 1.00%
Ratio of net investment income to average net assets.. 6.35%(4) 5.94% 5.38% 4.47%(4) 4.78%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation........ 1.14%(4) .76% .50% .56%(4) .48%
Portfolio Turnover Rate......................... 15.01%(5) 5.76% 11.62% 5.76% 11.62%
Net Assets, end of year (000's omitted)......... $26,387 $56,284 $68,074 $13,145 $38,968
(1) From August 1, 1991 (commencement of operations) to April 30, 1992.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 17
<TABLE>
OHIO SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------ --------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ -------------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
------- ------ ------ ------ ------ ------ ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $14.50 $11.18 $11.66 $11.54 $12.00 $12.35 $13.09 $12.69 $13.09
------- ------ ------ ------ ------ ------ ------ ------ -------
INVESTMENT OPERATIONS:
Investment income-net............. .80 .89 .88 .86 .80 .77 .74 .20 .66
Net realized and unrealized gain
(loss) on investments............. (3.32) .48 (.08) .46 .36 .81 (.36) .40 (.35)
------- ------- ------- ------- ------ ------ -------- ------ --------
TOTAL FROM INVESTMENT OPERATIONS.. (2.52) 1.37 .80 1.32 1.16 1.58 .38 .60 .31
------- ------ ------ ------ ------ ------ ------ ------ -------
DISTRIBUTIONS:
Dividends from investment income-net.. (.80) (.89) (.88) (.86) (.80) (.77) (.74) (.20) (.66)
Dividends from net realized
gain on investment................ -- -- (.04) -- (.01) (.07) (.03) -- (.03)
------- ------ ------ ------ ------ ------ ------ ------ -------
TOTAL DISTRIBUTIONS............... (.80) (.89) (.92) (.86) (.81) (.84) (.77) (.20) (.69)
------- ------ ------ ------ ------ ------ ------ ------ -------
Net asset value, end of year....... $11.18 $11.66 $11.54 $12.00 $12.35 $13.09 $12.70 $13.09 $12.71
======= ====== ====== ====== ====== ====== ====== ======= =======
TOTAL INVESTMENT RETURN(3)......... (18.49%)(4) 12.72% 6.95% 11.84% 9.97% 13.24% 2.78% 16.36%(4) 2.24%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets............... -- -- -- .21% .52% .70% .81% 1.17%(4) 1.38%
Ratio of net investment income
to average net assets........... 7.79%(4) 7.57% 7.30% 7.20% 6.53% 6.03% 5.57% 4.62%(4) 4.89%
Decrease reflected in above expense
ratios due to undertakings by
The Dreyfus Corporation
(limited to the expense
limitation provision of
the Management Agreement)....... 1.50%(4) 1.50% 1.12% .78% .41% .23% .12% .13%(4) .10%
Portfolio Turnover Rate.......... 11.10%(5) 14.49% 14.58% 3.00% 13.68% 6.08% 7.73% 6.08% 7.73%
Net Assets, end of
(000's omitted).............. $8,043 $31,420 $92,864 $176,223 $243,074 $295,564 $293,706 $8,482 $27,657
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 18
<TABLE>
OREGON SERIES
--------------------------------
CLASS A SHARES CLASS B SHARES
--------------------------------
PERIOD ENDED JUNE 30, 1994
PER SHARE DATA: (UNAUDITED)(1)
<S> <C> <C>
Net asset value, beginning of period.......... $12.50 $12.50
------- -------
INVESTMENT OPERATIONS:
Investment income net......................... .12 .11
Net unrealized gain on investments............ .11 .11
------- -------
TOTAL FROM INVESTMENT OPERATIONS........... .23 .22
------- -------
DISTRIBUTIONS:
Dividends from investment income net........... (.12) (.11)
------- -------
Net asset value, end of period ................. $12.61 $12.61
======= =======
TOTAL INVESTMENT RETURN(2)........................... 12.19%(3) 11.73%(3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......... -- .50%(3)
Ratio of net investment income to average net assets.. 6.01%(3) 5.71%(3)
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation............ 10.03%(3) 10.86%(3)
Portfolio Turnover Rate.................................. -- --
Net Assets, end of period (000's omitted)............. $375 $262
(1) From May 6, 1994 (commencement of operations) to June 30, 1994.
(2) Exclusive of sales load.
(3) Annualized.
</TABLE>
Page 19
<TABLE>
PENNSYLVANIA SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ --------------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
------- ------ ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $15.00 $14.23 $14.78 $14.68 $15.21 $15.73 $16.61 $16.10 $16.60
------ ------- ------ ------ ------ ------- ------- -------- -------
INVESTMENT OPERATIONS:
Investment income-net.............. .85 1.13 1.13 1.12 1.06 1.02 .95 .26 .85
Net realized and unrealized gain
(loss) on investments............. (.77) .55 (.08) .55 .56 .99 (.57) .50 (.56)
------ ------- ------ ------ ------ ------- ------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS.... .08 1.68 1.05 1.67 1.62 2.01 .38 .76 .29
------ ------- ------ ------ ------ ------- ------- -------- -------
DISTRIBUTIONS:
Dividends from investment income-net.. (.85) (1.13) (1.13) (1.12) (1.06) (1.02) (.95) (.26) (.85)
Dividends from net realized gain
on investments....................... -- -- (.02) (.02) (.04) (.11) (.03) -- (.03)
Dividends in excess of net realized
gain on investments.................. -- -- -- -- -- -- -- -- --
------ ------- ------ ------ ------ ------- ------- -------- -------
TOTAL DISTRIBUTIONS................ (.85) (1.13) (1.15) (1.14) (1.10) (1.13) (.98) (.26) (.88)
------ ------- ------ ------ ------ ------- ------- -------- -------
Net asset value, end of year........ $14.23 $14.78 $14.68 $15.21 $15.73 $16.61 $16.01 $16.60 $16.01
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN(3)........... .87%(4) 12.21% 7.20% 11.74% 10.97% 13.19% 2.17% 16.39%(4) 1.65%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets........................ -- -- -- .22% .56% .69% .81% 1.14%(4) 1.38%
Ratio of net investment income
to average net assets............ 7.08%(4) 7.46% 7.38% 7.32% 6.75% 6.24% 5.61% 4.90%(4) 4.95%
Decrease reflected in above expense ratios
due to undertakings by The Dreyfus Corporation
(limited to the expense limitation provision
of the Management Agreement)....... 1.50%(4) 1.50% 1.24% .79% .41% .25% .12% .15%(4) .10%
Portfolio Turnover Rate............. 67.48%(5) 25.10% 59.15% 25.74% 38.97% 8.64% 7.21% 8.64% 7.21%
Net Assets, end of year
(000's omitted)............. $2,870 $12,083 $51,418 $113,439 $158,437 $220,920 $235,619 $14,631 $59,057
(1) From July 30, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 20
<TABLE>
TEXAS SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------ --------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ ------------------
PER SHARE DATA: 1988(1) 1989 1990 1991 1992 1993 1994 1993(2) 1994
------- ------ ------- ------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $15.50 $17.89 $18.64 $18.58 $19.25 $19.89 $21.23 $20.52 $21.23
------- ------- ------- ------ ------- ------- ------ ------- -------
INVESTMENT OPERATIONS:
Investment income-net.............. 1.33 1.45 1.44 1.40 1.36 1.29 1.25 .33 1.13
Net realized and unrealized gain
(loss) on investments............. 2.39 .75 (.05) .67 .69 1.37 (.66) .71 (.66)
------- ------- ------- ------ ------- ------- ------ ------- -------
TOTAL FROM INVESTMENT OPERATIONS... 3.72 2.20 1.39 2.07 2.05 2.66 .59 1.04 .47
------- ------- ------- ------ ------- ------- ------ ------- -------
DISTRIBUTIONS:
Dividends from investment income-net.. (1.33) (1.45) (1.44) (1.40) (1.36) (1.29) (1.25) (.33) (1.13)
Dividends from net realized gain
on investments....................... -- -- (.01) -- (.05) (.03) (.13) -- (.13)
Dividends from excess net realized
gain on investments.................. -- -- -- -- -- -- (.03) -- (.03)
------- ------- ------- ------ ------- ------- ------ ------- -------
TOTAL DISTRIBUTIONS................ (1.33) (1.45) (1.45) (1.40) (1.41) (1.32) (1.41) (.33) (1.29)
------- ------- ------- ------ ------- ------- ------ ------- -------
Net asset value, end of year..... $17.89 $18.64 $18.58 $19.25 $19.89 $21.23 $20.41 $21.23 $20.41
======= ======= ======= ======= ====== ====== ======= ======= =======
TOTAL INVESTMENT RETURN(3)...... 26.23%(4) 12.79% 7.55% 11.54% 10.97% 13.80% 2.62% 17.60%(4) 2.05%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets............. -- -- -- -- .15% .36% .39% .82%(4) .94%
atio of net investment income to
average net assets............. 7.94%(4) 7.90% 7.50% 7.29% 6.78% 6.18% 5.78% 4.81%(4) 5.15%
Decrease reflected in above expense
ratios due to undertakings by The Dreyfus Corporation
(limited to the expense limitation provision of
the Management Agreement).......... 1.50%(4) 1.50% 1.50% 1.27% .88% .62% .55% .49%(4) .54%
Portfolio Turnover Rate............. 47.85%(5) 6.84% 2.62% 1.95% 7.49% 14.94% 9.68% 14.94% 9.68%
Net Assets, end of year
(000's omitted).......... $1,553 $2,902 $5,642 $15,139 $37,208 $72,037 $76,277 $6,373 $15,878
(1) From May 28, 1987 (commencement of operations) to April 30, 1988.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Page 21
<TABLE>
VIRGINIA SERIES
------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------------ --------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------------------------------------ -------------------
PER SHARE DATA: 1992(1) 1993 1994 1993(2) 1994
--------- ------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $15.00 $15.50 $16.80 $16.25 $16.80
------- -------- ------- -------- -------
INVESTMENT OPERATIONS:
Investment income-net................... .78 1.00 .97 .26 .88
Net realized and unrealized gain
(loss) on investments.................. .50 1.31 (.75) .55 (.75)
------- -------- ------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS...... 1.28 2.31 .22 .81 .13
------- -------- ------- -------- -------
DISTRIBUTIONS:
Dividends from investment income-net....... (.78) (1.00) (.97) (.26) (.88)
Dividends from net realized gain on investments.. -- (.01) (.01) -- (.01)
Dividends from excess net realized
gain on investments............................. -- -- (.02) -- (.02)
------- -------- ------- -------- -------
TOTAL DISTRIBUTIONS.......................... (.78) (1.01) (1.00) (.26) (.91)
------- -------- ------- -------- -------
Net asset value, end of year..................... $15.50 $16.80 $16.02 $16.80 $16.02
======= ====== ====== ====== ======
TOTAL INVESTMENT RETURN(3).......................... 11.54%(4) 15.32% 1.10% 17.22%(4) .54%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets........... -- .27% .46% .83%(4) 1.01%
Ratio of net investment income to
average net assets............................. 6.42%(4) 6.02% 5.64% 4.62%(4) 5.02%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation..... 1.22%(4) .76% .55% .54%(4) .54%
Portfolio Turnover Rate......................... 5.96%(5) 9.32% 30.69% 9.32% 30.69%
Net Assets, end of year (000's omitted)......... $23,096 $55,627 $65,279 $8,402 $25,254
(1) From August 1, 1991 (commencement of operations) to April 30,1992.
(2) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
(3) Exclusive of sales load.
(4) Annualized.
(5) Not annualized.
</TABLE>
Further information about each Series' performance (except
with respect to the Colorado and Oregon Series) is
contained in the Fund's annual report. Further information about the
Colorado Series' and the Oregon Series' performance will be contained in
the Fund's annual report for the fiscal year ending April 30, 1995, which
will be available approximately the end of June 1995. The Fund's annual
report may be obtained without charge by writing to the address or
calling the number set forth on the cover page of this Prospectus.
ALTERNATIVE PURCHASE METHODS
The Fund offers you two methods of purchasing each Series'
shares; you may choose the Class of shares that best suits your needs,
given the amount of your purchase, the length of time you expect to hold
your shares and any other relevant circumstances. Each Class A and Class
B share of a Series represents an identical pro rata interest in the
Series' investment portfolio.
As to each Series, Class A shares are sold at net asset value
per share plus a maximum initial sales charge of 4.50% of the public
offering price imposed at the time of purchase. The initial sales charge
may be reduced or waived for certain purchases. See "How to Buy Fund
Shares _ Class A Shares." These shares are subject to an annual service
fee at the rate of .25 of 1% of the value of the average daily net assets
of Class A. See "Distribution Plan and Shareholder Services Plan _
Shareholder Services Plan."
As to each Series, Class B shares are sold at net asset value
per share with no initial sales charge at the time of purchase; as a
result, the entire purchase price is immediately invested in the Fund.
Class B shares are subject to a maximum 3% contingent deferred sales
charge ("CDSC"), which is assessed only if you redeem Class B shares
within the first five years of
Page 22
their purchase. See "How to Buy Fund
Shares _ Class B Shares" and "How to Redeem Fund Shares _ Contingent
Deferred Sales Charge _ Class B Shares." These shares also are subject to
an annual service fee at the rate of .25 of 1% of the value of the
average daily net assets of Class B. In addition, Class B shares are
subject to an annual distribution fee at the rate of .50 of 1% of the
value of the average daily net assets of Class B. See "Distribution Plan
and Shareholder Services Plan." The distribution fee paid by Class B will
cause such Class to have a higher expense ratio and to pay lower
dividends than Class A. 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 Class, and will no longer be subject to the distribution
fee. 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.
You should consider whether, during the anticipated life of
your investment in the Fund, the accumulated distribution fee and CDSC on
Class B shares prior to conversion would be less than the initial sales
charge on Class A shares purchased at the same time, and to what extent,
if any, such differential would be offset by the return of Class A. In
this regard, generally, Class B shares may be more appropriate for
investors who invest less than $100,000 in Fund shares. Additionally,
investors qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
fees on Class B shares may exceed the initial sales charge on Class A
shares during the life of the investment. Generally, Class A shares may
be more appropriate for investors who invest $250,000 or more in Fund
shares.
DESCRIPTION OF THE FUND
GENERAL
The Fund is a "series fund," which is a mutual fund divided
into separate portfolios. Each portfolio is treated as a separate entity
for certain matters under the Investment Company Act of 1940 and for
other purposes, and a shareholder of one Series is not deemed to be a
shareholder of any other Series. As described below, for certain matters
Fund shareholders vote together as a group; as to others they vote
separately by Series. When used herein, the term "State" refers to the
State after which a Series is named.
INVESTMENT OBJECTIVE
The Fund's goal is to maximize current income exempt from
Federal income tax and, where applicable, from State income taxes for
residents of the States of Arizona, Colorado, Connecticut, Florida,
Georgia, Maryland, Massachusetts, Michigan, Minnesota, North Carolina,
Ohio, Oregon, Pennsylvania, Texas and Virginia, without undue risk. To
accomplish this goal, 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, "Arizona Municipal
Obligations," "Colorado Municipal Obligations," "Connecticut Municipal
Obligations," "Florida Municipal Obligations," etc.). To the extent
acceptable State Municipal Obligations are at any time unavailable for
investment, such Series will invest temporarily in other debt securities
the interest from which is, in the opinion of bond counsel to the issuer,
exempt from Federal income tax. Each Series' investment objective cannot
be changed without approval by the holders of a majority (as defined in
the Investment Company Act of 1940) of such Series' outstanding voting
shares. There can be no assurance that the Series' investment objective
will be achieved.
Page 23
MUNICIPAL OBLIGATIONS
Debt securities the interest from which is, in the opinion of
bond counsel to the issuer, exempt from Federal income tax ("Municipal
Obligations") generally include debt obligations issued to obtain funds
for various public purposes as well as certain industrial development
bonds issued by or on behalf of public authorities. Municipal Obligations
are classified as general obligation bonds, revenue bonds 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.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that at least 80% of
the value of each Series' net assets (except when maintaining a temporary
defensive position) will be invested in Municipal Obligations and at
least 65% of the value of each Series' net assets (except when
maintaining a temporary defensive position) will be invested in bonds and
debentures. At least 65% of the value of each Series' net assets will be
invested in Municipal Obligations issued by issuers in such State, as
defined above, and the remainder may be invested in securities that are
not State Municipal Obligations and therefore may be subject to State
income taxes. See "Risk Factors _ Investing in State Municipal
Obligations" below, and "Dividends, Distributions and Taxes."
At least 70% of the value of each Series' net assets must
consist of 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 Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"). 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 Moody's, S&P or Fitch. Each Series may invest
in short-term Municipal Obligations which are rated in the two highest
rating categories by Moody's, S&P or Fitch. See "Appendix B" in the
Statement of Additional Information. Municipal Obligations rated BBB by
S&P or Fitch or Baa by Moody's are considered investment grade
obligations; those rated BBB by S&P or Fitch are regarded as having an
adequate capacity to pay principal and interest, while those rated Baa by
Moody's are considered medium grade obligations which lack outstanding
investment characteristics and have speculative characteristics.
Investments rated Ba or lower by Moody's and BB or lower by S&P and Fitch
ordinarily provide higher yields but involve greater risk because of
their speculative characteristics. Each Series may invest in Municipal
Obligations rated C by Moody's or D by S&P or Fitch, which is the lowest
rating assigned by such rating organizations and indicates that the
Municipal Obligation is in default and interest and/or repayment of
principal is in arrears. See "Risk Factors _ Lower Rated Bonds" below for
a further discussion of certain
Page 24
risks. Each Series also may invest in
securities which, while not rated, are determined by The Dreyfus
Corporation 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 shall be deemed to have the
rating so determined. Each Series also may invest in Taxable Investments
of the quality described below. Under normal market conditions, the
weighted average maturity of each Series' portfolio is expected to exceed
ten years.
In addition to usual investment practices, each Series may
use speculative investment techniques such as short-selling and lending
its portfolio securities. Each Series also may purchase, hold or deal in
futures contracts and options on futures contracts, as permitted by
applicable law. See "Investment Techniques" below, and "Dividends,
Distributions and Taxes."
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.
From time to time, a Series may invest more than 25% of the
value of its total assets in industrial development bonds which, although
issued by industrial development authorities, may be backed only by the
assets and revenues of the non-governmental users. Interest on Municipal
Obligations (including certain industrial development bonds) which are
specified private activity bonds, as defined in the Internal Revenue Code
of 1986, as amended (the "Code"), issued after August 7, 1986, while
exempt from Federal income tax, is a preference item for the purpose of
the alternative minimum tax. Where a regulated investment company
receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a
preference item to shareholders. Each Series may invest without
limitation in such Municipal Obligations if The Dreyfus Corporation
determines that their purchase is consistent with the Fund's investment
objective. See "Risk Factors _ Other Investment Considerations."
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, which
may change daily without penalty, pursuant to direct arrangements between
such Series, as lender, and the borrower. The interest rates on these
obligations fluctuate from time to time. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. Use of letters of credit or other credit support
arrangements will not adversely affect the tax exempt status of these
obligations. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the
Fund's 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.
The Dreyfus Corporation, on behalf of the Fund, will consider on an
ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations in each Series' portfolio. No Series
will invest more than 15% of the value of its net assets in floating or
variable rate demand obligations as to which the Series cannot exercise
the demand feature on not more than seven days' notice if there is no
secondary market available for these obligations, and in other illiquid
securities.
Each Series may purchase from financial institutions
participation interests in Municipal Obligations (such as industrial
development bonds and municipal lease/purchase agree-
Page 25
ments). 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 have fixed, floating or variable
rates of interest. If the participation interest is unrated, the
participation interest will be backed by an irrevocable letter of credit
or guarantee of a bank that the Board of Trustees has determined meets
the prescribed quality standards for banks set forth below, or the payment
obligation otherwise will be collateralized by U.S. Government securities.
For certain participation interests, 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. No
Series will invest more than 15% of the value of its net assets in
participation interests that do not have this demand feature if there is
no secondary market available for these instruments, and in other
illiquid securities.
Each Series may purchase tender option bonds. A tender option
bond is a Municipal Obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a
fixed rate substantially higher than prevailing short-term tax exempt
rates, that has been coupled with the agreement of a third party, such as
a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the
face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference
between the Municipal Obligation's fixed coupon rate and the rate, as
determined by a remarketing or similar agent at or near the commencement
of such period, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt
rate. The Dreyfus Corporation, on behalf of 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. No Series will invest more than 15% of the value of its
net assets in illiquid securities, which could include tender option
bonds as to which it cannot exercise the tender feature on not more than
seven days' notice if there is no secondary market available for these
obligations.
Each Series may acquire "stand-by commitments" with respect
to Municipal Obligations held in its portfolio. Under a stand-by
commitment, 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 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. 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 such Series.
Each Series may purchase custodial receipts representing the
right to receive certain future principal and interest payments on
Municipal Obligations which underlie the custodial
Page 26
receipts. A number of different arrangements are possible. In a typical
custodial receipt arrangement, an issuer or a third party owner of
Municipal Obligations deposits such obligations with a custodian in
exchange for two classes of custodial receipts. The two classes have
different characteristics, but, in each case, payments on the two classes
are based on payments received on the underlying Municipal Obligations.
One class has the characteristics of a typical auction rate security,
where at specified intervals its interest rate is adjusted, and ownership
changes, based on an auction mechanism. This class's interest rate
generally is expected to be below the coupon rate of the underlying
Municipal Obligations and generally is at a level comparable to that of a
Municipal Obligation of similar quality and having a maturity equal to
the period between interest rate adjustments. The second class bears
interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted,
but in this case inversely to changes in the rate of interest of the
first class. If the interest rate on the first class exceeds the coupon
rate of the underlying Municipal Obligations, its interest rate will
exceed the rate paid on the second class. In no event will the aggregate
interest paid with respect to the two classes exceed the interest paid by
the underlying Municipal Obligations. The value of the second class and
similar securities should be expected to fluctuate more than the value of
a Municipal Obligation of comparable quality and maturity and their
purchase by a 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.
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 Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, and repurchase agreements providing
for settlement in more than seven days after notice. As to these
securities, the Series is subject to a risk that should such Series
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 Series'
net assets could be adversely affected. However, if a substantial market
of qualified institutional buyers develops pursuant to Rule 144A under
the Securities Act of 1933, as amended, for certain of these securities
held by the Series, the Fund intends to treat such securities as liquid
securities in accordance with procedures approved by the Fund's Board of
Trustees. Because it is not possible to predict with assurance how the
market for restricted securities pursuant to Rule 144A will develop, the
Fund's Board of Trustees has directed The Dreyfus Corporation to monitor
carefully each Series' investments in such securities with particular
regard to trading activity, availability of reliable price information
and other relevant information. To the extent that for a period of time,
qualified institutional buyers cease purchasing restricted securities
pursuant to Rule 144A, a Series' investing in such securities may have
the effect of increasing the level of illiquidity in such Series'
portfolio during such period.
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 interests in such stripped debt
obligations and coupons. The market prices of zero coupon securities
generally are more volatile than the market prices of interest-bear-
Page 27
ing securities and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar maturities
and credit qualities. Each Series may invest up to 5% of its assets in
zero coupon bonds which are rated below investment grade. See "Risk
Factors _ Lower Rated Bonds" and "Other Investment Considerations" below,
and "Investment Objective and Management Policies _ Risk Factors _ Lower
Rated Bonds" and "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
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 Moody's, S&P or Fitch;
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 one billion dollars or
more; time deposits; bankers' acceptances and other short-term bank
obligations; and repurchase agreements in respect of any of the
foregoing. Dividends paid by a Series that are attributable to income
earned by 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 such Series' net assets may be invested in securities
that are not exempt from Federal and, where applicable, from State 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. In certain states, dividends and
distributions paid by a Series that are attributable to interest income
earned by the Series from direct obligations of the United States may not
be subject to state income tax. Taxable Investments are more fully
described in the Statement of Additional Information, to which reference
hereby is made.
INVESTMENT TECHNIQUES
Each Series may employ, among others, the investment
techniques described below to the extent permitted by applicable law. Use
of certain of these techniques may give rise to taxable income. Options
and futures transactions involve so-called "derivative securities."
WHEN-ISSUED SECURITIES
New issues of Municipal Obligations usually are offered on a
when-issued basis, which means that delivery and payment for such
Municipal Obligations ordinarily take place within 45 days after the date
of the commitment to purchase. The payment obligation and the interest
rate that will be received on the Municipal Obligations are fixed at the
time the Fund enters into the commitment. The Fund will make commitments
to purchase such Municipal Obligations 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, although any gain
realized on such sale would be taxable. No Series will accrue income in
respect of a when-issued security prior to its stated delivery date. No
additional when-issued commitments will be made for a Series if more than
20% of the value of such Series' net assets would be so committed.
Municipal Obligations purchased on a when-issued basis and
the securities held in a Series' portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and
changes, real or anticipated, in the level of interest rates. Municipal
Obligations purchased on a when-issued basis may expose a Series to risk
because they may experience such fluctuations prior to their actual
delivery. Purchasing Municipal Obligations on a when-issued basis can
involve the additional risk that the yield available in the market when
the delivery takes place actually may be high-
Page 28
er than that obtained in the transaction itself. A segregated account of
the Fund consisting of cash, cash equivalents or U.S. Government
securities or other high quality liquid debt securities at least equal at
all times to the amount of the when-issued commitments will be established
and maintained at the Fund's custodian bank. Purchasing Municipal
Obligations on a when-issued basis when a Series is fully or almost fully
invested may result in greater potential fluctuation in the value of such
Series' net assets and its net asset value per share.
FUTURES TRANSACTIONS -- IN GENERAL
Neither the Fund nor any Series is a commodity pool. However,
as a substitute for a comparable market position in the underlying
securities and for hedging purposes, each Series may engage, to the
extent permitted by applicable regulations, in futures and options on
futures transactions as described below.
A Series' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, the
Series may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of the Series' assets after taking into account
unrealized profits and unrealized losses on such contracts it has entered
into; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. Pursuant to regulations and/or published
positions of the Securities and Exchange Commission, a Series may be
required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally equal
to the value of the underlying commodity. To the extent a Series engages
in the use of futures and options on futures for other than bona fide
hedging purposes, the Series may be subject to additional risk.
Initially, when purchasing or selling futures contracts the
Series will be required to deposit with the Fund's custodian in the
broker's name an amount of cash or cash equivalents up to approximately
10% of the contract amount. This amount is subject to change by the
exchange or board of trade on which the contract is traded and members of
such exchange or board of trade may impose their own higher requirements.
This amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Series upon termination of the futures position assuming all
contractual obligations have been satisfied. Subsequent payments, known
as "variation margin," to and from the broker will be made daily as the
price of the index or security underlying the futures contract
fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." At any
time prior to the expiration of a futures contract, the Series may elect
to close the position by taking an opposite position at the then
prevailing price, which will operate to terminate the Series' existing
position in the contract.
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 the 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. If it is not possible or the
Series determines not to close a futures position in anticipation of
adverse price movements, the Series will be required to make daily cash
payments of variation margin. In such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any, may offset
partially or completely losses on the futures contract. However, no
assurance can be given that the price of
Page 29
the securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures
contract.
In addition, to the extent a Series is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect
correlation between securities in a Series' portfolio that are the
subject of a hedging transaction and the futures contract used as a
hedging device, it is possible that the hedge will not be fully effective
in that, for example, losses on the portfolio securities may be in excess
of gains on the futures contract or losses on the futures contract may be
in excess of gains on the portfolio securities that were the subject of
the hedge. In futures contracts based on indexes, the risk of imperfect
correlation increases as the composition of a Series' portfolio varies
from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being
hedged and movements in the price of futures contracts, a Series may buy
or sell futures contracts in a greater or lesser dollar amount than the
dollar amount of the securities being hedged if the historical volatility
of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect a
Series' net investment results if market movements are not as anticipated
when the hedge is established.
An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if
the option is a call and a long position if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by
the writer and holder of the option will be accompanied by delivery of
the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract.
Call options sold by a Series with respect to futures
contracts will be covered by, among other things, entering into a long
position in the same contract at a price no higher than the strike price
of the call option, or by ownership of the instruments underlying, or
instruments the prices of which are expected to move relatively
consistently with the instruments underlying, the futures contract. Put
options sold by a Series with respect to futures contracts will be
covered when, among other things, cash or liquid securities are placed in
a segregated account to fulfill the obligation undertaken.
Each Series may utilize municipal bond index futures to
protect against changes in the market value of the Municipal Obligations
in the Series' portfolio or which the Series intends to acquire.
Municipal bond index futures contracts are based on an index of long-term
Municipal Obligations. The index assigns relative values to the Municipal
Obligations included in the index, and fluctuates with changes in the
market value of such Municipal Obligations. The contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount
of cash based upon the difference between the value of the index at the
close of the last trading day of the contract and the price at which the
index contract was originally written. The acquisition or sale of a
municipal bond index futures contract enables the Fund to protect a
Series' assets from fluctuations in rates on tax exempt securities
without actually buying or selling such securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS
Each Series may purchase and sell interest rate futures
contracts and options on interest rate futures contracts as a substitute
for a comparable market position and to hedge against adverse movements
in interest rates.
To the extent the Series has invested in interest rate
futures contracts or options on interest rate futures contracts as a
substitute for a comparable market position, such Series will be subject
to the investment risks of having purchased the securities underlying the
contract.
Page 30
Each Series may purchase call options on interest rate
futures contracts to hedge against a decline in interest rates and may
purchase put options on interest rate futures contracts to hedge such
Series' portfolio securities against the risk of rising interest rates.
If a Series has hedged against the possibility of an increase
in interest rates adversely affecting the value of securities held in the
Series' portfolio and rates decrease instead, such 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.
In addition, in such situations, if the Series has insufficient cash, it
may have to sell securities to meet daily variation margin requirements
at a time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased prices which
reflect the decline in interest rates.
Each Series may sell call options on interest rate futures
contracts to partially hedge against declining prices of such Series'
portfolio securities. If the futures price at expiration of the option is
below the exercise price, the Series will retain the full amount of the
option premium which provides a partial hedge against any decline that
may have occurred in such Series' portfolio holdings. Each Series may
sell put options on interest rate futures contracts to hedge against
increasing prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration of the option
is higher than the exercise price, the Series will retain the full amount
of the option premium which provides a partial hedge against any increase
in the price of securities which the Series intends to purchase. If a put
or call option sold for such Series is exercised, such Series will incur
a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of a
Series' portfolio securities and changes in the value of its futures
positions, such Series' losses from existing options on futures may, to
some extent, be reduced or increased by changes in the value of its
portfolio securities.
Each Series also may sell options on interest rate futures
contracts as part of closing purchase transactions to terminate such
Series' options positions. No assurance can be given that such closing
transactions can be effected or that there will be a correlation between
price movements in the options on interest rate futures and price
movements in the Series' portfolio securities which are the subject of
the hedge. In addition, the Series' purchase of such options will be
based upon predictions as to anticipated interest rate trends, which
could prove to be inaccurate.
SHORT-SELLING
Each Series may make short sales of securities, which are
transactions in which the Series sells a security it does not own in
anticipation of a decline in the market value of that security. To
complete such a transaction, the Series must borrow the security to make
delivery to the buyer. The Series then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Series. Until the security is
replaced, the Series is required to pay to the lender amounts equal to
any interest which accrues during the period of the loan. To borrow the
security, the Series also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale
will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out.
Until the Series replaces the borrowed security in connection
with a short sale, the Series will: (a) maintain daily a segregated
account, containing cash or U.S. Government securities, at such a level
that (i) the amount deposited in the account plus the amount deposited
with the broker as collateral will equal the current value of the
securities sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not
be less than the market value of the security at the time it was sold
short; or (b) otherwise cover its short position.
A Series will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale
and the date on which the Series replaces the borrowed security. A Series
will realize a gain if the security declines in price between those
dates. This
Page 31
result is the opposite of what one would expect from a cash
purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any
premium or amount in lieu of interest the Series may be required to pay
in connection with a short sale.
The Fund anticipates that the frequency of short sales will
vary substantially in different periods, and it does not intend that any
specified portion of a Series' assets, as a matter of practice, will be
invested in short sales. However, no securities will be sold short if,
after effect is given to any such short sale, the total market value of
all securities sold short would exceed 25% of the value of a Series' net
assets. No Series may sell short the securities of any single issuer
listed on a national securities exchange to the extent to more than 5% of
the value of such Series' net assets. No Series may sell short the
securities of any class of an issuer to the extent, at the time of the
transaction, of more than 5% of the outstanding securities of that class.
In addition to the short sales discussed above, the Series
may make short sales "against the box," a transaction in which a Series
enters into a short sale of a security which such Series owns. The
proceeds of the short sale will be held by a broker until the settlement
date at which time the Series delivers the security to close the short
position. The Series receives the net proceeds from the short sale. 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.
LENDING PORTFOLIO SECURITIES
From time to time, each Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. As to each Series,
such loans may not exceed 33-1/3% of the value of the Series' total
assets. In connection with such loans, 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. A Series
can increase its income through the investment of such collateral.
However, such income generally would not be tax exempt. The Series
continues to be entitled to payments in amounts equal to the interest or
other distributions payable on the loaned security and receives interest
on the amount of the loan. Such loans will be terminable at any time upon
specified notice. The Series might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with such Series.
BORROWING MONEY
As a fundamental policy, each Series is permitted to borrow
to the extent permitted under the Investment Company Act of 1940.
However, each Series currently intends to borrow money only for temporary
or emergency (not leveraging) purposes, in an amount up to 15% of the
value of such Series' total assets (including the amount borrowed) valued
at the lesser of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made. While borrowings
exceed 5% of a Series' total assets, such Series will not make any
additional investments.
CERTAIN FUNDAMENTAL POLICIES
Each Series may (i) borrow money to the extent permitted
under the Investment Company Act of 1940; and (ii) invest up to 25% of
its assets in the securities of issuers in any industry, provided that
there is no such limitation on investments in Municipal Obligations and,
for temporary defensive purposes, obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. This paragraph
describes fundamental policies that cannot be changed as to a Series
without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of such Series' outstanding voting
shares. See "Investment Objective and Management Policies _ Investment
Restrictions" in the Statement of Additional Information.
Page 32
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Series may (i) pledge, hypothecate, mortgage or
otherwise encumber its assets, but only to secure permitted borrowings;
and (ii) invest up to 15% of the value of its net assets in repurchase
agreements providing for settlement in more than seven days after notice
and in other illiquid securities (which securities could include
participation interests (including municipal lease/purchase agreements)
that are not subject to the demand feature described above, and floating
and variable rate demand obligations as to which the Fund cannot exercise
the related demand feature described above and as to which there is no
secondary market). See "Investment Objective and Management Policies _
Investment Restrictions" in the Statement of Additional Information.
RISK FACTORS
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. You should obtain and review a
copy of the Statement of Additional Information which more fully sets
forth these and other risk factors.
ARIZONA SERIES
Arizona local governmental entities are subject to certain
limitations on their ability to assess taxes and levies which could
affect their ability to meet their respective financial obligations.
Arizona's economy has been adversely affected by problems in the real
estate sector and current and proposed reductions in Federal military
expenditures are expected to cause additional difficulties with Arizona's
economy.
COLORADO SERIES
Since 1985, Colorado's economy has been adversely affected
primarily by three factors: a contraction in the energy sector, a decline
caused by over-expansion in the high technology sector and a general
decline in the construction industry. Recovery began in 1987 and is
gradually gaining momentum. Employment in the service and trade
industries represents approximately 50% of the State work force.
Colorado's manufacturing sector, which is concentrated in defense-related
production and employs approximately 9% of the work force, is expected to
lose jobs over the next few quarters as sluggish domestic demand and
slackening defense orders take a toll.
On November 3, 1992, voters in Colorado passed the Bruce
Amendment, otherwise known as the "Taxpayers' Bill of Rights." The
Amendment restricts growth of government spending to the rate of
inflation plus the change in demand for government services (as measured
by population, school enrollment, or construction); limits the issuance
of debt to that which is voter approved; and requires voter approval of
all tax increases. Though the Bruce Amendment is not expected to have an
immediate effect on the credit quality of State and local governments, it
will likely reduce the financial flexibility of all levels of government
in Colorado over time. In addition, younger or rapidly growing
municipalities with large infrastructure requirements may have difficulty
finding the revenues needed to finance their growth.
CONNECTICUT SERIES
Connecticut's economy relies in part on activities that may
be adversely affected by cyclical change, and recent declines in defense
spending have had a significant impact on unemployment levels. Although
the State recorded General Fund surpluses in the fiscal years 1985
Page 33
through 1987, Connecticut reported deficits from its General Fund
operations for the fiscal years 1988 through 1991. Together with the
deficit carried forward from the State's 1990 fiscal year, the total
General Fund deficit for the 1991 fiscal year was $965.7 million. The
total deficit was funded by the issuance of General Obligation Economic
Recovery Notes. The Comptroller estimated that the State ended the 1993
fiscal year with a General Fund operating surplus of $3.1 million. The
Comptroller, however, estimated the cumulative projected deficit under
GAAP for the fiscal year ended June 30, 1993 to have been approximately
$494.6 million. As a result of the recurring budgetary problems, S&P
downgraded the State's general obligation bonds from AA+ to AA in April
1990 and to AA- in September 1991. Moody's and Fitch currently rate
Connecticut's bonds Aa and AA +, respectively.
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 1992-93 total General Revenue and Working
Capital Funds available are estimated to have been $12.282 billion, which
resulted in estimated unencumbered reserves of $429.4 million at the end
of fiscal 1992-93. The General Revenue and Working Capital Funds ended
the 1991-92 fiscal year with unencumbered reserves of $185 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 the
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 1980's resulting in a general fund reserve of
$428 million in 1989. In 1989 and 1990, however, the State's economy
began to slow and lower than projected growth in income and sales taxes
and increasing expenditure levels resulted in a recorded $413 million
operating deficit for fiscal 1990, which reduced reserves to $55 million.
As projections were made of continued weakness in economically sensitive
taxes, a $359 million shortfall was expected for fiscal 1991. The
projected imbalance was corrected through reductions in expenditures,
adjustments to capital, use of reserves and other one-time measures which
raised the State's general fund reserves to the fiscal 1990 level. During
fiscal 1992, Georgia's revenue plus General Fund reserve approximately
equalled appropriations. Revenue estimates for fiscal 1993 indicate that
revenue plus the General Fund reserve equalled appropriations for that
year.
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
Page 34
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.
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 Constitution does require the annual
operating budget to be in balance with estimated revenues. When the
fiscal year 1993 budget was enacted, it was estimated that the General
Fund surplus on a budgetary basis at June 30, 1993, would be
approximately $10 million. As of May 19, 1993, it was estimated that the
General Fund surplus on a budgetary basis at June 30, 1993, would be
$500,000. When the 1994 budget was enacted, it was estimated that the
General Fund surplus on a budgetary basis at June 30, 1994 would be
approximately $76 million, including $50 million mandated to be
appropriated in the 1994 session of the General Assembly to the Revenue
Stabilization Account of the State Reserve Fund.
MASSACHUSETTS SERIES
Massachusetts' economic difficulties and fiscal problems may
affect Massachusetts Municipal Obligations in the Series' portfolio. The
persistence of serious financial difficulties could adversely affect the
market values and marketability of, or result in default in payment on,
outstanding State Municipal Obligations. Massachusetts' expenditures for
State programs and services in each of the fiscal years 1987 through 1991
have exceeded each year's current revenues. In addition, Massachusetts'
tax revenues during this period repeatedly failed to meet official
forecasts. For the budgeted funds, operating losses in fiscal 1987 and
1988 were covered largely by drawing on fund balances from prior fiscal
years. Massachusetts' operating losses in fiscal 1989 and 1990, which
totalled $672.5 million and $1.251 billion, respectively, were covered
primarily through deficit borrowings. Massachusetts ended fiscal 1991
with an operating deficit of $21.2 million, but with positive closing
fund balances of $237.1 million, after applying the opening fund balances
created from the proceeds of the fiscal 1990 deficit borrowing. No
deficit borrowing was required to close out fiscal 1991. Massachusetts
ended fiscal 1992 with revenues and other sources exceeding expenditures
and other uses by $312.3 million and with positive fund balances of
approximately $549.4 million. Fiscal 1993 is estimated to have ended with
a fund balance of approximately $230 million.
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
stood at 16.6% during the last quarter of 1982 and averaged 8.8% in 1992.
Michigan's Annual Financial Reports for the fiscal years
ended September 30, 1987, 1988 and 1989 showed positive balances in the
State's general cash position representing an improvement from the
negative cash position of 1982. The fiscal year l990 budget, however,
resulted in a year-end deficit of approximately $310 million. In 1991,
the State was forced to enact major initiatives to close a $1.847 billion
budget gap in the State's 1991 budget which resulted in a year-end
cumulative deficit of approximately $170 million. This cumulative deficit
was eliminated as of the fiscal year ended September 30, 1992.
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 as of 1991. 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
Page 35
of a downturn in the State's economy resulting from the national
recession. Recently, real growth has been slow due to the current national
recession, although the effect of such recession has been less severe on
Minnesota's economy than it has been on the national 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 issuer thereof to pay interest or principal thereon.
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. Tobacco production is the leading
source of agricultural income in the State, accounting for 22% of gross
agricultural income.
The North Carolina Constitution requires a balanced budget.
In May 1991, the State revised its revenue estimates to reflect a $729
million revenue shortfall for the fiscal year ending June 30, 1991. In
conjunction with the new revenue estimates, the Governor ordered a
variety of budget balancing measures, including a hiring freeze on most
State positions, a freeze on certain capital projects and a general
reduction in expenditures by State agencies. Pursuant to this action, the
budget for the fiscal year 1990-91 was balanced. Through January 1992,
the State realized revenues at or slightly above amounts projected and
required to support the budget for the fiscal year 1991-92.
OHIO SERIES
Nonmanufacturing industries now employ more than
three-fourths of all payroll employees 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 slow-down during its 1990-91 fiscal year,
consistent with national economic conditions during that period. For
Ohio's 1994 fiscal year, the Ohio Office of Budget and Management
projects positive $106.6 million and $314.6 million 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.
OREGON SERIES
The Oregon economy generally has outperformed the national
economy in recent years. There is no assurance, however, that this will
continue to be the case. The State forecasts modest acceleration of the
economy through 1994 with jobs increasing at 3.0% per year, and personal
income growing at an annual rate of 7.1%. The State's population has been
growing, and the growth is expected to continue. Forest products,
housing, agriculture, trade and tourism are mainstays of the economy.
Forest products are forecast to decline, but the other major areas should
be stable or improving. Despite the expectation of improving conditions,
growth is likely to remain subdued as the timber industry adjusts to the
new Federal forest plan and State and local governments downsize in
response to budget cuts.
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
new sources of growth 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.
Page 36
Pennsylvania's approved budget for fiscal 1993 authorized
$14.046 billion of spending, an increase of less than .25% over total
appropriations for fiscal 1992. The small increase in expenditures
resulted from constraints on revenues as a result of a personal tax rate
reduction effective July 1, 1992, a low rate of economic growth, higher
tax refund reserves against adverse decisions in pending litigation, and
line item vetoes by the Governor. Through March 1993, revenue collections
were approximately .7% above estimates. Pennsylvania's approved budget
for fiscal 1994 calls for no new taxes and an increase in expenditures
over fiscal 1993 of approximately 5%, primarily for education and
welfare.
TEXAS SERIES
Economically and financially the State of Texas suffered
during the 1980s significant damage 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. A recurrence of such economic or financial difficulties could
result in defaults or declines in the market values or marketability of
various State Municipal Obligations in which the Series may invest, which
could adversely affect the interest income to the Series. In fiscal years
1989, 1990, 1991 and 1992, Texas' General Revenue Fund ended with cash
surpluses of $298 million, $768 million, $712.8 million and $609.2
million, respectively.
VIRGINIA SERIES
Virginia's economy is strongly influenced by Federal
government installations and the growth of suburban communities around
Washington, D.C. With Northern Virginia a part of the Washington, D.C.
metropolitan area and Hampton Roads the home of the nation's largest
concentration of military installations, the Federal government has a
greater impact on Virginia relative to its size than any other state
except Alaska and Hawaii. Manufacturing is also an important segment of
the State's economy. The manufacturing industry accounts for over 15% of
total nonagricultural employment and ranks fourth behind services,
wholesale and retail trade, and government (Federal, state and local) in
the number of jobs it provides.
Virginia operates on a two-year budget. As a result of an
ailing economy and reduced tax collections, Virginia predicted a budget
shortfall for the two years ended June 30, 1992.
LOWER RATED BONDS
You should carefully consider the relative risks of investing
in the higher yielding (and, therefore, higher risk) debt securities
(commonly known as junk bonds) in which each Series may invest up to 30%
of the value of its net assets. These are 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 Moody's, S&P or Fitch. They generally are not meant for
short-term investing and may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed-income securities. Bonds rated Ba by Moody's
are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and
principal payments may be very moderate. Bonds rated BB by S&P are
regarded as having predominantly speculative characteristics and, while
such obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Bonds
rated BB by Fitch are considered speculative and the payment of principal
and interest may be affected at any time by adverse economic changes.
Bonds rated C by Moody's are regarded as having extremely poor prospects
of ever attaining any real investment standing. Bonds rated D by S&P are
in default and the payment of interest and/or repayment of principal is
in arrears. Bonds rated DDD, DD or D by Fitch are in actual or imminent
default, are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation
Page 37
or reorganization of the issuer; DDD represents the highest potential for
recovery of such bonds; and D represents the lowest potential for
recovery. Such bonds, though high yielding, are characterized by great
risk. See "Appendix B" in the Statement of Additional Information for a
general description of Moody's, S&P and Fitch ratings of Municipal
Obligations. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of these bonds. Therefore, although these ratings may
be an initial criterion for selection of portfolio investments, The
Dreyfus Corporation also will evaluate these securities and the ability
of the issuers of such securities to pay interest and principal. The
Fund's ability to achieve its investment objective may be more dependent
on The Dreyfus Corporation's credit analysis than might be the case for
a fund that invested in higher rated securities. Once the rating of a
portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to
hold the security.
The market price and yield of bonds rated Ba or lower by
Moody's and BB or lower by S&P and Fitch are more volatile than those of
higher rated bonds. Factors adversely affecting the market price and
yield of these securities will adversely affect the Series' net asset
value. In addition, the retail secondary market for these bonds may be
less liquid than that of higher rated bonds; adverse market conditions
could make it difficult at times for the Fund to sell certain securities
or could result in lower prices than those used in calculating the
Series' net asset value.
Each Series may invest up to 5% of the value of its net
assets in zero coupon securities and pay-in-kind bonds (bonds which pay
interest through the issuance of additional bonds) rated Ba or lower by
Moody's and BB or lower by S&P and Fitch. These securities may be subject
to greater fluctuations in value due to changes in interest rates than
interest-bearing securities and thus may be considered more speculative
than comparably rated interest-bearing securities. See "Other Investment
Considerations" below, and "Investment Objective and Management Policies
_ Risk Factors _ Lower Rated Bonds" and "Dividends, Distributions and
Taxes" in the Statement of Additional Information.
OTHER INVESTMENT CONSIDERATIONS
Even though interest-bearing securities are investments which
promise a stable stream of income, the prices of such securities are
inversely affected by changes in interest rates and, therefore, are
subject to the risk of market price fluctuations. Certain securities that
may be purchased by the Series, such as those with interest rates that
fluctuate directly or indirectly based on multiples of a stated index,
are designed to be highly sensitive to changes in interest rates and can
subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The value of fixed-income securities also may be
affected by changes in the credit rating or financial condition of the
issuing entities. Each Series' net asset value generally will not be
stable and should fluctuate based upon changes in the value of such
Series' portfolio securities. Securities in which a Series invests may
earn a higher level of current income than certain shorter-term or higher
quality securities which generally have greater liquidity, less market
risk and less fluctuation in market value.
Federal income tax law requires the holder of a zero coupon
security or of certain pay-in-kind bonds to take into account annually a
portion of the discount (or deemed discount) at which such securities
were issued, prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company, a Series may be required
to distribute such portion of the discount and may have to dispose of
portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
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
Page 38
lease payments in future years unless money is appropriated for such
purpose on a yearly basis. Although "non-appropriation" lease/purchase
obligations are secured by the leased property, disposition of the
leased property in the event of foreclosure might prove difficult. In
evaluating the credit quality of a municipal lease/purchase obligation
that is unrated, The Dreyfus Corporation will consider, on an ongoing
basis, a number of factors including the likelihood that the issuing
municipality will discontinue appropriating funding for the leased
property.
Certain provisions in the Code relating to the issuance of
Municipal Obligations may reduce the volume of Municipal Obligations
qualifying for Federal tax exemption. One effect of these provisions
could be to increase the cost of the Municipal Obligations available for
purchase by the Series and thus reduce the available yield. Shareholders
should consult their tax advisers concerning the effect of these
provisions on an investment in a Series. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations
may be introduced in the future. If any such proposal were enacted that
would reduce the availability of Municipal Obligations for investment by
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.
The Fund's classification as a "non-diversified" investment
company means that the proportion of each Series' assets that may be
invested in the securities of a single issuer is not limited by the
Investment Company Act of 1940. A "diversified" investment company is
required by the Investment Company Act of 1940 generally to invest, with
respect to 75% of its total assets, not more than 5% of such assets in
the securities of a single issuer. However, each Series intends to
conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which requires that, at the end of
each quarter of its taxable year, (i) at least 50% of the market value of
each Series' total assets be invested in cash, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities of any one issuer limited for the purposes of
this calculation to an amount not greater than 5% of the value of each
Series' total assets, and (ii) not more than 25% of the value of each
Series' total assets be invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other
regulated investment companies). Since a relatively high percentage of
the Fund's assets may be invested in the obligations of a limited number
of issuers, the Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the
portfolio securities of a diversified investment company.
Investment decisions for the Fund are made independently from
those of other investment companies advised by The Dreyfus Corporation.
However, if such other investment companies are prepared to invest in, or
desire to dispose of, Municipal Obligations or Taxable Investments at the
same time 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.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. As of October 31, 1994, The Dreyfus Corporation
managed or administered approximately $73 billion in assets for more than
1.9 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Fund, subject to the overall authority of the
Page 39
Fund's Board of Trustees in accordance with Massachusetts law. The primary
investment officer for each of the Arizona Series, the Colorado Series,
the Georgia Series and the Oregon Series is Stephen C. Kris, who has held
that position with respect to the Arizona Series and the Georgia Series
since September 1992 and with respect to the Colorado Series and the
Oregon Series since January 1994, and has been employed by The Dreyfus
Corporation since February 1988. The primary investment officer for each
of the Connecticut Series, the Massachusetts Series, the North Carolina
Series and the Virginia Series is Samuel J. Weinstock, who has held that
position with respect to the Connecticut Series and the Massachusetts
Series since August 1987 and with respect to the North Carolina Series
and Virginia Series since August 1991, and has been employed by The
Dreyfus Corporation since March 1987. The primary investment officer for
each of the Florida Series, the Maryland Series, the Pennsylvania Series
and the Texas Series is A. Paul Disdier, who has held that position since
April 1988 and has been employed by The Dreyfus Corporation since
February 1988. The primary investment officer for each of the Michigan
Series, the Minnesota Series and the Ohio Series is Joseph P. Darcy, who
has been employed by The Dreyfus Corporation since May 1994. For more
than five years prior to joining The Dreyfus Corporation, Mr. Darcy was
a Vice President and Portfolio Manager for Merrill Lynch Asset
Management. The Fund's other investment officers are identified under
"Management of the Fund" in the Fund's Statement of Additional
Information. The Dreyfus Corporation also provides research
services for the Fund as well as for other funds advised by The Dreyfus
Corporation through a professional staff of portfolio managers and
security analysts.
Under the terms of the Management Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of
.55 of 1% of the value of each Series' average daily net assets. From
time to time, The Dreyfus Corporation may waive receipt of its fees
and/or voluntarily assume certain expenses of a Series which would have
the effect of lowering the overall expense ratio of that Series and
increasing yield to investors at the time such amounts are waived or
assumed, as the case may be. The Fund will not pay The Dreyfus
Corporation at a later time for any amounts it may waive, nor will the
Fund reimburse The Dreyfus Corporation for any amounts it may assume.
For the fiscal year ended April 30, 1994, the Fund paid The
Dreyfus Corporation a management fee at the effective annual rate set
forth below with respect to each Series (except the Colorado and Oregon
Series which had not commenced operations) pursuant to undertakings in
effect:
EFFECTIVE
ANNUAL RATE
AS A PERCENTAGE OF
SERIES AVERAGE DAILY NET ASSETS
-------------------- ------------------------------------
Arizona 0
Connecticut .46 of 1%
Florida .45 of 1%
Georgia .0
Maryland .45 of 1%
Massachusetts .44 of 1%
Michigan .44 of 1%
Minnesota .44 of 1%
North Carolina .06 of 1%
Ohio .43 of 1%
Pennsylvania .44 of 1%
Texas 0
Virginia 0
For the period May 6, 1994 (commencement of operations of
each of the Colorado and Oregon Series) through June 30, 1994,
(Unaudited), no management fee was paid by the Fund with
respect to the Colorado Series or Oregon Series pursuant to undertakings
by The Dreyfus Corporation.
Page 40
The Dreyfus Corporation may pay Dreyfus Service Corporation
for shareholder and distribution services from The Dreyfus Corporation's
own assets, including past profits but not including the management fee
paid by the Fund. Dreyfus Service Corporation may use part or all of such
payments to pay Service Agents in respect of these services.
The Shareholder Services Group, Inc., a subsidiary of First
Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is
the Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent").
The Bank of New York, 110 Washington Street, New York, New York 10286, is
the Fund's Custodian.
HOW TO BUY FUND SHARES
The Fund's distributor is Dreyfus Service Corporation, a
wholly-owned subsidiary of The Dreyfus Corporation, located at 200 Park
Avenue, New York, New York 10166. The shares it distributes are not
deposits or obligations of The Dreyfus Security Savings Bank, F.S.B. and
therefore are not insured by the Federal Deposit Insurance Corporation.
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
Dreyfus Corporation or any of its affiliates or subsidiaries, directors
of The Dreyfus Corporation, Board members of a fund advised by The
Dreyfus Corporation, 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 Dreyfus Service Corporation. Subsequent purchases may be
sent directly to the Transfer Agent or your Service Agent. 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 this Prospectus, and, to the extent permitted by applicable
regulatory authority, may charge their clients a direct fee which would
be in addition to any amounts which might be received under the
Shareholder Services Plan. Each Service Agent has agreed to transmit to
its clients a schedule of such fees. You should consult your Service
Agent in this regard.
When purchasing Fund shares, you must specify whether the
purchase is for Class A or Class B shares. 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.
The minimum initial investment is $1,000. Subsequent
investments must be at least $100. The initial investment must be
accompanied by the Fund's Account Application.
You may purchase Fund shares by check or wire, or through the
TELETRANSFER Privilege described below. Checks should be made payable to
"Premier State Municipal Bond Fund," and should specify the Series in
which you are investing. Payments to open new accounts which are mailed
should be sent to Premier State Municipal Bond Fund, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account
Application indicating which Class of shares is being purchased. For
subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent to Premier State
Municipal Bond Fund, P.O. Box 105, Newark, New Jersey 07101-0105. Neither
initial nor subsequent investments should be made by third party check.
Wire payments may be made if your bank account is in a commercial bank
that is a member of the Federal Reserve System or in any other bank
having a correspondent bank in New York City. Immediately available funds
may be transmitted by wire to The Bank of New York together with the
applicable Series' DDA# as shown below, for purchase of Fund shares in
your name:
Page 41
For Class A shares:
DDA #8900117052/Premier State Municipal Bond Fund/Arizona
Series _ Class A shares
DDA #8900088281/Premier State Municipal Bond Fund/Colorado
Series _ Class A shares
DDA #8900119489/Premier State Municipal Bond Fund/Connecticut
Series _ Class A shares
DDA #8900119381/Premier State Municipal Bond Fund/Florida
Series _ Class A shares
DDA #8900117087/Premier State Municipal Bond Fund/Georgia
Series _ Class A shares
DDA #8900119403/Premier State Municipal Bond Fund/Maryland
Series _ Class A shares
DDA #8900119470/Premier State Municipal Bond
Fund/Massachusetts Series _ Class A shares
DDA #8900119411/Premier State Municipal Bond Fund/Michigan
Series _ Class A shares
DDA #8900119438/Premier State Municipal Bond Fund/Minnesota
Series _ Class A shares
DDA #8900208635/Premier State Municipal Bond Fund/North
Carolina Series _ Class A shares
DDA #8900119446/Premier State Municipal Bond Fund/Ohio Series
_ Class A shares
DDA #8900088265/Premier State Municipal Bond Fund/Oregon
Series _ Class A shares
DDA #8900119454/Premier State Municipal Bond
Fund/Pennsylvania Series _ Class A shares
DDA #8900119462/Premier State Municipal Bond Fund/Texas
Series _ Class A shares
DDA #8900208678/Premier State Municipal Bond Fund/Virginia
Series _ Class A shares
For Class B shares:
DDA #8900115238/Premier State Municipal Bond Fund/Arizona
Series _ Class B shares
DDA #8900115432/Premier State Municipal Bond Fund/Colorado
Series _ Class B shares
DDA #8900115130/Premier State Municipal Bond Fund/Connecticut
Series _ Class B shares
DDA #8900115041/Premier State Municipal Bond Fund/Florida
Series _ Class B shares
DDA #8900115246/Premier State Municipal Bond Fund/Georgia
Series _ Class B shares
DDA #8900115068/Premier State Municipal Bond Fund/Maryland
Series _ Class B shares
DDA #8900115122/Premier State Municipal Bond
Fund/Massachusetts Series _ Class B shares
DDA #8900115076/Premier State Municipal Bond Fund/Michigan
Series _ Class B shares
DDA #8900115084/Premier State Municipal Bond Fund/Minnesota
Series _ Class B shares
DDA #8900115149/Premier State Municipal Bond Fund/North
Carolina Series _ Class B shares
DDA #8900115092/Premier State Municipal Bond Fund/Ohio Series
_ Class B shares
DDA #8900115424/Premier State Municipal Bond Fund/Oregon
Series _ Class B shares
DDA #8900115106/Premier State Municipal Bond
Fund/Pennsylvania Series _ Class B shares
DDA #8900115114/Premier State Municipal Bond Fund/Texas
Series _ Class B shares
DDA #8900115157/Premier State Municipal Bond Fund/Virginia
Series _ Class B shares
The wire must include your Fund account number (for new
accounts, your Taxpayer Identification Number ("TIN") should be included
instead), account registration and dealer number, if applicable. If your
initial purchase of Fund shares is by wire, please call 1-800-645-6561
after completing your wire payment to obtain your Fund account number.
Please include your Fund account number on the Fund's Account Application
and promptly mail the Account Application to the Fund, as no redemptions
will be permitted until the Account Application is received. You may
obtain further information about remitting funds in this manner from your
bank. All payments should be made in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. A charge will be imposed if
any check used for investment in your account does not clear. The Fund
makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic
transfer of funds from an account maintained in a bank or other domestic
financial institution that is an Automated Clearing House member. You
must direct the institution to transmit immediately available funds
through the Automated Clearing House to The Bank of New York with
instructions to credit your Fund account. The instructions must specify
your Fund account registration and your Fund account number PRECEDED BY
THE DIGITS "1111."
Each Series' shares are sold on a continuous basis. Net asset
value per share is determined as of the close of trading on the floor of
the New York Stock Exchange (currently, 4:00 p.m., New
Page 42
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 each business day by an independent pricing service
approved by the Board of Trustees 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 Board of Trustees. For
further information regarding the methods employed in valuing the Series'
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
Federal regulations require that you provide a certified TIN
upon opening or reopening an account. See "Dividends, Distributions and
Taxes" and the Fund's Account Application for further information
concerning this requirement. Failure to furnish a certified TIN to the
Fund could subject you to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").
If an order is received by the Transfer Agent 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 any
business day and transmitted to Dreyfus Service Corporation 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 dealers' responsibility to transmit orders so that they will be
received by Dreyfus Service Corporation 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>
SALES LOAD
---------------------------------------
AS A % OF AS A % OF DEALERS' REALLOWANCE
OFFERING PRICE NET ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION 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
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or
more of Class A shares. However, if you purchase Class A shares without
an initial sales charge as part of an investment of at least $1,000,000
and redeem those shares within two years after purchase, a CDSC of
1.00% will be imposed at the time of redemption. The terms contained in
the section of the Fund's Prospectus entitled "How to Redeem
Fund Shares -- Contingent Deferred Sales Charge -- Class B" (other than
the amount of the CDSC and its time periods) are applicable to the Class
A shares subject to a CDSC. Letter of Intent and Right of Accumulation
apply to such purchases of Class A shares.
Full-time employees of NASD member firms and full-time
employees of other financial institutions which have entered into an
agreement with Dreyfus Service Corporation pertaining to the sale of Fund
shares (or which otherwise have a brokerage-related or clearing
arrangement with an NASD member firm or other financial institution with
respect to sales of
Page 43
Fund 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 that they have furnished Dreyfus Service Corporation 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 Dreyfus Corporation or any of
its affiliates or subsidiaries, directors of The Dreyfus Corporation,
Board members of a fund advised by The Dreyfus Corporation, including
members of the Fund's Board, or the spouse or minor child of any of the
foregoing.
In fiscal 1994, Dreyfus Service Corporation retained $806,651
from sales loads on Class A shares (except the Colorado and Oregon Series
which had not commenced operations). The dealer reallowance may be
changed from time to time but will remain the same for all dealers.
Dreyfus Service Corporation, at its own expense, may provide additional
promotional incentives to dealers that sell shares of funds advised by
The Dreyfus Corporation which are sold with a sales load, such as the
Fund. In some instances, these incentives may be offered only to certain
dealers who have sold or may sell significant amounts of such shares
(except the Colorado and Oregon Series which had not commenced
operations).
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 under "How to Redeem Fund Shares." Dreyfus
Service Corporation compensates certain Service Agents for selling Class
B shares at the time of purchase from Dreyfus Service Corporation's own
assets. The proceeds of the CDSC and the distribution fee, in part, are
used to defray these expenses. For the fiscal year ended April 30, 1994,
Dreyfus Service Corporation retained $279,522 from the CDSC imposed on
Class B shares.
RIGHT OF ACCUMULATION -- CLASS A SHARES
Reduced sales loads apply to any purchase of Class A shares,
shares of other funds in the Family of Premier Funds, shares of certain
other funds purchased through an exchange from any funds in the Family of
Premier Funds and shares of certain other funds advised by The Dreyfus
Corporation which are sold with a sales load and shares acquired by a
previous exchange of shares purchased with a sales load (hereinafter
referred to as "Eligible Funds"), by you and any related "purchaser" as
defined in the Statement of Additional Information, where the aggregate
investment, including such purchase, is $50,000 or more. If, for example,
you previously purchased and still hold Class A shares of the Fund, or of
any other Eligible Fund or combination thereof, with an aggregate current
market value of $40,000 and subsequently purchase Class A shares of the
Fund or an Eligible Fund having a current value of $20,000, the sales
load applicable to the subsequent purchase would be reduced to 4% 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 a purchase
you or your Service Agent must notify Dreyfus Service Corporation 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.
TELETRANSFER PRIVILEGE
You may purchase Fund shares (minimum $500, maximum $150,000
per day) by telephone if you have checked the appropriate box and
supplied the necessary information on the Fund's 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
Page 44
documents and your Fund account. Only a bank account maintained
in a domestic financial institution which is an Automated Clearing House
member may be so designated. The Fund may modify or terminate this
Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the TELETRANSFER Privilege, you may
request a TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may
not be available to clients of certain Service Agents and some Service
Agents may impose certain conditions on their clients which are different
from those described in this Prospectus. You should consult your Service
Agent in this regard.
FUND EXCHANGES
Clients of certain Service Agents may purchase, in exchange
for Class A or Class B shares of a Series, shares of the same Class in
one of the other Series, or of the same Class in certain other funds
managed or administered by The Dreyfus Corporation to the extent such
shares are offered for sale in your state of residence. These funds have
different investment objectives which may be of interest to you. 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 (the
"Exchange Account"). Exchanges of shares from an Exchange Account only
can be made into certain other funds managed or administered by The
Dreyfus Corporation. 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 Fund Shares." In addition to the limited Exchange and
Auto-Exchange Privileges noted herein, Exchange Account shares are
eligible for the Dividend Sweep Privilege and the Automatic Withdrawal
Plan, and may receive redemption proceeds only by Federal wire or by
check. If you desire to use this service, you should consult your Service
Agent or call 1-800-645-6561 to determine if it is available and whether
any other conditions are imposed on its use.
To request an exchange, your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing
or by telephone. Before any exchange, you must obtain and should review a
copy of the current prospectus of the fund into which the exchange is
being made. Prospectuses may be obtained by calling 1-800-645-6561.
Except in the case of Personal Retirement Plans, the shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must
have a value of at least the minimum initial investment required for the
fund into which the exchange is being made. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless you check the relevant "NO" box on the Account Application,
indicating that you specifically refuse this Privilege. The Telephone
Exchange Privilege may be established for an existing account by written
request, signed by all shareholders on the account, or by a separate
signed Shareholder Services Form, also available by calling
1-800-645-6561. If you have established the Telephone Exchange Privilege,
you may telephone exchange instructions by calling 1-800-221-4060 or, if
you are calling from overseas, call 1-401-455-3306. See "How to Redeem
Fund Shares _ Procedures." Upon an exchange into a new account, the
following shareholder services and privileges, as applicable and where
available, will be automatically carried over to the fund into which the
exchange is being made: Telephone Exchange Privilege, Check Redemption
Privilege, TELETRANSFER Privilege, and the dividend/capital gain
distribution option (except for Dividend Sweep) selected by the investor.
Page 45
Shares will be exchanged at the next determined net asset
value; however, a sales load may be charged with respect to exchanges of
Class A shares into funds sold with a sales load. No CDSC will be imposed
on Class B shares at the time of an exchange; however, Class B shares
acquired through an exchange will be subject on redemption to the higher
CDSC applicable to the exchanged or acquired shares. The CDSC applicable
on redemption of the acquired Class B shares will be calculated from the
date of the initial purchase of the Class B shares exchanged. If you are
exchanging Class A shares into a fund that charges a sales load, you may
qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares of the fund from which you
are exchanging were: (a) purchased with a sales load, (b) acquired by a
previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with
respect to the foregoing categories of shares. To qualify, at the time of
your exchange your Service Agent must notify Dreyfus Service Corporation.
Any such qualification is subject to confirmation of your holdings
through a check of appropriate records. See "Shareholder Services" in the
Statement of Additional Information. 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 fee in accordance with rules promulgated by the
Securities and Exchange Commission. The Fund reserves the right to reject
any exchange request in whole or in part. The availability of Fund
Exchanges may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.
AUTO-EXCHANGE PRIVILEGE
Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis) in exchange for Class A
or Class B shares of a Series, in shares of the same Class of one of the
other Series, or funds in the Premier Family of Funds or certain other
funds in the Dreyfus Family of Funds of which you are currently an
investor. The amount you designate, which can be expressed either in
terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth of the month
according to the schedule you have selected. Shares will be exchanged at
the then-current net asset value; however, a sales load may be charged
with respect to exchanges of Class A shares into funds sold with a sales
charge. No CDSC will be imposed on Class B shares at the time of an
exchange; however, Class B shares acquired through an exchange will be
subject on redemption to the higher CDSC applicable to the exchanged or
acquired shares. The CDSC applicable on redemption of the acquired Class
B shares will be calculated from the date of the initial purchase of the
Class B shares exchanged. See "Shareholder Services" in the Statement of
Additional Information. The right to exercise this Privilege may be
modified or cancelled by the Fund or the Transfer Agent. You may modify
or cancel your exercise of this Privilege at any time by writing to
Premier State Municipal Bond Fund, P.O. Box 6587, Providence, Rhode
Island 02940-6587. The Fund may charge a service fee for the use of this
Privilege. No such fee currently is contemplated. The exchange of shares
of one fund for shares of another is treated for Federal income tax
purposes as a sale of the shares given in exchange by the shareholder and,
therefore, an exchanging shareholder may realize a taxable gain or loss.
For more information concerning this Privilege and the funds in the
Premier Family of Funds or Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain an Auto-Exchange Authorization
Form, please call toll free 1-800-645-6561.
Page 46
AUTOMATIC ASSET BUILDER
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. At your option, the bank
account designated by you will be debited in the specified amount, and
Fund shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. To establish an AUTOMATIC Asset Builder
account, you must file an authorization form with the Transfer Agent. You
may obtain the necessary authorization form by calling 1-800-645-6561.
You may cancel your participation in this Privilege or change the amount
of purchase at any time by mailing written notification to Premier State
Municipal Bond Fund, P.O. Box 6587, Providence, Rhode Island 02940-6587,
and the notification will be effective three business days following
receipt. The Fund may modify or terminate this Privilege at any time or
charge a service fee. No such fee currently is contemplated.
GOVERNMENT DIRECT DEPOSIT PRIVILEGE
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 Federal government automatically deposited into
your Fund account. You may deposit as much of such payments as you elect.
To enroll in Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment
that you desire to include in this Privilege. The appropriate form may be
obtained from your Service Agent or by calling 1-800-645-6561. Death or
legal incapacity will terminate your participation in this Privilege. You
may elect at any time to terminate your participation by notifying in
writing the appropriate Federal agency. Further, the Fund may terminate
your participation upon 30 days' notice to you.
DIVIDEND OPTIONS
Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of the same class of another fund in the Premier Family of Funds
or the Dreyfus Family of Funds of which you are a shareholder. Shares of
the other fund will be purchased at the then-current net asset value;
however, a sales load may be charged with respect to investments in
shares of a fund sold with a sales load. If you are investing in a fund
that charges a sales load, you may qualify for share prices which do not
include the sales load or which reflect a reduced sales load. If you are
investing in a fund that charges a CDSC, the shares purchased will be
subject on redemption to the CDSC, if any, applicable to the purchased
shares. See "Shareholder Services" in the Statement of Additional
Information. Dividend ACHpermits you to transfer electronically on the
payment date 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 Automated
Clearing House member may be so designated. Banks may charge a fee for
this service.
For more information concerning these privileges, or to
request a Dividend Options Form, please call toll free 1-800-645-6561.
You may cancel these privileges by mailing written notification to
Premier State Municipal Bond Fund, P.O. Box 6587, Providence, Rhode
Island 02940-6587. To select a new fund after cancellation, you must
submit a new Dividend Options Form. Enrollment in or cancellation of
these privileges is effective three business days following receipt.
These privileges are available only for existing accounts and may not be
used to open new accounts. Minimum subsequent investments do not apply
for Dividend Sweep. The Fund may modify or terminate these privileges at
any time or charge a service fee. No such fee currently is contemplated.
Page 47
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. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Class B shares withdrawn pursuant to the Automatic Withdrawal
Plan will be subject to any applicable CDSC. Purchases of additional
Class A 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, available from Dreyfus
Service Corporation, you become eligible for the reduced sales load
applicable to the total number of Eligible Fund shares purchased in a
13-month period. 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 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. Purchases 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.
HOW TO REDEEM FUND SHARES
GENERAL
You may request redemption of your Class A or Class B shares
at any time. Redemption requests should be transmitted to the Transfer
Agent as described below. When a request is received in proper form, the
Fund will redeem the shares at the next determined net asset value as
described below. If you hold Fund shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed.
If you fail to specify the Class of shares to be redeemed or if you own
fewer shares of the Class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further
instructions from you or your Service Agent.
The Fund imposes no charges (other than any applicable CDSC)
when shares are redeemed directly through Dreyfus Service Corporation.
Service Agents may charge a nominal fee for effecting redemption of Fund
shares. Any certificates representing shares being redeemed must be
submitted with the redemption request. The value of the shares redeemed
may be more or less than their original cost, depending on the Series'
then-current net asset value.
Page 48
The Fund ordinarily will make payment for all shares redeemed
within seven days after receipt by the Transfer Agent of a redemption
request in proper form, except as provided by the rules of the Securities
and Exchange Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY
CHECK, BY THE TELETRANSFER PRIVILEGE OR THROUGH AUTOMATIC ASSET BUILDER
AND SUBSEQUENTLY SUBMIT A WRITTEN REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK
CLEARANCE OF YOUR PURCHASE CHECK, TELETRANSFER PURCHASE OR AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES PURSUANT
TO THE TELETRANSFER PRIVILEGE, FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE TELETRANSFER
PURCHASE OR THE AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH
REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES
WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT
COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR
TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER
RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until
the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its
option upon not less than 30 days' written notice if your account's net
asset value is $500 or less and remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Dreyfus Service Corporation is imposed 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 Class B
shares acquired through reinvestment of dividends or capital gain
distributions, plus (ii) increases in the net asset value of 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 the 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 from 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:
<TABLE>
YEAR SINCE PURCHASE CDSC AS A % OF AMOUNT
PAYMENT WAS MADE INVESTED OR REDEMPTION PROCEEDS
----------------------- ---------------------------------------
<S> <C> <C>
First...................................... 3.00
Second..................................... 3.00
Third...................................... 2.00
Fourth..................................... 2.00
Fifth...................................... 1.00
Sixth...................................... 0.00
</TABLE>
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 five years;
then of amounts representing the cost of shares purchased five years
Page 49
prior to the redemption; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable five-year
period.
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 his or her
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 3%
(the applicable rate in the second year after purchase) for a total CDSC
of $7.20.
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 Dreyfus Service Corporation
exceeds one million dollars, (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 by such shareholders as the Securities and
Exchange Commission or its staff may permit. If the Fund's Trustees
determine to discontinue the waiver of the CDSC, the disclosure in the
Fund's prospectus 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 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 Dreyfus Service Corporation. Any such qualification is subject to
confirmation of your entitlement.
PROCEDURES
You may redeem Fund shares by using the regular redemption
procedure through the Transfer Agent, using the Check Redemption
Privilege with respect to Class A shares, through the TELETRANSFER
Privilege or, if you are a client of a Selected Dealer, through the
Selected Dealer. If you have given your Service Agent authority to
instruct the Transfer Agent to redeem shares and to credit the proceeds
of such redemptions to a designated account at your Service Agent, you
may redeem shares only in this manner and in accordance with the regular
redemption procedure described below. If you wish to use the other
redemption methods described below, you must arrange with your Service
Agent for delivery of the required application(s) to the Transfer Agent.
Other redemption procedures may be in effect for clients of certain
Service Agents. The Fund makes available to certain large institutions
the ability to issue redemption instructions through compatible computer
facilities.
Your redemption request may direct that the redemption
proceeds be used to purchase shares of other funds advised or
administered by The Dreyfus Corporation that are not available through
the Exchange Privilege. The applicable CDSC will be charged upon the
redemption of Class B shares. Your redemption proceeds will be invested
in shares of the other fund on the next business day. Before you make
such a request, you must obtain and should review a copy of the current
prospectus of the fund being purchased. Prospectuses may be obtained from
Dreyfus Service Corporation. The prospectus will contain information
concerning minimum investment requirements and other conditions that may
apply to your purchase.
Page 50
You may redeem Fund shares by telephone if you have checked
the appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If you select the
TELETRANSFER Privilege or telephone exchange privilege (which is granted
automatically unless you refuse it), you authorize the Transfer Agent to
act on telephone instructions 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. The Fund will
require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions
are genuine and, if it does not follow such procedures, the Fund or the
Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you
may experience difficulty in contacting the Transfer Agent by telephone
to request a TELETRANSFER redemption or an exchange of Series shares. In
such cases, you should consider using the other redemption procedures
described herein. Use of these other redemption procedures may result in
your redemption request being processed at a later time than it would
have been if TELETRANSFER redemption had been used. During the delay, the
Series' net asset value may fluctuate.
REGULAR REDEMPTION
Under the regular redemption procedure, you may redeem shares
by written request mailed to Premier State Municipal Bond Fund, P.O. Box
6587, Providence, Rhode Island 02940-6587. Written redemption requests
must specify the Class of shares being redeemed. Redemption requests must
be signed by each shareholder, including each owner of a joint account,
and each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program,
the Securities Transfer Agents Medallion Program ("STAMP"), and the Stock
Exchanges Medallion Program.
Redemption proceeds of at least $1,000 will be wired to any
member bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE -- CLASS A SHARES
If you hold Class A shares, you may request on the Account
Application, Shareholder Services Form or by later written request that
the Fund provide Redemption Checks drawn on the Fund's account.
Redemption Checks may be made payable to the order of any person in the
amount of $500 or more. Potential fluctuations in the net asset value of
the Class A shares should be considered in determining the amount of the
check. Redemption Checks should not be used to close your account.
Redemption Checks are free, but the Transfer Agent will impose a fee for
stopping payment of a Redemption Check upon your request or if the
Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. You should date your Redemption Checks with
the current date when you write them. Please do not postdate your
Redemption Checks. If you do the Transfer Agent will honor, upon
presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of
presentment for payment, if they are otherwise in good order. Class A
shares for which certificates have been issued may not be redeemed by
Redemption Check. This Privilege may be modified or terminated at any
time by the Fund or the Transfer Agent upon notice to holders of
Class A shares.
TELETRANSFER PRIVILEGE
You may redeem shares (minimum $500 per day) by telephone if
you have checked the appropriate box and supplied the necessary
information on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. The proceeds will be trans-
Page 51
ferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic
financialinstitution which is an Automated Clearing House member may be so
designated. Redemption proceeds will be on deposit in your account at an
Automated Clearing House member bank ordinarily two days after receipt of
the redemption request or, at your request, paid by check (maximum
$150,000 per day) and mailed to your address. Holders of jointly registered
Fund or bank accounts may redeem through the TELETRANSFER Privilege for
transfer to their bank account only up to $250,000 within any 30-day
period. The Fund reserves the right to refuse any request made by
telephone, including requests made shortly after a change of address, and
may limit the amount involved or the number of such requests. The Fund
may modify or terminate this Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
If you have selected the TELETRANSFER Privilege, you may
request a TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares issued in certificate form are not eligible for this Privilege.
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 Fund Shares" for a discussion of additional conditions or
fees that may be imposed upon redemption.
In addition, Dreyfus Service Corporation will accept orders
from Selected Dealers with which it 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 Dreyfus Service
Corporation by 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 dealer to transmit orders on a
timely basis. The 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 -- CLASS A SHARES
Upon written request, you may reinvest up to the number of
Class A shares you have redeemed, within 30 days of redemption, at the
then-prevailing net asset value without a sales load, or reinstate your
account for the purpose of exercising the Exchange Privilege. The
Reinvestment Privilege may be exercised only once.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class A and Class B shares are subject to a Shareholder
Services Plan and only Class B shares are subject to a Distribution Plan.
DISTRIBUTION PLAN
Under the Distribution Plan, adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund pays Dreyfus Service
Corporation for advertising, marketing and distributing Class B shares of
each Series at an annual rate of .50 of 1% of the value of the average
daily net assets of Class B. Under the Distribution Plan, Dreyfus Service
Corporation may make payments to Service Agents in respect of these
services. Dreyfus Service Corporation determines the amounts to be paid
to Service Agents. Service Agents receive such
Page 52
fees in respect of the average daily value of the Class B shares owned by
their clients. From time to time, Dreyfus Service Corporation may defer
or waive receipt of fees under the Distribution Plan while retaining the
ability to be paid by the Fund under the Distribution Plan thereafter. The
fees payable to Dreyfus Service Corporation under the Distribution Plan
for advertising, marketing and distributing Class B shares and for
payments to Service Agents are payable without regard to actual
expenses incurred.
SHAREHOLDER SERVICES PLAN
Under the Shareholder Services Plan, the Fund pays Dreyfus
Service Corporation for the provision of certain services to the holders
of Class A and Class B shares a fee at the annual rate of .25 of 1% of
the value of the average daily net assets of Class A and Class B. 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. Dreyfus Service Corporation may make
payments to Service Agents in respect of these services. Dreyfus Service
Corporation determines the amounts to be paid to Service Agents. Each
Service Agent is required to disclose to its clients any compensation
payable to it by the Fund pursuant to the Shareholder Services Plan and
any other compensation payable by their clients in connection with the
investment of their assets in Class A or Class B shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each Series of 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
immediately available funds ("Federal Funds" (monies of member banks
within the Federal Reserve System which are held on deposit at a Federal
Reserve Bank)) are received by the Transfer Agent in written or
telegraphic form. 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.
Dividends usually are paid on the last calendar 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. Each Series' earnings for
Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. 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. 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 distribution requirements of the Code,
in all events in a manner consistent with the provisions of the
Investment Company Act of 1940. No Series will make distributions from
its net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. You may choose whether to receive
distributions in cash or to reinvest in additional shares of the Series
and the same Class from which they were paid at net asset value. All
expenses are accrued daily and deducted before declaration of dividends
to investors.
Dividends paid by each Class will be calculated at the same
time and in the same manner and will be of the same amount, except that
the expenses attributable solely to Class A or Class B will be borne
exclusively by such Class. Class B will receive lower per share dividends
than Class A shares because of the higher expenses borne by Class B. See
"Fee Table."
Page 53
FEDERAL TAX TREATMENT
Under the Code, each Series of the Fund is treated as a
separate corporation for purposes of qualification and taxation as a
regulated investment company. Except for dividends from Taxable
Investments, the Fund anticipates that substantially all dividends paid
by a Series from net investment income will not be subject to Federal
income tax. Dividends derived from Taxable Investments, together with
distributions from any net realized short-term securities gains and all
or a portion of any gains realized from the sale or other disposition of
certain market discount bonds, paid by the Fund are subject to Federal
income tax as ordinary income whether or not reinvested. Distributions
from net realized long-term securities gains of a Series generally are
subject to Federal income tax as long-term capital gains if you are a
citizen or resident of the United States. Dividends and distributions
attributable to gains derived from securities transactions and from the
use of certain of the investment techniques described under "Description
of the Fund _ Investment Techniques," will be subject to Federal income
tax. No dividend paid by any Series will qualify for the dividends
received deduction allowable to certain U.S. corporations. The Code
provides that the net capital gain of an individual generally will not be
subject to Federal income tax at a rate in excess of 28%. Under the Code,
interest on indebtedness incurred or continued to purchase or carry
shares of any Series which is deemed to relate to exempt-interest
dividends is not deductible.
The Code provides for the "carryover" of some or all of the
sales load imposed on Class A shares of a Series if you exchange your
Class A shares for shares of another Series or fund advised by The
Dreyfus Corporation within 91 days of purchase and such other Series or
other fund reduces or eliminates its otherwise applicable sales load
charge for the purpose of the exchange. In this case, the amount of your
sales load charge for Class A shares, up to the amount of the reduction
of the sales load charge on the exchange, is not included in the basis of
your Class A shares for purposes of computing gain or loss on the
exchange, and instead is added to the basis of the other Series or fund
shares received on the exchange.
Although all or a substantial portion of the dividends paid
by each Series may be excluded by shareholders of the Series from their
gross income for Federal income tax purposes, each Series may purchase
specified private activity bonds, the interest from which may be (i) a
preference item for purposes of the alternative minimum tax, (ii) a
component of the "adjusted current earnings" preference item for purposes
of the corporate alternative minimum tax as well as a component in
computing the corporate environmental tax or (iii) a factor in
determining the extent to which a shareholder's Social Security benefits
are taxable. If a Series purchases such securities, the portion of the
Series' dividends related thereto will not necessarily be tax exempt to an
investor who is subject to the alternative minimum tax and/or tax on Social
Security benefits and may cause an investor to be subject to such taxes.
Notice as to the tax status of your dividends and
distributions will be mailed to you annually. You also will receive
periodic summaries of your account which will include information as to
dividends and distributions from securities gains, if any, paid during
the year. These statements set forth the dollar amount of income exempt
from Federal tax and the dollar amount, if any, subject to Federal tax.
These dollar amounts will vary depending on the size and length of time
of your investment in a Series. If a Series pays dividends derived from
taxable income, it intends to designate as taxable the same percentage of
the day's dividends as the actual taxable income earned on that day bears
to total income earned on that day. Thus, the percentage of the dividend
designated as taxable, if any, may vary from day to day.
Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of taxable
dividends, distributions from net realized securities gains and the
proceeds of any redemption, regardless of the extent to which gain or
loss may be realized, paid to a shareholder if such shareholder fails to
certify either that the TIN furnished in connection with opening an
account is correct, or that such shareholder has not
Page 54
received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest
income on a Federal income tax return. Furthermore, the IRS may notify
the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income
tax return.
A TIN is either the Social Security number or employer
identification number of the record owner of the account. Any tax
withheld as a result of backup withholding does not constitute an
additional tax imposed on the record owner of the account, and may be
claimed as a credit on the record owner's Federal income tax return.
Management of the Fund believes that each Series (other than
the Colorado and Oregon Series which had not commenced operations) has
qualified for the fiscal year ended April 30, 1994 as a "regulated
investment company" under the Code. It is expected that each of the
Colorado and Oregon Series will qualify as a "regulated investment
company" under the Code so long as such qualification is in the best
interests of such Series' shareholders. Each such Series intends to
continue to so qualify, if such qualification is in the best interests of
its shareholders. Qualification as a regulated investment company
relieves the Series of any liability for Federal income taxes to the
extent its earnings are distributed in accordance with applicable
provisions of the Code. Each Series of the Fund is subject to a
non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains, if
any.
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.
ARIZONA SERIES
Dividends paid by the Series are not subject to Arizona
individual and corporate income taxes to the extent that such dividends
are derived from income received by the Series as interest from Arizona
Municipal Obligations, or from direct obligations of the United States,
certain Federal agency obligations, or obligations issued by the
governments of Puerto Rico, Virgin Islands or Guam. Dividends derived
from other sources including distributions that qualify as capital gain
dividends for Federal income tax purposes may be taxable by Arizona. In
addition, any gain realized on the redemption, sale or exchange of Series
shares is subject to Arizona income tax.
Shares of the Arizona Series are not subject to property
taxation by the State of Arizona or its political subdivisions.
Page 55
COLORADO SERIES
Dividends paid by the Series to a Colorado resident
individual, trust or estate, or corporation doing business in Colorado,
will be exempt from Colorado income tax to the extent that such dividends
qualify as exempt-interest dividends of a regulated investment company
under Section 852(b)(5) of the Code that are derived from interest
received by the Series from (a) obligations of Colorado or its political
subdivisions issued on or after May 1, 1980, or if issued before May 1,
1980, to the extent such interest is specifically exempt from income
taxation under the laws of the State of Colorado authorizing the issuance
of such obligations, (b) obligations of the United States or its
possessions to the extent included in Federal taxable income, and (c)
obligations of territories and possessions of the United States to the
extent Federal law exempts interest on such obligations from taxation
by the states. To the extent that Series, dividends and distributions are
attributable to sources not described in the preceding sentence, such as
short or long-term capital gains from investments sold or disposed of by
the Series, such dividends and distributions will not be exempt from
Colorado income tax.
The shares of the Colorado Series are not subject to property
taxation by Colorado or its political subdivisions.
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 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. Dividends derived from other sources are taxable by
Connecticut except that distributions qualifying as capital gains
dividends for Federal income tax purposes may not be taxable by
Connecticut to the extent derived from Connecticut Municipal Obligations.
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 and that is treated as a preference
item for purposes of the Federal alternative minimum tax is not subject
to the net Connecticut minimum tax.
Dividends qualifying as exempt-interest dividends for Federal
income tax purposes that are distributed by the Series to entities taxed
as corporations under 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 Fund 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.
Page 56
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.
There is no specific statutory or regulatory exception that
would exempt shares of a regulated investment company, including
regulated investment companies that only hold Municipal Obligations or
other direct obligations of the United States and its territories and
possessions, from the Georgia intangibles tax. The Georgia Department of
Revenue has taken the position that the fair market value of a regulated
investment company's shares are subject to Georgia's intangibles tax
regardless of the tax exempt character of the obligations in which the
Series invests or the tax exempt income generated by such investments.
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
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.
Maryland presently includes in taxable net income items of
tax preferences as defined in the Code. Interest paid on certain private
activity bonds constitutes a tax preference. Accordingly, subject to a
threshold amount, 50% of any distributions by the Series attributable to
such private activity bonds will not be exempt from Maryland state and
local income taxes. 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.
In the event 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
Page 57
in the net income measure of the corporate excise tax for corporate
shareholders who are subject to the Massachusetts corporate excise tax.
The Series believes that distributions from net realized long-term
securities gains that are taxable by Massachusetts are reportable as
long-term capital gains, irrespective of how long the resident has held
shares in 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 and are excluded from the
taxable income base of the Michigan intangibles 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. Dividends or distributions by the Series to a Michigan
resident that are attributable to most other sources are subject to both
the Michigan personal income tax and are included in the taxable income
base of the Michigan intangibles tax.
For Michigan personal income and intangibles 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 and will be included in the taxable
income base of the Michigan intangibles tax, except that dividends from
net investment income or distributions from capital gains reinvested in
Series' shares are exempt from such tax. 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 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, but only if the dividends so
attributable represent 95% or more of the exempt-interest dividends that
are paid by the Series. However, 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.
NORTH CAROLINA SERIES
Dividends paid by the North Carolina 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 and distributions
attributable to gain realized by the Series from the sale or exchange of
certain North Carolina Municipal Obligations 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
Page 58
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.
Shares of the North Carolina Series are not subject to the
North Carolina tax on intangible personal property, provided that at
least 80% of the North Carolina Series' investments are North Carolina
Municipal Obligations and the balance of the investments are direct
obligations of the U.S. Government and assuming the Series complies with
certain procedural notification requirements. To the extent that the
investment portfolio of the North Carolina Series does not meet this
test, the portfolio may be partially or wholly subject to the North
Carolina tax on intangible personal property.
To the extent that dividends and 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 includable 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 taxed on the net worth basis of the Ohio Corporation
Franchise Tax.
OREGON SERIES
Dividends paid by the Series to an Oregon resident
individual, trust or estate are exempt from Oregon personal income tax to
the extent that such dividends qualify as exempt-interest dividends for
federal income tax purposes and such dividends are attributable to
interest on tax-exempt obligations of the State of Oregon and its
political as subdivisions and authorities or on obligations issued by the
governments of Puerto Rico, the U.S. Virgin Islands, Guam and the
Northern Mariana Islands. To the extent that the Series' dividends and
distributions are attributable to sources not described in the preceding
sentence, such as short- or long-term capital gains from investments sold
or disposed of by the Series, such dividends and distributions will not
be exempt from Oregon income tax. In addition, dividends and
distributions paid by the Oregon Series are expected to be fully
includable in income in determining the Oregon excise tax on
corporations.
The shares of the Oregon Series are not subject to property
taxation by Oregon or its political subdivisions.
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
Page 59
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. It is the current position of the Department of Revenue of the
Commonwealth of Pennsylvania that Series shares are not 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.
Shares of the Series are exempt from Pennsylvania county
personal property taxes and (as to residents of Pittsburgh) from personal
property taxes imposed by the City of Pittsburgh and the School District
of Pittsburgh to the extent that the portfolio of the Series consists of
Pennsylvania Municipal Obligations and U.S. Government obligations,
including obligations issued by U.S. possessions.
TEXAS SERIES
All dividends and distributions by the Series to Texas
resident individuals are not subject to taxation by Texas. However, Texas
recently enacted significant changes to its 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 traditional tax on a corporation's capital. The Texas franchise
tax on earned surplus is applicable only to the extent that it exceeds
the franchise tax on capital. 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.
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 based on the corporation's gross
receipts derived from Texas. To the extent dividend and interest payments
are made by a non-Texas entity, such dividends and payments are not
considered to be Texas sourced receipts for franchise tax appointment
purposes.
Dividends and distributions by the Series to corporations
doing business in or incorporated in Texas will not be considered Texas
sourced "gross receipts" for either component of the Texas franchise tax.
Effective with franchise tax reports originally due after January l, 1994
(which are based upon accounting years ending in 1993), other
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:
(l) the activities of the recipient corporation do not have a sufficient
unitary connection with that corporation's other activ-
Page 60
ities conducted within the state giving rise to the underlying sale of
such assets; and (2) the recipient corporation has its commercial
domicile in Texas.
The shares of the Series are not subject to property taxation
by Texas or its political subdivisions.
VIRGINIA SERIES
Dividends paid by the Series to a Virginia resident or a
corporation doing business in Virginia are exempt from Virginia income
tax to the extent that the dividends are attributable to (a) Virginia
Municipal Obligations, (b) obligations of the United States or any
authority, commission or instrumentality of the United States in the
exercise of the borrowing power of the United States and backed by the
full faith and credit of the United States, or (c) obligations issued by
particular Federal or Virginia agencies or political subdivisions whose
enabling statute exempts from state taxation interest or dividends paid
on securities of such entity; provided, that the exempt portion of
dividends can be determined with reasonable certainty and substantiated if
taxable income is commingled with exempt income. Other dividends and
distributions, including distributions of capital gains attributable to
the aforementioned obligations, are subject to Virginia income tax unless
specifically exempted by statutory provisions creating the agency or
political subdivisions.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class of
shares may be calculated on several bases, including current yield, tax
equivalent yield, average annual total return and/or total return.
These total return figures reflect changes in the price of
the shares and assume that any income dividends and/or capital gains
distributions made by the Fund during the measuring period were
reinvested in shares of the same Class. Class A total return figures
include the maximum initial sales charge and Class B total return figures
include any applicable CDSC. These figures also take into account any
applicable service and distribution fees. As a result, at any given time,
the performance of Class B should be expected to be lower than that of
Class A. Performance for each Class will be calculated separately.
Current yield refers to each Series' annualized net
investment income per share over a 30-day period, expressed as a
percentage of the maximum offering price per share in the case of Class A
or the net asset value in the case of Class B at the end of the period.
For purposes of calculating current yield, the amount of net investment
income per share during that 30-day period, computed in accordance with
regulatory requirements, is compounded by assuming that it is reinvested
at a constant rate over a six-month period. An identical result is then
assumed to have occurred during a second six-month period which, when
added to the result for the first six months, provides an "annualized"
yield for an entire one-year period. Calculations of each Series' current
yield may reflect absorbed expenses pursuant to any undertaking that may
be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax
yield which, after being taxed at a stated rate, would be equivalent to a
stated current yield calculated as described above.
Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in a Series of the
Fund was purchased with an initial payment of $1,000 and that the
investment was redeemed at the end of a stated period of time, after
giving effect to the reinvestment of dividends and distributions during
the period. The return is expressed as a percentage rate which, if
applied on a compounded annual basis, would result in the redeemable
value of the investment at the end of the period. Advertisements of each
Series' performance will include each Series' average annual total return
for Class A and Class B for one, five and ten year periods, or for
shorter periods depending upon the length of time during which each
Series has operated. Computations of average total return for periods of
less than one year represent an annualization of the Fund's actual total
return for the applica-
Page 61
ble period. A Series' actual total return for its
first full year of operation cannot be predicted and is therefore likely
to be different from any such annualized computation.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the
income and principal changes for a specified period and dividing by the
maximum offering price per share in the case of Class A or the net asset
value in the case of Class B at the beginning of the period.
Advertisements may include the percentage rate of total return or may
include the value of a hypothetical investment at the end of the period
which assumes the application of the percentage rate of total return.
Total return may also be calculated by using 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 shares. Calculations based on the net asset value per share do
not reflect the deduction of the applicable sales charge which, if
reflected, would reduce the performance quoted.
Performance will vary from time to time and past results are
not necessarily representative of future results. Investors should
remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. Performance information, such as that described
above, may not provide a basis for comparison with other investments or
other investment companies using a different method of calculating
performance.
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.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust
under the laws of the Commonwealth of Massachusetts pursuant to an
Agreement and Declaration of Trust (the "Trust Agreement") dated
September 19, 1986. On July 2, 1990, the Fund's name was changed from
Premier State Tax Exempt Bond Fund to Premier State Municipal Bond Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest, par value $.001 per share. The Fund's shares are
classified into two classes _ Class A and Class B. Each share has one
vote and shareholders will vote in the aggregate and not by class except
as otherwise required by law or when class voting is permitted by the
Board of Trustees. Holders of Class A and Class B shares will be entitled
to vote on matters submitted to shareholders pertaining to the
Shareholder Services Plan and only holders of Class B shares will be
entitled to vote on matters submitted to shareholders pertaining to the
Distribution Plan.
To date, the Trustees have authorized the creation of fifteen
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.
Rule 18f-2 under the Investment Company Act of 1940 provides
that any matter required to be submitted under the provisions of the
Investment Company Act of 1940 or applicable state law or otherwise, to
the holders of the outstanding voting securities of an investment company
such as the Fund will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of
each Series affected by such matter. Rule 18f-2 further provides that a
Series shall be deemed to be affected by a matter unless it is clear that
the interests of each Series in the matter are identical or that the
matter does not affect any interest of such Series. However, the Rule
exempts the selection of independent accountants and the election of
trustees from the separate voting requirements of the Rule.
Page 62
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, 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 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 Trustees intend
to conduct the operations of the Fund in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities
of the Fund. As discussed under "Management of the Fund" in the Statement
of Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to
remove Trustees.
The Transfer Agent maintains a record of your ownership and
sends you confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at
144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND IN THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER
OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH,
OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
PSTEBF/P14111894
Page 63
APPENDIX
The average distribution of investments (at value) in
Municipal Obligations by ratings for the fiscal year ended April 30,
1994, computed on a monthly basis, for the Premier State Municipal Bond
Fund Arizona Series was as follows:
<TABLE>
FITCH MOODY'S STANDARD &
INVESTORS INVESTORS POOR'S
SERVICE, INC. SERVICE, INC. CORPORATION ARIZONA
("FITCH") OR ("MOODY'S") OR ("S&P") SERIES
------------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
AAA Aaa AAA 35.5%
AA Aa AA 23.2
A A A 22.9
BBB Baa BBB 9.3
BB Ba BB 5.2
F-1 MIG1/P-1 SP-1/A-1 3.9
Not Rated Not Rated Not Rated --
--------
100.0%
Page 64 ======
</TABLE>
__________________________________________________________________________
PREMIER STATE MUNICIPAL BOND FUND
CLASS A AND CLASS B SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SEPTEMBER 1, 1994
AS REVISED NOVEMBER 18, 1994
__________________________________________________________________________
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Premier State Municipal Bond Fund (the "Fund"), dated September 1,
1994, 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.
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . . . . . . B-2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . B-10
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . B-14
Purchase of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . B-17
Distribution Plan and Shareholder Services Plan. . . . . . . . . . . B-19
Redemption of Fund Shares. . . . . . . . . . . . . . . . . . . . . . B-21
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . B-23
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . B-25
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . B-26
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . B-27
Performance Information. . . . . . . . . . . . . . . . . . . . . . . B-28
Information About the Fund . . . . . . . . . . . . . . . . . . . . . B-34
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors . . . . . . . . . . . . . . . B-34
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-98
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-106
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . B-116
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Description of the Fund."
The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended April 30, 1994, computed
on a monthly basis, for each Series (except the Colorado and Oregon Series
which had not commenced operations until May 6, 1994) was as follows:
<TABLE>
<CAPTION>
Fitch Moody's Standard &
Investors Investors Poor's
Service, Inc. Service, Inc. Corporation Arizona Connecticut Florida Georgia
("Fitch") or ("Moody's") or ("S&P") Series Series Series Series
<S> <S> <S> <C> <C> <C> <C>
AAA Aaa AAA 35.5% 27.7% 37.1% 45.1%
AA Aa AA 23.2 36.7 16.9 29.4
A A A 22.9 16.8 19.1 19.6
BBB Baa BBB 9.3 12.0 16.6 4.6
BB Ba BB 5.2 - .5 .9
F-1 MIG 1/P-1 SP-1/A-1 3.9 .4 .9 .4
Not Rated Not Rated Not Rated - 6.4 (1) 8.9 (2) -
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
_________________________________
(1) Included in the Not Rated category are securities comprising
6.4% 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%),
Baa/BBB (5.2%) and Ba/BB (1.1%).
(2) Included in the Not Rated category are securities comprising
6.1% 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%),
Baa/BBB (4.4%), Ba/BB (.6%) and B/B (.9%).
<TABLE>
<CAPTION>
Maryland Massachusetts Michigan Minnesota
Fitch or Moody's or S&P Series Series Series Series
<S> <S> <S> <C> <C> <C> <C>
AAA Aaa AAA 29.2% 44.0% 31.0% 35.4%
AA Aa AA 38.6 11.0 30.5 22.3
A A A 18.7 26.8 19.0 26.2
BBB Baa BBB 5.3 11.0 11.9 10.7
BB Ba BB - - - -
F-1 MIG 1/P-1 SP-1/A-1 1.2 - .5 1.3
Not Rated Not Rated Not Rated 7.0 (3) 7.2 (4) 7.1 (5) 4.1 (6)
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
_________________________________
(3) Included in the Not Rated category are securities comprising
7.0% 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 (.4%)
and Baa/BBB (6.6%).
(4) Included in the Not Rated category are securities comprising
7.2% 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 rating categories: Aaa/AAA
(.48%), Aa/AA (.47%) and Baa/BBB (6.25%).
(5) Included in the Not Rated category are securities comprising
7.1% 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
(2.5%), A/A (.9%), Baa/BBB (2.5%) and Ba/BB (1.2%).
(6) Included in the Not Rated category are securities comprising
4.1% 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 (.6%)
and Baa/BBB (3.5%).
<TABLE>
<CAPTION>
North
Carolina Ohio Pennsylvania Texas
Fitch or Moody's or S&P Series Series Series Series
<S> <S> <S> <C> <C> <C> <C>
AAA Aaa AAA 23.7% 22.1% 20.4% 24.8%
AA Aa AA 19.8 9.6 19.8 36.3
A A A 41.9 30.6 19.0 14.0
BBB Baa BBB 11.7 29.6 25.2 16.9
BB Ba BB - .6 .4 .1
F-1 MIG 1/P-1 SP-1/A-1 .3 1.2 2.7 1.2
Not Rated Not Rated Not Rated 2.6 (7) 6.3 (8) 12.5 (9) 6.7 (10)
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
_________________________________
(7) Included in the Not Rated category are securities comprising
2.6% 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 (.8%)
and Baa/BBB (1.8%).
(8) Included under the Not Rated category are securities
comprising 6.3% 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 (3.1%), Baa/BBB (3.0%) and D (.2%).
(9) Included under the Not Rated category are securities
comprising 12.5% 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 (4.7%), A/A (1.8%), Baa/BBB (5.7%), Ba/BB (.2%) and
F-1/MIG1/P-1/SP-1/A-1 (.1%).
(10) Included under the Not Rated category are securities
comprising 6.7% 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:
Baa/BBB (6.2%) and F-1/MIG1/P-1/SP-1/A-1 (.5%).
Virginia
Fitch or Moody's or S&P Series
AAA Aaa AAA 25.4%
AA Aa AA 32.2
A A A 33.6
BBB Baa BBB 5.5
BB Ba BB -
F-1 MIG 1/P-1 SP-1/A-1 -
Not Rated Not Rated Not Rated 3.3 (11)
------
100.0%
======
_________________________________
(11) Included under the Not Rated category are securities comprising
3.3% 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 (1.4%)
and Baa/BBB (1.9%).
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses
and lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show
facilities, airport, mass transit, industrial, port or parking facilities,
air or water pollution control facilities and certain local facilities for
water supply, gas, electricity, or sewage or solid waste disposal; the
interest paid on such obligations may be exempt from Federal income tax,
although current tax laws place substantial limitations on the size of
such issues. Such obligations are considered to be Municipal Obligations
if the interest paid thereon qualifies as exempt from Federal income tax
in the opinion of bond counsel to the issuer. There are, of course,
variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time
such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals.
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 cancelled; (b) what assurance there
is that the assets represented by the lease can be sold; (c) the strength
of the lessee's general credit (e.g., its debt, administrative, economic,
and financial characteristics); (d) the likelihood that the municipality
will discontinue appropriating funding for the leased property because the
property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such
other factors concerning credit quality as the Manager may deem relevant.
No Series will 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. 6" below.
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.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation, and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, including fees paid under the Fund's Shareholder Services Plan
with respect to Class A and Class B shares and the Distribution Plan with
respect to Class B shares only, will have the effect of reducing the yield
to investors.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the extent
that the ratings given by Moody's, S&P or Fitch for Municipal Obligations
may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in
the Fund's Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings may be
an initial criterion for selection of portfolio investments, the Manager
also will evaluate these securities.
Futures Contracts and Options on Futures Contracts. Upon exercise of
an option on a futures contract, the writer of the option delivers to the
holder of the option the futures position and the accumulated balance in
the writer's futures margin account, which represents the amount by which
the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on
the futures contract. The potential loss related to the purchase of
options on futures contracts is limited to the premium paid for the option
(plus transaction costs). Because the value of the option is fixed at the
time of sale, there are no daily cash payments to reflect changes in the
value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of
the relevant Series.
Lending Portfolio Securities. To a limited extent, each Series may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its portfolio securities, a Series
can increase its income through the investment of the cash collateral.
For purposes of this policy, the Fund considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by
banks whose securities meet the standards for investment by the Series to
be the equivalent of cash. Such loans may not exceed 33-1/3% of the value of
the Series' total assets. From time to time, the Series may return to the
borrower or a third party which is unaffiliated with the Series, and which
is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Series must receive at least 100% cash collateral from the
borrower; (2) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(3) the Series must be able to terminate the loan at any time; (4) the
Series must receive reasonable interest on the loan, as well as any
interest or other distributions payable on the loaned securities, and any
increase in market value; and (5) the Series may pay only reasonable
custodian fees in connection with the loan. These conditions may be
subject to future modification.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Federal Home Loan Banks,
by the right of the issuer to borrow from the U.S. Treasury; others such
as those issued by the Federal National Mortgage Association, by
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government-
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, since it is not so obligated by law. The Fund will
invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate. Investments in time deposits generally
are limited to London branches of domestic banks that have total assets in
excess of one billion dollars. Time deposits which may be held by the
Fund will not benefit from insurance from the Bank Insurance Fund or the
Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase agreements involve the acquisition by the Series of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Series to resell, the instrument at a fixed price,
usually not more than one week after its purchase. The Fund's custodian
or sub-custodian will have custody of, and will hold in a segregated
account, securities acquired by the Series under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Series which entered into them. In
an attempt to reduce the risk of incurring a loss on a repurchase
agreement, each Series will enter into repurchase agreements only with
domestic banks with total assets in excess of one billion dollars or
primary government securities dealers reporting to the Federal Reserve
Bank of New York, with respect to securities of the type in which such
Series may invest, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease
below resale price. The Manager will monitor on an ongoing basis the
value of the collateral to assure that it always equals or exceeds the
repurchase price. Certain costs may be incurred by the Series in
connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
securities, realization on the securities by the Series may be delayed or
limited. The Fund will consider on an ongoing basis the creditworthiness
of the institutions with which it enters into repurchase agreements.
Risk Factors
Lower Rated Bonds. Each Series is permitted to invest in securities
rated below Baa by Moody's and below BBB by S&P and Fitch. Such bonds,
though higher yielding, are characterized by risk. See "Description of
the Fund--Risk Factors--Lower Rated Bonds" in the Prospectus for a
discussion of certain risks and "Appendix B" for a general description of
Moody's, S&P and Fitch ratings of Municipal Obligations. Although ratings
may be useful in evaluating the safety of interest and principal payments,
they do not evaluate the market value risk of these bonds. The Fund will
rely on the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the Manager will take
into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, the quality of the
issuer's management and regulatory matters. It also is possible that a
rating agency might not timely change the rating on a particular issue to
reflect subsequent events. As stated above, once the rating of a bond in
a Series' portfolio has been changed, the Manager will consider all
circumstances deemed relevant in determining whether such Series should
continue to hold the bond.
Investors should be aware that the market values of many of these
bonds tend to be more sensitive to economic conditions than are higher
rated securities. These bonds generally are considered by S&P, Moody's
and Fitch to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation and generally will involve more credit risk than securities in
the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market
price and yield and the Fund's ability to dispose of particular issues
when necessary to meet the 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 Fund to obtain accurate market
quotations for purposes of valuing a Series' portfolio and calculating
such Series' net asset value. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of these securities. In such cases, judgment may play a greater
role in valuation because less reliable objective data may be available.
These bonds may be particularly susceptible to economic downturns.
It is likely that any economic recession could disrupt severely the market
for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon and increase the incidence of
default for such securities.
The Fund may acquire these bonds during any initial offering. Such
securities may involve special risks because they are new issues. The
Fund has no arrangement with the Distributor or any other persons
concerning the acquisition of such securities, and the Manager will review
carefully the credit and other characteristics pertinent to such new
issues.
Lower rated zero coupon securities and pay-in-kind bonds, in which
each Series may invest up to 5% of its net assets, involve special
considerations. The credit risk factors pertaining to lower rated
securities also apply to lower rated zero coupon bonds and pay-in-kind
bonds. Such zero coupon, pay-in-kind or delayed interest 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."
Investing in State Municipal Obligations. Investors should review
the information in "Appendix A," which provides a brief summary of special
investment considerations and risk factors relating to investing in State
Municipal Obligations.
Investment Restrictions. The Fund has adopted the following
investment restrictions as fundamental policies (except investment
restrictions numbered 3 and 6) which will apply to each Series. These
restrictions (except investment restrictions numbered 3 and 6) cannot be
changed as to a Series without approval by the holders of a majority (as
defined in the Investment Company Act of 1940 (the "Act")) of such Series'
outstanding voting shares. Investment restrictions numbered 3 and 6 are
not fundamental policies and may be changed by a vote of a majority of the
Trustees 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 Act.
Transactions in futures and options and the entry into short sales
transactions do not involve any borrowing for purposes of this
restriction.
3. 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 indexes will not be deemed to be pledges of assets.
4. Purchase securities on margin, but may make margin deposits in
connection with transactions in futures, including those related to
indexes, and options on futures or indexes.
5. 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.
6. 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.
7. 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 indexes, and options on futures contracts or indexes.
8. 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 Trustees.
9. 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.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets.
For purposes of Investment Restriction No. 9, 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.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Series shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of a Series and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of such Series in the state
involved.
In addition, although not fundamental policies, the Pennsylvania
Series may vary its portfolio investments only to (i) eliminate unsafe
investments and investments not consistent with the preservation of
capital or the tax status of investments of the Pennsylvania Series; (ii)
honor redemption orders, meet anticipated redemption requirements and
negate gains from discount purchases; (iii) reinvest the earnings from
securities in like securities; or (iv) defray ordinarily administrative
expenses.
While not a fundamental policy, the Texas Series will not invest in
real estate limited partnerships.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. No Trustee of the Fund is an "interested person" of the
Fund (as defined in the Act).
Trustees of the Fund
CLIFFORD L. ALEXANDER, JR., Trustee. 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, The Dun & Bradstreet Corporation, MCI Communications
Corporation, Mutual of America Life Insurance Company and Equitable
Resources, Inc., a producer and distributor of natural gas and crude
petroleum. His address is 400 C Street, N.E., Washington, D.C.
20002.
PEGGY C. DAVIS, Trustee. 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. Her address is c/o New York University
School of Law, 249 Sullivan Street, New York, New York 10012.
ERNEST KAFKA, Trustee. 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. For
more than the past five years, Dr. Kafka has held numerous
administrative positions and has published many articles on subjects
in the field of psychoanalysis. His address is 23 East 92nd Street,
New York, New York 10128.
SAUL B. KLAMAN, Trustee. 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. His address is 431-B Dedham Street, The Gables,
Newton Center, Massachusetts 02159.
NATHAN LEVENTHAL, Trustee. 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 serves as Chairman of Citizens Union, an organization
which strives to reform and modernize City and State government. His
address is 70 Lincoln Center Plaza, New York, New York 10023-6583.
Each Trustee is also a trustee of General California Municipal Money
Market Fund, General New York Municipal Money Market Fund, Premier
California Municipal Bond Fund, Premier GNMA Fund, Premier Insured
Municipal Bond Fund, Premier Limited Term Municipal Bond Fund, Premier
Municipal Bond Fund and Premier New York Municipal Bond Fund and a
director of Dreyfus Appreciation Fund, Inc., General California Municipal
Bond Fund, Inc., General Government Securities Money Market Fund, Inc.,
General Money Market Fund, Inc., General Municipal Bond Fund, Inc.,
General Municipal Money Market Fund, Inc., General New York Municipal Bond
Fund, Inc. and Premier Growth Fund, Inc. Mr. Alexander is also a director
of The Dreyfus Socially Responsible Growth Fund, Inc. and The Dreyfus
Third Century Fund, Inc.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain in effect, the
Trustees of the Fund who are not "interested persons" of the Fund, as
defined in the Act, will be selected and nominated by the Trustees who are
not "interested persons" of the Fund.
Ordinarily meetings of shareholders for the purpose of electing
Trustees will not be held unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders
at which time the Trustees then in office will call a shareholders'
meeting for the election of Trustees. Under the Act, shareholders of
record of not less than two-thirds of the outstanding shares of the Fund
may remove a Trustee through a declaration in writing or by vote cast in
person or by proxy at a meeting called for that purpose. Under the Fund's
Agreement and Declaration of Trust, the Trustees are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any such Trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
The Fund does not pay any remuneration to its officers. Fees and
expenses paid by the Fund to the Trustees totalled $ 20,405 for the fiscal
year ended April 30, 1994 for the Trustees as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President
and General Counsel of the Distributor and an officer of other
investment companies advised or administered by the Manager. From
February 1992 to July 1994, he served as Counsel for The Boston
Company Advisors, Inc. From August 1990 to February 1992, he was
employed as an Associate at Ropes & Gray, and prior thereto he was
employed as an Associate at Sidley & Austin.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to
August 1994, he was Manager of the High Performance Fabric Division
of Springs Industries Inc.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From September
1992 to August 1994, he was an attorney with the Board of Governors
of the Federal Reserve System.
JOHN J. PYBURN, Assistant Treasurer. Vice President of the Distributor
and an officer of other investment companies advised or administered
by the Manager. From 1984 to July 1994, he was Assistant Vice
President in the Mutual Fund Accounting Department of the Manager.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From January 1992 to July 1994, he was
a Senior Legal Product Manager for The Boston Company Advisors, Inc.
Prior thereto, he was employed as a licensed realtor at Furcinito
Real Estate, Inc.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The
Boston Company, Inc. where he held various management positions in
the Corporate Finance and Treasury areas.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts and, prior thereto, was
employed as a Research Assistant for the Bureau of National Affairs.
Trustees and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of beneficial interest outstanding on November 1, 1994.
As of July 21, 1994, the following persons owned 5% or more of the
outstanding shares of beneficial interest of the Fund; Arizona Series
Class A: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville, FL -
14.60%; Rosemary Anderson Chapman, Paradise Valley, AZ - 10.60%; Arizona
Series Class B: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville,
FL - 7.30%; Colorado Series Class A: The Dreyfus Corporation, New York, NY
- - 53.80%; Gordon R. Gibson & Cheryl L. Gibson, Montrose, CO - 11.80%;
Margaret Leachman Beatty, Denver, CO - 12.80%; PaineWebber Incorporated
F/B/O Harry and Jane Sigman, Denver, CO - 9.70%; Colorado Series Class B:
The Dreyfus Corporation, New York, NY - 17.90%; Connecticut Series Class
A: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville, FL - 8.10%;
Connecticut Series Class B: Merrill Lynch Pierce Fenner & Smith, Inc.,
Jacksonville, FL - 6.30%; Florida Series Class B: Merrill Lynch Pierce
Fenner & Smith, Inc., Jacksonville FL - 5.50%; Georgia Series Class B:
Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville, FL - 17.40%;
Maryland Series Class B: Merrill Lynch Pierce Fenner & Smith, Inc.,
Jacksonville FL - 6.20%; Massachusetts Series Class B: Edwin J. Buczak,
Worchester, MA - 6.00%; Michigan Series Class A: Merrill Lynch Pierce
Fenner & Smith, Inc., Jacksonville, FL - 6.90%; Michigan Series Class B:
Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville, FL - 7.50%; North
Carolina Series Class A: Prudential Securities F/B/O Kenneth & Ronda
Kornfeld, Greensboro, NC - 11.60%; Merrill Lynch Pierce Fenner & Smith,
Inc., Jacksonville, FL - 7.70%; Oregon Series Class A: The Dreyfus
Corporation, New York, NY - 74.40%; Carmen Jensen, Salem, OR - 13.90%;
Smith Barney Inc., New York, NY - 9.20%; Oregon Series Class B: The
Dreyfus Corporation, New York, NY - 60.60%; Prudential Securities F/B/O
Nancybeth Agnor, Oregon City, Oregon - 14.70%; Smith Barney Shearson,
Inc., New York, NY - 5.80%; Prudential Securities F/B/O Walter Miller
Trustee Miller Living Trust, Sunriver, OR - 5.00%; and Virginia Series
Class B: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville, FL -
5.00%. 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 Act) of that Series.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") with the Fund dated August 24, 1994, as
amended. As to each Series, the Agreement is subject to annual approval
by (i) the Fund's Board of Trustees or (ii) vote of a majority (as defined
in the Act) of the outstanding voting securities of such Series, provided
that in either event the continuance also is approved by a majority of the
Trustees who are not "interested persons" (as defined in the Act) of the
Fund or the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Agreement was last approved by
the Fund's Board of Trustees, including a majority of the Trustees who are
not "interested persons" of any party to the Agreement, at a meeting held
on July 20, 1994. Shareholders of each Series approved the Agreement at a
shareholders meeting held on August 3, 1994. The Agreement is terminable
without penalty, as to each Series, on 60 days' notice, by the Fund's
Board of Trustees 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:
Howard Stein, Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board; Joseph S. DiMartino, President and
director; Lawrence S. Kash, Vice Chairman-Distribution; W. Keith Smith, Chief
Operating Officer and director; Philip L. Toia, Vice Chairman-Operations
and Administration; Paul H. Snyder, Vice President-Finance and Chief
Financial Officer; Barbara E. Casey, Vice President-Dreyfus Retirement
Services; Diane M. Coffey, Vice President-Corporate Communications; Jay R.
DeMartine, Vice President-Retail Marketing; Elie M. Genadry, Vice
President-Institutional Sales; Henry D. Gottmann, Vice President-Retail Sales
and Service; Mark N. Jacobs, Vice President-Legal and Secretary; Daniel C.
Maclean, Vice President and General Counsel; Jeffrey N. Nachman, Vice
President-Mutual Fund Accounting; Peter A. Santoriello, Vice President;
Katherine C. Wickham, Vice President-Human Resources; Maurice Bendrihem,
Controller; Christine Pavalos, Assistant Secretary; and Mandell L. Berman,
Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene and David B. Truman,
directors.
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 of Trustees. The Manager is responsible for
investment decisions, and provides the Fund with portfolio managers who
are authorized by the Board of Trustees to execute purchases and sales of
securities. The Fund's portfolio managers are Joseph P. Darcy, A. Paul
Disdier, Karen M. Hand, Stephen C. Kris, Richard J. Moynihan, Jill C.
Shaffro, L. Lawrence Troutman, Samuel J. Weinstock and Monica S. Wieboldt.
The Manager also maintains a research department with a professional staff
of portfolio managers and securities analysts who provide research
services for the Fund as well as for other funds advised by the Manager.
All purchases and sales are reported for the Board of Trustees' review at
the meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: taxes, interest, brokerage fees and
commissions, if any, fees of Trustees who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager, Securities and Exchange Commission fees, state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of
independent pricing services, costs of maintaining the Fund's existence,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of shareholders' reports and
meetings, and any extraordinary expenses. Class A and Class B shares are
subject to an annual service fee for ongoing personal services relating to
shareholder accounts and services related to the maintenance of
shareholder accounts. In addition, Class B shares are subject to an
annual distribution fee for advertising, marketing and distributing Class
B shares pursuant to a distribution plan adopted in accordance with Rule
12b-1 under the Act. 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 of Trustees, including,
but not limited to, proportionately in relation to the net assets of each
Series.
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. The Manager also may make such
advertising and promotional expenditures, using its own resources, as it
from time to time deems appropriate.
As compensation for the Manager's services to the Fund, the Fund has
agreed to pay the Manager a monthly management fee at the annual rate of
.55 of 1% of the value of each Series' average daily net assets. For the
fiscal year ended April 30, 1992, no management fee was paid by the Fund
pursuant to various undertakings by the Manager in effect during such
year. For the fiscal years ended April 30, 1993 and 1994, the management
fee paid for each Series (except the Colorado and Oregon Series which had
not commenced operations) was as set forth below:
<TABLE>
<CAPTION>
Series Management Fee Payable Reduction in Fee Net Fee Paid
1993 1994 1993 1994 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Arizona $ 12,227(1) $ 77,253 $ 12,227 $ 77,253 $ -0- $ -0-
Connecticut 1,780,354 2,222,426 694,635 378,489 1,085,719 1,843,937
Florida 1,496,430 1,811,102 589,747 328,323 906,683 1,482,779
Georgia 20,072(1) 120,183 20,072 120,183 -0- -0-
Maryland 1,634,121 2,079,227 663,156 375,233 970,965 1,703,994
Massachusetts 406,583 466,331 179,550 95,389 227,033 370,942
Michigan 910,442 1,124,896 411,882 219,841 498,560 905,055
Minnesota 745,093 952,683 328,657 184,360 416,436 768,323
North Carolina 228,381 533,032 228,381 475,442 -0- 57,590
Ohio 1,489,944 1,811,687 629,804 386,259 860,140 1,425,428
Pennsylvania 1,406,107 1,544,000 472,202 317,330 933,905 1,226,670
Texas 301,425 503,485 301,425 503,485 -0- -0-
Virginia 227,861 464,237 227,861 464,237 -0- -0-
</TABLE>
______________
1 For the period from September 3, 1992 (commencement of
operations) through April 30, 1993.
For the period from May 6, 1994 (commencement of operations of each
of the Colorado and Oregon Series) through June 30, 1994 (unaudited), no
management fee was paid by the Fund for the Colorado Series and Oregon
Series pursuant to undertakings in effect.
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.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement dated August 24, 1994 which is renewable
annually. The Distributor also acts as distributor for the other funds in
the Premier Family of Funds, for the funds in the Dreyfus Family of Funds
and for certain other investment companies.
Sales Loads--Class A. 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 Internal Revenue Code of 1986, as amended (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.
Using Federal Funds. The Shareholder Services Group, Inc., the
Fund's transfer and dividend disbursing agent (the "Transfer Agent"), or
the Fund may attempt to notify the investor upon receipt of checks drawn
on banks that are not members of the Federal Reserve System as to the
possible delay in conversion into Federal Funds and may attempt to arrange
for a better means of transmitting the money. If the investor is a
customer of a securities dealer ("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.
TeleTransfer Privilege. TeleTransfer purchase orders may be made
between the hours of 8:00 a.m. and 4:00 p.m., New York time, on any
business day that the Transfer Agent and the New York Stock Exchange are
open. Such purchases will be credited to the shareholder's Fund account
on the next bank business day. To qualify to use the TeleTransfer
Privilege, the initial payment for the purchase of Fund shares must be
drawn on, and redemption proceeds paid to, the same bank and account as
are designated on the Fund's Account Application or Shareholder Services
Form on file. If the proceeds of a particular redemption are to be wired
to an account at any other bank, the request must be in writing and
signature-guaranteed. See "Redemption of Fund Shares--TeleTransfer
Privilege."
Offering Price. Based upon each Series' net asset value at the close
of business on April 30, 1994 (except Colorado and Oregon which had not
commenced operations), the maximum offering price of each Series' shares
would have been as follows:
<TABLE>
<CAPTION>
Arizona Connecticut Florida Georgia
Series Series Series Series
Class A Shares:
<S> <C> <C> <C> <C>
NET ASSET VALUE, per share........ $12.60 $11.81 $14.43 $12.69
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). . . . . . . . .59 .56 .68 .60
------ ------ ------ ------
Offering price to public. . . . . $13.19 $12.37 $15.11 $13.29
====== ====== ====== ======
Class B Shares:
NET ASSET VALUE, redemption price and
offering price to public* $12.61 $11.80 $14.42 $12.69
====== ====== ====== ======
Maryland Massachusetts Michigan Minnesota
Series Series Series Series
Class A Shares:
NET ASSET VALUE, per share. . . . $12.46 $11.64 $15.27 $14.72
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). . . . . . . . .59 .55 .72 .69
------ ------ ------ ------
Offering price to public. . . . . $13.05 $12.19 $15.99 $15.41
====== ====== ====== ======
Class B Shares:
NET ASSET VALUE, redemption price and
offering price to public* . . . $12.46 $11.63 $15.27 $14.74
====== ====== ====== ======
North
Carolina Ohio Pennsylvania Texas
Series Series Series Series
Class A Shares:
NET ASSET VALUE, per share $12.73 $12.70 $16.01 $20.41
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 .60 .75 .96
------ ------ ------ ------
Offering price to public. . . . . $13.33 $13.30 $16.76 $21.37
====== ====== ====== ======
Class B Shares:
NET ASSET VALUE, redemption price and
offering price to public* $12.72 $12.71 $16.01 $20.41
====== ====== ====== ======
Virginia
Series
Class A Shares:
NET ASSET VALUE, per share $16.02
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). . . . . . . . .75
------
Offering price to public. . . . . $16.77
======
Class B Shares:
NET ASSET VALUE, redemption price and
offering price to public* $16.02
======
</TABLE>
*Class B shares are subject to a contingent deferred sales charge on
certain redemptions. See "How to Redeem Fund Shares" in the Fund's
Prospectus.
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Distribution Plan and Shareholder Services Plan."
Class A and Class B shares are subject to a Shareholder Services Plan
and only Class B shares are subject to a Distribution Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the 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
of Trustees has adopted such a plan (the "Distribution Plan") with respect
to the Class B shares of each Series, pursuant to which the Fund pays the
Distributor for advertising, marketing and distributing Class B shares.
Under the Distribution Plan, the Distributor may make payments to certain
securities dealers, financial institutions and other financial industry
professionals (collectively, "Service Agents") in respect of these
services. The Fund's Board of Trustees believes that there is a
reasonable likelihood that the Distribution Plan will benefit the Fund and
holders of each Series' Class B shares. In some states, certain
institutions effecting transactions in Fund shares may be required to
register as dealers pursuant to state law.
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 Trustees for their review. In addition, the Distribution Plan
provides that it may not be amended to increase materially the costs which
holders of Class B shares may bear for distribution pursuant to the Plan
without the approval of the holders of Class B shares and that other
material amendments of the Distribution Plan must be approved by the Board
of Trustees, and by the Trustees who are not "interested persons" (as
defined in the Act) of the Fund and have no direct or indirect financial
interest in the operation of the Distribution Plan or in any agreements
entered into in connection with the Distribution Plan, by vote of the
Trustees 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 Trustees cast in person at a meeting called for the
purpose of voting on the Distribution Plan. The Distribution Plan was
last approved by the Fund's Board of Trustees, including a majority of the
Trustees who are not "interested persons" at a meeting held on July 20,
1994 and by the Fund's shareholders on August 3, 1994. The Distribution
Plan is terminable, as to each Series, at any time by vote of a majority
of the Trustees who are not "interested persons" and have no direct or
indirect financial interest in the operation of the Distribution Plan or
in any of the related agreements entered into in connection with the
Distribution Plan, or by vote of the holders of a majority of such Series'
Class B shares.
For the fiscal year ended April 30, 1994, each Series (except the
Colorado and Oregon Series which had not commenced operations) was charged
with respect to Class B the following amounts for advertising, marketing
and distributing Class B shares pursuant to the Distribution Plan:
Amount Charged
Series Class B
Arizona $ 22,645
Connecticut 113,646
Florida 80,470
Georgia 62,714
Maryland 108,878
Massachusetts 13,123
Michigan 47,921
Minnesota 70,013
North Carolina 158,695
Ohio 102,349
Pennsylvania 202,835
Texas 60,667
Virginia 99,567
For the period from May 6, 1994 (commencement of operations of each
of the Colorado and Oregon Series) through June 30, 1994 (unaudited), the
Colorado Series was charged $450 and the Oregon Series was charged $143
with respect to Class B for advertising, marketing and distributing Class
B shares 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 and Class B shares.
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 Trustees for their review. In addition, the
Shareholder Services Plan provides that it may not be amended without
approval of the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the Act) of the Fund and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan, by vote of the Trustees 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 Trustees cast in person at a meeting called for the purpose of voting
on the Shareholder Services Plan. The Shareholder Services Plan was so
approved on July 20, 1994. As to each Series, the Shareholder Services
Plan is terminable at any time by vote of a majority of the Trustees who
are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Shareholder Services Plan or in any
agreements entered into in connection with the Shareholder Services Plan.
For the fiscal year ended April 30, 1994, each Series (except the
Colorado and Oregon Series which had not commenced operations) was charged
with respect to Class A and Class B the following amounts pursuant to the
Shareholder Services Plan:
Series Class A Class B
Arizona $ 23,793 $ 11,322
Connecticut 953,370 56,824
Florida 782,993 40,235
Georgia 23,272 31,357
Maryland 890,664 54,439
Massachusetts 205,407 6,562
Michigan 487,356 23,961
Minnesota 398,031 35,007
North Carolina 162,940 79,347
Ohio 772,320 51,174
Pennsylvania 600,400 101,418
Texas 198,523 30,334
Virginia 161,234 49,783
For the period from May 6, 1994 (commencement of operations of each
of the Colorado and Oregon Series) through June 30, 1994 (unaudited), the
Colorado Series was charged $120 with respect to Class A and $225 with
respect to Class B, and the Oregon Series was charged $98 with respect to
Class A and $71 with respect to Class B pursuant to the Shareholder
Services Plan.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Check Redemption Privilege - Class A Shares. An investor may
indicate on the Account Application or by later written request that the
Fund provide Redemption Checks ("Checks") with respect to Class A shares,
drawn on the Fund's account. Checks will be sent only to the registered
owner(s) of the account and only to the address of record. The Account
Application or later written request must be manually signed by the
registered owner(s). Checks may be made payable to the order of any
person in an amount of $500 or more. When a Check is presented to the
Transfer Agent for payment, the Transfer Agent, as the investor's agent,
will cause the Fund to redeem a sufficient number of Class A shares in the
investor's account to cover the amount of the Check. Dividends are earned
until the Check clears. After clearance, a copy of the Check will be
returned to the investor. Investors generally will be subject to the same
rules and regulations that apply to checking accounts, although the
election of this Privilege creates only a shareholder-transfer agent
relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the 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.
TeleTransfer Privilege. Investors should be aware that if they have
selected the TeleTransfer Privilege, any request for a TeleTransfer
transaction will be effected through the Automated Clearing House ("ACH")
system unless more prompt transmittal specifically is requested.
Redemption proceeds will be on deposit in the investor's account at an ACH
member bank ordinarily two business days after receipt of the redemption
request. See "Purchase of Fund Shares--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. In the case of requests for redemption in excess of
such amount, the Board of Trustees reserves the right to make payments in
whole or in part in securities or other assets in case of an emergency or
any time a cash distribution would impair the liquidity of the 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 sold such securities, brokerage charges would be incurred.
In connection with a redemption request where the Fund delivers in-kind
securities instead of cash to an investor, the in-kind securities will be
readily marketable securities.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Fund Exchanges. Class A and Class B shares of the Fund may be
exchanged for shares of the respective Class of certain other funds
advised or administered by the Manager. 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. Class A shares of funds purchased without a sales load may be
exchanged for Class A shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
B. Class A shares of funds purchased with or without a sales load
may be exchanged without a sales load for Class A shares of
other funds sold without a sales load.
C. Class A shares of funds purchased with a sales load, Class A
shares of funds acquired by a previous exchange from Class A
shares purchased with a sales load, and additional Class A
shares acquired through reinvestment of dividends or
distributions of any such funds (collectively referred to herein
as "Purchased Shares") may be exchanged for Class A shares of
other funds sold with a sales load (referred to herein as
"Offered Shares"), provided that, if the sales load applicable
to the Offered Shares exceeds the maximum sales load that could
have been imposed in connection with the Purchased Shares (at
the time the Purchased Shares were acquired), without giving
effect to any reduced loads, the difference will be deducted.
D. Class B shares of any fund may be exchanged for Class B shares
of other funds without a sales load. Class B shares of any fund
exchanged for Class B shares of another fund will be subject to
the higher applicable contingent deferred sales charge ("CDSC")
of the two funds and, for purposes of calculating CDSC rates and
conversion periods, will be deemed to have been held since the
date the shares being exchanged were initially purchased.
To accomplish an exchange under item C above, an investor's Service
Agent must notify the Transfer Agent of the investor's prior ownership of
such Class A shares and the investor's account number.
To request an exchange, the investor's Service Agent acting on the
investor's 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 Fund shareholders automatically, unless the
investor checks the relevant "No" box on the Account Application,
indicating that the investor specifically refuses this Privilege. By
using the Telephone Exchange Privilege, the investor authorizes the
Transfer Agent to act on telephonic instructions from any person
representing himself or herself to be a representative of the investor's
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.
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. For Dreyfus-sponsored Keogh Plans, IRAs
and SEP-IRAs with only one participant, the minimum initial investment is
$750. To exchange shares held in Corporate Plans, 403(b)(7) Plans and
SEP-IRAs with more than one participant, the minimum initial investment is
$100 if the plan has at least $2,500 invested among shares of the same
class of the funds in the Dreyfus Family of Funds. To exchange shares
held in Personal Retirement Plans, the shares exchanged must have a
current value of at least $100.
Auto-Exchange Privilege. The Auto-Exchange Privilege permits an
investor to purchase, in exchange for Class A or Class B shares of a
Series, shares of the same Class of one of the other Series or another
fund in the Premier Family of Funds or the Dreyfus Family of Funds. This
Privilege is available only for existing accounts. Shares will be
exchanged on the basis of relative net asset value as described above
under "Fund Exchanges." Enrollment in or modification or cancellation of
this Privilege is effective three business days following notification by
the investor. An investor will be notified if his account falls below the
amount designated to be exchanged under this Privilege. In this case, an
investor's account will fall to zero unless additional investments are
made in excess of the designated amount prior to the next Auto-Exchange
transaction. Shares held under IRA and other retirement plans are
eligible for this Privilege. Exchanges of IRA shares may be made between
IRA accounts and from regular accounts to IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
Fund Exchanges and Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the series or fund
being acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchange service or
Auto-Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. There is a service charge of $.50 for each
withdrawal check. Automatic Withdrawal may be terminated at any time by
the investor, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan. Class B shares withdrawn pursuant to the Automatic
Withdrawal Plan will be subject to any applicable CDSC.
Dividend Sweep. Dividend Sweep allows investors to invest on the
payment date their dividends or dividends and capital gain distributions,
if any, from the Fund in shares of the same Class of another fund in the
Premier Family of Funds or the Dreyfus Family of Funds of which the
investor is 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 that are 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"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
charged by the fund from which dividends or distributions are
being swept, without giving effect to any reduced loads, the
difference will be deducted.
D. Dividends and distributions paid with respect to Class B shares
by a fund may be invested without imposition of any applicable
CDSC in Class B shares of other funds and the Class B shares of
such other funds will be subject on redemption to any applicable
CDSC.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. Each Series' investments are
valued each business day by an independent pricing service (the "Service")
approved by the Board of Trustees. 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 Board of Trustees. 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 and Class B shares, and fees pursuant to the Distribution Plan,
with respect to Class B shares only, are accrued daily and 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, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
Management believes that each Series (except the Colorado and Oregon
Series which had not commenced operations) qualified as a "regulated
investment company" under the Code for the fiscal year ended April 30,
1994, and each Series intends to continue to so qualify, so long as 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 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 to its
shareholders), must derive less than 30% of its annual gross income from
gain on the sale of securities held for less than three months, and must
meet certain asset diversification and other requirements. Accordingly, a
Series may be restricted in the selling of securities held for less than
three months, and in the utilization of certain of the investment
techniques described in the Prospectus under "Description of the Fund-
- -Investment Techniques." The Code, however, allows a Series to net
certain offsetting positions making it easier for the Series to satisfy
the 30% test. The terms "regulated investment company" does not imply the
supervision of management or investment practices or policies by any
government agency.
Any dividend or distribution paid shortly after an investor's
purchase may have the effect of reducing the net asset value of his shares
below the cost of his investment. Such a distribution would be a return
on investment in an economic sense although taxable as stated in
"Dividends, 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 taxable 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. "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 a Series realizes 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, such futures and
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 characterized in the manner described above.
Offsetting positions held by a Series involving certain futures and
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, overrides or modifies the provisions of Section 1256. As
such, all or a portion of any short or long term capital gain from certain
"straddle" and/or conversion transactions may be recharacterized to
ordinary income.
If 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. 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" and the conversion transaction 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 may be treated as short-term
capital gains or ordinary income.
Investment by the 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.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly-issued securities
ordinarily are purchased directly from the issuer or from an underwriter;
other purchases and sales usually are placed with those dealers from which
it appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases
and sales, although the price paid usually includes an undisclosed
compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid
by the issuer to the underwriter, and purchases of after-market securities
from dealers ordinarily are executed at a price between the bid and asked
price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to
that primary consideration, dealers may be selected for research,
statistical or other services to enable the Manager to supplement its own
research and analysis with the views and information of other securities
firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses
of its research department.
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 each Series deems it desirable to sell or purchase
securities. Therefore, depending upon market conditions, each Series'
annual portfolio turnover rate may exceed 100% in particular years.
The amount of transactions during the last fiscal year in newly
issued debt instruments in fixed price public offerings directed to an
underwriter or underwriters in consideration of, among other things,
research services was: $987,230 for the Florida Series and $990,260 for
the Ohio Series.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Performance Information."
The current yield for the 30-day period ended April 30, 1994, except
as noted, for Class A and Class B of each Series was as follows:
Current Net of Absorbed
Series Yield Expenses(1)
Class A:
Arizona 5.70% 4.69%
Colorado 5.84(2) 3.45(2)
Connecticut 5.21 5.16
Florida 5.20 5.15
Georgia 5.45 4.76
Maryland 5.23 5.18
Massachusetts 5.28 5.23
Michigan 5.19 5.14
Minnesota 5.31 5.26
North Carolina 5.35 5.02
Ohio 5.12 5.07
Oregon 5.96(2) 3.57(2)
Pennsylvania 5.32 5.27
Texas 5.61 5.08
Virginia 5.79 5.26
Current Net of Absorbed
Series Yield Expenses(1)
Class B:
Arizona 5.45% 4.40%
Colorado 5.41(2) 3.41(2)
Connecticut 4.84 4.79
Florida 4.85 4.80
Georgia 5.20 4.47
Maryland 4.78 4.73
Massachusetts 4.93 4.88
Michigan 4.88 4.83
Minnesota 4.97 4.92
North Carolina 5.05 4.70
Ohio 4.78 4.73
Oregon 5.78(2) 3.78(2)
Pennsylvania 4.95 4.90
Texas 5.26 4.71
Virginia 5.45 4.90
____________________________
(1) This column sets forth current yield had expenses not been
absorbed.
(2) For the 30-day period ended June 30, 1994.
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 maximum offering
price per share in the case of Class A or the net asset value per share in
the case of Class B 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 1994 combined (except where noted) Federal and
applicable State tax rate specified below, the tax equivalent yield for
the 30-day period ended April 30, 1994, except as noted, for Class A and
Class B of each Series was as follows:
Tax Equivalent Net of Absorbed
Series Tax Rate Yield Expenses(1)
Class A:
Arizona 43.77% 10.14% 8.34%
Colorado 42.62 10.18(2) 6.01(2)
Connecticut 42.32 9.03 8.95
Florida(3) 39.60 8.61 8.53
Georgia 43.22 9.60 8.38
Maryland 43.22 9.21 9.12
Massachusetts 46.85 9.93 9.84
Michigan 42.29 8.99 8.91
Minnesota 44.73 9.61 9.52
North Carolina 44.28 9.60 9.01
Ohio 44.13 9.16 9.07
Oregon 45.04 10.84(2) 6.50(2)
Pennsylvania 41.29 9.06 8.98
Texas(3) 39.60 9.29 8.41
Virginia 43.07 10.17 9.24
Class B:
Arizona 43.77% 9.69% 7.83%
Colorado 42.62 9.43(2) 5.94(2)
Connecticut 42.32 8.39 8.30
Florida(3) 39.60 8.03 7.95
Georgia 43.22 9.16 7.87
Maryland 43.22 8.42 8.33
Massachusetts 46.85 9.28 9.18
Michigan 42.29 8.46 8.37
Minnesota 44.73 8.99 8.90
North Carolina 44.28 9.06 8.44
Ohio 44.13 8.56 8.47
Oregon 45.05 10.52(2) 6.88(2)
Pennsylvania 41.29 8.43 8.35
Texas(3) 39.60 8.71 7.80
Virginia 43.07 9.57 8.61
____________________________
(1) This column sets forth tax equivalent yield had expenses not been
absorbed.
(2) For the 30-day period ended June 30, 1994.
(3) Federal tax rate only. No state personal income tax imposed
during 1994
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 (except the Colorado and Oregon Series which had not
commenced operations) was as follows:
<TABLE>
<CAPTION>
1-year period 5-year period 6.926-year period
Series ended April 30, 1994 ended April 30, 1994 ended April 30, 1994
<S> <C> <C> <C>
Arizona -2.98% 3.56%(1) -
Connecticut -2.69 7.08 7.43
Florida -2.47 7.78 9.66
Georgia -3.61 3.87(1) -
Maryland -3.20 7.31 6.46
Massachusetts -2.51 7.39 6.76
Michigan -1.03 7.79 9.17
Minnesota -2.51 7.34 8.04
North Carolina -4.22 6.68(2) -
Ohio -1.87 7.89 4.60
Pennsylvania -2.42 7.97 7.77(3)
Texas -1.99 8.22 11.17
Virginia -3.44 7.17(2) -
</TABLE>
____________________________
(1) For the 1.658 year period ended April 30, 1994.
(2) For the 2.748-year period ended April 30, 1994.
(3) For the 6.753-year period ended April 30, 1994.
The average annual total return since inception and for the periods
indicated for Class B of each Series (except the Colorado and Oregon
Series which had not commenced operations) was as follows:
1-year period 1.290-year period
Series ended April 30, 1994 ended April 30, 1994
Arizona -1.73% 2.78%
Connecticut -1.63 2.33
Florida -1.34 2.46
Georgia -2.41 2.69
Maryland -2.12 1.85
Massachusetts -1.44 2.36
Michigan .18 3.66
Minnesota -1.34 2.61
North Carolina -3.12 1.65
Ohio -.67 3.16
Pennsylvania -1.25 2.70
Texas -.83 3.30
Virginia -2.33 2.02
The average annual total return from inception on May 5, 1994 to June
30, 1994 for Class A and Class B of the Colorado Series was -22.77% and -
15.37%, respectively, and the Oregon Series was -16.20% and -7.45%,
respectively.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result. A Class's
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 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, 1994
(except where indicated) for Class A of each Series was as follows:
Based on Maximum Based on Net Asset
Series Offering Price Value per Share
Arizona(1) 5.97% 10.97%
Colorado(2) -3.95% .58
Connecticut 64.26 72.02
Florida 89.45 98.45
Georgia(1) 6.50 11.53
Maryland 54.30 61.59
Massachusetts 57.31 64.69
Michigan 83.62 92.24
Minnesota 70.90 79.01
North Carolina(3) 19.45 25.12
Ohio 36.52 42.93
Oregon(2) -2.72 1.87
Pennsylvania(4) 65.76 73.61
Texas 108.20 118.01
Virginia(3) 20.96 26.68
____________________________
(1) For the period from September 3, 1992 (commencement of
operations) through April 30, 1994.
(2) For the period from May 6, 1994 (commencement of operations)
through June 30, 1994.
(3) For the period August 1, 1991 to April 30, 1994.
(4) For the period July 30, 1987 to April 30, 1994.
The total return for the period January 15, 1993 to April 30, 1994
(except where indicated) for Class B of each Series was as follows:
Series Based on Net Asset Based on
Class B: Value per Share Maximum CDSC
Arizona 6.59% 3.60%
Colorado(1) .42% -2.57
Connecticut 5.99 3.01
Florida 6.14 3.18
Georgia 6.48 3.48
Maryland 5.35 2.39
Massachusetts 6.02 3.06
Michigan 7.75 4.75
Minnesota 6.36 3.38
North Carolina 5.09 2.14
Ohio 7.10 4.10
Oregon(1) 1.80 -1.20
Pennsylvania 6.48 3.50
Texas 7.27 4.28
Virginia 5.56 2.61
____________________________
(1) For the period from May 6, 1994 (commencement of operations)
through June 30, 1994.
Total return is calculated by subtracting the amount of the Series'
maximum offering price per share in the case of Class A or the net asset
value per share in the case of Class B 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, in the case of Class B, any applicable contingent deferred
sales charge), and dividing the result by the maximum offering price per
share in the case of Class A or the net asset value in the case of Class B
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 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 shares 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 are not as representative
of the Fund's past or future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or
events, including those relating to actual or proposed tax legislation.
Advertising materials for the Fund may also refer to statistical or other
information concerning trends relating to investment companies, as
compiled by industry associations such as the Investment Company
Institute. From time to time, advertising materials for the Fund, also
may refer to Morningstar ratings and related analyses 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.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Series share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Series' shares have no preemptive or subscription rights
and are freely transferable.
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 seventy billion in tax exempt assets.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York
10286, is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9617, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares of beneficial interest being sold pursuant to the Fund's
Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS -- INVESTING
IN 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.
Arizona Series. . . . . . . . . . . . . . . . . . . . . . . B-35
Colorado Series . . . . . . . . . . . . . . . . . . . . . . B-38
Connecticut Series. . . . . . . . . . . . . . . . . . . . . B-41
Florida Series. . . . . . . . . . . . . . . . . . . . . . . B-44
Georgia Series. . . . . . . . . . . . . . . . . . . . . . . B-47
Maryland Series . . . . . . . . . . . . . . . . . . . . . . B-51
Massachusetts Series. . . . . . . . . . . . . . . . . . . . B-52
Michigan Series . . . . . . . . . . . . . . . . . . . . . . B-57
Minnesota Series. . . . . . . . . . . . . . . . . . . . . . B-61
North Carolina Series . . . . . . . . . . . . . . . . . . . B-64
Ohio Series . . . . . . . . . . . . . . . . . . . . . . . . B-67
Oregon Series . . . . . . . . . . . . . . . . . . . . . . . B-72
Pennsylvania Series . . . . . . . . . . . . . . . . . . . . B-76
Texas Series. . . . . . . . . . . . . . . . . . . . . . . . B-83
Virginia Series . . . . . . . . . . . . . . . . . . . . . . B-89
Arizona Series
Arizona's population increased by approximately 35% during the 10-
year period from 1980 to 1990, ranking Arizona as the third fastest
growing state in the country for the period. Over the past several
decades, the state has outpaced most other regions of the country in other
major categories of growth, including personal income, gross state product
and job creation. The rate of growth, however, has slowed substantially
in recent years.
The State's principal economic sectors include services, trade,
government, manufacturing, tourism, travel, mining, agriculture and the
military. About 65% of total non-agricultural employment comes from
manufacturing, services and trade. While mining and agricultural
employment have diminished over the last twenty-five years, significant
job growth has occurred in aerospace and high technology, construction,
finance, insurance and real estate. Arizona's economy, however, has been
adversely affected by problems in the real estate industry, including an
excessive supply of commercial, residential and retail buildings and
severe problems with Arizona-based savings and loan associations, many of
which have been or are in the process of being liquidated by the
Resolution Trust Corporation. In addition, current and proposed
reductions in Federal military expenditures are expected to cause
difficulties with the State's economy. Defense-related business plays an
important role in Arizona's economy, particularly in the manufacturing
sector, and reductions in the defense budget could adversely affect these
businesses. These factors are expected to negatively impact Arizona's
economy for the foreseeable future. In addition, while Arizona's
political climate has stabilized with the passage in 1992 of a paid state
holiday honoring Dr. Martin Luther King, Jr., Arizona earlier experienced
a number of political difficulties, including the impeachment and removal
from office of the state's governor, and the conviction of several State
legislators in connection with alleged payments for votes to approve
legalized gambling.
Arizona's unemployment rate, as of May 1994, was 5.9%, a decrease of
over 1.0% from 1993. Per capita income levels are less than the United
States average (85% of the United States average in 1991) and Arizona's
average annual growth rate of per capita income has been less than the
United States average for several years. This likely results from the
fact that Arizona has a higher percentage of its employment in the service
sector and a lower percentage of its employment in the manufacturing
sector than the United States average. This slow growth in per capita
income, if it continues, could adversely affect both State and local
budgets in the near future.
Arizona is required by law to maintain a balanced budget. To achieve
this objective, the State, in the past, has used a combination of spending
reductions and tax increases. For the 1990-91 budget, the Arizona
Legislature increased taxes by over $250 million, which led to a citizen's
referendum designed to stop the tax increase until the voters could
consider it at the general election. A court determined that the
referendum could not be used to stop this tax increase, so that tax
increase went into effect. Since then, legislators have been reluctant to
increase taxes, despite heightened demands for services due to the state's
growing population and the general recession. Moreover, in 1992, Arizona
voters adopted an initiative, Proposition 108, which requires a two-thirds
vote by the Legislature for any future tax or fee increase. This makes
any future tax increase more difficult to achieve.
Arizona's budget picture has stabilized in recent years. The 1991-92
budget contained no tax increase, but the Legislature was called into
special session twice to adjust aspects of that budget due to projected
deficits. The 1992-93 budget, the 1993-94 budget and the 1994-95 budget
all provided tax decreases, and relied solely on spending cuts to balance
the budget. For the first time in eight years, there was no need for a
mid-year correction to balance the 1992-93 and the 1993-94 budgets. The
largest part of the spending cuts for these budget years came from cuts in
state aid to education and in Arizona's Medicaid program. Substantial
revenue increases permitted a balanced 1994-1995 budget without any such
spending cuts, and with a $100 million person income tax credit.
The largest impact of the tax cuts adopted in 1992, 1993 and 1994
will take place in future years, which could have the effect -- especially
in light of Proposition 108 -- of making it difficult to meet the
increased demands for services for Arizona's growing population even if
the Arizona economy improves. Projections by the Joint Legislative Budget
Committee ("JLBC") staff in 1993 suggest that there will be a need for
either further spending cuts or tax increases to balance the budget in
future fiscal years. These projections show continued growth in school
populations, Medicaid participants and prison beds that could increase at
a rate faster than revenue growth. The most likely budget cut will be the
refusal of the Legislature to fund an otherwise required $100 million
contribution to a Budget Stabilization Fund, which is a "rainy day" fund
designed to accumulate revenues for use in recessionary years. In the
1993-94 budget, for example, only $42 million was put into this fund,
while $78 million was required by statute.
Arizona law also requires municipalities to maintain balanced
budgets. The slower economy has strained their budgets. For example, the
proposed 1992-93 annual budget for the City of Phoenix, for the first time
in the city's history, is less than the current year's budget. Moreover,
the state tax cuts in 1992, 1993 and 1994 will have the effect of
worsening the budget picture in future years because municipalities in
Arizona rely heavily on state-shared revenues. It is likely that
municipalities in Arizona will need to either increase taxes or reduce
spending to compensate for this lost state-shared revenue. The budget
picture could get worse, depending on how the legislature treats state-
shared revenue programs when setting the future state budgets.
The state general fund is funded primarily by sales and income taxes,
with only a small contribution by property taxes. In fiscal year 1993,
the total general fund revenues were estimated at $3,675,600,000. Of this
amount, 43.9% will be raised by sales taxes, 37.0% will be raised by
income taxes, and 5.3% will be raised by property taxes. Other revenue
sources, such as luxury taxes, the lottery and insurance premium taxes,
will constitute 13.8% of this revenue. These revenue components change
little from year to year. Over half of the general fund is appropriated
for K-12 and university education (52% in fiscal year 1993). Other major
budget items include Medicare (12%), social welfare programs (10%) and
corrections (7%). As is the case with other states, Medicare expenditures
have been the fastest growing part of the state budget.
Municipalities also rely on a variety of revenue sources. While
municipalities cannot collect an income tax, they do impose sales and
property taxes. Municipalities also rely on state-shared revenues. In
fiscal year 1992, the total state-shared sales tax revenue to countries
and cities was $430.7 million. Additionally, cities received $176.1
million in state-shared income tax revenues. School districts are funded
by a combination of local property taxes and state assistance. In fiscal
year 1993, state assistance of $809.8 million was appropriated to school
districts.
Arizona's Constitution limits the amount of debt that may be
contracted by the state to $350,000. This, as a practical matter,
precludes the use of general revenue bonds for state projects. In recent
years, however, the state has used lease-purchase financing to finance
several university, court and prison building projects. The legislature
has not treated these lease-purchase financing projects as subject to the
constitutional debt limit, and there has been no legal challenge to the
use of lease-purchase financing as a means of financing state capital
projects. Additionally, certain other issuers have the power to issue
obligations which affect the whole or large portions of the state. The
debts are not considered debts of the state because they are secured
solely by separate revenue sources. For example, the Transportation Board
of the State of Arizona Department of Transportation may issue debt for
highways that is payable from revenues generated from state gasoline
taxes, motor vehicle registration fees, and other automobile taxes and
fees. The three Arizona universities may issue debt for university
building projects payable from tuition and other fees. Salt River Project
Agricultural & Improvement District, an agricultural improvement district
that operates the Salt River Project (a Federal reclamation project and an
electric system which generates, purchases and distributes electric power
to residential, commercial, industrial and agricultural power users in a
2,900 square-mile service area around Phoenix), may issue debt payable
from a number of sources.
Arizona's Constitution also restricts the debt of certain of the
state's political subdivisions. No county, city, town, school district or
other municipal corporation of the state may for any purpose become
indebted in any manner in an amount exceeding six percent of the taxable
property in such county, city, town, school district or other municipal
corporation without the assent of a majority of the qualified electors
thereof voting at an election provided by law to be held for that purpose;
provided, however, that (i) under no circumstances may any county or
school district of the state become indebted in an amount exceeding
fifteen percent (or thirty percent in the case of a unified school
district) of such taxable property and (ii) any incorporated city or town
of the state with such assent may be allowed to become indebted in up to a
twenty percent additional amount for (a) supplying such city or town with
water, artificial light or sewers, when the works for supplying such
water, light or sewers are or will be owned and controlled by the
municipality and (b) acquiring and developing land or interests therein
for open space preserves, parks, playgrounds and recreational facilities.
Irrigation, power, electrical, agricultural improvement, drainage, flood
control and tax levying public improvement districts, however, are exempt
from such restrictions of the constitution.
Annual property tax levies for the payment of general obligation
bonded indebtedness of political subdivisions are unlimited as to rate or
amount. Other obligations may be issued by such entities, sometimes
without an election, which are payable from, among other sources, project
revenues, special assessments and excise taxes.
Arizona's local government entities are subject to certain other
limitations on their ability to assess taxes and levies which could affect
their ability to meet their financial obligations. Subject to certain
exceptions, the maximum amount of property taxes levied by any Arizona
county, city, town or community college district for their operations and
maintenance expenditures cannot exceed the amount levied in a preceding
year by more than two percent. Certain taxes are specifically exempt from
this limit, including taxes levied for debt service payments.
Colorado Series
The Colorado economy continued to grow at a rate in excess of the
national economy during 1993. The State's population growth and
significant public works projects contributed to strong job creation,
housing starts and personal income growth. Colorado was one of only 15
states to enjoy non-agriculture employment growth during 1993 in excess of
3%, with the strongest gains occurring in the construction, services, and
finance/insurance/real estate sectors. The mining sector continued to
lose jobs, while manufacturing experienced nominal growth.
Throughout the 1970s and early 1980s, the Colorado economy expanded
at rates faster than the national economy. However, during the mid-to-
late 1980s, Colorado experienced a significant economic recession,
attributable in part to a dramatic decline in oil prices. During this
time, employment in the State grew at rates lower than in the national
economy. A total of just 269,000 jobs were created in the 1980-1990
decade, representing just 65% of the jobs created in the prior decade.
Since 1990, the Colorado economy has rebounded and has expanded at a
rate in excess of the national economy. The State's unemployment rate has
been lower than the nation in each year since 1990, and personal income
has grown at a rate in excess of the nation. A number of conditions have
supported Colorado's recent growth above rates of the national economy.
First, the State has a more service-oriented economy. The reduced
reliance on heavy manufacturing industries, such as automobiles, has
insulated the Colorado economy during the national recession. Thus,
problems in the manufacturing sector nationwide have not affected Colorado
to the same extent. Second, the Colorado economy has been in a different
segment of the recent economic cycle compared to the rest of the nation.
The national economy has been contracting as over-supplied industries are
adjusting to the reduced demand environment. In Colorado, the over-supply
of resources, most notably in the labor and construction markets, has
fallen significantly from the mid-1980s peak levels. In addition,
Coloradans have significantly lower debt levels compared to the rest of
the nation. Finally, a number of infrastructure projects have been
undertaken in Colorado. Major projects have included a new international
airport, highway improvements, a baseball stadium and federal and state
prisons.
Beginning in 1994 and continuing through 1996, growth in the Colorado
economy is expected to slow, though still out-pace the national economy.
The closure of Lowry Air Force Base in Denver and the completion of the
State's largest public works project, Denver International Airport, are
expected to have a moderating effect on economic growth. As one of the
ten states most reliant on defense contracts and military payroll,
Colorado remains vulnerable to reductions in the U.S. defense budget. In
addition to the recent closure of Lowry Air Force Base, Fort Carson Air
Force Base and Fitzsimons Army Medical Center are military facilities
which have been identified for possible closure or downsizing.
Employment. Nonagriculture job growth in Colorado was 3.4% and 4.3%
during 1992 and 1993, respectively. In comparison, job growth at the
national level during the same years was .2% and 1.6% The State's
unemployment rate fell during 1993 from 6.6% to 4.8%, averaging 5.2%
during the year. This compares to the average national unemployment rate
during 1993 of 6.8%. The construction sector has continued to experience
strong job growth, increasing by 12.5% and 11.8% during 1992 and 1993,
respectively. Finance/insurance/real estate services, and retail trade
experienced job growth during 1993 equal to 6.0%, 5.6% and 4.9%,
respectively. Only the mining sector lost jobs, decreasing by (10.8%),
while manufacturing had nominal growth of just .2%
The Colorado Office of State Planning and Budgeting estimates that
the rate of job growth will decline during 1994 and 1995 to 3.4% and 2.5%,
respectively. Contributing to the reduced growth rate will be the
construction segment, which is expected to increase by less than 1% during
1994 and decrease by .2% during 1995; the government sector, which is
expected to lose jobs beginning in 1995; and the mining sector, which will
continue to lose jobs in both 1994 and 1995.
Income Growth. Personal income in the State grew by 7.4% during 1993.
Though well above the national growth rate of 4.7%, the State's personal
income is growing at a slower pace since it peaked at 7.6% in 1992. The
Colorado Office of State Planning and Budgeting expects that the downward
trend will continue through the end of the decade, with estimated growth
rates of 7.2% and 6.8% in 1994 and 1995, respectively. Personal income
growth in Colorado is nevertheless projected to remain above the national
average through 1997.
Retail Sales. Growth in the State's retail sales have exceeded the
national growth rate since 1989. The State enjoyed retail sales growth of
8.1% and 9.7% in 1992 and 1993, respectively, compared to 4.8% and 6.5%
growth nationally. As the Colorado economy settles into a more moderate
growth rate, retail sales will gradually decline, with 7.4% and 6.5%
growth projected for 1994 and 1995, respectively.
Real Estate. The housing sector has been a bright spot in the
Colorado economy since 1990. During 1991, 1992 and 1993, the number of
total housing permits grew at rates of 16.5%, 70.9% and 27.5%,
respectively. A growth rate of approximately 27% is forecasted for 1994.
However, the number of housing permits is expected to decline during the
five years thereafter, as in-migration slows, interest rates rise above
recent levels and housing supply meets demand.
Because of limitations contained in the State Constitution, the State
of Colorado issues no general obligation bonds secured by the full faith
and credit of the State. Consequently, there are no outstanding general
obligation bond ratings for Colorado. Several agencies and
instrumentalities of state government are authorized by statute to issue
bonds secured by revenues from specific projects and activities.
Additionally, the State is authorized to issue short-term tax and revenue
anticipation notes. To the extent the Portfolio holds debt of local units
of government whose revenues may rely in part on distributions from the
State, the fiscal health of the State will have an indirect effect on the
Portfolio.
As of the fiscal year ended June 30, 1993, Colorado had an unreserved
fund balance of approximately $327 million, up considerably from the $133
million balance at June 30, 1992 and 1991, respectively. The June 30,
1993 balance was also above the statutorily required reserve of 3% of
expenditures. The State's unreserved fund balance as of June 30, 1994 was
projected to be approximately $337 million. The moderate increase is
attributable to expected growth in General Fund revenues of 3.7%. Leading
the revenue growth in fiscal 1994 were strong increases in sales and use
taxes, which more than offset a significant reduction in Medicaid
revenues. During the fiscal year ending June 30, 1995, increasing budgets
for public education and one-time expenditures for new prisons and higher
education campuses are expected to erode the reserve by $80 million to a
projected June 30, 1995 balance of $258 million.
There are approximately 2,000 units of local government in Colorado,
including counties, statutory cities and towns, home rule cities and
counties, charter cities, school districts and a variety of water,
irrigation and other special improvement districts, all with various
constitutional and statutory authority to levy taxes and incur
indebtedness. The major source of revenue for funding such indebtedness
in the ad valorem property tax, which presently is imposed and collected
solely at the local level (although the State is also authorized to levy
the tax), and revenue from special projects. Residential real property is
presently assessed at 12.86% of its actual value. All other property is
assessed at 29% of its actual value except producing mines and oil and gas
properties. Agricultural land is assessed at 29% of its value based on
its ability to produce agricultural crops, and oil and gas properties are
assessed based on certain factors, including the means of recovery and the
production of the property.
The major revenue sources of the State are principally comprised of
the individual income tax, the general sales and use tax, and the
corporate income tax. These taxes represented approximately 51.1%, 28.8%
and 4.0%, respectively, of gross revenues for the General Fund for fiscal
1994. Individual income tax, general sales and use tax and corporate
income tax are expected to represent 53.3%, 31.5% and 4.0%, respectively,
of the $3.57 billion in gross revenues which were budgeted for the fiscal
year ended June 30, 1994. The State Constitution requires that
expenditures not exceed revenues.
On November 3, 1992, voters in Colorado passed the Bruce Amendment,
otherwise known as the "Taxpayers Bill of Right." The Amendment restricts
growth of government spending to the rate of inflation plus the change in
demand for government services (as measured by population, school
enrollment, or construction); the effect of this restriction is that if
revenue growth exceeds growth in population and inflation, the excess
revenues must be refunded to taxpayers. The Amendment also limits the
issuance of debt to that which is voter approved and requires voter
approval of all tax increases. To date, the Amendment has not affected
State revenues and programs, as state revenue growth has been less than
the allowable limit. However, given projected revenue growth and estimates
of limitations to be imposed by the Amendment, revenues are expected to
approach the allowable limit in the year ending June 30, 1998. Over time,
the Amendment will likely reduce the financial flexibility of all levels
of government in Colorado. In addition, younger or rapidly growing
municipalities with large infrastructure requirements may have ongoing
difficulty generating the revenues needed to finance their growth.
Connecticut Series
Connecticut's economy is diverse, with manufacturing, services and
trade accounting for approximately 70% of total non-agricultural
employment. The State's manufacturing industry is diversified, but from
1970 to 1992 manufacturing employment declined 30.8%, while service-
related employment increased 60.8%, particularly in the service, trade and
finance categories, resulting in an increase of 30% in total growth in
non-agricultural sectors. Defense-related business plays an important
role in the Connecticut economy, and economic activity has been affected
by the volume of defense contracts awarded to Connecticut firms. From
1983 to 1992, Connecticut ranked from sixth to eleventh among all states
in total defense contract awards, receiving 2.8% of all such contracts in
1992. In recent years the Federal government has reduced the amount of
defense-related spending and the largest defense-related employees in the
State have announced substantial labor force reductions. The future
effect of such reductions on the Connecticut economy cannot be predicted
at this time. The annual average unemployment rate (seasonally adjusted)
in Connecticut was 6.1% in 1991 and, as of January 1993, the estimated
rate of unemployment (on a seasonably adjusted basis) in the State was
7.1%.
While the State's General Fund ended fiscal 1984-85, 1985-86 and
1986-87 with operating surpluses of approximately $365.5 million, $250.1
million and $365.2 million, respectively, the State recorded operating
deficits of $115.6 million, $28 million, $259.5 million and $818.5 million
for fiscal 1987-88, 1988-89, 1989-90 and 1990-91, respectively.
Together with the deficit carried forward from fiscal 1989-90, the total
deficit for fiscal 1990-91 was $965.7 million. The deficit was a result
of revenue collections which were below original estimates and
expenditures which were above original appropriations. The total deficit
amount was funded by the issuance of General Obligation Economic Recovery
Notes in late 1991. As of April 1, 1994, only $630,610,000 of such
Economic Recovery Notes remained outstanding.
Since 1988, the Comptroller's annual report has reported results on
the basis of both the modified cash basis required by State law and the
modified accrual basis used for GAAP financial reporting. The
Comptroller's monthly report for the period ended February 28, 1994
estimated that on a GAAP basis the cumulative deficit is $458.7 million
for fiscal 1993-1994. The modified cash basis of accounting used for
statutory financial reporting and the modified accrual basis used for GAAP
financial reporting are different and, as a result, often produce varying
financial results, primarily because of differences in the recognition of
revenues and expenditures.
The budget adopted by the General Assembly for fiscal 1992-93
projected General Fund expenditures of $7.318 billion and estimated
General Fund revenues of $7.321 billion. The proposed expenditures and
estimated revenues would have resulted in a surplus of $3.7 million. The
Comptroller's annual report for fiscal 1992-1993 reflected a General Fund
operating surplus of $113.5 million, however.
The budget adopted in 1993 for fiscal 1993-1994 was prepared in
compliance with Public Act 91-3 of the June 1991 Special Session, which
required a biennial budget beginning in fiscal 1993-1994. The biennial
budget is a separate budget for each of the two fiscal years. The budget
originally adopted by the General Assembly for fiscal 1993-1994
anticipated General Fund expenditures of $7,690.1 million and General Fund
revenues of $7,695.3 million. For fiscal 1994-1995, the originally
adopted budget anticipated General Fund expenditures of $8,115.6 million
and General Fund revenues of $8,117.3 million. Amendments to these
budgets, adopted June 9, 1994, increase the budgeted General Fund revenues
for fiscal 1993-1994 to $7,909 million. They also increase budgeted
General Fund expenditures and revenues for fiscal 1994-1995 to $8,567.2
million and $8,575.3 million, respectively.
On November 3, 1992, Connecticut voters approved a constitutional
amendment which requires a balanced budget for each year and imposes a cap
on the growth of expenditures. The General Assembly is required by the
constitutional amendment to adopt by three-fifths vote certain spending
cap definitions, which has not yet occurred. Accordingly, the adopted
budgets comply with the current statutory spending cap definitions enacted
in 1991. The statutory spending cap limits the growth of expenditures to
either (1) the average of the annual increase in personal income in the
State for each of the preceding five years, or (2) the increase in the
consumer price index for urban consumers during the preceding twelve-month
period, whichever is greater. Expenditures for the payment of bonds,
notes and other evidences of indebtedness are excluded from the
constitutional and statutory definitions of general budget expenditures.
To preclude shifting expenditures out of the General Fund to other funds,
the spending cap applies to all appropriated funds combined. For fiscal
1993-94 and for fiscal 1994-95, permitted growth in capped expenditures is
5.82% and 4.49%, respectively. The General Fund budgets originally
adopted for fiscal years 1993-1994 and 1994-1995 were approximately $58
million and $24 million, respectively, below the cap for such years.
The State finances its operations primarily through the General Fund.
All tax and most non-tax revenues of the State, except for motor fuels
taxes and other transportation-related taxes, fees and revenues, are paid
into, and substantially all expenditures pursuant to legislative
appropriations are made out of, the General Fund. The State derives over
70% of its revenues from taxes. Miscellaneous fees, receipts, transfers
and Federal grants account for most of the other State revenue. The Sales
and Use Taxes, the corporation business tax and the recently enacted broad
based personal income tax are the major revenue-raising taxes.
The State has no constitutional or other organic limit on its power
to issue obligations or incur indebtedness other than that it may borrow
only for public purposes. There are no reported court decisions relating
to State bonded indebtedness other than two cases validating the
legislative determination of the public purpose for improving employment
opportunities and related activities. The State Constitution has never
contained provisions requiring submission of the questions of incurring
indebtedness to a public referendum. Therefore, the authorization and
issuance of State debt, including the purpose, amount and nature thereof,
the method and manner of the incurrence of such debt, the maturity and
terms of repayment thereof, and other related matters are statutory.
The General Assembly has empowered, pursuant to bond acts in effect,
the State Bond Commission to authorize general obligation bonds in the
amount of $9,402,775,363. As of April 1, 1994 the State Bond Commission
has authorized $7,663,766,136 in such bonds and the balance of
$1,739,009,227 was available for authorization. From such total
authorizations of $7,663,766,136, bonds in the aggregate amount of
$6,778,086,771.44 have been issued and the balance of $885,679,364.55
remained authorized but unissued as of
April 1, 1994.
The State has established a program of temporary note issuances to
cover periodic cash flow requirements. The maximum volume of cash flow
borrowing is determined based upon the State's actual cash needs on a
daily basis. As of April 1993, the maximum amount borrowed under the
program at any point in time was $569 million, but no temporary notes
under the program were outstanding as of such date.
General obligation bonds issued by Connecticut municipalities are
payable primarily from ad valorem taxes on property subject to taxation by
the municipality. Certain Connecticut municipalities have experienced
severe fiscal difficulties and have reported operating and accumulated
deficits in recent years. The most notable of these is the City of
Bridgeport.
S&P, Moody's and Fitch rate Connecticut's municipal bonds AA-, Aa and
AA+, respectively.
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 moneys 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
has not yet been enacted.
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 1991-92 and 1992-93 with General Revenue
plus Working Capital Funds unencumbered reserves of approximately $184.6
million and $543.5 million, respectively. Estimated fiscal year 1993-94
General Revenue plus Working Capital Funds available total $13.583
billion. Total effective appropriations for the 1992-93 fiscal year are
estimated at $13.280 billion, resulting in estimated unencumbered reserves
of $302.8 million at the end of the fiscal year. Estimated fiscal year
1994-95 General Revenue plus Working Capital Funds available total $14.453
billion, a 6.4% increase over 1993-94. The massive effort to rebuild and
replace destroyed or damaged property in the wake of Hurricane Andrew is
responsible for the substantial positive revenue growth shown. Most of
the impact is in the sales tax.
In fiscal year 1992-93, the State derived approximately 65% 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 70%, 1% and 4%,
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 1992-93, expenditures from the General
Revenue Fund for education, health and welfare and public safety amounted
to approximately 51%, 32% and 12%, 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 personal 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 county 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 counties and cities. For
the State fiscal year which ended June 30, 1993, receipts from this source
were $9.426 billion, an increase of 12.5% from fiscal year 1991-92.
Motor Fuel Tax. The second largest source of State tax receipts is
the tax on motor fuels. Preliminary data show collections from this
source in the State fiscal year ended
June 30, 1993, were $1.207 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 sales tax on motor
fuels, levied at 6% of the average retail price per gallon of fuel, not to
fall below 6.9 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 totalling $442.2 million in State fiscal
year ended June 30, 1993. 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.
The 1990 Legislature established a surcharge on alcoholic beverages.
This charge is levied on alcoholic beverages sold for consumption on
premises. The surcharge is at ten cents per ounce of liquor, ten cents
per four ounces of wine, four cents per twelve ounces of beer. Most of
these proceeds are deposited into the General Revenue Fund. In fiscal
1992-93, a total of $97 million was collected.
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, 1993, receipts from this
source were $846.6 million, an increase of 5.7% from fiscal year 1991-92.
Documentary Stamp Tax. Deeds and other documents relating to 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 totalled $ 639 million
during fiscal year 1992-93, posting a 27% increase from the previous
fiscal year. The General Revenue Fund receives approximately 62% 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 1992-93, gross receipts utilities tax
collections totalled $447.9 million, an increase of 14.3% 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 Revenue
Fund.
Fiscal year 1992-93 total intangible personal property tax
collections were $783.4 million, a 34% 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. Total collections from severance taxes
totalled $64.5 million during fiscal year 1992-93, down 4.0% 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 1992-93 produced ticket sales of $2.13 billion of which
education received approximately $850.1 million.
Georgia Series
Georgia's economy grew rapidly in the 1980s resulting in a general
fund reserve. In fiscal 1989 and 1990, however, the State's economy began
to slow and lower than projected growth in income and sales taxes and
increasing expenditure levels resulted in a reduction of the general
fund's reserve. As projections were made of continued weakness in
economically sensitive taxes, a shortfall of cash receipts and general
fund reserves to allotments was projected for fiscal 1991. The projected
imbalance was corrected through reductions in expenditures, adjustments to
capital, use of reserves and other one-time measures.
During fiscal 1993, revenues plus the general fund reserve slightly
exceeded appropriations. Revenue estimates for fiscal 1994 indicate that
revenues (including certain fee increases effective July 1, 1992) will
slightly exceed expenditures. Fiscal 1995 estimates indicate that
revenues also will slightly exceed expenditures.
Georgia's unemployment rate was 5.2% for calendar year 1993, which is
a decrease of 0.7% over the State's 1992 annual average unemployment rate.
The largest sectors of Georgia's economy are wholesale and retail trade,
services, manufacturing and government. Per capita income levels are less
than the U.S. average (91% of the U.S. average in 1991), but Georgia's
average annual growth rate of per capita income has exceeded that of the
United States as a whole since 1960.
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 the
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 supply 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 public
debt for three types of public purposes: (1) debt to "repel invasion,
suppress insurrection, and defend the state in time of war"; (2) general
obligation debt and (3) guaranteed revenue debt. General obligation debt
may be incurred to acquire, construct, develop, extend, enlarge or improve
land, waters, property, 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 or sewerage 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 countries,
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 country,
municipality, or political subdivision. 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, and from other taxes (such as the
intangibles tax, alcohol taxes, and inheritance tax, and license taxes).
Unaudited information from the Georgia Revenue Department indicates that
revenues from these sources increased 12% in fiscal year 1993 from fiscal
year 1992, and that these revenue sources generated the following
percentages of total Georgia State revenue in fiscal year 1993:
Sales tax 37.0%
Income tax 46.5%
Motor Fuels tax 4.2%
Other taxes 12.3%
TOTAL 100.0%
During fiscal 1994, the Georgia lottery is expected to generate 2.5%
state revenue.
State expenditures are classified by major policy category for
budgetary purposes. In fiscal year 1993, Georgia expenditures for
educational development, human development, protection of persons and
property, and transportation amounted to 51%, 25%, 9.1%, and 5.2%,
respectively, of total budgeted expenditures. Debt service for issued
obligations accounted for 4.8% of total budgeted expenditures in fiscal
year 1993, and is projected to account for 4.2% of total budgeted
expenditures in fiscal year 1994.
For fiscal years ended June 30, 1975 through June 30, 1994, the
aggregate general obligation debt and guaranteed revenue debt authorized
by the State General Assembly are $5.2 billion and $195 million,
respectively. The aggregate amount of general obligation debt and
guaranteed revenue debt actually issued by the State, as of March 1, 1994,
is $6.2 billion. The total outstanding principal amount of indebtedness
of the State as of March 1, 1994 is $4.00 billion. Of this outstanding
debt, 32% is due and payable on or before January 1, 1994, and 57% is due
and payable on or before January 31, 2004.
Significant Contingent Liabilities
Georgia has three significant contingent liabilities. Several
lawsuits have been filed against the State of Georgia asserting that the
decision in Davis v. Michigan Department of Treasury, invalidates
Georgia's tax treatment of Federal Retirement Benefits for years prior to
1989. Under Georgia's applicable three year statute of limitation the
maximum potential liability under these suits calculated to December 15,
1992 would appear to be no greater than $104 million, according to
published reports. The plaintiffs in these suits, however, have requested
refunds for a period from 1980 which could result in a maximum potential
liability in the range of $591 million, according to such reports. Any
such liability would be predicated on a holding by the Georgia court or
the U.S. Supreme Court that the Davis decision is applicable to Georgia's
prior method of taxing Federal Retirement Benefits, that the Davis
decision is to be given a retroactive effect, i.e., that the decision
affects prior tax years, and that a refund remedy is appropriate. The
Georgia Supreme Court has held in Georgia's "test case" that the plaintiff
is not entitled to a refund. The plaintiff's petition to the United
States Supreme court for a writ of certiorari was granted on February 22,
1994.
Three suits have been filed against the State of Georgia seeking
refunds of alcohol taxes in light of Bacchus Imports, Ltd. v. Dias, under
Georgia's pre-Bacchus statute. In James B. Beam Distilling Co. v.
Collins, the U.S. Supreme Court indicated that Bacchus was retroactive,
but only within the bounds of State statutes of limitations and procedural
bars, and left State courts to determine any remedy in light of reliance
interests and other defenses. Georgia's statute of limitations has run on
all pre-Bacchus claims for refund except five pending claims seeking $31
million in tax and interest. On remand, the Fulton County Superior Court
has ruled that procedural bars and other defenses bar any recovery by
taxpayers on Beam's claims for refund. The Georgia Supreme Court has
affirmed, and Beam has petitioned the United States Supreme Court for a
writ of certiorari.
Age International, Inc. v. State and Age International, Inc. v.
Miller. Two suits (one for refund and one for declaratory and injunctive
relief) have been filed against the State of Georgia by foreign producers
of alcoholic beverages. The Age declaratory/injunctive relief case was
dismissed by the District Court and is on appeal to the Eleventh Circuit
Court of Appeals. In the Age refund case, plaintiffs seek approximately
96 million dollars in refunds of alcohol import taxes imposed under
Georgia's post-Bacchus statute, O.C.G.A. Section 3-4-60. This case is still
pending in the Fulton County Superior Court. It has been reported that
the claimants have also filed administrative claims for an additional 23
million dollars for later time periods.
Board of Public Education for Savannah/Chatham County v. State of
Georgia. Local school boards claim that the State is obligated to finance
the major portion of the costs of its desegregation program. The Savannah
Board originally requested restitution of $30,000,000, but the Federal
District Court set forth a formula which would require the State to pay
approximately $6,000,000. Plaintiffs have appealed to the Eleventh
Circuit Court of Appeals. A similar complaint has been filed by Dekalb
County asking for restitution in excess of $60,000,000. It is reported
that other school districts could also file claims.
Maryland Series
The State's total expenditures for the fiscal years ending June 30,
1991, 1992 and 1993 were $11.304 billion, $11.585 billion and $11.786
billion, respectively. As of May 16, 1994, it was estimated that total
expenditures for fiscal year 1994 would be $12.726 billion. The State's
General Fund, representing approximately 54% - 60% of each year's total
budget, had a surplus on a budgetary basis of $55 thousand in fiscal year
1991, a deficit of $56 million in fiscal year 1992 and a surplus of $11
million in fiscal year 1993. The Governor of Maryland reduced fiscal year
1993 appropriations by approximately %56 million to offset the fiscal year
1992 deficit. The State Constitution mandates a balanced budget.
In April 1993, the General Assembly approved the $12.5 billion 1994
fiscal year budget. The Budget includes $2.5 billion in aid to local
governments (reflecting a $233.8 million increase in funding over 1993
that provides for substantial increases in education, health and police
aid), and 72.8 million in general fund deficiency appropriations for
fiscal year 1993, of which $50 million is a legislatively mandated
appropriation to the Revenue Stabilization Account of the State Reserve
Fund. the Revenue Stabilization Account was established in 1986 to retain
State revenues for future needs and to reduce the need for future tax
increases. The 1994 Budget does not include any proposed expenditures
dependent on additional revenue from new or broad-based taxes. When the
1994 Budget was enacted, it was estimated that the general fund surplus on
a budgetary basis at June 30, 1994, would be approximately $26 million,
excluding $50 million that was mandated to be appropriated in the 1994
session of the General Assembly to the Revenue Stabilization Account of
the State Reserve fund. As of May 16, 1994, it is estimated that the
general fund surplus on a budgetary basis at June 30, 1994, will be $24
million.
In April 1994, the General Assembly approved the $13.3 billion 1995
fiscal year budget. The Budget includes $2.6 billion in aid to local
governments (reflecting a $102.4 million increase over 1994 that provides
substantial increases in education, health and police aid), and $104.8
million in general fund deficiency appropriations for fiscal year 1994, of
which $60.5 million is an appropriation to the Revenue Stabilization
Account of the State Reserve Fund. As of May 16, 1994 it is estimated
that the general fund surplus on a budgetary basis at June 30, 1995 will
be $9.7 million.
The public indebtedness of Maryland and its instrumentalities is
divided into three basic types. The State issues general obligation bonds
for capital improvements and for various State-sponsored projects. The
Department of Transportation of Maryland issues limited special
obligations bonds for transportation purposes payable primarily from
specific, fixed-rate excise taxes and other revenues related mainly to
highway use. Certain authorities issue obligations solely from specific
non-tax enterprise fund revenues and for which the State has no liability
and has given no moral obligation assurance.
At least since the end of the Civil War, that 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 has not issued short-term tax
anticipation and bond anticipation notes, or made any other similar short-
term borrowings for cash flow purposes
As of June 1994, the State's general obligation bonds were rated
"Aaa" by Moody's and "AAA" by S&P and Fitch.
The Maryland Department of Transportation issues Consolidated
Transportation Bonds, which are payable out of specific excise taxes,
motor vehicle taxes and corporate income taxes, and from the general
revenues of the Department. Issued to finance highway, port, transit,
rail or aviation facilities, as of June, 1994, these bonds were rated "Aa"
by Moody's and "AA" by S&P and Fitch. The Maryland Transportation
Authority, an entity of the Department, issues its own revenue bonds for
transportation facilities, which are payable from certain highway, bridge
and tunnel tolls. These bonds were rated "A1" by Moody's and "A+" by S&P
as of June 1994.
According to recent available ratings, general obligation bonds of
Montgomery County (abutting Washington, D.C.) are rated "Aaa" by Moody's
and "AAA" by S&P. Prince George's County, also in the Washington, D.C.
suburbs, issues general obligation bonds rated "Aa" by Moody's and "AA-"
by S&P, while Baltimore County, a separate political subdivision
surrounding the City of Baltimore, issues general obligation bonds rated
"Aaa" by Moody's and "AA+" by S&P. The City of Baltimore's general
obligation bonds are rated "A1" by Moody's and "A" by S&P. The other
counties in Maryland which are rated by Moody's all have general
obligation bond ratings of "A" or better from Moody's, except for
Allegheny County, the bonds of which are rated "Baa" by Moody's. The
Washington Suburban Sanitary district, a bi-county agency providing water
and sewerage services in Montgomery and Prince George's Counties, issues
general obligation bonds rated "Aa1" by Moody's and "A" by S&P as of June
1994. Additionally, some of the large municipal corporations in Maryland
(such as the cities of Rockville and Annapolis) have issued general
obligation bonds. There can be no assurance that any of the foregoing
ratings will continue.
Massachusetts Series
At the present time, the Commonwealth of Massachusetts' economy is
experiencing a modest recovery following a slowdown that began in mid-
1988. Massachusetts has nonetheless undergone serious financial
difficulties in recent years that have adversely affected Massachusetts'
credit standing. Massachusetts' economic difficulties and fiscal problems
could adversely affect the market values and marketability of, or result
in default in payment of, outstanding Massachusetts municipal obligations.
While Massachusetts had benefitted from an annual job growth rate of
approximately 2% since the early 1980s, by 1989 employment started to
decline. Nonagricultural employment declined 0.7% in 1989 and 0.9% in
1991. Nonagricultural employment increased 1.7% in 1992. A comparison of
total nonagricultural employment in March 1993 with that in March 1994
indicates a decline of 3.0%. The Commonwealth's unemployment rate in 1992
was 8.5%, which exceeded the national unemployment rate, and was 6.9% in
1993, which was lower than the national unemployment rate. The
Massachusetts unemployment rate in May 1994 was 5.8%, as compared to 6.1%
for April 1994 and 6.9% for May 1993. The construction and manufacturing
sectors experienced the highest percentage loss of jobs during the
declining years. After 1988, per capita personal income growth had begun
to slow as well, after several years during which the per capita personal
income growth rate in Massachusetts was among the highest in the nation.
Between 1991 and 1992, total personal income in Massachusetts increased
4.2% as compared to 4.9% for the nation as a whole. Personal income
growth, relative to the rest of the country, recovered somewhat between
1992 and 1993, with an increase of 3.7% in Massachusetts compared to an
increase of 3.5% nationwide.
Massachusetts expenditures for state government programs and services
in each of the fiscal years 1987 through 1991, inclusive, exceeded each
fiscal year's current revenues. In fiscal years 1987 and 1988, largely by
drawing on fund balances from prior years, Massachusetts ended each fiscal
year with budgetary surpluses. However, fiscal years 1989 and 1990 ended
with operating deficits of $672.5 million and $1.25 billion, respectively.
The fiscal 1989 deficit was covered primarily through the issuance of
$466.4 million of notes and $244 million of Medicaid-related notes, all of
which matured and were paid on or before January 15, 1991, and by delaying
payments of local aid to cities, towns and regional school districts. The
fiscal 1990 deficit was financed in arrears in the following year by the
issuance of approximately $1.4 billion of Fiscal Recovery Bonds (see
below). Fiscal 1990 ended with a budgetary deficit of $1.104 billion.
Using proceeds of $1.363 billion generated from deficit financings, the
adjusted fiscal 1990 closing balance was $259 million.
In fiscal 1991, total revenues and other sources of the budgeted
operating funds increased by 13.8% over the prior year, to $13.913
billion. This increase was due chiefly to state tax rate increases
enacted in July 1990 and to a substantial Federal reimbursement under the
Medicaid program for uncompensated patient care payments, as well as other
factors. The Commonwealth ended fiscal 1991 with an operating loss of $21.2
million, but with positive closing fund balances of $237.1 million, after
applying the opening fund balances created from proceeds of the fiscal
1990 deficit borrowing. No deficit borrowing was required to close out
fiscal 1991.
Budgeted revenues and other sources for fiscal 1992 were $13.728
billion, including tax revenues of $9.484 billion. Budgeted revenues and
other sources increased by approximately 0.7% from fiscal 1991 to fiscal
1992, while tax revenues increased by 5.4% for the same period.
Commonwealth expenditures and other uses were approximately $13.420
billion in fiscal 1992, which is $238.7 million, or 1.7% lower than fiscal
1991 budgeted expenditures and other uses. Final fiscal 1992 budgeted
expenditures were approximately $300 million higher than the initial July
1991 estimates of budgetary expenditures. A large portion of the increase
in spending is the result of increases in certain human services programs,
including an increase of $268.7 million for the Medicaid program and $50.0
million for mental retardation consent decree requirements. Fiscal 1992
expenditures for Medicaid were $2.818 billion, or 1.9% higher than fiscal
1991. This increase compares favorably with the 19.25% average annual
growth rate of Medicaid expenditures for fiscal years 1988 through 1991.
Overall, the budgeted operating funds ended fiscal 1992 with an
excess of revenues and other sources over expenditures and other uses of
$312.3 million, and with positive fund balances of approximately $549.4
million, when such excess is added to the fund balances of $237.1 million
carried forward from fiscal 1991.
The budgeted operating funds of the Commonwealth ended fiscal 1993
with a surplus of revenues and other sources over expenditures and other
uses of $13.1 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $562.5 million.
Budgeted revenues and other sources for fiscal 1993 totalled approximately
$14.710 billion, including tax revenues of $9.930 billion. Total revenues
and other sources increased by approximately 6.9% from fiscal 1992 to
fiscal 1993, while tax revenues increased by 4.7% for the same period.
this amount was subsequently revised during fiscal 1993 to $9.940 billion.
Commonwealth budgeted expenditures and other uses in fiscal 1993
totalled approximately $14.696 billion, which is $1.280 billion or
approximately 9.6% higher than fiscal 1992 expenditures and other uses.
As of June 30, 1993, after payment of all Local Aid and retirement of
short-term debt, the commonwealth showed a year-end cash position of
approximately $622.2 million, as compared to a projected position of
$485.1 million.
On July 19, 1993, the Governor signed into law the fiscal 1994
budget. This budget was based on protected total revenues and other tax
sources of $15.529 billion, including projected tax revenues of $10.694
billion. Fiscal 1994 budgeted expenditures and other uses are currently
estimated to be approximately $15.692. Based on current estimated
revenues and expenditures, the Executive Office for Administration and
finance projects a fiscal 1994 ending balance of approximately $399.7
million.
Tax revenues for fiscal 1994 are currently estimated to be $10.694
billion, or approximately $764 million higher than fiscal 1993 tax
revenues of $9.930 billion. This estimate includes $20 million of
additional tax receipts expected to be received from a one-year tax
amnesty program mandated by the fiscal 1994 budget as well as an upward
revision of $134 million from the original fiscal 1994 consensus tax
estimate of $10.540 billion. The upward revision is based on tax revenue
collections through December 1993, which as of that time were
approximately $140.4 million above the benchmark established by the
Department of Revenue at the start of fiscal 1994.
In June, 1993, comprehensive education reform legislation was enacted
into law. The Executive Office for Administration and Finance expects
this legislation will require additional increases in expenditures for
educational purposes above Fiscal 1993 base spending of $1.289 billion of
approximately $175 million in Fiscal 1994, $389.4 million in fiscal 1995
and $614.2 million in Fiscal 1996. Additional annual increases are also
expected in later fiscal years. The fiscal 1994 budget includes $175
million in appropriations to satisfy this legislation.
On January 21, 1994, the Governor submitted his fiscal 1995 budget
recommendation which called for budgeted expenditures of approximately
$16.139 billion. This recommended spending level is approximately $423.8
million, or 2.7%, above currently estimated fiscal 1994 expenditures of
$15.716 billion. Proposed budgeted revenues for fiscal 1995 are
approximately $16.141 billion, and exceed proposed budgeted expenditures
by approximately $1.5 million.
On May 11, 1994, the chairpersons of the House and Senate Ways and
Means Committees and the Secretary for Administration and Finance jointly
endorsed a tax revenue estimate for fiscal 1995 of $11.328 billion, an
increase of $634 million, or 5.9%, over currently estimated fiscal 1994
tax revenues. The fiscal 1995 estimate does not include the effect of
certain tax reductions originally proposed by the Governor in his fiscal
1995 budget recommendation or certain other tax reductions approved by the
House of Representatives in connection with its deliberations relating to
the fiscal 1995 budget. It is not possible at this time to predict
whether and to what extent any tax reductions will be enacted into law as
part of the final fiscal 1995 budget.
On May 12, 1994, the House adopted a fiscal 1995 budget that
appropriates total expenditures of $16.389 billion, as compared to the
governor's fiscal 1995 budget recommendation of $16.139 billion. On June
8, 1994, the Senate Ways and Means Committee reported out its fiscal 1995
budget recommendations for consideration by the full Senate. The fiscal
1995 budget enacted by the House and Senate is presently awaiting approval
by the Governor.
In November 1980, voters in the Commonwealth approved a state-wide
tax limitation initiative petition, commonly known as Proposition 2-1/2, to
constrain levels of property taxation and to limit the charges and fees
imposed on cities and town by certain government entities, including
county governments. The law is not a constitutional provision and
accordingly is subject to amendment or repeal by the legislature.
Proposition 2-1/2 limits the property taxes which a Massachusetts city or
town may assess in any fiscal year to the lesser of (i) 2.5% of the full
and fair cash value of real estate and personal property therein and (ii)
2.5% over the previous year's levy limit plus any growth in the tax base
from certain new construction and parcel subdivisions. In addition,
Proposition 2-1/2 limits any increase in the charges and fees assessed by
certain governmental entities, including county governments, on cities and
towns to the sum of (i) 2.5% of the total charges and fees imposed in the
preceding fiscal year, and (ii) any increase in charges for services
customarily provided locally or services obtained by the city or town at
its option. The law contains certain override provisions which require a
majority vote, or higher, for approval at a general or special election.
Proposition 2-1/2 also limits any annual increase in the total assessments on
cities and towns by any county, district, authority, the Commonwealth, or
any other governmental entity.
During the 1980s, Massachusetts increased payments to its cities,
towns and regional school districts ("Local Aid") to mitigate the impact
of Proposition 2-1/2 on local programs and services. In fiscal 1994
approximately 28.7% of Massachusetts' budget is to be allocated to Local
Aid.
Direct Local Aid increased from $2.769 billion to $2.961 billion from
fiscal 1988 to 1989 and declined in the past three fiscal years from
$2.937 billion in fiscal 1990 to $2.359 billion in fiscal 1992. Direct
Local Aid increased in fiscal 1993 to $2.547 billion. It is estimated
that fiscal 1994 expenditures for direct Local Aid will be $2.737 billion,
which is an increase of approximately 7.5% above the fiscal 1993 level.
The additional amount of indirect Local Aid provided was approximately
$2.146 billion in fiscal 1993. It is estimated that approximately $2.188
billion in indirect Local Aid will be paid in fiscal 1994.
Voters approved in November 1990 a petition which regulates the
distribution of Local Aid by requiring, subject to appropriation,
distribution to cities and towns of no less than 40% of collections from
personal income taxes, sales and use taxes, corporate excise taxes, and
lottery fund proceeds. The Local Aid distribution to each city or town
would equal no less than 100% of the total Local Aid received for fiscal
1989. Distributions in excess of fiscal 1989 levels would be based on new
formulas that would replace the current Local Aid distribution formulas.
By its terms, the new formula would have called for a substantial increase
in direct Local Aid in fiscal 1992, and would call for such an increase in
fiscal 1993 and in subsequent years. However, Local Aid payments
expressly remain subject to annual appropriation, and fiscal 1992 and
fiscal 1993 appropriations for Local Aid did not meet and fiscal 1994
appropriations for Local Aid do not meet, the levels set forth in the
initiative law.
In recent years, health care related costs have risen dramatically in
Massachusetts and across the nation and the increase in the State's
Medicaid and group health insurance costs reflects this trend. In fiscal
1993, Medicaid was the largest item in Massachusetts' budget and has been
one of the fastest growing budget items. During fiscal years 1989, 1990,
1991 and 1992, Medicaid expenditures were $1.83 billion, $2.12 billion,
$2.77 billion and $2.82 billion, respectively, representing an average
annual increase of 15.4%. Expenditures for fiscal 1993 were $3.15
billion, an 11.8% increase over fiscal 1992. The Executive Office for
Administration and Finance estimates that fiscal 1994 Medicaid
expenditures will total approximately $3.27 billion, an increase of 3.7%
over fiscal 1993 expenditures.
Massachusetts' pension costs have risen dramatically as the State has
appropriated funds to address in part the unfunded liabilities that had
accumulated over several decades. Total pension costs increased at an
average annual rate of 7.1% from $659.7 million in fiscal 1989 to $868.2
million in 1993. The estimated pension costs (inclusive of current
benefits and pension reserves) for fiscal 1994 are $951.0 million, an
increase of 9.5% over fiscal 1993 expenditures.
Payments for debt service on Massachusetts general obligation bonds
and notes have risen at an average annual rate of 20.4%, from $649.8
million in fiscal 1989 to $942.3 million in fiscal 1991. Debt service
payments in fiscal 1992 were $898.3 million, representing a 4.7% decrease
from fiscal 1991. Debt service expenditures for fiscal 1993 were $1.140
billion and are projected to be $1.179 billion for fiscal 1994 and $1.295
billion for fiscal 1995. In January, 1990, legislation was enacted which
imposes a 10% limit on the total appropriations in any fiscal year that
may be expended for payment of interest and principal on general
obligations debt (excluding Fiscal Recovery Bonds) of Massachusetts.
Massachusetts currently has three types of bond and note liabilities:
general obligation debt, dedicated income tax debt, and special obligation
debt. As of January 1, 1994, the State had approximately $8.188 billion
of long-term general obligation debt outstanding and short-term direct
obligations of the Commonwealth totalled $312 million. In October and
December 1990, Massachusetts issued Fiscal Recovery Bonds in the aggregate
principal amount of $1.416 billion to be repaid no later than December 31,
1997 from funds deposited in a State trust fund.
Certain independent authorities and agencies within the State are
statutorily authorized to issue debt for which Massachusetts is either
directly, in whole or in part, or indirectly liable. The State's
liabilities are either in the form of (i) a direct guaranty, (ii) State
support through contract assistance payments for debt service, or (iii)
indirect obligations. The State is indirectly liable for the debt of
certain authorities through the funding of reserve funds which are pledged
as security for the authorities' debt.
Many factors affect the financial condition of the Commonwealth of
Massachusetts and its cities, towns, and public bodies, such as social,
environmental, and economic conditions, many of which are not within the
control of such entities. As in the case with most urban states, the
continuation of many of Massachusetts' programs, particularly its human
services programs, is in significant part dependent upon continuing
Federal reimbursements which have been steadily declining. The loss of
grants to Massachusetts and its cities and towns could further slow
economic development. To the extent that such factors may exist, they
could have an adverse effect on economic conditions in Massachusetts,
although what effect, if any, such factors would have on Massachusetts
Municipal Obligations cannot be predicted.
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 1993, approximately 77% of wage and salary employment
was in the State's non-manufacturing sectors. In 1993, total employment
was 4,374,000 with manufacturing wage and salary employment totaling
900,200. Manufacturing employment remains below the peak employment level
of 1,179,600 attained in 1978. Employment in the durable goods
manufacturing industries was 666,500 and non-durable goods employment was
223,700 in the State in 1993. The motor vehicle industry, which is still
an important component in the State's economy, employed 270,100 in 1992.
The State average unemployment rate for calendar year 1993 was 7.0%.
The State's general obligation bonds are rated A1 by Moody's, AA by
S&P and AA by Fitch. 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 1985-86 through 1991-92.
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.
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 January 1994 forecast is summarized below.
The State's economic forecast for calendar year 1995 projects modest
growth. Real GDP is projected to grow 2.4% in 1995, on a calendar year
basis. Car sales are expected to increase to the 9.3 million unit level
in 1995.
The forecast assumes moderate inflation, accompanied by a 20 basis
point increase in interest rates. Ninety-day T-bills rates are expected
to rise to 3.5 percent for 1995. The United States' unemployment rate is
projected to decline to an average of 6.5 percent for 1995.
The State's forecast for the Michigan economy reflects the above
national outlook. Total wage and salary employment is projected to grow
1.5% in 1995. This slight growth reflects the ongoing diversification of
the Michigan economy. The unemployment rate is projected to average 6.6%
in 1995, continuing the recent trend to Michigan's unemployment rate being
near the national average compared to the 15-year history of having higher
unemployment.
The State budget for fiscal year 1993-94 was passed by the
Legislature in September 1993, in advance of the beginning of the new
fiscal year. The budget passed by the Legislature appropriated $7.955.5
million from general fund/general purpose revenues. The Governor vetoed
$2.3 million of the appropriations passed by the Legislature. The
Legislature passed and the Governor signed supplemental appropriations on
December 31, 1993 totalling $45.0 million from general fund/general
purpose revenues.
The Governor's Executive Budget for fiscal year 1994-1995 was
submitted to the Legislature in December 1993. The fiscal year 1994-1995
general fund/general purpose Executive Budget recommendation totalled
$7,065.8 million.
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 millage levied for local and
intermediate school districts operating purposes, other than millage
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 2% real
estate transfer tax will be effective January 1, 1995, which will decrease
to 0.75% in April 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. The adopted ballot proposal
contained 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 will shift significant portions of the
cost of local school operations from local school districts to the State
and raise 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 BSF 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. The unreserved ending accrued
balance of the BSF on September 30, 1990 was $385.1 million, on
September 30, 1991 was $182.2 million, on September 30, 1992 was $20.1
million and on September 30, 1993 was $307.1 million.
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.
Debt incurred by the State for the purpose of making loans to school
districts may be 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 an outstanding general obligation full faith and
credit bonds for Water Resources, Environmental Protection, Public
Recreation, Vietnam Veteran's Bonus and School Loan purposes. As of
September 30, 1993, the outstanding principal amount of all State general
obligation bonds was $386 million. On February 25, 1993, the State issued
$900 million in short-term general obligation notes in order to meet cash
flow requirements. These notes matured and were paid on September 30,
1993. On April 28, 1994, the State issued $55.8 million in short-term
general obligation school loan notes. These notes are due on October 20,
1994.
As of December 31, 1993, approximately $3.8 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.
Minnesota Series
Constitutional and Statutory Provisions Relating to State and Local
Funding. State revenues in Minnesota are generated primarily from
individual and corporate income taxes, sales and use taxes, inheritance
and gift taxes, motor fuel taxes and excise taxes on liquor and tobacco.
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 State revenues is
allocated from State government to other governmental units within the
State, 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 State government with
other units of government subjects all levels of government, in varying
degrees, to fluctuations in the State's overall economy.
The State's constitutionally prescribed fiscal period is a biennium,
and Minnesota operates on a biennial budget basis, with revenues credited
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 lst 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 State government shall not in any
biennium appropriate funds in excess of projected tax revenues from all
sources. The State is authorized to levy additional taxes to resolve any
inadvertent shortfalls.
Legislative appropriations for each biennium are prepared and adopted
during the final legislative session of the immediately preceding
biennium. A revenue forecast is normally prepared during the legislative
session to provide the Legislature with updated information for the
appropriations process. During each biennium regular reforecasts or
revenues and expenditures are prepared.
The State'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 the
State's overall economy may restrict future aid or appropriations from
State government to other units of government.
In FY 1994, ending June 30, 1994, revenues received were $7.738
billion. Expenditures and transfers of $7.557 billion and a cash flow
account appropriations carried forward of $240 million resulted in a
budgetary balance of $421 million.
In 1992, the Minnesota Legislature adopted "Minnesota Care" which was
designed to provide universal health care coverage for Minnesota citizens
while controlling the escalation of health care costs. In FY 94, the
program is expected to generate $88,595 million in revenues through a 2%
hospital and provider tax, and a 5% cigarette tax to be phased out in FY
1997. Total expenditures will exceed revenues for MinnesotaCare by $9,864
million. To cover the shortfall, the Minnesota legislature authorized a
General Fund Transfer to the MinnesotaCare Health Care Access Fund of
$14,650 million. The net gain will become part of the Health Care Access
Fund Reserve. Projections for 1996 and 1997 (the latter being the final
year of implementation of the program), are respectively expected to show
revenues of $242 million and $222 million, while expenditures are
respectively expected to continue to increase by $278 million and $408
million, leaving a balance after reserves of $75 million and $236 million.
The financing shortfalls will be addressed in the 1995 legislative session
as efforts are made to fund MinnesotaCare through a broader based tax
rather than the 2% provider tax.
When the Minnesota legislature convened in early 1994, the Governor
announced a "no new taxes" position. In part as a result, the legislature
adopted few changes in the tax laws of the State. The Minnesota
legislature completed its tax appropriations process in May of 1993 for
the FY 94 and 95 and enacted taxes and appropriated money for the
biennium. The revenue is estimated to generate $16.896 billion,
expenditures and transfers of $16.519 billion, with a cash flow and
appropriations carried forward account of $360 million and a budgetary
balance of $16 million as of June 30, 1995.
State and local governments in Minnesota have been well served by the
creation of a "rainy day fund" or cash flow account which can be drawn
upon at a time of economic downturn. However, the amount budgeted for the
account was reduced from $400 million in FY 92 to $360 million for FY's
93-95.
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.
The Minnesota general obligation bonds are rated Aa by Moody's and
AA+ by S&P and Fitch.
Statewide 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 1994 at a highly aggregative level of detail, the
structure of the State's economy parallels the structure of the United
States' economy as a whole. Minnesota employment in 10 major industrial
sectors was distributed in approximately the same proportions as national
employment. In all sectors, the share of State employment was within two
percentage points of national employment share.
The State's employment in the durable goods industries continues to
be highly concentrated in industries specializing in the manufacturing of
industrial machinery, fabricated metals and instruments. This emphasis is
partially explained by the location in the State of IBM, Cray Research and
other computer equipment manufacturers. Further, manufacturers of food
products, wood products and printed and published materials joined the
high technology manufacturing group which led to significant business
expansion in 1993.
The importance of the State's rich natural resource base for overall
employment is apparent in the employment mix in non-durable goods
industries. In 1989, approximately 29.9% of the State's non-durable goods
employment was concentrated in food and kindred industries, and
approximately 19.9% in paper and allied industries. This compares to
approximately 21.4% and 8.8%, respectively, for comparable sectors in the
national economy. Both of these rely heavily on renewable resources in
the State. Over half of the State's acreage is devoted to agricultural
purposes and nearly one-third to forestry. Printing and publishing are
also relatively more important in the State than in the United States.
Mining is currently a less significant factor in the State economy
than it once was. Mining employment primarily in the iron ore or taconite
industry dropped from 17.3 per thousand in 1979 to 7.9 per thousand in
1991. 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 like Allian Tech
and FMC will face challenges in maintaining employment and sales. More
importantly, Minnesota firms producing electronic components,
communication equipment, electrical equipment, chemicals, plastics,
computers and software will face additional competition from companies
converting from military to civilian production.
Job expansion and business start-ups improved remarkably in 1993 with
an average rate for new businesses at 2%, while business dissolutions were
cut in half in 1993.
Finally, despite a state economy that is out-performing the national
economy, the future economic outlook is guarded primarily because the
growth of the health care industry has slowed significantly and the
mainframe computer and airline industries face continued softness.
Employment and Income Growth in the State. During the 1980 to 1990
period, total employment in Minnesota increased 17.8% as compared to 20.5%
nationally. Most of Minnesota's slower growth can be associated with
declining agricultural employment and two recessions in the US economy in
the early 1980's which were more severe in Minnesota than nationwide. The
most recent recession which began in July 1990 was less severe in
Minnesota than it was nationally. Since 1988, non-farm employment in
Minnesota grew at a more rapid rate than it did at the national level.
The Minnesota work force will remain stable with slow growth expected
between now and 1996. The large size of the baby boom generation will
lend stability. Not much change is expected in composition. Female labor
force participation rates will continue to increase slowly. Employment
growth is projected to be most rapid for professional, paraprofessional
and technical occupations. Minnesota has a well educated work force as
compared to the nation as a whole, and occupations projected to grow most
rapidly are those requiring the most education and training.
Since 1980, State per capita personal income has been within three
percentage points of national per capital 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 1991, Minnesota per capita personal income was 100.2%
and, in 1992, 101% of its U.S. counterpart.
Another measure of the vitality of the State's economy is its
unemployment rate. For 1991, the State's unemployment rate was 5.1%, as
compared to a national average of 6.7%. In 1992, the State was again 5.1%
with a national average of 7.4%. In April of 1994, the State rate was
5.4% and the national rate 6.6%.
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
3,132,800 jobs in 1992 of which approximately 832,900 were in
manufacturing. According to the North Carolina Employment Security
Commission, in May, 1993, the State ranked tenth among the states in non-
agricultural employment and eighth in manufacturing employment. During
the period from 1980 to 1992, per capita income in the State grew from
$7,999 to $17,667, an increase of 120.9%. The North Carolina Employment
Security Commission estimated the July 1993 seasonally adjusted
unemployment rate to be 4.5%, as compared with a national unemployment
rate of 6.8%.
Agriculture is a basic element in the North Carolina economy. Gross
agricultural income in 1991 exceeded $4.9 billion, placing the State tenth
in the nation in gross agricultural income. Tobacco production is the
leading source of agricultural income in the State, accounting for 21% of
gross agricultural income. The poultry industry (chicken, eggs, broilers
and turkeys) provides nearly 31% of the gross agricultural income. North
Carolina's agricultural diversity and continuing push in 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 is the third most
diversified agricultural state in the nation. In 1991, there were
approximately 60,000 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 $36 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 3,487,500 in 1992, an
increase of 22.1%.
The Travel and Tourism Division of the North Carolina Department of
Commerce estimated in excess of $8 billion was spent on tourism in the
State in 1993 (up from slightly less than $7 billion in 1990), two-thirds
of which was derived from out-of-state travelers. The Travel and Tourism
Division estimates approximately 250,000 people were employed in tourism-
related jobs in the State. The State maintains 43 State parks covering an
area of approximately 134,908 acres.
Revenue Structure. North Carolina's two major operating funds which
receive revenues and from which monies are expended are the General Fund
and the Highway Fund. The 1989 General Assembly also 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 State
Constitution on the State's power to levy taxes except an income tax rate
limitation of 10% and a prohibition against a "poll" tax.
North Carolina's tax revenue is generated from individual and
corporate income taxes, sales and use tax, highway use tax on certain
motor vehicle rentals, corporate franchise tax, taxes on alcoholic
beverages, cigarettes and soft drinks, inheritance taxes, insurance taxes
levied on insurance companies, intangible personal property tax and other
taxes. Revenue is also generated from a motor fuels tax, highway use tax
and motor vehicle license tax, which revenue is deposited in the Highway
Fund and Highway Trust Fund. Federal aid is an important source of
revenue for the Highway Fund and Highway Trust Fund. Non-tax revenue
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 and (ii) interest earned by the
State Treasurer on investments of General Fund monies and (iii) revenues
from the judicial branch. The proceeds of such taxes and non-tax revenue
are deposited in North Carolina's General Fund.
State Budget. The North Carolina Constitution requires that the
total expenditures of the State for the fiscal period covered by the
budget shall 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 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 of the General Statutes of North
Carolina provides: "The 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 are 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 reduce expenditures to maintain a balanced budget before the
need for across-the-board appropriations reductions arises.
The 1993 Session of the General Assembly reduced departmental
operating requirements by $120.3 million in 1993-94 and $122.7 million
1993-95, and authorized continuation funding of $8,327.7 million for 1993-
94 and $8,603.4 million for 1994-95. Saving reductions were based on
recommendations from the Governor, the Government Performance Audit
Committee and selective savings identified by the General Assembly. After
review of the continuation budget, the General Assembly authorized the
funding of expanding existing programs and initiating new programs for
children, economic development, education, human services and
environmental programs. Expansion funds of $325.4 million for 1993-94 and
$412.9 million for 1994-95 were approved. The General Assembly provided
funds ($214.2 million) for the restoration of the June 30, 1993 payroll
for Community College, University and State employees. The deferral of
payrolls for state employees and university employees from June 30 to July
1 was initially authorized in 1989-90 in order to balance the budget. The
actions of the General Assembly will restore all payrolls deferred to
balance the budgets in fiscal years 1989-90, 1990-91, 1991-92 and 1992-93.
The General Assembly provided $257.7 million for one-time operating
requirements in 1993-94 with the largest area of funding of economic
development initiatives. In addition to addressing the operating
requirements, the General Assembly authorized $166.0 million for capital
improvements spending and initiated a Reserve for Repair and Renovation of
State Facilities.
With capital projects being financed with bond proceeds and fund
balance, continuation appropriations and expansion items discussed above
are supported with the assistance of a number of new taxes and fees
enacted by the 1991 Session of the General Assembly. These taxes and fees
generated an estimated $665.5 million in 1991-92. Revenues for 1992-93
were estimated to include an additional $95.6 million as a result of the
actions of the 1991 Session of the General Assembly. These taxes and fees
combined with a projected growth of 7.1% for 1993-94 and an additional
3.9% for 1994-95 finance the authorized budget by the 1993 Session of the
General Assembly.
The Highway Fund revenue collections totalled $942.3 million in
fiscal year 1992-93, $18.2 million above budgeted revenues. Sources of
revenue for the Highway Fund include taxes on the sale of motor fuels as
well as registration and licensing fees for motor vehicles.
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 such
as motor vehicle registration and licensing fees for its revenues.
Collections for the Highway Trust Fund totalled $572 million in 1992-93,
$27.1 million more than the budgeted amount. Total Highway Trust Fund
collections increased 6.4% in 1992-93 over 1991-92.
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.
State Indebtedness. The North Carolina Constitution provides 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. Furthermore, no
legislation has been enacted by the General Assembly which would authorize
the issuance of any such bonds.
Ohio Series
State Economy and Budget. Non-manufacturing industries now employ
more than three-fourths of all payroll workers in the State of Ohio.
However, due to the continued importance of manufacturing industries
(including auto-related manufacturing), 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 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.
The State constitution imposes a duty on 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 carries out 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-
use taxes. The GRF ending (June 30) 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") projects positive $106.6
million and $314.6 million ending fund and cash balances, respectively,
for the GRF for fiscal year 1994. In addition, as of May 31, 1994 the
Budget Stabilization Fund ("BSF") had a cash balance of $21.0 million.
The GFR appropriations bill for the biennium ending June 30, 1995 was
passed on June 30, 1993 and promptly signed, with selective vetoes, by the
Governor. The Act provides for total GRF biennial expenditures of
approximately $30.7 billion, an increase over those for the 1992-93 fiscal
biennium. Authorized expenditures in fiscal year 1994 are 9.2% higher
than in fiscal year 1993 (taking into account fiscal year 1993 expenditure
reductions), and for fiscal year 1995 are 6.6% higher than in fiscal year
1994. Pursuant to April 1994 legislation, the OBM Director is to make a
partial repayment to the BSF after the end of fiscal year 1994 of any GRF
fund balance in excess of $300 million.
State statutory provisions permit the adjustment of payment schedules
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 May 31, 1994 was $2.984 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. As projected by OBM for the fiscal year ending June 30, 1993, cash
flow deficiencies occurred in August 1992 through May 1993, with the
highest deficiency being $768.6 million in December 1992. In addition,
GRF cash flow deficiencies have occurred in six months of fiscal year
1994.
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 to $750,000 and
(ii) repel invasion, suppress insurrection or defend the State in war.
At various times from 1921, the voters of Ohio, by thirteen specific
constitutional amendments, authorized the incurrence of up to $4.664
billion in State debt to which taxes or excises were pledged for payment.
As of June 1994, excluding Highway Obligations Bonds discussed below, and
the recently authorized parks, recreation and natural resources bonds,
approximately $3.235 billion had been issued, of which $2.514 billion had
been retired and approximately $712.6 million (all evidenced by bonds)
remained outstanding. The only such debt still authorized to be incurred
is a portion of the Highway Obligations Bonds and Coal Development Bonds
as well as State general obligation bonds for local government
infrastructure projects, described below and recently authorized general
obligation park bonds.
The total voted authorization of State debt includes authorization
for $500 million in Highway Obligations to be outstanding at any one time,
with no more than $100 million to be issued in any one calendar year. As
Highway Obligations are retired, additional Highway Obligations may be
issued so long as the principal amount outstanding does not exceed $500
million. As of June 16, 1994, approximately $1.545 billion in Highway
Obligations had been issued and $446.3 million were outstanding.
A 1985 constitutional amendment authorized up to $100 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 an additional $35 million of Coal Development
Bonds. As of June 16, 1994, $80 million of Coal Development Bonds were
issued, of which $43.1 million were outstanding as of June 1994.
A 1987 State constitutional amendment authorizes the issuance of $1.2
billion of State full faith and credit obligations for infrastructure
improvements of which no more than $120 million may be issued in any
calendar year. As of June 1, 1994, approximately $720.0 million of such
obligations were issued, of which $645.2 million were outstanding.
A constitutional amendment adopted in November 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 manners. The General Assembly could authorize
State borrowing for the purpose, and the issuance of State obligations
secured by a pledge of all or a portion 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 November 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). The General
Assembly in the general capital appropriations act for the 1995-96 capital
appropriations biennium authorized the Commissioners of the Sinking Fund
to issue $100.0 million of such obligations.
In addition, an initiative petition currently is being circulated
calling for submission at the November 1994 general election of a
constitutional amendment adding express exclusions from sales or other
excise taxes upon food. The amendment's full effect is not yet
determinable, but estimates of resulting reduced annual State-level
revenues range from $60 million to $68.5 million. In OBM's judgment, if
approved, the amendment would not have a materially negative effect on
State finances and appropriations for the remainder of the current
biennium.
In addition, the State constitution authorizes the issuance, for
certain purposes, of State obligations not secured by a pledge of taxes or
excises to pay principal and interest. Such special obligations include
bonds and notes issued by, among others, the Ohio Public Facilities
Commission ("OPFC") and the Ohio Building Authority ("OBA"). As of June
16, 1994, the OPFC had issued $3.272 billion for higher education
facilities, approximately $2.026 billion of which were outstanding, $917.5
million for mental health facilities, approximately $463.3 million of
which were outstanding and $145.0 million for parks and recreation
facilities, approximately $86.5 million of which were outstanding.
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 will be primarily by lease-rental supported
obligations such as those issued by OPFC and OBA.
The general capital appropriations act for the 1995-96 capital
appropriations biennium authorizes additional borrowing. It authorizes
issuance by OPFC of obligations, in addition to those previously
authorized by the General Assembly, in the amounts of $679.2 million for
higher education capital facilities projects (a substantial number of
which are renovations of equipment and improvements to existing
facilities), $77.5 million for mental health and retardation facilities
projects, and $30.0 million for parks and recreation facilities. It also
authorized the OBA to issue obligations, in addition to those previously
authorized by the General Assembly, in the amounts of $221.0 million for
Department of Rehabilitation Correction Facilities, $48.0 million for
Department of Youth Services facilities, $230.3 million for Department of
Administrative Services facilities, $42.5 million for Ohio Arts Facilities
Commission facilities, $11.2 million for Department of Public Safety and
other miscellaneous capital improvements facilities and $43.95 million for
Ohio Department of Transportation facilities. In addition, the Treasurer
of State was authorized to issue obligations in addition to those
previously authorized by the General Assembly, in the amounts of $70.0
million for the Department of Education and, $240.0 million ($120 million
for calendar year 1995 and $120 million for calendar year 1996) for the
Public Works Commission. The Commissioners of the Sinking Fund presently
have General Assembly authorization to issue $70.0 million of Coal
Development Bonds and $118.17 million of Highway Obligations Bonds.
A November 1986 act (the "Rail Act") authorizes the Ohio High-Speed
Rail Authority (the "Rail Authority") to issue obligations to finance the
cost of inter-city high-speed rail service projects within the State,
either directly or by loans to other entities. The Tax Reform Act of 1986
included a special transition provision (which expired October 1, 1990)
exempting up to $2 billion of State obligations from certain of its
provisions. The Rail Authority 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 Authority, 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
receipts) of the State after provision for the payment of certain other
State obligations.
Notwithstanding the constitutional provisions prohibiting the
incurrence of certain debt without popular vote, the State and State
agencies have issued revenue bonds that are payable from net revenues of
revenue-producing facilities or categories of facilities, which revenue
bonds are not "debt" within the meaning of such constitutional provisions.
Investment in such bonds carries the risk that the issuing agency or the
specific revenue source may not provide sufficient funds to service the
debt incurred. Certain of these bonds consist of those issued by the Ohio
Turnpike Commission and the State Parking Commission.
The State is a party to various legal proceedings seeking damages or
injunctive relief and generally incidental to its operations. In
particular, litigation contesting the Ohio system of school funding is
pending in two county common pleas courts.
The outstanding State Bonds issued by the OPFC and the OBA are rated
A+ by S&P and A1 by Moody's. The State's general obligation debt is rated
as Aa by Moody's and by S&P as AAA.
State Employees and Retirement Systems. The State has established
five public retirement systems to provide retirement, disability
retirement and survivor benefits. Three cover both State and local
employees, one State employees only and one local government employees
only. 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 employees and public higher education
employees. The Highway Patrol Retirement System ("HPRS") covers State
troopers and the Police and Fire Pension and Disability System ("PFPDS")
covers local safety forces.
As of the most recent year reported by the particular system, the
unfunded accrued liabilities of STRS and SERS were $8.264 billion and
$2.592 billion, respectively, and the unfunded accrued liabilities of
PERS, HPRS and PFPDS was $5.374 billion, $72.8 million and $840.2 million,
respectively.
State Municipalities. Ohio has a mixture of urban and rural
population, with approximately three-quarters urban. There are
approximately 943 incorporated cities and villages (populations under
5,000) in the State; six cities have populations of over 100,000 and
nineteen 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).
In the fifteen years that the act has been in effect, it has been
applied to 11 cities and to 12 villages. The situations in nine cities
and nine villages have been resolved and their commissions terminated.
Only the Cities of East Cleveland and Nelsonville and three of the
villages remain under the procedure.
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.
Oregon Series
State Tax Revenues. Oregon does not have a sales tax. As a result,
State tax revenues are particularly sensitive to economic recessions. The
principal sources of State tax revenues are personal income and corporate
income taxes. For the 1993-95 biennium, approximately 96.3% of the
State's, revenues will come from combined income taxes, insurance taxes,
gift and inheritance taxes, and cigarette and tobacco taxes. Since 1983
State revenues have improved substantially, and in recent years the State
has granted tax credits because of budget surpluses, as required by
statute. The State's economic and revenue forecast dated May 14, 1994
predicts that State General Fund revenues will exceed the legislatively
approved budget forecast by approximately $127.7 million (or 2.1 percent).
The most significant feature of the budgeting process in Oregon is
the constitutional requirement that the budget be in balance at the end of
each biennium. Actual General Fund revenues have exceeded budget
estimates in every biennium since 1983 and the State predicts an ending
1993-95 biennium General Fund balance of $330.9 million.
Employment. Oregon's economy has outperformed the nation's economy
in recent years. Oregon employment increased 15.4% between 1987 and 1992;
national employment during the same period increased only 6.1%. According
to a report issued by the State of Oregon, non-agricultural employment in
Oregon increased 2.9% from 1992 to 1993 while national employment
increased only 1.5%. Non-agricultural employment in Oregon is predicted
to continue increasing at a faster rate than the national average through
the year 2000. During the same period personal income for wage earners in
Oregon is expected to rise 55% before adjustment for inflation, compared
to 48.9% for the nation. Despite favorable income and job growth
projections Oregon's per capita income is expected to slip behind the rest
of the nation because of expanding labor supply due to in-migration and
downsizing of the timber industry and government.
As the economy has grown, it has diversified, becoming less dependent
on the forest products industry and expanding the number of high
technology industries. Compared to 1980, 15,500 fewer people worked in
lumber and products manufacturing in 1992, while 7,700 more people worked
in high technology sectors. Timber industry employment in Western Oregon
is projected to fall to 56,000 jobs over the next decade, a 23% decrease
relative to 1990 employment.
Most of the recent job gains have come from non-manufacturing
sectors. Since 1985, non-manufacturing employment has increased by 27%,
led by trade (up 23%), services (up 41%) and construction (up 53%). Non-
manufacturing sectors now provide more than 83% of total Oregon
employment.
Despite recent developments in employment, however, Oregon per
capital personal income remains at about 92% of the national average.
State Forecast. In May 1994, the State of Oregon forecast that
modest acceleration of the economy which began in the second half of 1992
would continue through 1993 and into 1994, with an expected rate of growth
in non-agricultural wage and salary employment increasing 3.0% in the
first quarter of 1994. Personal income is expected to increase 6.9% in
1994, after a 5.1% gain in 1993. The rate of growth is expected to be
somewhat impeded by continued downsizing of the timber industry and
layoffs in the utilities and government sectors.
The State forecast for the economy through the year 2000 anticipates
gradually improving national conditions, continued strong net in-migration
to Oregon, accelerating construction activity, and continued strength in
the State's electronics and office equipment manufacturing industries. In
the 1990's, the State's economy is expected to exceed the rate achieved in
Oregon in the 1980's, based on forecast competitive cost advantages
compared to national averages, in-migration, growth in Oregon's high
technology sector and expanding exports, but to fall well below the rates
of growth in the 1960's and 1970's.
Population. Oregon's population as of July 1, 1992 was estimated to
be 2,979,000. Since 1960 the State's population has increased almost 61%;
between 1980 and 1990, Oregon's population increased approximately 7.7%.
The rate of population growth through the 1990's is expected to be more
than twice the rate of growth in the 1980's. Oregon's population is
expected to grow by 63,000 in 1994 with two thirds of the growth from net
in-migration. Growth is expected to slow to 50,000 per year in 1995 as
the California economy rebounds.
There are four major population areas in Oregon. The City of
Portland, located at the northern end of the Willamette Valley, is the
largest city in the State, and its primary metropolitan statistical area
was estimated to have a population of 1,285,100 in 1991, or 44% of the
total State population. The City of Eugene, located at the southern end
of the Willamette Valley, is the second largest city, with a metropolitan
statistical area population of 290,900 in 1991, or 10% of the State's
total population. Salem, located in the middle of the Willamette Valley,
is the third largest city, had a metropolitan statistical area population
of 287,900 in 1991, or 10% of the State's total population. The fourth
largest city, Medford, is located in southwestern Oregon outside the
Willamette Valley, and had a metropolitan statistical area of 151,400 in
1991. Approximately 70% of the State's population resides in the
Willamette Valley.
Western Oregon consists largely of small coastal communities which
focus on tourism, fishing, agriculture and dairy operations. Central
Oregon, west of the Cascade Mountains, has the Willamette Valley, Oregon's
four largest cities, and the highly economically diversified Portland
metropolitan area. East of the Cascade Mountains communities tend to be
smaller, and economic activity centers on agriculture, forestry and
ranching. A number of small, timber dependent communities throughout the
State have been particularly adversely affected by the recent reductions
in timber and forestry products employment. Local economies in Oregon
vary substantially, and respond to different factors; statistical data on
the economic activity in the State as a whole may mask significant
differences in local economies.
Housing, Agriculture, Trade and Forest Products. Much of the recent
and forecast growth in the Oregon non-manufacturing sectors can be traced
to population growth. Oregon's quality of life and low housing costs have
always encouraged in-migration. The State's rapid job growth since 1987
pushed Oregon's population growth above the nation's. The growth caused
Oregon housing starts to increase in 1987, 1988, 1989 and 1990, even
though national housing starts declined. In 1990, Oregon housing starts
(including single and multiple family dwellings) increased by two percent,
compared to a national decline of 12.9%. In 1991, housing starts
declined, but increased again in 1992 and 1993 primarily due to single
family dwelling increases.
Oregon has a highly diversified agricultural base, with gross farm
sales of over $2.8 billion in 1993, over 84 commodities with sales of
$1,000,000 or more, and over 37 commodities with gross sales of
$10,000,000 or more. Agriculture in Oregon follows the national trend of
increasing capital intensity, with employment decreasing as constant
dollar output has increased. Recent agricultural expansion is attributed
to use of more efficient methods and increased use of irrigation.
Although every county in the State is involved in agricultural production,
activity is concentrated in Willamette Valley.
Oregon's forest products industry consists of several components:
lumber and wood products, paper and allied products, and a small number of
workers in reforestation and other services. In 1992, farm forest
products were, collectively, the third largest agricultural commodity for
the State, with gross sales of $258 million. Employment for paper and
allied products has remained relatively constant at about 9,000.
Reforestation currently employed about 4,000, and has been growing
steadily. Lumber and wood products, once Oregon's manufacturing mainstay,
has experienced massive, and probably permanent, reductions in employment,
with jobs declining from about 65,000 to about 50,000 during the period
from 1988 to 1992.
Oregon is located on the western coast of the United States, where
the Columbia River flows into the Pacific Ocean. International trade and
exports are an important part of the Oregon economy, with much of the
trade occurring through Oregon's 23 port districts. The Port of Portland
is most active, having developed an efficient system for dealing with
large numbers of vessels, including modern grain elevators, cranes, break-
bulk and containerized cargo facilities, and ship repair and dry dock
facilities. Substantial activity also occurs throughout the Columbia-
Snake River basin and through the ports of Newport and Coos Bay, on the
Oregon coast. Chief export items include grains, logs, lumber and other
forest products, paper and paper products, vegetables, metal products and
chemical/petroleum products. Items imported in amounts in excess of $100
million in 1991 include cars, chemical/petroleum products, metals/metal
products, food and headware/flat goods, computing equipment, electronic
components, electrical machinery, general purpose machinery and
rubber/plastic. Imports through the Oregon Columbia-Snake River, Newport
and Coos Bay Customs Districts increased approximately 14% over the five
year period beginning in 1987. In 1992, the Columbia-Snake River ports,
together with the ports of Newport and Coos Bay, reported exports of over
$5.3 billion (representing a 20.1% increase from 1991) and imports of over
$1.8 billion (representing a 4.0% decrease from 1991).
Recent Developments Affecting the Oregon Economy and Creditworthiness
of Oregon Issuers. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 (the "Ballot Measure 5")
imposes an aggregate limit on the rate of property taxes, including ad
valorem taxes, that may be levied against any real or personal property.
The limit is being phased in over a 5-year period that will be complete in
the 1995 tax year. Beginning with the 1995 tax year, not more than $15.00
per $1,000 of real market value may be assessed against any real or
personal property, of which amount not more than $10.00 may be levied for
combined general governmental purposes and not more than $5 may be levied
for educational purposes.
The Ballot Measure 5 limits do not apply to taxes imposed to pay the
principal of and interest bonds issued by the State of Oregon under a
specific provision of the State Constitution. Therefore, the ability of
the State to levy taxes to service its general obligations bonds is not
subject to the limit. In addition, because the State currently receives
its revenues from sources other than property taxes, the Ballot Measure 5
has not directly affected State revenues.
The Ballot Measure 5 does affect the financial condition of the
State, however, since it (1) requires the State to replace losses to
school funds until fiscal year 1996-97 and (2) restricts the ability of
Oregon local governments to raise revenues through the imposition of
property tax increases. The Legislative Revenue Office of the State has
projected that the State's obligation to replace school revenues will be
$1,535.2 million during the 1993-95 biennium and $1,364.1 million during
the 1995-96 fiscal year. The State's obligation to replace school
revenues terminates after fiscal year 1995-96.
All local governments which use property taxes as a source of
revenues will be affected. The Ballot Measure 5 does not apply to
specially levied ad valorem taxes to pay the principal and interest on
general obligation bonds for capital construction or improvements if the
bonds were either: (1) issued on or prior to November 6, 1990 or (2)
approved by the electors of the issuing governmental unit, so local
general obligation bonds will be unaffected. To date, only a few local
governments have experienced restrictions on their ability to levy taxes
as a result of the Ballot Measure 5.
User fees, licenses, excise or income taxes and incurred charges for
local improvements are also exempted from the Ballot Measure 5. As a
result, local governments have begun to rely more heavily on such fees and
taxes to finance services and improvements. However, a new initiative to
amend the Oregon Constitution (the "Proposed Amendment") has qualified to
be placed on the November 8, 1994 general election ballot. The Proposed
Amendment, if approved by the Oregon voters, will require voter approval
of all new "taxes" and increases in the rates of existing "taxes."
The Proposed Amendment defines "taxes" as "...any state or local
government fee or other charge..." except "...user fees charged by
People's Utility District or port districts; school, college, or
university tuition or fees; incurred charges and local improvements as
defined by [the Oregon] Constitution; other user fees paid voluntarily for
specific services that are not monopolized by government; increases in
charges for monopolized products solely to pass through increased costs of
wholesale inputs that are not State or local government labor costs and
not otherwise under the charging government's control; fines or
forfeitures for violations of law; and earnings from interest,
investments, state lottery proceeds, donations or asset sales."
The potential impact of Proposed Amendment on the ability of Oregon
governmental units, both at the State and local level, to raise revenues
could be profound since it ostensibly affects income taxes, excise taxes,
ad valorem taxes and all fees and charges other than those specifically
expected. The Proposed Amendment uses terms that it does not define, and
that do not have clearly established meanings in Oregon Law. Therefore,
if the voters enact the Proposed Amendment, the courts will be required to
interpret the Proposed Amendment to determine what constitutes a "tax" or
a "tax increase" within the meaning of the Proposed Amendment.
Various legal arguments could be advanced in support to protect tax,
fee and charge increases to pay principal and interest for bonds issued
prior to the effective date of the Proposed Amendment, including arguments
based on the prohibition in the Federal Constitution against legislative
acts that impair the obligations of contracts (Article I, Section 10,
Paragraph 1 of the United States Constitution). However, no one can
predict whether such arguments would be successful.
Pending litigation and environmental proceedings relating to the
logging of old growth forest and the protection of the Northern Spotted
Owl make it difficult to predict future timber supplies in Oregon.
Competitive pressures, productivity improvements and fluctuations in
demand for wood products may result in additional losses. In 1991 and
1992, in response to concerns over diminishing salmon runs, three
populations of Snake River salmon were placed on the Endangered Species
list. More recently, the National Marine Fisheries Service and the U.S.
Fish and Wildlife Service have commenced status reviews of hundreds of
additional salmon and trout populations in the Columbia Basin and
throughout Western Oregon. The Snake River salmon listings have already
had substantial economic impacts, primarily through increased electricity
rates and related impacts on rate-sensitive industries such as the
aluminum industry. Efforts to protect salmon and steelhead populations
may eventually affect a wide variety of industrial, recreational and land
use activities, with corresponding impacts on long-term economic growth.
There is a relatively small active market for municipal bonds of
Oregon issuers other than the general obligations of the State itself, and
the market price of such other bonds may therefore be volatile. If the
Oregon Series were forced to sell a large volume of Oregon Obligations
owned by it for any reason, such as to meet redemption requests for a
large number of its shares, there is a risk that the large sale itself
would adversely affect the value of the Fund's portfolio.
Pennsylvania Series
General. Pennsylvania historically has been identified as a heavy
industry state, although that reputation has changed with the decline of
the coal, steel and railroad industries and the resulting diversification
of Pennsylvania's economy. The major new 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-fourth of the Commonwealth's total land area
devoted to cropland, pasture and farm woodlands.
The population of Pennsylvania experienced a slight increase in the
period from 1984 to 1993 and has a high proportion of persons 65 or older.
The Commonwealth is highly urbanized, with almost 85% of the 1990 census
population residing in metropolitan statistical areas. The cities of
Philadelphia and Pittsburgh, the Commonwealth's largest metropolitan
statistical areas, together comprise approximately 50% of the
Commonwealth's total population.
Pennsylvania's average annual unemployment rate remained below the
national average between 1986 and 1990. Slower economic growth caused the
rate to rise to 6.9% in 1991, 7.5% in 1992 and 7.0% in 1993, slightly
above the national average. Seasonally adjusted data for February 1994,
however, shows an unemployment rate of 5.1% compared to an unemployment
rate of 6.5% for the United States as a whole.
Financial Accounting. Pennsylvania utilizes the fund method of
accounting and over 140 funds have been established for purposes of
recording receipts and disbursements, of which the General Fund is the
largest. Most of the Pennsylvania's 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 (except one-half cent per gallon of the liquid fuels tax
which is deposited in the Liquid Fuels Tax Fund for distribution to local
municipalities) and 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.
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 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 of 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% of General Fund revenues in fiscal 1993), the 2.8% personal
income tax (32.7% of General Fund revenues in fiscal 1993) and the 12.25%
corporate net income tax (10.0% of General Fund revenues in fiscal 1993).
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 revenue for the Motor License
Fund include the liquid fuels tax, the oil company franchise tax, aviation
taxes and revenues from fees levied on heavy trucks. These revenues are
restricted to the repair and construction of highway bridges and aviation
programs. Lottery ticket sales revenues 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 ($6.2
billion of fiscal 1993 expenditures and $6.4 billion of the fiscal 1994
budget) and public health and human services ($11.7 billion of fiscal 1993
expenditures and $12.7 billion of the fiscal 1994 budget).
Governmental Fund Types: Financial Condition/Results of Operations
(GAAP Basis). Reduced revenue growth and increased expenses contributed
to negative unreserved-undesignated fund balances of the Governmental Fund
Types at the end of the 1990 and 1991 fiscal years, largely due to
operating deficits in the General Fund and State Lottery Fund during those
years. 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. At the end of fiscal 1993, the total fund balance and other
credits for the total Governmental Fund Types was $1.960 billion, an
increase of $732.1 million from the balance at the end of fiscal year
1992. During fiscal 1993, total assets for all Governmental Fund Types
increased by $1.297 billion to $7.1 billion, while liabilities increased
$564.6 million to $5.137 billion.
General Fund: Financial Condition/Results of Operations.
Five Year Overview (GAAP Basis). The five year period from fiscal
1989 through fiscal 1993 was marked by public health and welfare costs
growing at a rate double the growth rate for all the state expenditures.
Rising caseloads, increased utilization of services and rising prices
joined to produce the rapid rise of public health and welfare costs at a
time when a national recession caused tax revenues to stagnate and even
decline. During the period from fiscal 1989 through fiscal 1993, public
health and welfare costs rose by an average annual rate of 10.9% while tax
revenues were growing at an average annual rate of 5.5%. Consequently,
spending on other budget programs was restrained to a growth rate below
5.0% and sources of revenues other than taxes became larger components of
fund revenues. Those sources included transfers from other funds and
hospital and nursing home pooling of contributions to use as federal
matching funds.
Fiscal 1992 Financial Results (GAAP Basis). During fiscal 1992, the
General Fund recorded a $1.1 billion operating surplus. This operating
surplus was achieved through legislated tax rate increases and tax base
broadening measures enacted in August 1991 and by controlling expenditures
through numerous cost reduction measures implemented during the fiscal
year. As a result of the operating surplus, the General Fund balance
increased to $87.5 million at June 30, 1992.
Fiscal 1993 Financial Results (GAAP Basis). The fund balance of the
General Fund increases by $611.4 million during the fiscal year to a total
of $698.9 million at June 30, 1993. A continuing recovery of the
Commonwealth's financial condition from the effects of the national
economic recession of 1990 and 1991 is demonstrated by this increase in
the fund balance.
Fiscal 1994 Budget (Budgetary Basis). The budget estimates revenue
growth of 3.7% over fiscal 1993 actual revenues. The revenue estimate is
based on an expectation of continued economic recovery, but at a slow
rate. Sales tax receipts are projected to rise 4.4% over 1993 receipts
while personal income tax receipts are projected to increase by 3.3%, a
rate that is low because of the tax rate reduction in July 1992. The
budget provides for $14.995 billion of appropriations in fiscal 1994. The
largest increase in appropriations ($235 million) is for the Department of
Public Welfare to meet the increasing costs of medical care and rising
caseloads. Other departments slated to receive large appropriation
increases include education ($196 million) and correctional institutions
($104 million).
In February 1994, the Governor recommended $46.4 million of
additional appropriations be enacted for fiscal 1994, raising total
appropriations to $15.041 billion. The largest increase in additional
appropriations is $27.3 million to make audit payments to the federal
Department of Health and Human Services. No change to the aggregate
Commonwealth revenue estimate was made although individual tax estimates
have been revised to reflect actual receipts to date and the tax refund
estimate was reduced to reflect a favorable litigation ruling (see
"Litigation" section). Through May 1994, General Fund revenues are
slightly ($24.2 million or 2.2%) above estimate as below corporate
estimate tax receipts are being offset by above estimate sales tax,
personal income tax and non-tax revenue receipts.
Realizing that the continuing rise in medical assistance costs cannot
be met from the resources provided by a much slower growing tax revenue
base, the Commonwealth plans to implement programs and financial changes
in fiscal 1994 to keep costs within budget limits. The Commonwealth plans
to save $247 million by receiving federal reimbursement for hospital
services provided to state general assistance recipients. Prior to this
time, these costs were fully paid by the Commonwealth. In addition, the
Commonwealth will continue to use pooled financing for medical assistance
costs using intergovernmental transfer in place of voluntary contributions
as was done in earlier fiscal years, resulting in an anticipated savings
of $99 million.
Proposed Fiscal 1995 Budget. For the fiscal year beginning July 1,
1994, the Governor has proposed a budget containing a 4.1% increase in
appropriations over the actual and proposed supplemental appropriations
for fiscal 1994. Total appropriations recommended amount to $15.665
billion. The budget is balanced by drawing down on a projected $267
million unappropriated surplus for fiscal 1994. The fastest growing
portion of the budget continues to be medical assistance, which is
proposed to receive $264 million, or 42.4%, of the proposed net increase
in spending. Other program areas budgeted to receive major increases are
education ($165 million) and corrections ($126 million). The proposed
budget recommends a tightening of eligibility criteria for state-financed
welfare benefits as a cost reduction measure.
The Governor's proposal also includes a recommended reduction in the
corporate net income tax rate from 12.25% to 9.99% over a three year
period. The corporate tax cut and a proposed increase in poverty
exemption for the personal income tax are estimated to cost $124.7 million
in fiscal 1995. The recommended budget includes Commonwealth revenue
growth of 4.7% without including the effect of the proposed tax reduction.
The revenue estimate is based on the expectation of a continued slow
national economy recovery and continued economic growth of the
Pennsylvania economy at a rate slightly below the national rate. Total
estimated Commonwealth revenue, adjusted for refunds and the proposed tax
reduction, is $15.400 billion.
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 and (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 $5.039 billion at June 30, 1993.
Over the 10-year period ended June 30, 1993, total outstanding general
obligation debt increased at an annual rate of 1.2%; for the five year
period ended June 30, 1993, it increased at an annual rate of 1.4%. All
outstanding general obligation bonds of the Commonwealth are rated AA- by
Standard and Poor's Corporation, A1 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 which must mature
within the fiscal year of issuance. The principal amount issued, when
added to that already outstanding, may not exceed in the 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. All year-end deficit balances must be funded
within the succeeding fiscal year's budget. Pennsylvania issued a total
of $400.0 million of tax anticipation notes for the account of the General
Fund in fiscal 1994, all of which will mature on June 30, 1994, and will
be paid from fiscal 1994 General Fund receipts.
Pending the issuance of bonds, Pennsylvania may issue bond
anticipation notes subject to the applicable statutory and constitutional
limitations generally imposed on bonds. The term of such borrowings may
not exceed three years. The Commonwealth currently has no bond
anticipation notes outstanding.
State-related Obligations. Certain state-created agencies have
statutory authorization to incur debt for which legislation providing for
state appropriations to pay debt service thereon is not 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 December 31, 1993: Delaware River Joint Toll
Bridge Commission ($57.4 million), Delaware River Port Authority ($239.4
million), Pennsylvania Economic Development Financing Authority ($380.8
million), Pennsylvania Energy Development Authority ($163.7 million),
Pennsylvania Higher Education Assistance Agency ($1.159 billion),
Pennsylvania Higher Education Facilities Authority ($1.806 billion),
Pennsylvania Industrial Development Authority ($256.4 million),
Pennsylvania Infrastructure Investment Authority ($192.5 million),
Pennsylvania Turnpike Commission ($1.153 billion), Philadelphia Regional
Port Authority ($53.8 million) and the State Public School Building
Authority ($306.4 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
($2.066 billion of revenue bonds and notes outstanding as of December 31,
1993), 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. The
budget as finally adopted by the legislation may or may not include the
amounts requested by the Governor.
Local Government Debt. Local government in Pennsylvania consists of
numerous individual units. Each unit is distinct and independent of other
local units, although they may overlap geographically. There is extensive
general legislation applying to local government. For example, the Local
Government Unit Debt Act provides for uniform debt limits for local
government units (except the City of Philadelphia), including
municipalities and school districts, and prescribes methods of incurring,
evidencing, securing and collecting debt. Under the Local Government Unit
Debt Act, the ability of Pennsylvania municipalities and school districts
to engage in general obligation borrowing without electoral approval is
generally limited by their recent revenue collection experience.
Generally, such subdivisions can levy real property taxes unlimited as to
rate or amount to pay debt service on general obligation borrowings. City
of Philadelphia debt is limited by the Pennsylvania Constitution to a
percentage of the assessed value of taxable realty in the City, except
debt which is supported by project revenues and is excluded from this
limit.
Municipalities may also issue revenue obligations without limit and
without affecting their general obligation borrowing capacity if the
obligations are projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are also
widespread in Pennsylvania. An authority is organized by a municipality
acting singly or jointly with another municipality and is governed by a
Board appointed by the governing unit of the creating municipality or
municipalities. Typically, authorities are established to acquire, own
and lease or operate one or more projects and to borrow money and issue
revenue bonds to finance them. Projects of municipal authorities may
include public facilities, such as public buildings, parking facilities,
airports, waterworks and sewage facilities as well as projects for certain
private not-for-profit entities, such as hospitals and universities. A
project may be leased by a municipal authority to a municipality or school
district or to a private user, in which event the lessee is obligated to
make rental payments sufficient to pay the debt service on obligations
issued by the authority. In cases involving revenue producing public
facilities, such as water or sewer systems, a municipal authority may
operate the system itself. The debt of municipal authorities is not
governed by the Local Government Unit Debt Act except indirectly when the
debt is guaranteed by a local government unit or the project is leased to
such a unit. Industrial development authorities issue bonds to acquire or
construct facilities for use by private companies, and the debt service is
normally dependent solely on the credit of the private user.
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: (a) 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 ($17.5 million
appropriated from the Motor License Fund in fiscal 1993 has been increased
to $32.0 million for fiscal 1994 to fund possible higher and more numerous
payments resulting from recent decisions by the Pennsylvania Supreme
Court); (b) the ACLU filed suit in April 1990 in federal court demanding
additional funding for child welfare services (no available estimates of
potential liability), 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 (on April 12,
1993, the court dismissed all claims except for the constitutional claims
of some of the plaintiffs and two Americans with Disabilities Act claims);
(c) 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 (the legislature has
yet to consider legislation implementing the judgement); (d) several banks
have filed suit against the Commonwealth contesting the constitutionality
of a 1989 law imposing a bank shares tax on banking institutions
(potential liability estimated at $1.024 billion through December 1993,
plus appropriate statutory interest); (e) in November 1990, the ACLU
brought a class action suit on behalf of the inmates in thirteen
Commonwealth correctional institutions challenging confinement conditions
and including a variety of other allegations, and, although no damages are
sought, if injunctive relief is granted the cost to the Commonwealth in
capital and personnel expenses may be substantial (trial began on December
6, 1993; prompted by settlement negotiations between the parties, the
court recessed on January 3, 1994; trial will resume if settlement is not
reached); (f) on December 10, 1993, the Pennsylvania Supreme Court
overturned a decision of the Commonwealth Court ruling that dividends
received by a corporate taxpayer which are accounted for under the equity
method of accounting are not includible in average net income for purposes
of determining capital stock value under the fixed formula (the decision
permits the Commonwealth to release $147 million held in reserve for
potential tax refund); (g) in 1991, a consortium of public interest law
firms filed a class action suit alleging that the Commonwealth had failed
to comply with the 1989 federal mandate with respect to certain services
for Medicaid-eligible children under the age of 21, which if the relief
requested were granted, would cost the Commonwealth approximately $98
million; (h) litigation has 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 and the state
case is in the pre-trial discovery stage (no available estimate of
potential liability); and (i) approximately 150 hospitals challenged the
state's fiscal 1989 and 1990 reimbursement rates for inpatient hospital
services provided to needy citizens under the Medical Assistance Program,
and these lawsuits were settled in May 1991, with the dismissal of the
litigation pending the disposal of one appeal.
Philadelphia. For the fiscal year ending June 30, 1991, Philadelphia
experienced a cumulative General Fund balance deficit of $153.5 million.
The audit findings for the fiscal year ending June 30, 1992 place the
cumulative General Fund balance deficit at $224.9 million.
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 on January 3, 1992, and approved by the PICA Board and signed by
the Mayor on January 8, 1992. At this time, Philadelphia is operating
under a five year fiscal plan approved by PICA on April 6, 1992. Full
implementation of the five year plan was delayed due to labor negotiations
that were not completed until October 1992, three months after the
expiration of the old labor contracts. The terms of the new labor
contracts are estimated to cost approximately $144.0 million more than
what was budgeted in the original five year plan. An amended five year
plan was approved by PICA in May 1993. The audit findings show a surplus
of approximately $3 million for the fiscal year ending June 30, 1993.
The fiscal 1994 budget projects no deficit and a balanced budget for
the year ended June 30, 1994. The Mayor presented the latest update of
the five year financial plan on January 13, 1994, which is being
considered by PICA.
In June 1992, PICA issued $474.6 million of its Special Tax Revenue
Bonds to provide financial assistance to Philadelphia and to liquidate the
cumulative General Fund balance deficit. In July 1993, PICA issued $643.4
million of Special Tax Revenue Bonds to refund certain general obligation
bonds of the city and to fund additional capital projects.
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 cause 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
profitabilities and many sought Federal assistance from the FDIC.
As a further result of the drastic drop in the price of oil, the
subsequent loss of jobs and the overbuilding in the real estate markets,
the State experienced deficits for fiscal years ended August 31, 1986 and
1987 or $230 million and $744 million, respectively. The deficits
occurred despite actions to trim the 1987 biennial budget by $582 million
and increasing taxes by $761 million. However, as a result of the budget
trimming and increasing taxes and the improving Texas economy, the State
finished fiscal years 1988, 1989, 1990, 1991, 1992 and 1993 with surpluses
in the General Revenue Fund of $114 million, $298 million, $768 million,
$712.8 million, $609.2 million and $1.624 billion, respectively.
The Texas economy bottomed out at the end of 1986 and moved into
recovery. Based upon information gathered by the U.S. Bureau of Labor,
the State has more than doubled the jobs that it lost during the 1986-87
recession. By December 1990, the Texas unemployment rate had declined to
6.6%. The unemployment rate, however, began to increase in 1991 and by
December 1992 was 7.6%. This increase appears to be merely temporary
since by August 1993 the unemployment rate had again declined to 6.8%.
Manufacturing employment added about 50,000 jobs in 1987, 1988 and
1989 but has experienced a contraction since late 1990. The slowdown of
consumer demand at the national level resulted in the job losses, which
were more pronounced nationwide. Total employment in Texas continued to
expand and has been steadily improving since 1991. Over the 12 month
period ending in June 1993 Texas gained 151,400 jobs, an increase of 2.1%.
Most of the new jobs have been in services, with health, business and
other miscellaneous sectors adding approximately 142,100 jobs from June
1992 to June 1993. During the 12 month period ended March 1994, the non-
farm employment in Texas increased by 3.4%.
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, such
as tax and revenue anticipation notes issued by the State Treasurer, do
not constitute "debt" within the meaning of the Texas Constitution. The
State may issue tax and revenue anticipation notes solely to coordinate
the State's cash flow within a fiscal year and must mature and be paid in
full during the biennium in which notes were issued.
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. The total amount of general obligation bonds
that have been authorized by the voters is in excess of $8.28 billion. As
of May 31, 1993, the general obligation and other constitutionally
outstanding bonded indebtedness of the State is designed to be eventually
self-supporting, even though the full faith and credit of the State is
pledged for its payment.
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 corporate 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. Federal grants for
the first time are the State's largest revenue source, accounting for
approximately 29.2% of total revenue during fiscal year 1993. Sales taxes
are the State's second largest source of tax revenue, accounting for
approximately 27% of the State's total revenues during fiscal year 1993.
Motor fuels taxes, licenses, fees and permits, and interest and investment
income, each accounted for approximately 6% of the total revenue in fiscal
year 1993. The remainder of the State's revenues are derived primarily
from other excise taxes. The State has no personal or corporate income
tax, although the State does impose a corporate franchise tax based on the
greater of a corporation's capital or net earned surplus. The franchise
tax is based upon net income apportionable to the State, and thus works
very much like a corporate income tax. It is likely to become a
substantially larger source of revenues in future years.
Total net revenues and opening balances for fiscal years 1988, 1989,
1990, 1991, 1992 and 1993 amounted to approximately $20.471 billion,
$21.657 billion, $23.622 billion, $26.190 billion, $29.647 billion and
$33,795 billion, respectively, which tax collections for the same periods
amounted to $12.364 billion, $12.905 billion, $14.922 billion, $15.849
billion and $17.011 billion, respectively.
The 73rd State Legislative Session convened in January, 1993 and
before adjourning passed a budget for the 1994-5 biennium. The 1994-5
budget provides for appropriations totalling $38.8 billion from general
revenue related funds and $70.1 billion from all fund sources. The 1994-5
biennium budget increases general revenue funding by 10.6%, while funding
from all funds increased by 11.4%. Funding for education has been
increased to $1.4 billion, or 5.8%, while health and human services
increased $4.3 billion, or 22.5%.
Limitations on Taxing Powers. The State Constitution prohibits the
State from levying ad valorem taxes on property for general revenue
purposes.
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, than 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 intricately 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, has
changed rapidly for Texas in the past decade. The Texas economy reeled in
1982-3 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. During the oil-patch recession of 1986-7, employment
levels declined as the effects of the downturn in the energy industry
rippled through the rest of the economy. But since 1987, a general
economic rebound led by manufacturing, service and government has resulted
in the gain of over 746,000 jobs by April 1992. However, a decline in
prices in 1991 led to the loss of 16,000 jobs in 1991 and 5,000 jobs in
1992 in the oil and gas industry. This decline is projected to continue
through 1996.
Financial Institutions. The decline in oil prices, particularly
since January 1986, and the recession that followed have had a severe
effect on the banking and savings and loans industries in Texas. In most
cases, major Texas bank holding companies, individual banks and savings
and loans have experienced losses or sharp downturns in profitability due
to the increase in non-performing loans in the energy and real estate
sectors. The financial difficulties also have led to a number of closings
among banks and savings and loans. Texas bank failures peaked in 1989,
reaching 133 or two-thirds of all bank closings in the nation. Texas bank
failures declined to 103 in 1990, 31 in 1991 and 29 in 1992, of which 20
were subsidiaries of a single bank holding company. Only 10 banks failed
in 1993, through the middle of November.
Some signs of recovery are now appearing. Texas bank profits in 1991
and 1992 were $1.1 billion and $1.9 billion, respectively, substantially
more than the $651 million profit in 1990, which was the first annualized
profit since 1985. Also, total loans grew for the first time since 1985,
to a level of $76.3 billion in 1992. Total deposits, total equity
capital, and total assets also rose. Most loan growth was in consumer
real estate, as the total for business lending continued to decline
slowly. Mortgage refinancing has contributed to a 9.0% increase in total
loans for the first half of 1993. Most of the serious loan and foreclosed
asset problems appear to have been "written down" or adequately reserved.
Non-performing loans for Texas banks decreased from $5.2 billion in
December 1989 to $2.1 billion in December 1991, and have decreased further
to $.13 billion in December 1992.
Many Texas banks and banking organizations have consolidated. Texas
had 1,121 banks as of the end of 1991 and 1,089 banks as of the end of
1992. Also, in keeping with a nationwide trend, Texas banks have been
shifting some of their portfolios away from loans and into federal
securities. The return on assets for Texas banks in 1992 was 1.08%, a
figure higher than the 0.95% average nationwide.
The condition of Texas' thrifts, however, remains a serious problem.
No industry has been more severely affected by the decline in Texas real
estate values than the savings and loan industry. At the end of 1992,
assets of private sector Texas savings associations total $47.6 billion,
down from the industry high in 1988 of $112.4 billion in assets. However,
in terms of profits, after a nearly flat year in 1991, the State's thrifts
posted a record $705 million profit for 1992, the second highest in the
nation.
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.
Given the importance of energy-related industries to the Texas
economy, and the over-building which occurred in many residential and
commercial real estate markets, property values throughout the State have
experienced little, if any, appreciation, since late 1985. In some areas
property values have, in fact, declined. Because ad valorem taxes are to
be computed upon the appraised property valuations, and the property
appraisals are required to be conducted only every three years, the full
impact of such declines in property values is not immediately reflected in
tax collections. Conversely, if the energy industry should experience a
significant sustained upturn or property values otherwise rebound, there
may be a similar lag-time before such a rise in property values results
in increased ad valorem tax collections. Areas whose tax bases include
substantial oil and gas producing properties are especially adversely
affected by this.
The 1990 total value of taxable property in Texas School Districts
amounted to approximately $632 billion in 1992, according to records
compiled by the Property Tax Division of the Office of the Comptroller
derived from school district data in the State. This total included
approximately $265.5 billion of single-family residences, approximately
$25.5 billion of multi-family residences, $94.3 billion of commercial real
property, $54.8 billion of commercial personal property, $50.7 billion of
industrial real property, $32.4 billion of industrial personal property,
and $46.8 billion for utilities. This represents a 0.9% decline from 1991
taxable values, but includes the effects of a 9.4% increase in property
tax exemptions in school districts, amounting to a decline in taxable
value of $4.3 billion. Before exemptions, property values declined by
only 0.2% from 1991 levels.
In addition to any decline in property values and its anticipated
effect on the amount of taxes levied, the actual collectibility of such
taxes may be expected to decrease. The security for any general
obligation bond depends in part on the ability of the taxing authority to
collect delinquent taxes on a timely basis through lawsuits and subsequent
foreclosures in an amount sufficient to service the debt. The taxing
authority's right to collect taxes or enforce the lien through suits and
foreclosures are subject to various bankruptcy, reorganization, and other
such proceedings. Such proceedings are often lengthy and result in the
collection of taxes at a significantly later date.
Litigation. In 1986, a group of school districts in the State with
relatively low ad valorem tax bases filed suit challenging the
constitutionality of Texas' system of financing public education. In June
1987, a final judgment was entered by the District Court in Edgewood v.
Kirby, holding that the Texas School Financing System (implemented in
conjunction with local school district boundaries that contain unequal
taxable property wealth for the financing of public education) is
"unconstitutional and unenforceable" under the Texas Constitution. On
October 2, 1989, the Texas Supreme Court ruled that the State's school
financing system violates the State constitutional requirement that the
State Legislature "establish and make suitable provisions for the support
and maintenance of an efficient system of public free schools." The Texas
Supreme Court did not instruct the Legislature as to the specifics of the
legislation it should enact or order the Legislature to raise taxes.
After four special sessions, the Legislature passed a comprehensive
school reform bill (Senate Bill 1) in June 1990. In September 1990 a
State District judge ruled that the school finance section of Senate Bill
1 was unconstitutional because it contained inequities in the system and
ordered the State to devise a new system by September 1, 1991. The State
appealed the ruling and the Texas Supreme Court ruled in January 1991 to
enforce the injunction against State funding disbursements until April 1,
1991.
On April 15, 1991 a new school finance reform bill (Senate Bill 351)
was enacted. Under Senate Bill 351, local districts are entitled to a
minimum local property tax rate plus a guaranteed basic State allotment
per pupil. The funding mechanism is predicted upon tax base consolidation
and created 188 new taxing units known as County Education Districts
(CED's), drawn largely along county lines. Within each taxing unit,
school districts share the revenue raised by the minimum local property
tax. Local school districts can raise additional monies and enrich
programs by levying additional amounts.
Several school districts challenged the constitutionality of Senate
Bill 351 in June 1991. In August 1991, the State District Court held that
the creation of the CED's did not violate the Texas Constitution. In
November 1991 the case was appealed to the Texas Supreme Court. The
appeal was based upon (among others) the claim that the creation of CED's
amounted to a State property tax in contravention of the State
constitution. On January 30, 1992 (the day before property tax in
contravention of the State constitution. On January 30, 1992 (the day
before property tax payments for 1991 could be paid without becoming
delinquent and incurring penalties) the Texas Supreme Court reversed the
decision of the State District Court. While the Texas Supreme Court
concluded that the CED's and the taxes they levy are unconstitutional, the
Court allowed the Legislature until June 1, 1993 to develop a new plan to
be put in place by September 1993. In the interim, the CED's can continue
to collect and distribute the school district property taxes for the 1991
and 1992 years, notwithstanding the fact that the levy has been declared
unconstitutional by the Texas Supreme Court.
In February, 1993, the Texas Legislature 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.
The 73rd State Legislature enacted in late May 1993 and the Governor
signed on May 31, 1993, Senate Bill 7, which included provisions
concerning the operation of school districts as well as created a whole
new funding system for public education in the State. The legislation is
complex and is presently being studied by many parties, including school
districts and the attorney general's office which must approve the
issuance of public debt by school districts. A number of parties also
have raised certain constitutionality issues with respect to the
legislation and a lawsuit has been filed. In January 1994, a district
court upheld Senate Bill 7 but indicated that the State's funding of
school facilities was inequitable. The court ordered the State to devise
a plan for equitably funding school facilities by September 1, 1995, or
the State would be enjoined from approving and issuing any new bonds for
school facilities. All parties have appealed this decision to the Texas
Supreme Court which has not issued an opinion at this time.
Texas Credit-Enhanced Revenue Bonds. Due to the overall economic
downturn in the State, many financial institutions in the State of Texas
have been weakened over the past several years as noted above. A number
of revenue bonds, when issued, had their ratings enhanced by various
means, including letters of credit and other guaranties issued by Texas
banks and/or savings institutions. To the extent that the financial
institutions' ability to make such payments is diminished, the risk of
delay or default under such bonds would be correspondingly increased.
In addition, the downturn in the Texas economy has caused a number of
real estate developers to default on loans from banks and savings and
loans. Bond issues used to fund developer loans could be affected by such
defaults.
Virginia Series
Economic Growth and Structure. The rate of economic growth in
Virginia slowed in 1990 and 1991 but has increased steadily over the past
decade. From 1983 to 1992, Virginia's 6.5% growth rate in per capita
personal income was greater than the national growth rate of 6.4%,
although Virginia's per capital personal income in 1990 and 1991 grew at a
lower rate than the national average. Much of Virginia's per capital
income gain in these years has been due to the continued strength of the
Federal government and manufacturing sectors; rapid growth of high
technology industries, basic business services, corporate headquarters and
regional offices, and the attainment of parity with the nation and labor
force participation rates. Per capita income in Virginia has been
consistently above national levels over the past decade and in 1992 was
$20,629 compared to the national level of $19,841.
The services sector is Virginia's largest employer, followed by
wholesale and retail trade, government employment (Federal, state and
local), and manufacturing. With Northern Virginia being a part of the
Washington, D.C., metropolitan statistical area and Hampton Roads being
the home of the nation's largest concentration of military installations,
the Federal government has a greater impact on Virginia relative to its
size than all states except Alaska and Hawaii. It is unclear what the
long-term effect of the current efforts by the Federal government to
restructure the defense budget will have on the long-term economic
conditions of Virginia.
The manufacturing industry is Virginia's fourth largest employer and
accounts for 14% of the total non-agricultural employment. The
manufacturing industries with the greatest employment are transportation
equipment, textiles, food processing, electric and electronic equipment,
printing, chemicals, apparel, lumber and wood products and furniture.
These nine manufacturing industries account for two-thirds of Virginia's
total manufacturing employment.
According to statistics published by the U.S. Department of Labor,
Virginia typically has one of the lowest unemployment rates in the nation.
Virginia's modest unemployment rates are generally attributed to the
balance among the various industries found in Virginia's economy, with no
single industry dominating its economy, resulting in a stabilization of
employment. During 1992, an average of 6.9% of Virginia's citizens were
unemployed as compared to the national average of 7.5%. Virginia's 1992
population of 6,377,000 was 2.5% of the nation's total. From 1983 to
1992, Virginia's population increased 14.8% versus 8.9% for the nation,
and Virginia's population over the last decade has grown at a rate higher
than the national rate. The rate of increase in Virginia's population
growth reached a high of 2% in 1987 and in 1992 was approximately 1.5%.
Virginia is one of 20 states with a right-to-work law and has a
favorable business climate reflected in the relatively small number of
strikes and other work stoppages and a record of good labor/management
relations. Virginia is also one of the least unionized of the more
industrialized states.
Virginia has approximately 54,600 miles of primary, secondary and
interstate highways, resulting in the third largest system of state-
maintained roads in the nation. Virginia is a junction point between
major north/south rail lines (Richmond, Fredericksburg & Potomac Railroad,
CSX Transportation and Norfolk Southern Railway), and major east/west rail
lines (CSX Transportation and Norfolk Southern Railway). In addition, the
Eastern Shore Railroad Company, Inc. maintains a line running the length
of the Eastern Shore from Norfolk to points north, with several shorter
rail lines connecting these main lines. Virginia's port complex includes
one of the finest natural harbors in the world which is responsible for
Virginia's strong ties with international commerce. The Port of Hampton
Roads consists of marine terminals in Newport News, Norfolk, Portsmouth
and Chesapeake and is capable of handling nearly every category of sea
cargo in a large volume. In 1991, over 64 million tons of foreign trade
moved through Virginia ports, primarily the Port of Hampton Roads.
Traditionally, Hampton Roads leads all ports in the nation in volume of
exports.
Virginia's economy is strongly influenced by Federal government
installations and the growth of suburban communities around Washington,
D.C. With Northern Virginia a part of the Washington D.C. metropolitan
area and Hampton Roads the home of the nation's largest concentration of
military installations, the Federal government has a greater impact on
Virginia relative to its size than any other state except Alaska and
Hawaii. Manufacturing is also an important segment of Virginia's economy.
The manufacturing industry accounts for over 15% of total nonagricultural
employment and rank fourth behind services, wholesale and retail trade,
and government (Federal, state and local) in the number of jobs it
provides.
Budget Matters. Virginia state government operates on a two-year
budget. Base budgets, maximum employment levels and policy guides for new
initiatives and service expectations for the subsequent biennium are
provided by the Governor to each state agency in May, approximately 14
months before the start of the biennium. By the following mid-December,
final revenue estimates are submitted by the Department of Taxation for
review by the Governor. Final adjustments to both revenues and services
are made to the original base budgets and initiatives and a bill of detail
(the "Budget Bill") on the Governor's budget is prepared and presented to
the Virginia General Assembly by December 20th in the year immediately
before each even-year session. After the Budget Bill is passed by both
Houses, differences between the House and the Senate versions are
reconciled by Conference Committee consisting of equal representation from
both Houses. The Governor retains the right in his review of legislative
action on the Budget Bill to suggest alterations or veto appropriations
made by the General Assembly. After enactment, the Budget Bill becomes
law (the "Appropriation Act").
In the odd-year sessions of the General Assembly, amendments are
considered to the Appropriation Act through a Budget Bill submitted by the
Governor by December 20th of such odd-year session which includes the
proposed amendments. The amended Budget Bill is introduced in both Houses
and considered in the same manner as the regular Budget Bill. Any
Appropriation Act enacted in the odd-year session is effective upon
passage, while the regular biennial Appropriation Act is effective as of
July 1st, the beginning of the biennium.
The Governor, assisted by the Secretary of Finance and the Department
of Planning and Budget, implement and administer the provisions of the
Appropriation Act which requires constant monitoring of revenue
collections and expenditures to ensure that a balanced budget is
maintained. If projected revenue collections fall below the amounts
appropriated, the Governor must reduce expenditure and withhold allotments
of appropriations, except for amounts needed for debt service and
specified other purposes, to prevent any expenditure in excess of the
estimated revenues. Up to 15% of a general fund appropriation to any
agency may be withheld if required.
The Constitution requires the Governor to ensure that expenses do not
exceed total revenues anticipated plus fund balances during the period of
two years and six months following the end of the General Assembly session
in which the appropriations are made. Pursuant to an amendment to the
Constitution effective January 1, 1993, a Revenue Stabilization Fund was
established to be used to offset, in part, anticipated shortfalls and
revenues in years when appropriations, based on previous forecasts, exceed
expected revenues and subsequent forecasts. The Revenue Stabilization
Fund consists of an amount not to exceed 10% of Virginia's average annual
tax revenues from income taxes and retail sales taxes as certified by the
Auditor of Public Accounts for the three immediately preceding fiscal
years. If in any year total revenues are forecast to decline by more than
2% of the certified tax revenues collected in the most recently ended
fiscal year, the General Assembly may appropriate an amount for transfer
from the Revenue Stabilization Fund to the General Fund to stabilize
revenues. Such transfers shall not exceed one-half of the forecasted
shortfall and, if any amounts accrue, such as through interest or
dividends, to the credit of the fund in excess of the 10% limitation, such
excess earnings will be transferred to the General Fund.
The 1990-92 biennium which began July 1, 1990 and ended June 30, 1992
was marked by declining tax revenues and increased demands for spending in
the pension area, medicaid and welfare programs (the result of new federal
mandates) and prisons. Steps taken to balance the budget included
reductions in the budgets of most state agencies, use of lottery revenues
for capital projects and certain program costs, delays in the
implementation of certain tax policy and pre-funding of the state's
employees retirement system cost-of-living adjustment, and certain
individual tax increases. In the fiscal year ended June 30, 1992,
revenues increased 1.3% from the previous year, while total expenditures
declined by 1.5% with revenues exceeding expenditures by $453.4 million,
an increase of 50.2% over fiscal year ended June 30, 1991.
General Fund Revenues and Expenditures. General Fund revenues are
principally composed of direct taxes to support a number of government
functions, primarily education, individual and family services, public
safety and general government and are available for payment of debt
service obligations of Virginia.
In fiscal year 1993, approximately 95% of General Fund tax revenues
was derived from five major taxes imposed by Virginia: Individual and
Fiduciary Income Taxes (60.3%), State Sales and Use Taxes (24.3%),
Corporation Income Taxes (6.3%), License Taxes on Public Service
Corporations (1.6%) and Insurance Companies (3.0%).
General Fund expenditures relate to resources used for those services
traditionally provided by a state government, which are not accounted for
in any other fund. These services include general government,
legislative, public safety, judicial, health and mental health, human
resources, licensing and regulation, and primary and secondary education.
In fiscal year 1993, General Fund expenditures were allocated
approximately as follows: General Government (4.9%), Education (44.6%),
Transportation (0.1%), Resources and Economic Development (2.9%),
Individual and Family Services (28.4%), Administration of Justice (18.8%)
and Capital Outlay (0.4%).
The budgetary basis unreserved fund balance for the General Fund
decreased from $451.6 million in fiscal year 1988 to $166.3 million in
fiscal year 1990 primarily because of a revenue shortfall. The unreserved
fund balance on a budgetary basis for the General Fund decreased from
$166.3 million in fiscal year 1990 to $37.4 million in fiscal year 1991
primarily because fiscal year 1990 lottery profits were transferred into
the General Fund in fiscal year 1990, but were not spent until fiscal year
1991. The fiscal year 1991 lottery profits were transferred into the
General Fund and spent throughout the fiscal year. Tax revenues in fiscal
year 1991 remained nearly even with fiscal 1990, while expenditures
increased 3%. The decrease in the unreserved fund balance is directly
attributable to the factors causing a decrease in the budgetary basis fund
balance. The unreserved fund balance on a budgetary basis for the General
Fund increased from $37.4 million in fiscal year 1991 to $195.1 million in
fiscal year 1992, resulting from a 1.3% increase in total revenues coupled
with a 1.5% decrease of total expenditures from fiscal year 1991 to fiscal
year 1992. The unreserved fund balance on a budgetary basis for the
General Fund increased from $195.1 million in fiscal year 1992 to $331.8
million in fiscal year 1993, a 70% increase, resulting from a 9.1%
increase in total revenues coupled with only a 6.9% increase in total
expenditures. Revenues exceeded expenditures by $609.1 million, an
increase of 34.3% over fiscal year 1992. The growth in total revenues was
fueled by a 7.9% increase in individual and fiduciary income tax revenues,
an 8.5% increase in institutional revenue and an 80.4% increase in
revenues derived from fines, forfeitures, court fees, penalties and
escheats.
Nongeneral Revenues. Nongeneral revenues consist of all revenues not
accounted for in the General Fund. Included in this category are special
taxes and user charges earmarked for specific purposes, the majority of
institutional revenues and revenues from the sale of property and
commodities, and receipts from the Federal government.
Approximately 50% of the nongeneral revenues are accounted for by
grants and donations from the Federal government, motor vehicle taxes and
institutional revenues. Institutional revenues consist primarily of fees
and charges collected by institutions of higher education, medical and
mental hospitals, and correctional institutions. Motor vehicle related
taxes include the motor vehicle fuel tax, a motor vehicle sales and use
tax, oil excise tax, driver's license fee, title registration fee, motor
vehicle registrations fee and other miscellaneous revenues.
Development of Revenue Estimates. The development of the General
Fund revenue estimates begins with a selection of a forecast of national
economic activity for the state budget period. Virginia currently
subscribes to the macroeconomic forecasting services of the WEFA Group
("WEFA"), a major economic forecasting firm in the United States. Each
month, WEFA prepares a standard forecast based on the highest probability,
as well as alternative forecasts including high and low growth scenarios.
The Governor selects one of these forecasts for developing Virginia's
revenue estimates and such forecast becomes the principal input to the
Virginia Econometric model, which is utilized to develop a forecast of
similar indicators of in-state activity.
After the development of forecast of major Virginia economic
indicators, revenue estimates are generated using revenue forecasting
models developed and maintained by the Department of Taxation. These
models use regression analysis to relate the historical relationship
between each tax or revenue source and the one or more economic variables
that influence the collection of that tax. The forecast values of the
economic variables derived from either the macro or the in-state forecast
are then inserted into the equation to generate the revenue estimates.
Adjustments are made on a revenue source-by-source basis for any
legislative, judicial or administrative changes that would affect the
projected levels of revenues but that cannot be forecast by models
constructed using historical data. Finally, adjustments are made if
revenues are substantially above or below the projected level. This
procedure was formalized in 1984 by statute requiring that the Governor's
six-year revenue plan be revised annually by September 15th of each year,
reviewed by the appropriate advisory boards and accompanied by a
description of the economic assumptions underlying the plan.
Debt Management. In September 1991, the Debt Capacity Advisory
Committee (the "Committee") was created by the Governor through an
executive order. The Committee is charged with annually estimating the
amount of tax-supported debt which may be prudently authorized consistent
with the financial goals, capital needs and policies of Virginia. The
Committee reviews the amounts and conditions of bonds, notes and other
security obligations of agencies, institutions, boards and authorities of
Virginia for which Virginia has either a direct or indirect pledge of tax
revenues or a moral obligation pledge to replenish reserve fund
efficiencies. The Committee released its first report in January 1992 and
its most recent report in January 1994. The Department of Planning and
Budget has prepared a Six-Year Capital Outlay Plan (the "Plan") for
Virginia. The Plan lists proposed capital projects and recommends how the
proposed project should be financed. More specifically, the plan
distinguishes between immediate demands and longer term needs, assesses
Virginia's ability to meet its highest priority needs, and outlines an
approach for addressing priorities in terms of costs, benefits and
financing mechanisms.
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.
Section 9(a)(2) provides that the General Assembly may contract
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 Section 9(a)(2) 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) authorizes 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) authorizes 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 Section 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.
Article X further provides in Section 9(d) 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
Lease Program and The Innovative Technology Authority are supported in
large part by general fund appropriations. Together, payments to these
authorities totaled $41.5 million in fiscal year 1993.
The Commonwealth Transportation Board has issued its $138.5 million
Transportation Contract Revenue Bonds (Route 28 Project), which were
refunded in 1993 with $111.7 million Transportation Contract Revenue
Refunding Bonds, and its $200 million Transportation Revenue Bonds (U.S.
Route 58 Corridor Development Program), which were partially refunded in
1993 with $91.5 million Transportation Revenue Refunding Bonds, Series
1993A. The Transportation Board also issued $98.7 million Transportation
Revenue Bonds (U.S. Route 58 Corridor Development Program) in June 1993
and $134.1 million in Transportation Revenue Bonds Series 1993C (Northern
Virginia Transportation District Program) in August 1993. 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 in the amount of $110.1 million which
are secured by a portion of the Transportation Trust Fund. The fund
balance of the Transportation Trust Fund administered by the
Transportation Board at June 30, 1993, was $155.3 million.
The Commonwealth is also involved in numerous lease agreements to
lease buildings and equipment containing nonappropriation clauses
indicating that continuation of the lease is subject to funding by the
General Assembly. For all capital leases, the present value of net
minimum leases payments was $21.1 million as of June 30, 1993.
The Commonwealth also finances the acquisition of certain personal
property and equipment through installment purchase agreements. The
length of the agreements and the interest rates charged vary. In most
cases, the agreements are collateralized by the personal property and
equipment acquired. Installment purchase agreements contain
nonappropriation clauses indicating that continuation of the installment
purchase is subject to funding by the General Assembly. The balance of
installment purchase obligations outstanding was $48.3 million as of June
30, 1993.
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 bonds and all of the
Virginia Resources Authority bonds are secured in part by a moral
obligation pledge of Virginia. The Virginia Public School Authority was
authorized by the 1991 General Assembly to issue and have outstanding up
to $500 million of debt secured in part by a moral obligation pledge of
Virginia, and the Authority has issued, as of June 30, 1993, $124.4
million of such bonds. Virginia may fund deficiencies that may occur in
debt service reserves for its moral obligation debt. To date, these
authorities have not requested Virginia to fund reserve deficiencies for
this debt.
Local Government. Local government in Virginia is comprised of 95
counties, 41 incorporated cities, and 188 incorporated towns. Virginia is
unique among the several states in that cities are independent of
counties, and their land areas do not overlap. Cities and counties are
the units of general government that have traditionally provided all
services not provided by Virginia, levy and collect their own taxes and
provide their own services. Towns are units of local government that
continue to be part of the counties in which they are located. Towns levy
and collect taxes for town purposes, but their residents are also subject
to county taxes. The largest expenditure by local governments in Virginia
is for public elementary and secondary education, and local governments
also provide other services such as water and sewer services, police and
fire protection and recreational facilities.
According to figures prepared by the Auditor of Public Accounts of
Virginia, the total outstanding debt of counties in Virginia was
approximately $7.2 billion as of June 30, 1992, most of which was borrowed
for school construction. The amount of debt of Virginia's cities
outstanding as of June 30, 1992, was approximately $3.4 billion, while
towns had approximately $163 million outstanding as of June 30, 1992.
Litigation. Virginia's officials and employees are named as
defendants in legal proceedings that occur in the normal course of
governmental operations, some involving substantial amounts. It is not
possible at the present time to estimate Virginia's ultimate outcome of
liability, if any, with respect to these lawsuits. However, the ultimate
liability resulting from these suits is not expected to have a material,
adverse effect on Virginia's financial condition.
In Davis v. Michigan (decided March 28, 1989), the United States
Supreme Court ruled unconstitutional state's 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 the decision in Davis, at least five suits, some with
multiple plaintiffs, for refunds of Virginia income taxes, were filed by
federal retirees. On February 12, 1990, the Circuit Court of the City of
Alexandria denied federal retirees' refund claims. On March 1, 1991, the
Virginia Supreme Court affirmed the Circuit Court ruling. Petitions for
review were filed in the United States Supreme Court, which remanded the
cases to the Virginia Supreme Court for further consideration in light of
James B. Beam Distilling Co. v. Georgia (decided June 20, 1991). On
November 8, 1991, the Virginia Supreme Court affirmed its March 1, 1991
ruling denying refunds, and petitions for review were again filed in the
United States Supreme Court. On May 18, 1992, the United States Supreme
Court granted the taxpayers' petition in Harper v. Virginia Department of
Taxation (No. 91-794). On June 18, 1993, the United States Supreme Court
reversed the November 8, 1991 ruling of the Virginia Supreme Court and
remanded the case to the Virginia Supreme Court for further proceedings
consistent with its opinion. The syllabus for that opinion states that
"Virginia is free to choose the form of relief it will provide, so long as
that relief is consistent with Federal due process principles. A State
retains flexibility in responding to the determination that it has imposed
an impermissibly discretionary tax. The availability of a predeprivation
hearing constitutes a procedural safeguard sufficient to satisfy due
process, but if no such relief exists, the State must provide meaningful
backward-looking relief either by awarding full refunds or by issuing some
other order that creates in hindsight a nondiscriminatory scheme." In
July 1993, the Virginia Supreme Court remanded the Harper case to the
Circuit Court of Alexandria for consideration of these issues. On January
7, 1994, the Alexandria Circuit Court again ruled in favor of Virginia and
denied refunds to the federal retirees. The federal retirees have filed a
petition for appeal in the Virginia Supreme Court.
On July 6, 1994, the General Assembly approved a settlement proposal
to the lawsuit with the federal retirees. If the settlement proposal is
accepted by the federal retirees, Virginia would be required to refund
$340 million of taxes and interest to the federal retirees over a period
of five years. In addition, Virginia would provide tax benefits for other
retirees. However, if federal retirees with claims totalling more than
$20 million refuse Virginia's proposed settlement, then Virginia may
withdraw the proposal.
If the courts ultimately rule that the Commonwealth must make full
refunds of taxes imposed prior to Davis v. Michigan, the Department of
Taxation has calculated the potential cost of making full refunds to the
federal retirees of all Virginia income taxes paid on Federal pensions for
taxable years 1985, 1986, 1987 and 1988. The Department's estimate of
Virginia's maximum liability (including interest payable calculated as of
December 31, 1993) is approximately $707.5 million. The outcome of this
lawsuit cannot be predicted.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will
include: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature and provisions of
the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA
Debt rated AAA 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 of
maintenance of other terms of the contract over any long period of time
may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category
and in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower
end of a rating category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings
recognize the 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.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
STATEMENT OF INVESTMENTS
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--93.1% AMOUNT VALUE
-------------- ---------
<S> <C> <C>
ARIZONA--81.7%
Arizona Board of Regents - Arizona State University, System Revenue,
Refunding:
6.125%, 7/1/2015........................................................ $ 100,000 $ 99,578
5.50%, 7/1/2019......................................................... 750,000 678,165
Arizona Educational Loan Marketing Corp., Educational Loan Revenue 6.375%,
9/1/2005................................................................ 100,000 104,678
Arizona Health Facilities Authority, Hospital System Revenue, Refunding
(Samaritan Health System) 5.625%, 12/1/2015 (Insured; MBIA)............. 700,000 649,271
Arizona Power Authority, Power Resources Revenue, Refunding
(Hoover Uprating Project) 5.375%, 10/1/2013 (Insured; MBIA)............. 250,000 229,255
Casa Grande Industrial Development Authority, PCR (Frito-Lay, Inc. Pollution
Control
Project) 6.60%, 12/1/2010 (Guaranteed; Pepsico)......................... 200,000 202,896
Chandler, Water and Sewer Revenue, Refunding 6.25%, 7/1/2013 (Insured; FGIC) 200,000 202,226
Town of Gilbert, Water and Wastewater Revenue, Refunding
6.50%, 7/1/2022 (Insured; FGIC)......................................... 100,000 102,183
Glendale Improvement District Number 59 6%, 1/1/2013........................ 100,000 96,616
Maricopa County Chandler Unified School District Number 80, School
Improvement and
Refunding 6.40%, 7/1/2010 (Insured; FGIC)............................... 300,000 308,124
Maricopa County Hospital District Number 1, Hospital Facilities Refunding:
6.25%, 6/1/2010 (Insured; FGIC)......................................... 100,000 102,034
6.125%, 6/1/2015 (Insured; FGIC)........................................ 200,000 197,770
Maricopa County Industrial Development Authority, Health Facility Revenue
(Catholic Healthcare West) 5.50%, 7/1/2010 (Insured; MBIA).............. 500,000 475,295
Maricopa County Pollution Control Corp., PCR, Refunding
(Public Service Co. - Palo Verde) 6.375%, 8/15/2023..................... 1,000,000 891,950
Maricopa County School District Number 6 (Washington Elementary)
6%, 7/1/2009 (Insured; AMBAC)........................................... 100,000 100,899
Maricopa County School District Number 28 (Kyrene Elementary):
6%, 7/1/2001 (Insured; FGIC)............................................ 175,000 183,171
6%, 7/1/2013 (Insured; FGIC)............................................ 25,000 24,689
Maricopa County Scottsdale Unified School District Number 48, School
Improvement
6%, 7/1/2012 (Prerefunded 7/1/2002) (a)................................. 100,000 105,305
Maricopa County Stadium District, Revenue 5.50%, 7/1/2013 (Insured; MBIA)... 1,000,000 934,760
Maricopa County Tempe Elementary School District Number 3, School
Improvement
6%, 7/1/2008 ........................................................... 200,000 203,788
Maricopa County Unified School District Number 69, School Improvement
(Paradise Valley) 5.875%, 7/1/2012 (Insured; FGIC)...................... 200,000 194,542
City of Mesa 5.70%, 7/1/2008 (Insured; MBIA)................................ 300,000 297,099
Navajo County Pollution Control Corp., PCR, Refunding (Arizona Public
Service Co.)
5.875%, 8/15/2028 (Insured; AMBAC)...................................... 1,000,000 904,130
City of Phoenix, Refunding:
5.10%, 7/1/2013......................................................... 750,000 665,055
6.375%, 7/1/2013........................................................ 200,000 205,474
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------- --------
ARIZONA (CONTINUED)
City of Phoenix, Refunding (continued):
Street and Highway User Revenue:
6.60%, 7/1/2007....................................................... $ 250,000 $ 265,970
5.125%, 7/1/2011...................................................... 1,000,000 889,220
6.25%, 7/1/2011 (Insured; FGIC)....................................... 200,000 202,832
Phoenix Civic Improvement Corp., Wastewater System Lease Revenue:
6.125%, 7/1/2014 (Prerefunded 7/1/2003) (a)............................. 100,000 106,183
6.125%, 7/1/2023 (Prerefunded 7/1/2003) (a)............................. 500,000 530,915
Phoenix Civic Improvement Corp., Water Systems Revenue 5.40%, 7/1/2014...... 1,000,000 902,140
Pima County, Sewer Revenue, Refunding 5%, 7/1/2015 (Insured; FGIC).......... 750,000 644,617
Pima County Industrial Development Authority, Health Care Corp. Revenue,
Refunding
(Carondelet Health Care Corp.) 5.25%, 7/1/2013 (Insured; MBIA).......... 555,000 495,143
Pima County Tucson Unified School District Number 1, School Improvement
6.10%, 7/1/2010 (Insured; FGIC)......................................... 100,000 100,743
Pima and Maricopa Counties Industrial Development Authority, Multi-Family
Revenue
5.875%, 1/1/2029 (Insured; FNMA)........................................ 500,000 451,425
Salt River Project Agricultural Improvement and Power District, Salt River
Project
Electric System Revenue:
6%, 1/1/2013.......................................................... 150,000 147,342
5.50%, 1/1/2028....................................................... 1,000,000 879,230
Refunding 5.75%, 1/1/2013............................................. 200,000 190,530
City of Scottsdale Municipal Property Corp., Excise Tax Revenue, Refunding
6.25%, 11/1/2014 (Insured; FGIC)........................................ 100,000 100,260
City of Tempe 6%, 7/1/2009.................................................. 200,000 200,958
City of Tucson, Refunding:
6.10%, 7/1/2012 (Insured; FGIC)......................................... 250,000 249,700
Water System Revenue:
5.75%, 7/1/2012....................................................... 100,000 95,913
5.75%, 7/1/2018....................................................... 500,000 468,985
University of Arizona Medical Center Corp., HR, Refunding
6.25%, 7/1/2010 (Insured; MBIA)......................................... 200,000 202,680
U.S. RELATED--11.4%
Guam Power Authority, Revenue 6.30%, 10/1/2022.............................. 500,000 487,820
Puerto Rico Commonwealth, Refunding 6%, 7/1/2014............................ 400,000 384,240
Puerto Rico Electric Power Authority, Power Revenue:
6%, 7/1/2010............................................................ 550,000 534,193
6.25%, 7/1/2017......................................................... 520,000 512,398
Puerto Rico Highway and Transportation Authority, Highway Revenue 6.50%,
7/1/2022................................................................ 200,000 218,128
----------
TOTAL MUNICIPAL BONDS
(cost $18,389,638)...................................................... $17,420,518
============
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
SHORT-TERM MUNICIPAL INVESTMENTS--6.9% AMOUNT VALUE
------------- --------
ARIZONA:
Apache County Industrial Development Authority, IDR, VRDN (Springerville
Project)
3.30% (LOC; The Bank of New York) (b,c)................................. $ 300,000 $ 300,000
Pima County Industrial Development Authority, Industrial Revenue, VRDN
(Tuscon Electric) 3.25% (LOC; Bank of America National Trust and
Savings) (b,c) 1,000,000
============
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $1,300,000)....................................................... $ 1,300,000
============
TOTAL INVESTMENTS--100.0%
(cost $19,689,638)...................................................... $ 18,720,518
============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
FGIC Financial Guaranty Insurance Corporation MBIA Municipal Bond Insurance Association
FNMA Federal National Mortgage Association PCR Pollution Control Revenue
HR Hospital Revenue VRDN Variable Rate Demand Notes
IDR Industrial Development Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <S> <C>
AAA Aaa AAA 35.6%
AA Aa AA 28.2
A A A 17.1
BBB Baa BBB 7.4
BB Ba BB 4.8
F1 P1 A1 6.9
------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(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 tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
(b) Secured by letters of credit.
(c) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(d) Fitch currently provides creditworthiness information for a limited
amount of investments.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $19,689,638)-see statement...................................... $18,720,518
Interest receivable..................................................... 339,515
Receivable for shares of Beneficial Interest subscribed................. 8,325
Prepaid expenses........................................................ 17,044
Due from The Dreyfus Corporation........................................ 47,711
------------
19,133,113
LIABILITIES:
Due to Custodian........................................................ $ 9,833
Accrued expenses........................................................ 47,991 57,824
-------- -----------
NET ASSETS ................................................................ $19,075,289
============
REPRESENTED BY:
Paid-in capital......................................................... $20,044,418
Accumulated net realized (loss) on investments.......................... (9)
Accumulated net unrealized (depreciation) on investments-Note 3......... (969,120)
-------------
NET ASSETS at value......................................................... $19,075,289
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 992,737
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 521,114
============
NET ASSET VALUE per share:
Class A Shares
($12,506,248 / 992,737 shares)........................................ $12.60
=======
Class B Shares
($6,569,041 / 521,114 shares)......................................... $12.61
=======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
<S> <C> <C>
INTEREST INCOME......................................................... $ 771,240
EXPENSES:
Management fee--Note 2(a)............................................. $ 77,253
Shareholder servicing costs-Note 2(c)................................. 54,125
Distribution fees (Class B shares)-Note 2(b).......................... 22,645
Prospectus and shareholders' reports.................................. 10,186
Registration fees..................................................... 8,338
Auditing fees......................................................... 6,304
Legal fees............................................................ 6,000
Organization expenses................................................. 4,600
Custodian fees........................................................ 2,540
Trustees' fees and expenses-Note 2(d)................................. 118
Miscellaneous......................................................... 8,088
----------
200,197
Less-expense reimbursement from Manager due to
undertaking-Note 2(a)............................................. 177,552
----------
TOTAL EXPENSES.................................................. 22,645
------------
INVESTMENT INCOME--NET...................................................... 748,595
NET UNREALIZED (DEPRECIATION) ON INVESTMENTS................................ (1,152,136)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (403,541)
===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
---------------------------------
1993(1) 1994
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 124,952 $ 748,595
Net realized gain on investments........................................ 8,166 ---
Net unrealized appreciation (depreciation) on investments for the year.. 183,016 (1,152,136)
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... 316,134 (403,541)
---------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (116,608) (524,294)
Class B shares........................................................ (8,344) (224,301)
Net realized gain on investments:
Class A shares........................................................ --- (5,370)
Class B shares........................................................ --- (2,805)
---------- -----------
TOTAL DIVIDENDS................................................... (124,952) (756,770)
---------- -----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 6,156,515 8,029,274
Class B shares........................................................ 1,750,002 5,684,625
Dividends reinvested:
Class A shares........................................................ 64,484 282,465
Class B shares........................................................ 2,426 94,531
Cost of shares redeemed:
Class A shares........................................................ (741,360) (736,531)
Class B shares........................................................ (7,534) (534,479)
---------- -----------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 7,224,533 12,819,885
---------- -----------
TOTAL INCREASE IN NET ASSETS.................................... 7,415,715 11,659,574
NET ASSETS:
Beginning of year....................................................... -- 7,415,715
---------- -----------
End of year............................................................. $ 7,415,715 $19,075,289
-------------- -----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993(1) 1994 1993(2) 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 486,435 594,166 133,372 420,705
Shares issued for dividends reinvested. 5,019 21,163 185 7,085
Shares redeemed........................ (59,255) (54,791) (567) (39,666)
-------- ------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING........... 432,199 560,538 132,990 388,124
========= ======== ========= =========
(1)From September 3, 1992 (commencement of operations) to April 30, 1993.
(2)From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
</TABLE>
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 8 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Arizona Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
has undertaken from May 1, 1993 through July 1, 1994 or until such time as
the net assets of the Series exceed $25 million, regardless of whether they
remain at that level, to reimburse all fees and expenses of the Series
(excluding 12b-1 distribution plan fees and certain expenses as described
above). The expense reimbursement, pursuant to the undertaking, amounted to
$177,552 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $15,911 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $14,163 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $22,645 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$23,793 and $11,322 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $18,443,252 and $6,085,044,
respectively, for the year ended April 30, 1994, and consisted entirely of
municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized depreciation on investments
was $969,120, consisting of $113,792 gross unrealized appreciation and
$1,082,912 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, ARIZONA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Arizona Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Arizona Series at April 30,
1994, 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 and Young Logo Signature)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
Premier State Municipal Bond Fund, Colorado Series
Statement of Investments June 30, 1994 (Unaudited
Principal
Municipal Bonds--82.8% Amount Value
------------ -----------
<C> <C>
<S>
Adams County, Pollution Control Revenue, Refunding
(Public Service Co. of Colorado Project) 5.875%, 4/1/2014 (Insured; MBIA)....................... $ 200,000 $ 194,18
Colorado Health Facilities Authority, Revenues:
Refunding (Boulder Community Hospital) 5.875%, 10/1/2023........................................ 200,000 188,93
Retirement Facilities (Liberty Heights) Zero Coupon, 7/15/2022.................................. 200,000 26,06
Colorado Housing Finance Authority, Single Family Program 7.55%, 8/1/2023......................... 200,000 204,32
Colorado Springs, Utilities Revenue, Refunding 6.50%, 11/15/2015.................................. 165,000 168,69
Denver City and County, Airport Revenue 7%, 11/15/2025............................................ 200,000 180,10
----------
TOTAL MUNICIPAL BONDS
(cost $977,072)................................................................................. $ 962,30
===========
Short Term Municipal Investment--17.2%
Colorado Student Obligation Board Authority, Student Loan Revenue, VRDN
2.30% (LOC: Sumitomo Bank and Student Loan Marketing Association) (a,b)
(cost $200,000)................................................................................. $ 200,000 $ 200,00
===========
TOTAL INVESTMENTS--100.0%
(cost $1,177,072)............................................................................... $ 1,162,30
===========
</TABLE>
Summary of Abbreviations
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
VRDN Variable Rate Demand Notes
<TABLE>
Summary of Combined Ratings
Fitch (c) or Moody's or Standard & Poor's Percentage of Value
- --------- ------- ----------------- -------------------
<S> <C> <C> <C>
AAA Aaa AAA 35.2%
AA Aa AA 32.1
BBB Baa BBB 15.5
F1 MIG1 SP1 17.2
______
100.0%
======
</TABLE>
Notes to Statement of Investments:
(a) Secured by letters of credit.
(b) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest rates.
(c) Fitch currently provides credit worthiness information for a limited
number of investments.
See notes to financial statements.
<TABLE>
Premier State Municipal Bond Fund, Colorado Series
Statement of Assets and Liabilities June 30, 1994 (Unaudited)
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $1,177,072)--see statement........................................ $ 1,162,307
Cash...................................................................... 439,346
Receivable for shares of Beneficial Interest subscribed................... 94,218
Interest receivable....................................................... 13,708
Prepaid expenses--Note 1(e)............................................... 29,967
Due from The Dreyfus Corporation.......................................... 3,402
-----------
1,742,948
LIABILITIES;
Accrued expenses.......................................................... 32,961
-----------
NET ASSETS................................................................... $ 1,709,987
===========
REPRESENTED BY:
Paid-in capital........................................................... $ 1,724,649
Accumulated undistributed net realized gain on investments................ 103
Accumulated gross unrealized (depreciation) on investments................ (14,765)
-----------
NET ASSETS at value.......................................................... $ 1,709,987
===========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)................. 36,129
===========
Class B Shares
(unlimited number of $.001 par value shares authorized)................. 101,280
===========
NET ASSET VALUE per share:
Class A Shares
($449,633 / 36,129 shares)........................................... $12.45
======
Class B Shares
($1,260,354 / 101,280 shares)........................................... $12.44
======
See notes to financial statements.
</TABLE>
<TABLE>
Premiere State Municipal Bond Fund, Colorado Series
Statement of Operations
from May 6, 1994 (commencement of operations) to June 30, 1994 (Unaudited)
<S> <C> <C>
INVESTMENT INCOME:
Interest Income.................................................. $ 7,456
Expenses:
Management fee--Note 2(a)...................................... $ 759
Shareholder servicing costs--Note 2(c)......................... 1,271
Organization expenses--Note 1(e)............................... 1,033
Shareholders' reports.......................................... 804
Registration fees.............................................. 593
Distribution fees (Class B shares)--Note 2(b).................. 450
Custodian fees................................................. 143
Miscellaneous.................................................. 355
-----------
5,408
Less--expense reimbursement from Manager due to
undertaking--Note 2(a)....................................... 4,958
-----------
Total Expenses............................................ 450
-----------
INVESTMENT INCOME--NET.................................... 7,006
-----------
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 3......................... $ 103
Net unrealized (depreciation) on investments..................... (14,765)
-----------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS......... (14,662)
-----------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............. $ (7,656)
===========
See notes to financial statements.
</TABLE>
<TABLE>
Premier State Municipal Bond Fund, Colorado Series
Statement of Changes in Net Assets
from May 6, 1994 (commencement of operations) to June 30, 1994 (Unaudited)
<S> <C> <C>
OPERATIONS:
Investment income--net............................................................................ $ 7,006
Net realized gain on investments.................................................................. 103
Net unrealized (depreciation) on investments for the period....................................... (14,765)
-----------
Net (Decrease) In Net Assets Resulting From Operations........................................ (7,656)
-----------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income--net:
Class A shares.................................................................................. (2,963)
Class B shares.................................................................................. (4,043)
-----------
Total Dividends............................................................................... (7,006)
-----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares.................................................................................. 448,352
Class B shares.................................................................................. 1,270,152
Dividends reinvested:
Class A shares.................................................................................. 2,957
Class B shares.................................................................................. 3,188
Cost of shares redeemed:
Class A shares.................................................................................. --
Class B shares.................................................................................. --
-----------
Increase In Net Assets From Beneficial Interest Transactions.................................. 1,724,649
-----------
Total Increase In Net Assets................................................................ 1,709,987
NET ASSETS:
Beginning of period............................................................................... --
-----------
End of period..................................................................................... $ 1,709,987
===========
Shares
----------------------------
Class A Class B
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Shares sold..................................................................... 35,892 101,024
Shares issued for dividends reinvested.......................................... 237 256
Shares redeemed................................................................. -- --
---------- ----------
Net Increase In Shares Outstanding......................................... 36,129 101,280
========== ==========
See notes to financial statements.
</TABLE>
Premier State Municipal Bond Fund, Colorado Series
Financial Highlights (Unaudited)
Reference is made to page 9 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
Premier State Municipal Bond Fund, Colorado Series
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end management
investment company and operates as a series
company currently offering fifteen series of shares of Beneficial Interest
including the Colorado Series (the "Series") which commenced operations on May
6, 1994. Dreyfus Service Corporation ("Distributor") acts as the distributor of
the Fund's shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager"). As of June 30, 1994, the Manager held 24,480 shares
of Class A and 24,461 shares of Class B, respectively. The series' fiscal year
ends on April 30.
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other differences
between the two Classes include the services offered to and the expenses borne
by each Class and certain voting rights.
(a) Portfolio valuation: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the judgment
of the Service are valued at the mean between the quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments (which constitute a majority of the portfolio
securities) are carried at fair value as determined by the Service, based on
methods which include consideration of: yields or prices of municipal
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Options and financial
futures on municipal and U.S. treasury securities are valued at the last sales
price on the securities exchange on which such securities are primarily traded
or at the last sales price on the national securities market on each business
day. Investments not listed on an exchange or the national securities market,
or securities for which there were no transactions, are valued at the average of
the most recent bid and asked prices. Bid price is used when no asked price is
available.
(b) Securities transactions and investment income: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Interest income,
adjusted for amortization of premiums and, when appropriate, discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery basis
may be settled a month or more after the trade date.
The Series 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 Series.
(c) Dividends to shareholders: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To the
extent that net realized capital gain can be offset by capital loss carryovers,
if any, it is the policy of the Series not to distribute such gain.
(d) Federal income taxes: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal Revenue
Code, and to make distributions of income and net realized capital gain
sufficient to relieve it from substantially all Federal income taxes.
(e) Organization expenses paid by the Fund are included in prepaid expenses
and are being amortized to operations from May 6, 1994, the date operations
commenced, over the period during which it is expected that a benefit will be
realized, not to exceed five years. At June 30, 1994, the unamortized balance
of such expenses amounted to $29,967. In the event that any of the Initial
Shares are redeemed during the amortization period, the redemption proceeds
will be reduced by any unamortized organization expenses in the same proportion
as the number of such shares being redeemed bears to the number of such shares
outstanding at the time of such redemption.
NOTE 2--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
has undertaken from May 6, 1994 through October 1, 1994 or until such time as
the net assets of the Series exceed $25 million, regardless of whether they
remain at that level, to reimburse all fees and expenses of the Series
(excluding 12b-1 distribution plan fees and certain expenses as described
above). The expense reimbursement, pursuant to the undertaking, amounted to
$4,958 for the period ended June 30, 1994.
The undertaking may be modified by the Manager from time to time, provided
that the resulting expense reimbursement would not be less than the amount
required pursuant to the Agreement.
The Distributor retained $44 during the period ended June 30, 1994 from
commissions earned on sales of the Series' Class A shares.
No amounts were retained by the Distributor during the period ended June
30, 1994 from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(b) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the Series'
Class B shares owned by clients of the Service Agent. During the period ended
June 30, 1994, $450 was charged to the Series pursuant to the Class B
Distribution Plan.
(c) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets of
Class A and Class B shares for servicing shareholder accounts. The services
provided may include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Series and providing reports
and other information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. For the period ended June 30, 1994, $120 and $225 were charged to
the Class A and Class B shares, respectively, pursuant to the Shareholder
Services Plan.
(d) Certain officers and trustees of the Fund are "affiliated persons," as
defined in the Act, of the Manager and/or the Distributor. Each trustee who is
not an "affiliated person" receives from the Fund an annual fee of $2,500 and
an attendance fee of $250 per meeting.
(e) On December 5, 1993, the Manager entered into an Agreement and Plan of
Merger (the "Merger Agreement") providing for the merger of the Manager with a
subsidiary of Mellon Bank Corporation("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in August 1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's shareholders
before completion of the merger. Proxy materials, approved by the Fund's
Board, recently have been mailed to Fund shareholders.
NOTE 3--Securities Transactions:
Purchases and sales of securities amounted to $1,664,687 and $487,940,
respectively, for the period ended June 30, 1994, and consisted entirely of
municipal bonds and short-term municipal investments.
At June 30, 1994, 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).
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF INVESTMENTS
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--100.0% AMOUNT VALUE
-------------- --------------
CONNECTICUT--84.8%
Connecticut:
<S> <C> <C>
6.50%, 8/1/2006......................................................... $ 2,000,000 $ 2,162,100
7.20%, 3/1/2007......................................................... 1,350,000 1,498,621
6.90%, 3/15/2009........................................................ 3,000,000 3,307,290
Zero Coupon, 11/1/2009.................................................. 1,000,000 386,820
5.50%, 3/15/2010........................................................ 3,000,000 2,877,180
6.875%, 7/15/2010....................................................... 7,100,000 7,837,406
6.75%, 3/1/2011......................................................... 3,000,000 3,300,240
Special Tax Obligation Revenue (Transportation Infrastructure):
Refunding 6.125%, 2/15/2008........................................... 8,800,000 8,873,128
Refunding 5.375%, 9/1/2008............................................ 2,500,000 2,390,250
6.80%, 12/1/2009...................................................... 3,000,000 3,293,340
7.125%, 6/1/2010...................................................... 8,400,000 9,310,560
6.75%, 6/1/2011....................................................... 8,500,000 9,270,440
6.125%, 9/1/2012...................................................... 2,000,000 2,003,080
Connecticut Clean Water Fund, Revenue
7%, 1/1/2011............................................................ 6,700,000 7,105,283
Connecticut Development Authority, Revenue:
5.25%, 11/15/2010....................................................... 1,000,000 909,760
First Mortgage Gross
(Elim Park Baptist Home Inc. Project) 9%, 12/1/2020................... 3,565,000 3,790,558
Health Care:
(Jerome Home Project) 8%, 11/1/2019................................... 1,995,000 2,102,231
(Masonic Charity Foundation of Connecticut) 6.50%, 8/1/2020 (Insured; AMBAC) 4,400,000 4,466,704
Life Care Facilities
(Seabury Project) 10%, 9/1/2021....................................... 11,175,000 11,617,195
Pollution Control:
(New England Power Co. Project) 7.25%, 10/15/2015..................... 4,000,000 4,285,760
(Pfizer Inc. Project) 6.55%, 2/15/2013................................ 2,000,000 2,086,680
Solid Waste and Electric
(Ogden Martin System-Bristol Inc.) 10%, 7/1/2014...................... 2,250,000 2,445,750
Water Facilities, Refunding:
(Bridgeport Hydraulic Project):
7.25%, 6/1/2020................................................... 1,000,000 1,064,800
5.60%, 6/1/2028 (Insured; MBIA)................................... 2,800,000 2,540,720
(Stamford Water Company Project) 5.30%, 9/1/2028...................... 1,000,000 846,870
Connecticut Health and Educational Facilities Authority, Revenue:
7%, 1/1/2020 (Insured; MBIA)............................................ 3,000,000 3,228,810
(Bristol Hospital) 7%, 7/1/2020 (Insured; MBIA)......................... 2,850,000 3,055,827
(Cherry Brook Nursing Center Project) 6%, 11/1/2022..................... 4,600,000 4,303,254
(Connecticut College) 6.625%, 7/1/2011 (Insured; MBIA).................. 1,400,000 1,449,896
(Danbury Hospital) 6.50%, 7/1/2014 (Insured; MBIA)...................... 5,000,000 5,134,800
(Fairfield University) 6.90%, 7/1/2014.................................. 1,500,000 1,573,125
(Hartford University):
6.75%, 7/1/2012....................................................... 3,500,000 3,521,910
6.80%, 7/1/2022....................................................... 8,500,000 8,382,190
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
CONNECTICUT (CONTINUED)
Connecticut Health and Educational Facilities Authority, Revenue (continued):
(Hebrew Home and Hospital) 7%, 8/1/2030 (Insured; FHA).................. $ 865,000 $ 912,255
(Johnson Evergreen Corp.) 8.50%, 7/1/2022............................... 4,500,000 4,692,195
(Lawrence and Memorial Hospital):
7%, 7/1/2020 (Insured; MBIA).......................................... 2,750,000 3,055,992
Refunding 5%, 7/1/2013 (Insured; MBIA)................................ 3,500,000 3,028,865
6.25%, 7/1/2022....................................................... 3,750,000 4,019,438
(Lutheran General Health Care System) 7.375%, 7/1/2019.................. 1,400,000 1,596,336
(Manchester Memorial Hospital):
7%, 7/1/2010 (Insured; MBIA).......................................... 1,000,000 1,072,220
5.75%, 7/1/2022 (Insured; MBIA)....................................... 1,100,000 1,027,422
(Mansfield Nursing Center Project) 6%, 11/1/2022........................ 2,700,000 2,525,823
(Middlesex Hospital) 6.25%, 7/1/2022 (Insured; MBIA).................... 2,500,000 2,507,175
(New Britain Memorial Hospital) 7.75%, 7/1/2022......................... 16,000,000 16,777,600
(Norwalk Hospital) 6.25%, 7/1/2022 (Insured; MBIA)...................... 3,600,000 3,610,332
(Nursing Home Program-Noble Horizon) 6%, 11/1/2022...................... 1,500,000 1,403,235
(Quinnipiac College):
6%, 7/1/2013.......................................................... 4,550,000 4,196,875
7.25%, 7/1/2019....................................................... 2,375,000 2,641,618
7.75%, 7/1/2020....................................................... 1,000,000 1,128,170
(Refunding- Saint Francis Hospital and Medical Center)
6.20%, 7/1/2022 (Insured; MBIA)....................................... 1,725,000 1,724,810
(Saint Raphael Hospital):
6.20%, Series F, 7/1/2014 (Insured; AMBAC)............................ 1,100,000 1,106,061
6.20%, Series G, 7/1/2014 (Insured; AMBAC)............................ 525,000 527,893
6.625%, 7/1/2014 (Insured; AMBAC)..................................... 2,750,000 2,848,010
(Taft School) 7.375%, 7/1/2020.......................................... 1,150,000 1,300,915
(Waterbury Hospital) 7%, 7/1/2020 (Insured; FSA)........................ 4,450,000 4,771,379
(William W. Backus Hospital):
6%, 7/1/2012.......................................................... 1,500,000 1,438,155
6.375%, 7/1/2022...................................................... 2,250,000 2,177,550
(Yale-New Haven Hospital) 7.10%, 7/1/2025 (Insured; MBIA)............... 10,475,000 11,290,793
(Yale University) 6.375%, 7/1/2013...................................... 820,000 833,046
Connecticut Higher Education Supplemental Loan Authority, Revenue:
7.375%, 11/15/2005...................................................... 485,000 503,391
7.50%, 11/15/2010....................................................... 2,035,000 2,118,923
Connecticut Housing Finance Authority (Housing Mortgage Finance Program):
7.20%, 11/15/2008....................................................... 12,855,000 13,039,983
7.50%, 11/15/2009....................................................... 2,490,000 2,581,856
7.70%, 11/15/2009....................................................... 295,000 308,287
5.60%, 5/15/2014........................................................ 4,000,000 3,651,800
6.70%, 11/15/2022....................................................... 17,000,000 17,165,410
6.75%, 11/15/2023....................................................... 6,000,000 6,126,660
6.05%, 11/15/2025....................................................... 11,280,000 10,573,872
Connecticut Municipal Electric Energy Cooperative, Power Supply System
Revenue
7%, 1/1/2016 (Insured; AMBAC)........................................... 1,310,000 1,387,041
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
CONNECTICUT (CONTINUED)
Connecticut Resources Recovery Authority:
(Bridgeport Resco Co.) 7.625%, 1/1/2009................................. $ 895,000 $ 959,682
(Middle Connecticut System Bonds) 7.875%, 11/15/2012 (Insured; MBIA).... 2,500,000 2,759,275
(Municipal Service Fee Subordinated Bridgeport) 7.50%, 1/1/2009......... 2,500,000 2,647,550
(Resources Recovery-American Refunding-Fuel) 8%, 11/15/2015............. 12,835,000 14,082,690
(Wallingford Resources Recovery Project) 7.125%, 11/15/2008
(LOC; Industrial Bank of Japan) (a)................................... 700,000 739,025
Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue
(Wheelabrator Lisbon Project):
5.50%, 1/1/2014....................................................... 10,000,000 8,615,100
5.50%, 1/1/2020....................................................... 7,250,000 6,039,322
Montville:
6.60%, 6/15/2007........................................................ 575,000 618,459
6.60%, 6/15/2008........................................................ 575,000 614,301
New Haven:
7.40%, 8/15/2011........................................................ 1,500,000 1,570,470
Air Rights Package Facilities Revenue 6.50%, 12/1/2015 (Insured; MBIA).. 6,410,000 6,556,276
South Central Connecticut Regional Water Authority, Water Systems Revenue:
5.75%, 8/1/2012 (Insured; AMBAC)........................................ 6,000,000 5,802,060
7.125%, 8/1/2012........................................................ 2,480,000 2,663,322
Stamford 6.60%, 1/15/2010................................................... 2,750,000 2,974,510
Stratford 7.30%, 3/1/2012................................................... 1,130,000 1,277,872
U. S. RELATED--15.2%
Guam Government 5.40%, 11/15/2018........................................... 2,000,000 1,721,800
Puerto Rico:
(Public Improvement):
7.70%, 7/1/2020....................................................... 3,000,000 3,458,460
6.80%, 7/1/2021....................................................... 6,000,000 6,661,920
Refunding 5.50%, 7/1/2013 .............................................. 8,000,000 7,271,120
Puerto Rico Aqueduct and Sewer Authority, Revenue
7.875%, 7/1/2017........................................................ 1,860,000 2,054,965
Puerto Rico Electric Power Authority, Power Revenue 7%, 7/1/2021............ 10,000,000 10,767,800
Puerto Rico Highway and Transportation Authority, Highway Revenue:
7.661%, 7/1/2010(b)..................................................... 3,200,000 2,712,000
6.625%, 7/1/2018........................................................ 5,000,000 5,494,150
Puerto Rico Industrial Medical and Environmental Pollution Control Facilities
Financing
Authority, Revenue (Motorola Inc. Project) 6.75%, 1/1/2014.............. 2,000,000 2,098,300
Puerto Rico Ports Authority, Special Facilities Revenue (American Airlines)
6.30%, 6/1/2023........................................................ 2,000,000 1,829,260
Puerto Rico Public Buildings Authority, Guaranteed Public Education and
Health Facilities:
7.125%, 7/1/2009........................................................ 4,830,000 5,294,598
Refunding 5.75%, 7/1/2015............................................... 8,000,000 7,350,800
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
U.S. RELATED (CONTINUED)
Virgin Islands Public Finance Authority, Revenue, Refunding
7.25%, 10/1/2018........................................................ $ 2,000,000 $ 2,127,580
--------------
TOTAL INVESTMENTS (cost $375,107,653)....................................... $386,856,631
============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
FHA Federal Housing Administration MBIA Municipal Bond Insurance Association
FSA Financial Security Assurance
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (C) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <S> <C>
AAA Aaa AAA 30.5%
AA Aa AA 34.3
A A A 16.3
BBB Baa BBB 12.3
Not Rated Not Rated Not Rated 6.6
-----
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Secured by letters of credit.
(b) Residual interest security - the interest rate is subject to change
periodically.
(c) Fitch currently provides creditworthiness information for a limited
amount of investments.
(d) At April 30, 1994 the Series had $103,243,982 (26.0% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from health care projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $375,107,653)-see statement..................................... $386,856,631
Cash.................................................................... 978,979
Interest receivable..................................................... 8,904,634
Receivable for shares of Beneficial Interest subscribed................. 510,026
Prepaid expenses........................................................ 35,026
------------
397,285,296
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $256,355
Payable for shares of Beneficial Interest redeemed...................... 573,381
Accrued expenses........................................................ 27,112 856,848
---------- ------------
NET ASSETS ................................................................ $396,428,448
============
REPRESENTED BY:
Paid-in capital......................................................... $384,884,189
Accumulated net realized capital losses and distributions in excess of
net realized
gain on investments-Note 1(c)......................................... (204,719)
Accumulated net unrealized appreciation on investments-Note 3........... 11,748,978
--------------
NET ASSETS at value......................................................... $396,428,448
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 30,849,389
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 2,732,547
============
NET ASSET VALUE per share:
Class A Shares
($364,182,455 / 30,849,389 shares).................................... $11.81
======
Class B Shares
($32,245,993 / 2,732,547 shares)...................................... $11.80
======
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $25,177,881
EXPENSES:
Management fee--Note 2(a)............................................. $ 2,222,426
Shareholder servicing costs-Note 2(c)................................. 1,195,771
Distribution fees (Class B shares)-Note 2(b).......................... 113,646
Professional fees..................................................... 69,032
Custodian fees........................................................ 40,470
Prospectus and shareholders' reports.................................. 36,011
Registration fees..................................................... 11,751
Trustees' fees and expenses-Note 2(d)................................. 3,215
Miscellaneous......................................................... 61,004
-------------
3,753,326
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 378,489
-------------
TOTAL EXPENSES.................................................. 3,374,837
-------------
INVESTMENT INCOME--NET.......................................... 21,803,044
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments--Note 3.............................. $ (185,245)
Net unrealized (depreciation) on investments............................ (15,446,724)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (15,631,969)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 6,171,075
============
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
--------------------------------
1993 1994
-------------- --------------
OPERATIONS:
Investment income--net.................................................. $ 19,151,051 $ 21,803,044
Net realized gain (loss) on investments................................. 1,918,520 (185,245)
Net unrealized appreciation (depreciation) on investments for the year.. 19,902,968 (15,446,724)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 40,972,539 6,171,075
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (19,093,929) (20,717,006)
Class B shares........................................................ (57,122) (1,086,038)
Net realized gain on investments:
Class A shares........................................................ (43,796) (758,152)
Class B shares........................................................ -- (50,982)
Excess net realized gain on investments:
Class A shares........................................................ -- (18,247)
Class B shares........................................................ -- (1,227)
-------------- --------------
TOTAL DIVIDENDS................................................... (19,194,847) (22,631,652)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 70,873,528 44,016,008
Class B shares........................................................ 9,511,115 25,201,426
Dividends reinvested:
Class A shares........................................................ 10,964,716 12,291,154
Class B shares........................................................ 37,894 839,531
Cost of shares redeemed:
Class A shares........................................................ (23,878,593) (37,453,609)
Class B shares........................................................ (77,889) (1,518,578)
-------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 67,430,771 43,375,932
-------------- ------------
TOTAL INCREASE IN NET ASSETS.................................... 89,208,463 26,915,355
NET ASSETS:
Beginning of year....................................................... 280,304,630 369,513,093
-------------- --------------
End of year............................................................. $369,513,093 $396,428,448
=========== ============
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993 1994 1993(1) 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 5,971,148 3,521,978 777,809 2,016,083
Shares issued for dividends reinvested. 919,670 987,215 3,098 67,670
Shares redeemed........................ (2,009,056) (3,026,083) (6,373) (125,740)
-------- -------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING 4,881,762 1,483,110 774,534 1,958,013
========= ========== ========= =========
</TABLE>
- --------------------
(1)From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 10 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Connecticut Series (the "Series").
Dreyfus Service Corporation ("Distributor") acts as the distributor of the
Fund's shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investment for financial
statement purposes result primarily from wash sale losses in certain security
transactions during the year ended April 30, 1994 which have been currently
deferred for Federal income tax purposes.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
The Fund has an unused capital loss carryover of approximately $33,000
available for Federal income tax purposes to be applied against future net
securities profits, if any realized subsequent to April 30, 1994. If not
applied, the carryover expires in fiscal 2002.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 13, 1994 to reduce the
management fee paid by the Series to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from January 14, 1994 through July 1, 1994, to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .50 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$378,489 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $105,468 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $36,001 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $113,646 was charged to the Series pursuant to the
Class B Distribution Plan.
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$953,370 and $56,824 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $99,625,676 and
$55,909,850, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $11,748,978, consisting of $18,060,447 gross unrealized appreciation and
$6,311,469 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, CONNECTICUT SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Connecticut Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Connecticut Series at April
30, 1994, 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 and Young Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--95.5% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
FLORIDA--88.9%
Alachua County Health Facilities Authority, Health Facilities Revenue
(Refunding - Santa Fe Healthcare Facilities Project):
6%, 11/15/2009........................................................ $ 2,500,000 $ 2,307,300
7.60%, 11/15/2013..................................................... 3,500,000 3,631,740
Arcadia, Water and Sewer Revenue 7.75%, 12/1/2021........................... 2,240,000 2,385,824
Brevard County Health Facilities Authority, HR
(Holmes Regional Medical Center Project) 5.70%, 10/1/2008............... 4,585,000 4,397,749
Brevard County Housing Finance Authority, SFMR, Refunding
7%, 3/1/2013 (Insured; FSA)............................................. 1,350,000 1,405,161
Broward County, RRR (SES Broward County - South Project) 7.95%, 12/1/2008... 1,935,000 2,142,742
Broward County Educational Facilities Authority, Revenue (Nova University):
8.50%, 4/1/2010......................................................... 1,000,000 1,096,890
7.50%, 4/1/2017......................................................... 2,365,000 2,485,781
Broward County Health Facilities Authority, Revenue, Refunding
(Broward County Nursing Home) 7.50%, 8/15/2020 (LOC; Allied Irish Bank)
(a)................................................................... 1,000,000 1,050,300
Charlotte County, Revenue:
Health Care Facilities (Charlotte Community Mental Health Project)
9.25%, 7/1/2020....................................................... 1,665,000 1,859,922
Sewer Industrial Development (West Charlotte Utilities Project)
9.50%, 12/1/2019 (b).................................................. 3,800,000 3,496,000
Citrus County, PCR, Refunding (Florida Power Corp.- Crystal River) 6.35%,
2/1/2022.............................................................. 1,500,000 1,513,305
Clay County Housing Finance Authority, SFMR:
8.20%, 6/1/2021 (Collateralized; GNMA).................................. 710,000 734,012
7.45%, 9/1/2023 (Collateralized; GNMA).................................. 375,000 387,675
Dade County:
Aviation Revenue 6.55%, 10/1/2013 (Insured; MBIA)....................... 1,750,000 1,812,685
(Seaport) 6.50%, 10/1/2026 (Insured; AMBAC)............................. 10,000,000 10,182,400
Dade County Educational Facilities Authority, Revenue:
(Florida International University - North Miami Project)
7.10%, 10/1/2016 (Insured; MBIA, Prerefunded 10/1/2001)(c)............ 2,000,000 2,241,620
(Saint Thomas University) 7.65%, 1/1/2014 (LOC; Sun Bank) (a)........... 2,500,000 2,691,275
Dade County Health Facilities Authority, HR
(South Shore Hospital and Medical Center) 7.60%, 8/1/2024............... 2,615,000 2,843,525
Dade County Housing Finance Authority:
MFMR, Refunding (Cutler Meadows Apartment) 6.50%, 7/1/2022 (Insured;
FHA).................................................................. 1,785,000 1,776,039
SFMR:
7.75%, 9/1/2022 (Collateralized; GNMA)................................ 4,615,000 4,842,058
7.25%, 9/1/2023 (Collateralized; FNMA and GNMA)....................... 300,000 309,621
Refunding 6.95%, 12/15/2012 (Insured; FSA)............................ 1,000,000 1,030,280
Dunes Community Development District, Revenue, Refunding (Intracoastal
Waterway Bridge) 5.50%, 10/1/2007....................................... 4,645,000 4,457,481
Duval County Housing Finance Authority, SFMR:
7.85%, 12/1/2022 (Collateralized; GNMA)................................. 2,625,000 2,744,306
7.70%, 9/1/2024 (Collateralized; GNMA).................................. 1,500,000 1,567,740
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
FLORIDA (CONTINUED)
Escambia County Housing Finance Authority, SFMR 7.80%, 4/1/2022............. $ 1,205,000 $ 1,251,079
Florida Board of Education, Capital Outlay:
7%, 6/1/2000............................................................ 2,285,000 2,536,921
7%, 6/1/2020 (Prerefunded 6/1/2000)(c).................................. 2,695,000 2,882,437
Public Education:
6%, 6/1/2022.......................................................... 1,000,000 964,470
Refunding:
7.25%, 6/1/2000................................................... 1,830,000 2,050,314
7.25%, 6/1/2023 (Prerefunded 6/1/2000)(c)......................... 1,420,000 1,544,307
Florida Housing Finance Agency:
Home Ownership Revenue 7.90%, 3/1/2022 (Collateralized; GNMA)........... 4,100,000 4,263,959
Multi-Family Housing (Driftwood Terrace Project)
7.65%, 12/20/2031 (Collateralized; GNMA).............................. 3,440,000 3,612,069
SFMR, Zero Coupon, 1/1/2016............................................. 45,245,000 4,169,327
Florida Turnpike Authority, Turnpike Revenue 7.50%, 7/1/2019
(Prerefunded 7/1/1999)(c)............................................... 5,685,000 6,382,720
Fort Meade, Electrical System Revenue 6.50%, 1/1/2012 (Insured; MBIA)....... 2,145,000 2,204,781
Gainesville, Utilities Systems Revenue 6.50%, 10/1/2012..................... 2,000,000 2,065,580
Greater Orlando Aviation Authority, Airport Facilities Revenue, Refunding
5.50%, 10/1/2008 (Insured; AMBAC)....................................... 5,940,000 5,755,860
Highlands County Health Facilities Authority, Revenue (Adventist Sunbelt
Hospital)
7%, 11/15/2014.......................................................... 1,500,000 1,635,945
Hillsborough County, Utility Revenue, Refunding:
7%, 8/1/2001............................................................ 985,000 1,092,158
6.625%, 8/1/2011........................................................ 4,000,000 4,034,040
7%, 8/1/2014 (Prerefunded 8/1/2001)(c).................................. 4,765,000 4,855,440
Hillsborough County Aviation Authority, Revenue, Refunding:
(Delta Airlines) 7.75%, 1/1/2024........................................ 1,500,000 1,555,845
(Tampa International Airport) 5.375%, 10/1/2008 (Insured; FGIC)......... 2,000,000 1,917,580
Hillsborough County Port District, Revenue (Tampa Port Authority)
8.25%, 6/1/2009......................................................... 3,000,000 3,320,550
Indian Trace Community Development District, Water and Sewer Revenue 8.50%,
4/1/1997.................................................................... 500,000 553,610
Jackson County, PCR, Refunding (Gulf Power Co. Project) 6.75%, 3/1/2022..... 3,930,000 4,083,465
Jacksonville Electric Authority, Revenue, Refunding (Saint John's River Power
Park)
6%, 10/1/2015........................................................... 6,000,000 5,837,640
Jacksonville Health Facilities Authority:
Health Facilities Revenue (Daughters Health - Saint Vincent's) 7.50%,
11/1/2015
(Prerefunded 11/1/2000)(c)............................................ 1,500,000 1,710,735
HR, Refunding (Saint Luke's Hospital) 7.125%, 11/15/2020................ 6,700,000 7,146,153
Jupiter, Sales Tax Revenue 7.40%, 9/1/2020 (Prerefunded 11/1/2000)(c)....... 1,750,000 1,981,332
Lake County, Resource Recovery Industrial Development Revenue, Refunding
(NRG/Recovery Group):
5.85%, 10/1/2009...................................................... 6,000,000 5,545,680
5.95%, 10/1/2013...................................................... 1,750,000 1,596,945
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
FLORIDA (CONTINUED)
Leesburg, HR, Refunding:
Capital Improvement:
(Leesburg Regional Medical Center Project - A) 7.375%, 7/1/2011
(Prerefunded 7/1/2002)(c)......................................... $ 1,270,000 $ 1,447,635
(Regional Medical Center Project - B) 8.60%, 7/1/2018
(Prerefunded 7/1/1996)(c)......................................... 1,100,000 1,213,157
(Leesburg Regional Medical Center Project - A) 6.25%, 7/1/2009.......... 1,850,000 1,765,899
(Leesburg Regional Medical Center Project - B) 5.65%, 7/1/2008.......... 2,000,000 1,809,720
Leon County Educational Facilities Authority, COP (Southgate Residence Hall
Project):
3.75%, 12/1/1995........................................................ 259,200 257,062
9%, 9/1/2014 (d)........................................................ 5,235,000 3,664,500
Manatee County Housing Finance Authority, SFMR 8.10% 11/1/2020.............. 615,000 639,901
Miami Beach Redevelopment Agency, Tax Increment Revenue
(City Center - Historic Convention Village) 5.625%, 12/1/2009........... 2,000,000 1,857,220
Nassau County, PCR, Refunding (ITT Rayonier, Inc. Project):
7.65%, 6/1/2006......................................................... 4,500,000 4,731,480
6.20%, 7/1/2015......................................................... 1,420,000 1,342,014
North Miami Educational Facilities Revenue (Johnson & Whales University
Project)
6.10%, 4/1/2013......................................................... 5,000,000 4,652,700
North Miami Health Facilities Authority, Health Facilities Revenue
(Villa Maria Nursing Housing Project) 7.50%, 9/1/2012................... 2,800,000 3,027,220
North Palm Beach Heights Water Control District, Refunding (Special
Assessment)
6.50%, 10/1/2012 (Insured; MBIA)........................................ 2,000,000 2,064,020
Orange County, Tourist Development Tax Revenue 6.50%, 10/1/2019 (Insured;
AMBAC).................................................................. 2,500,000 2,556,775
Orange County Health Facilities Authority:
Health Facilities Revenue (Mental Health Service Project) 9.25%, 7/1/2020 3,885,000 4,242,265
HR (Orlando Regional Healthcare - A) 6%, 11/1/2014 (Insured; MBIA)...... 2,000,000 1,990,640
Orange County Housing Finance Authority, Mortgage Revenue 8.10%, 11/1/2021.. 875,000 906,168
Orlando and Orange County Expressway Authority, Expressway Revenue
(Junior Lien) 6.50%, 7/1/2011........................................... 5,000,000 5,287,200
Orlando Utilities Commission, Water and Electric Revenue:
6.50%, 10/1/2020........................................................ 3,000,000 3,268,740
7%, 10/1/2023 (Prerefunded 10/1/1999)(c)................................ 1,000,000 1,105,180
Osceola County Industrial Development Authority, Revenue
(Community Provider Pooled Loan Program) 7.75%, 7/1/2017................ 5,235,000 5,169,981
Palm Beach County, Solid Waste Industrial Development Revenue (Okeelanta
Power LP Project)
6.85%, 2/15/2021........................................................ 6,750,000 6,299,303
Palm Beach County Housing Finance Authority, Single Family Mortgage Purchase
Revenue
7.60%, 3/1/2023......................................................... 3,405,000 3,533,403
Pinellas County, PCR, Refunding (Florida Power Corp.) 7.20%, 12/1/2014...... 3,000,000 3,231,990
Pinellas County Health Facilities Authority, Revenue
(Hospital - Morton Plant Health Systems Project) 5.50%, 11/15/2009
(Insured; MBIA)......................................................... 2,000,000 1,919,240
Pinellas County Housing Finance Authority, SFMR 7.70%, 8/1/2022............. 2,810,000 2,905,175
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
FLORIDA (CONTINUED)
Polk County Housing Finance Authority, SFMR:
8.10%, 9/1/2020......................................................... $ 605,000 $ 639,049
7.875%, 9/1/2022........................................................ 1,330,000 1,373,717
St. Lucie County, SWDR (Florida Power and Light Co. Project)
7.15%, 2/1/2023......................................................... 4,000,000 4,187,240
Sarasota, Water and Sewer Utility Revenue, Refunding
8.385%, 10/1/2011 (e)................................................... 6,585,000 6,749,888
South Indian River Water Control District, Refunding 7.50%, 10/1/2006
(Prerefunded 10/1/1998)(c).............................................. 1,000,000 1,115,920
Sunrise, Special Tax District Number 1, Refunding
6.375%, 11/1/2021 (LOC; Bayerische Hypotheken-und Weschel Bank) (a)..... 2,500,000 2,527,475
Tampa:
Allegany Health System Revenue (Saint Joseph Hospital):
7.125%, 12/1/2005 (Prerefunded 12/1/1999(c)........................... 2,500,000 2,779,775
7.375%, 12/1/2023 (Prerefunded 12/1/1999)(c).......................... 3,455,000 3,883,178
Water and Sewer Revenue:
8.335%, 10/1/2006 (d)................................................. 6,100,000 6,451,970
Refunding 6.60%, 10/1/2014 (Insured; FGIC, Prerefunded 10/1/2002)(c).. 10,000,000 10,866,700
Volushia County, Sales Tax Improvement Revenue, Refunding
6%, 10/1/2010 (Insured; MBIA)........................................... 4,295,000 4,290,276
Volushia County Health Facilities Authority, Hospital Facilities Revenue
(Memorial Health System Project):
8.125%, 6/1/2008...................................................... 1,970,000 2,297,256
8.25%, 6/1/2020 (Prerefunded 6/1/2000)(c)............................. 2,500,000 2,931,425
U. S. RELATED--6.6%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 5,000,000 5,058,800
Puerto Rico Commonwealth:
6.25%, 7/1/2010......................................................... 2,000,000 1,996,700
6.80%, 7/1/2021 (Prerefunded 7/1/2000)(c)............................... 2,000,000 2,220,640
Puerto Rico Municipal Finance Agency 5.875%, 7/1/2006....................... 5,000,000 5,014,850
Puerto Rico Public Buildings Authority, Public Education and Health
Facilities
6.875%, 7/1/2012 (Prerefunded 7/1/2002)(c).............................. 3,000,000 3,345,510
Virgin Islands Port Authority, Airport Revenue (Cyril E. King Airport
Project)
8.10%, 10/1/2005........................................................ 2,500,000 2,758,675
--------------
TOTAL MUNICIPAL BONDS (cost $284,021,357)................................... $293,322,005
===============
SHORT-TERM MUNICIPAL INVESTMENTS--4.5%
FLORIDA:
Jacksonville Health Facilities Authority, HR, Refunding, VRDN
(Baptist Medical Center Project) 3.25% (f).............................. $11,700,000 $ 11,700,000
Pinellas County Health Facilities Authority, Revenue, Refunding, VRDN
(Pooled Hospital Loan Program) 2.95% (LOC; Chemical Bank) (a,f)......... 2,000,000 2,000,000
--------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $13,700,000)................... $ 13,700,000
===============
TOTAL INVESTMENTS--100.0%
(cost $297,721,357)..................................................... $307,022,005
===============
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
COP Certificate of Participation MBIA Municipal Bond Insurance Association
FGIC Financial Guaranty Insurance Corporation MFMR Multi-Family Mortgage Revenue
FHA Federal Housing Administration PCR Pollution Control Revenue
FNMA Federal National Mortgage Association RRR Resources Recovery Revenue
FSA Financial Security Assurance SFMR Single Family Mortgage Revenue
GNMA Government National Mortgage Association SWDR Solid Waste Disposal Revenue
HR Hospital Revenue VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (G) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 40.3%
AA Aa AA 11.7
A A A 13.6
BBB Baa BBB 18.9
BB Ba BB .5
F1+ & F1 MIG1, VMIG1 & P1 SP1 & A1 4.5
Not Rated (h) Not Rated (h) Not Rated (h) 10.5
------
100.0%
=====
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Secured by letters of credit.
(b) Non-income producing security; interest payment in default
subsequent to year end.
(c) 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 tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
(d) Non-income producing security; interest payment in default. The
valuation of this security has been determined in good faith under the
direction of the Board of Trustees.
(e) Residual interest security - the interest rate is subject to change
periodically.
(f) Security payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(g) Fitch currently provides creditworthiness information for a limited
amount of investments.
(h) Securities which, while not rated by Fitch, Moody's or Standard &
Poor's, have been determined by the Fund's Board of Trustees to be of
comparable quality to those rated securities in which the Fund may
invest.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $297,721,357)-see statement..................................... $307,022,005
Cash.................................................................... 667,959
Interest receivable..................................................... 4,764,875
Receivable for shares of Beneficial Interest subscribed................. 413,897
Prepaid expenses........................................................ 18,348
--------------
312,887,084
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 201,502
Payable for shares of Beneficial Interest redeemed...................... 327,044
Accrued expenses........................................................ 91,131 619,677
------------- --------------
NET ASSETS ................................................................ $312,267,407
==============
REPRESENTED BY:
Paid-in capital......................................................... $303,730,701
Accumulated distributions in excess of net realized gains on investments-Note 1(c) (763,942)
Accumulated net unrealized appreciation on investments-Note 3........... 9,300,648
--------------
NET ASSETS at value......................................................... $312,267,407
==============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 20,082,592
==============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 1,558,216
==============
NET ASSET VALUE per share:
Class A Shares
($289,791,392 / 20,082,592 shares).................................... $14.43
=======
Class B Shares
($22,476,015 / 1,558,216 shares)...................................... $14.42
=======
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 21,070,401
EXPENSES:
Management fee--Note 2(a)............................................. $ 1,811,102
Shareholder servicing costs-Note 2(c)................................. 987,756
Distribution fees (Class B shares)-Note 2(b).......................... 80,470
Professional fees..................................................... 48,110
Prospectus and shareholders' reports.................................. 37,172
Custodian fees........................................................ 34,805
Registration fees..................................................... 7,095
Trustees' fees and expenses-Note 2(d)................................. 2,540
Miscellaneous......................................................... 28,002
-------------
3,037,052
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 328,323
-------------
TOTAL EXPENSES.................................................. 2,708,729
--------------
INVESTMENT INCOME--NET.......................................... 18,361,672
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 3................................ $ 322,634
Net unrealized (depreciation) on investments............................ (12,210,827)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (11,888,193)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 6,473,479
==============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
------------------------------
1993 1994
-------------- ------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 16,886,211 $ 18,361,672
Net realized gain on investments........................................ 2,950,036 322,634
Net unrealized appreciation (depreciation) on investments for the year.. 12,932,318 (12,210,827)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 32,768,565 6,473,479
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (16,848,394) (17,572,099)
Class B shares........................................................ (37,817) (789,573)
Net realized gain on investments:
Class A shares........................................................ (3,177,441) (884,752)
Class B shares........................................................ --- (51,557)
Excess net realized gain on investments:
Class A shares........................................................ --- (721,877)
Class B shares........................................................ --- (42,065)
-------------- --------------
TOTAL DIVIDENDS................................................... (20,063,652) (20,061,923)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 66,050,460 43,755,340
Class B shares........................................................ 5,856,989 18,173,895
Dividends reinvested:
Class A shares........................................................ 7,518,030 6,943,770
Class B shares........................................................ 16,199 401,953
Cost of shares redeemed:
Class A shares........................................................ (31,929,008) (48,253,346)
Class B shares........................................................ (4) (856,937)
-------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 47,512,666 20,164,675
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................................... 60,217,579 6,576,231
NET ASSETS:
Beginning of year....................................................... 245,473,597 305,691,176
-------------- --------------
End of year............................................................. $305,691,176 $312,267,407
============== ==============
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------------------------------------------------------------
CLASS A CLASS B
------------------------------ -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
-------------------------------- -----------------------------
1993 1994 1993* 1994
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 4,488,511 2,866,976 393,001 1,194,240
Shares issued for dividends reinvested. 511,735 457,470 1,081 26,554
Shares redeemed........................ (2,173,234) (3,200,998) --- (56,660)
-------------- ------------ -------------- --------------
NET INCREASE IN SHARES OUTSTANDING 2,827,012 123,448 394,082 1,164,134
============== ======== ============ ============
</TABLE>
- --------------------------
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 11 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Florida Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investments for financial
statement purposes result primarily from losses from securities transactions
during the year ended April 30, 1994 which are treated for Federal income tax
purposes as arising in fiscal 1995.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 16, 1994, to reduce the
management fee paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from January 17, 1994 through July 1, 1994, to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .50 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$328,323 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $99,188 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $27,161 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $80,470 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
respect of these services. The Distributor determines the amounts to be paid
to Service Agents. For the year ended April 30, 1994, $782,993 and $40,235
were charged to the Class A and Class B shares, respectively, pursuant to the
Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a
number of contingencies, including receipt of certain regulatory approvals
and approvals of the stockholders of the Manager and of Mellon. The merger
is expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $134,196,286 and
$121,300,701, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $9,300,648 consisting of $14,417,604 gross unrealized appreciation and
$5,116,956 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, FLORIDA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Florida Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Florida Series at April 30,
1994, 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 Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
STATEMENT OF INVESTMENTS
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--96.2% AMOUNT VALUE
---------- ----------
<S> <C> <C>
GEORGIA--90.9%
Albany, Sewer System Revenue 6.50%, 7/1/2009 (Insured; MBIA)................ $ 100,000 $ 104,064
Albany-Dougherty Inner City Authority, Revenue, Refunding 6%, 2/1/2011...... 200,000 196,662
Athens-Clarke County Unified Government, Water and Sewer Revenue, Refunding
5.875%, 1/1/2008 (Insured; FGIC)........................................ 265,000 266,818
Atlanta:
Airport Facilities Revenue 6.50%, 1/1/2013.............................. 150,000 151,216
COP (Atlanta Pretrial Detention Center Project) 6.25%, 12/1/2011 (Insured; MBIA) 300,000 303,918
School Improvement:
5.60%, 12/1/2012...................................................... 1,000,000 953,330
5.60%, 12/1/2018...................................................... 1,000,000 916,490
Atlanta Downtown Development Authority, Revenue, Refunding
(Underground Atlanta Project) 6.25%, 10/1/2016.......................... 200,000 198,556
Bartow County, Water and Sewer Revenue, Refunding 6%, 9/1/2015 (Insured; AMBAC) 450,000 440,946
Buford, GO School Boards 5.90%, 2/1/2013.................................... 300,000 286,233
Cherokee County School Systems 5.375%, 2/1/2014 (Insured; AMBAC)............ 1,000,000 916,230
Clarke County Hospital Authority, Revenue Certificates
(Athens Regional Medical Center Project) 5.75%, 1/1/2010 (Insured; MBIA) 265,000 260,413
Cobb County Housing Authority, MFMR, Refunding (Garrison Plantation
Development)
5.75%, 7/1/2014 (Insured; FHA).......................................... 1,070,000 989,429
Cobb County Kennestone Hospital Authority, Revenue Certificates
5.50%, 4/1/2017 (Insured; MBIA)......................................... 300,000 271,413
Columbia County, Water and Sewerage Revenue, Refunding
5.55%, 12/1/2008 (Insured; AMBAC)....................................... 650,000 635,986
Columbus, Water and Sewer Revenue, Refunding:
6.25%, 5/1/2011 (Insured; FGIC)......................................... 155,000 158,350
5.70%, 5/1/2020......................................................... 500,000 460,670
5.70%, 5/1/2020 (Insured; FGIC)......................................... 500,000 468,525
Columbus Hospital Authority, Revenue Certificates (St. Francis Hospital)
6.20%, 1/1/2010 (Insured; MBIA)......................................... 200,000 203,464
Coweta County School System:
6.35%, 8/1/2012......................................................... 100,000 101,644
Refunding 5.75%, 2/1/2010 (Insured; FGIC)............................... 200,000 196,726
Dade County Water and Sewer Authority, Revenue, Refunding and Improvement
5.375%, 7/1/2018 (Insured; FGIC)........................................ 1,135,000 1,019,684
Dekalb County Development Authority, Revenue
(Wesley Homes, Inc-Budd Terrace Project) 6.75%, 10/1/2013
(LOC; Wachovia Bank of Georgia, N.A.) (a)............................... 200,000 201,470
Dekalb County Health Facilities, GO 5.50%, 1/1/2020......................... 1,000,000 896,420
Dekalb County School District, Refunding 5.60%, 7/1/2010.................... 500,000 484,455
Dekalb County Water and Sewer Authority, Revenue 5.125%, 10/1/2014.......... 1,000,000 874,290
Downtown Savannah Authority, Revenue, Refunding
(Chatham County Projects) 5%, 1/1/2011.................................. 1,000,000 880,080
Downtown Smyrna Development Authority, Revenue, Refunding 5.50%, 2/1/2012... 500,000 460,565
Fayette County School District 6.125%, 3/1/2015............................. 500,000 500,000
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
---------- ----------
GEORGIA (CONTINUED)
Fulco Hospital Authority, Revenue Anticipation Certificates
(Georgia Baptist Healthcare) 6.25%, 9/1/2013............................ $ 250,000 $ 243,682
Fulton County, Water and Sewer Revenue, Refunding 6.375%, 1/1/2014 (Insured; FGIC) 290,000 300,724
Fulton County Building Authority, Revenue, Refunding (County Government and
Health
Facilities Project) 6.125%, 1/1/2011 (Prerefunded 1/1/2005) (b)......... 300,000 302,658
Fulton County Development Authority, Special Facilities Revenue, Refunding
(Delta Air Lines Inc., Project) 6.95%, 11/1/2012........................ 245,000 241,242
Fulton County Hospital Authority, Revenue Anticipation Certificates
(Northside Hospital Project) 6.625%, 10/1/2016 (Insured; MBIA).......... 200,000 219,662
Fulton Dekalb Hospital Authority, HR, Refunding Certificates
5.50%, 1/1/2012 (Insured; MBIA)......................................... 1,000,000 929,430
Gainesville, Water and Sewer Revenue, Refunding 6%, 11/15/2012 (Insured; FGIC) 300,000 300,990
Georgia, GO 6.30%, 3/1/2008................................................. 100,000 106,421
Georgia Environmental Facilities Authority, Revenue
(Guaranteed-Water and Sewer Loan Program) 6.125%, 7/1/1996.............. 470,000 489,552
Georgia Housing and Finance Authority, Revenue:
(Home Ownership Opportunity Program) 6.50%, 12/1/2011................... 180,000 182,459
Single Family Mortgage 5.20%, 12/1/2013 (Insured; FHA).................. 1,000,000 875,100
Georgia Municipal Electric Authority, Power Revenue, Refunding
6.125%, 1/1/2014 (Insured; FGIC)........................................ 300,000 297,093
Gwinnett County School District 6.25%, 2/1/2011............................. 500,000 509,020
Habersham County Hospital Authority, Revenue Anticipation Certificates
5.60%, 12/1/2013 (Insured; MBIA)........................................ 500,000 469,440
Hall County and the City of Gainesville Development Authority,
Revenue Anticipation Certificates (Northeast Georgia Healthcare Project)
6.25%, 10/1/2012 (Insured; MBIA)........................................ 100,000 101,061
Henry County and Henry County Water and Sewer Authority, Revenue, Refunding
6.50%, 2/1/2011 (Insured; MBIA)......................................... 100,000 104,315
Metropolitan Atlanta Rapid Transportation Authority, Sales Tax Revenue,
Refunding
6.25%, 7/1/2020 (Insured; AMBAC)........................................ 300,000 302,673
Monroe County Development Authority, PCR (Oglethorpe Power Corp. Scherer
Project)
6.80%, 1/1/2011......................................................... 100,000 104,155
Municipal Electric Authority of Georgia, Special Obligation
(First Crossover-General Resolution) 6.50%, 1/1/2020.................... 100,000 103,294
Private Colleges and Universities Authority, Revenue
(Agnes Scott College Projects) 5.50%, 6/1/2013.......................... 1,000,000 914,920
Putnam County Development Authority, PCR (Georgia Power Co. Plant Branch)
6.20%, 8/1/2022......................................................... 300,000 289,890
Savannah Economic Development Authority, PCR, Refunding
(Union Camp Corp. Project) 6.80%, 2/1/2012.............................. 200,000 206,884
Savannah Hospital Authority, Revenue, Refunding:
Improvement (Candler Hospital) 7%, 1/1/2011............................. 200,000 200,818
(Saint Joseph's Hospital Project) 6.20%, 7/1/2023....................... 500,000 470,515
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
---------- ----------
GEORGIA (CONTINUED)
Sugar Hill Public Utility, Revenue, Refunding 5.90%, 1/1/2014 (Insured; FSA) $ 500,000 $ 485,240
Upson County Hospital Authority, Revenue Certificates
5.75%, 1/1/2012 (Insured; MBIA)......................................... 350,000 337,193
Wayne County Development Authority, PCR (ITT Rayonier, Inc. Project)
6.10%, 11/1/2007........................................................ 750,000 728,528
U.S. RELATED--5.3%
Guam Power Authority, Revenue 6.30%, 10/1/2022.............................. 500,000 487,820
Puerto Rico, GO, Refunding 6%, 7/1/2014..................................... 600,000 576,360
Puerto Rico Highway and Transportation Authority, Highway Revenue
6.50%, 7/1/2022 (Prerefunded 7/1/2002) (b).............................. 300,000 327,192
----------
TOTAL MUNICIPAL BONDS (cost $26,114,346).................................... $25,006,378
===========
SHORT-TERM MUNICIPAL INVESTMENT--3.8%
GEORGIA;
Marietta Housing Authority, MFHR, VRDN (Franklin Walk Apartments)
3.325% (LOC; Bankers Trust) (a,c) (cost $1,000,000)..................... $ 1,000,000 $ 1,000,000
===========
TOTAL INVESTMENTS--100.0% (cost $27,114,346)................................ $ 26,006,378
===========
</TABLE>
<TABLE>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
COP Certificate of Participation MBIA Municipal Bond Insurance Association
FGIC Financial Guaranty Insurance Corporation MFHR Multi-Family Housing Revenue
FHA Federal Housing Administration MFMR Multi-Family Mortgage Revenue
FSA Financial Security Assurance PCR Pollution Control Revenue
GO General Obligation VRDN Variable Rate Demand Notes
HR Hospital Revenue
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 42.3%
AA Aa AA 34.2
A A A 13.2
BBB Baa BBB 5.5
BB Ba BB .9
F1 MIG1 SP1 3.9
------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Secured by letters of credit.
(b) 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 tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
(c) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(d) Fitch currently provides creditworthiness information for a limited
amount of investments.
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $27,114,346)-see statement...................................... $26,006,378
Cash.................................................................... 142,049
Interest receivable..................................................... 497,540
Receivable for shares of Beneficial Interest subscribed................. 199,996
Prepaid expenses........................................................ 16,434
Due from The Dreyfus Corporation........................................ 9,416
----------
26,871,813
LIABILITIES:
Payable for investment securities purchased............................. $503,998
Payable for shares of Beneficial Interest redeemed...................... 30,140
Accrued expenses........................................................ 36,913 571,051
-------- ----------
NET ASSETS ................................................................ $26,300,762
===========
REPRESENTED BY:
Paid-in capital......................................................... $27,429,375
Accumulated net realized (loss) on investments.......................... (20,645)
Accumulated net unrealized (depreciation) on investments-Note 3......... (1,107,968)
-------------
NET ASSETS at value......................................................... $26,300,762
===========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 792,541
===========
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 1,279,595
===========
NET ASSET VALUE per share:
Class A Shares
($10,057,607 / 792,541 shares)........................................ $12.69
=======
Class B Shares
($16,243,155 / 1,279,595 shares)...................................... $12.69
=======
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $1,191,802
EXPENSES:
Management fee--Note 2(a)............................................. $ 120,183
Shareholder servicing costs-Note 2(c)................................. 79,126
Distribution fees (Class B shares)-Note 2(b).......................... 62,714
Prospectus and shareholders' reports.................................. 14,693
Registration fees..................................................... 5,162
Organization expenses................................................. 4,500
Professional fees..................................................... 3,250
Custodian fees........................................................ 2,565
Trustees' fees and expenses-Note 2(d)................................. 198
Miscellaneous......................................................... 10,399
------------
302,790
Less-expense reimbursement from Manager due to
undertaking-Note 2(a)............................................. 223,583
------------
TOTAL EXPENSES.................................................. 79,207
----------
INVESTMENT INCOME--NET.......................................... 1,112,595
----------
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments--Note 3.............................. $ (5,970)
Net unrealized (depreciation) on investments............................ (1,498,005)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (1,503,975)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (391,380)
============
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
---------------------------------
1993(1) 1994
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 192,429 $ 1,112,595
Net realized (loss) on investments...................................... (14,675) (5,970)
Net unrealized appreciation (depreciation) on investments for the year.. 390,037 (1,498,005)
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... 567,791 (391,380)
---------- -----------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income--net:
Class A shares........................................................ (143,166) (503,813)
Class B shares........................................................ (49,263) (608,782)
---------- -----------
TOTAL DIVIDENDS................................................... (192,429) (1,112,595)
---------- -----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 9,210,060 4,256,182
Class B shares........................................................ 6,237,874 11,270,678
Dividends reinvested:
Class A shares........................................................ 103,827 363,383
Class B shares........................................................ 22,493 335,961
Cost of shares redeemed:
Class A shares........................................................ (2,301,609) (1,324,053)
Class B shares........................................................ (24,753) (720,668)
---------- -----------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 13,247,892 14,181,483
---------- -----------
TOTAL INCREASE IN NET ASSETS.................................... 13,623,254 12,677,508
NET ASSETS:
Beginning of year....................................................... -- 13,623,254
---------- -----------
End of year............................................................. $13,623,254 $26,300,762
============ ==========
</TABLE>
<TABLE>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993(1) 1994 1993(2) 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 722,509 314,626 476,432 832,134
Shares issued for dividends reinvested. 7,993 26,952 1,698 24,944
Shares redeemed........................ (179,901) (99,638) (1,866) (53,747)
-------- -------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING 550,601 241,940 476,264 803,331
========= ========== ========= =========
</TABLE>
(1)From September 3, 1992 (commencement of operations) to April 30, 1993.
(2)From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 12 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Georgia Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market are valued at the mean between the quoted bid prices (as obtained
by the Service from dealers in such securities) and asked prices (as calculate
d 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 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
The Fund has an unused capital loss carryover of $14,625 available for
Federal income tax purposes to be applied against future net securirites
profits, if any, realized susequent to April 30, 1994. If not applied, the
carryover expires in fiscal 2002.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 11, 1994 to reimburse all
fees and expenses of the Series (excluding 12b-1 distribution plan fees and
certain expenses as described above) and thereafter had undertaken through
February 14, 1994 to reduce the management fee paid by the Series, to the
extent that the Series aggregate expenses (excluding 12b-1 distribution plan
fees and certain expenses as described above) exceeded specified annual
percentages of the Series' average daily net assets. The Manager has
currently undertaken from February 15, 1994 through July 1, 1994 or until
such time as the net assets of the Series exceed $50 million, regardless of
whether they remain at that level, to reimburse all fees and expenses of the
Series (excluding Shareholder Services Plan fees, 12b-1 distribution plan
fees, and certain expenses as described above). The expense reimbursement,
pursuant to the undertakings, amounted to $223,583 for the year ended April
30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $9,022 during the year ended April 30, 1994 from
commissions earned on sales of the Series' Class A shares.
The Distributor retained $11,423 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $62,714 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
answering shareholder inquiries regarding the Series and providing reports
and other information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. For the year ended April 30, 1994, $23,272 and $31,357 were charged
to the Class A and Class B shares, respectively, pursuant to the Shareholder
Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $14,988,477 and $1,469,980,
respectively, for the year ended April 30, 1994, and consisted entirely of
municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized depreciation on investments
was $1,107,968, consisting of $119,174 gross unrealized appreciation and
$1,227,142 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, GEORGIA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Georgia Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Georgia Series at April 30,
1994, 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 and Young Logo Signature)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS-96.2% AMOUNT VALUE
------------- -------------
<S> <C> <C>
MARYLAND-89.6%
Anne Arundel County:
Consolidated Water and Sewer 7.75%, 3/15/2008........................... $ 1,000,000 $ 1,104,040
Mortgage Revenue, Refunding (Mill Pond Apartments)
5.875%, 7/1/2011 (Insured; MBIA)...................................... 1,610,000 1,540,271
Baltimore:
7%, 10/15/2007 (Insured; MBIA).......................................... 1,500,000 1,677,000
7.15%, 10/15/2008....................................................... 1,275,000 1,433,878
City Parking System Facilities Revenue, Refunding:
4.65%, 7/1/2006....................................................... 1,735,000 1,590,804
4.75%, 7/1/2007....................................................... 1,820,000 1,661,205
4.70%, 7/1/2008....................................................... 2,105,000 1,888,795
PCR (General Motors Corp.) 5.35%, 4/1/2008.............................. 6,000,000 5,586,540
Port Facilities Revenue (Consolidated Coal Sales) 6.50%, 12/1/2010...... 6,240,000 6,377,966
Project Revenue (City Parking System Facilities) 6.25%, 7/1/2021
(Insured; FGIC)....................................................... 1,000,000 1,002,120
Revenue, Refunding (Water Projects) 8.12%, 7/1/2020 (Insured; MBIA) (a). 5,750,000 4,930,625
Baltimore City Housing Corp., MFHR, Refunding
7.25%, 7/1/2023 (Collateralized; FNMA).................................. 3,300,000 3,414,279
Baltimore County:
Mortgage Revenue:
(First Mortgage - Pickersgill) 7.70%, 1/1/2021........................ 3,000,000 3,105,120
(Refunding - Tindeco Wharf Project) 6.50%, 12/20/2012
(Collateralized; GNMA).............................................. 1,500,000 1,512,375
(Refunding - County Pension Funding) 5.20%, 4/1/2009.................... 3,500,000 3,267,145
Baltimore County Revenue Authority, Revenue:
7.20%, 7/1/1999 (Insured; MBIA, Prerefunded 7/1/1999)(b)................ 2,175,000 2,413,663
7.20%, 7/1/2019 (Insured; MBIA)......................................... 220,000 237,765
Bel Air, COP:
Parking Facilities Revenue 7.80%, 6/1/2010.............................. 250,000 283,460
Refunding (Bel Air Parking) 5.60%, 6/1/2010............................. 1,000,000 963,010
Calvert County, PCR, Refunding
(Baltimore Gas and Electric Co. Project) 5.55%, 7/15/2014............... 4,000,000 3,672,120
Frederick, Mortgage Revenue, Refunding (Carrollton Apartments)
5.80%, 9/1/2024 (Insured; FHA).......................................... 1,530,000 1,389,164
Gaithersburg, Economic Development Revenue, Refunding
(First Mortgage - Asbury Methodist) 5.75%, 1/1/2011..................... 3,000,000 2,811,900
Harford County, Public Improvement 5.90%, 9/1/2002 (Prerefunded 9/1/2002)(b) 1,445,000 1,526,556
Howard County:
COP 8.15%, 2/15/2020.................................................... 605,000 762,736
Consolidated Public Improvement, Refunding 5.25%, 8/15/2012............. 1,500,000 1,388,475
EDR, Refunding (M.O.R. XIV Associates Project)
7.75%, 6/1/2012....................................................... 2,500,000 2,674,950
Howard County Metropolitan District:
6.625%, 2/15/2021 (Prerefunded 2/15/2001)(b)............................ 2,090,000 2,256,991
Refunding 6%, 8/15/2019................................................. 5,500,000 5,352,985
Kent County, College Revenue, Refunding (Washington College Project)
7.70%, 7/1/2018......................................................... 1,750,000 1,908,200
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------ ------------
MARYLAND (CONTINUED)
Maryland Community Development Administration,
Department of Housing and Community Development:
Infrastructure Finance 8.50%, 6/1/2018................................ $ 100,000 $ 111,010
MFHR:
5.45%, 5/15/2013 (Insured; FHA)................................... 1,750,000 1,575,525
6.50%, 5/15/2013.................................................. 5,000,000 5,062,600
8.546%, 5/15/2013 (a,c)........................................... 6,100,000 5,474,750
8.875%, 5/15/2021................................................. 525,000 555,565
7.30%, 5/15/2023.................................................. 2,205,000 2,304,181
7.10%, 5/15/2028.................................................. 2,400,000 2,487,240
7.50%, 5/15/2031.................................................. 100,000 104,258
Zero Coupon, 5/15/2032............................................ 11,550,000 613,305
6.85%, 5/15/2033.................................................. 5,000,000 5,061,250
Single Family Program:
7.40%, 4/1/2009................................................... 1,000,000 1,035,390
6.85%, 4/1/2011................................................... 1,500,000 1,542,165
6.95%, 4/1/2011................................................... 6,450,000 6,687,940
7.125%, 4/1/2014.................................................. 3,975,000 4,129,985
7.70%, 4/1/2015................................................... 1,685,000 1,774,457
7.40%, 4/1/2017................................................... 800,000 832,344
8.125%, 4/1/2017.................................................. 245,000 257,429
7.375%, 4/1/2026.................................................. 2,000,000 2,061,380
Zero Coupon, 4/1/2029............................................. 85,075,000 5,696,622
7.625%, 4/1/2029.................................................. 8,000,000 8,256,640
7.45%, 4/1/2032................................................... 6,410,000 6,637,106
Maryland Department of Transportation, Consolidated Transportation
6.375%, 9/1/2006........................................................ 5,000,000 5,214,350
Maryland Economic Development Corp., Revenue
(Health and Mental Hygiene Providers Facilities Acquisition Program):
8.375%, 3/1/2013...................................................... 4,615,000 4,771,956
8.75%, 3/1/2017....................................................... 5,340,000 5,623,661
Maryland Health and Higher Educational Facilities Authority, Revenue:
(Anne Arundel Medical Center) 5.25%, 7/1/2013 (Insured; AMBAC).......... 3,530,000 3,167,469
(Bon Secours Hospital) 7.375%, 9/1/2017 (Prerefunded 7/1/2000)(b)....... 2,575,000 2,912,917
(Francis Scott Key Medical Center) 7%, 7/1/2025 (Prerefunded
7/1/2000)(b).......................................................... 6,500,000 7,223,255
(Good Samaritan Hospital):
5.70%, 7/1/2009....................................................... 3,140,000 2,963,155
7.50%, 7/1/2021 (Prerefunded 7/1/1999)(b)............................. 4,000,000 4,490,920
(Greater Baltimore Medical Center) 6.75%, 7/1/2019 (Prerefunded
7/1/2001)(b).......................................................... 4,250,000 4,685,115
(Hartford Memorial and Fallston Hospital) 8.50%, 7/1/2014............... 750,000 822,022
(Howard County General Hospital):
7%, 7/1/2017 (Prerefunded 7/1/1997)(b)................................ 1,150,000 1,246,784
8.25%, 7/1/2018 (Prerefunded 7/1/1998)(b)............................. 2,600,000 2,971,514
(Kaiser Permanente Medical Program) 9.125%, 7/1/2015.................... 250,000 267,567
(Memorial Hospital of Cumberland):
9.25%, 7/1/2017 (Prerefunded 7/1/1997)(b)............................. 3,000,000 3,448,380
Refunding 6.50%, 7/1/2017 (Insured; MBIA)............................. 3,000,000 2,992,500
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------ ------------
MARYLAND (CONTINUED)
Maryland Health and Higher Educational Facilities Authority, Revenue
(continued):
(Mercy Medical Center) 8%, 7/1/2020 (Prerefunded 7/1/1999)(b)........... $ 4,675,000 $ 5,365,311
(North Arundel Hospital) 7.875%, 7/1/2021 (Prerefunded 7/1/1998)(b)..... 500,000 563,635
(Refunding - Church Hospital) 8%, 7/1/2013.............................. 200,000 220,084
(Refunding - Johns Hopkins Hospital) 5%, 7/1/2023....................... 2,000,000 1,645,540
(Refunding - Johns Hopkins University) 7.50%, 7/1/2020.................. 1,300,000 1,420,419
(Refunding - Roland Park Project) 7.75%, 7/1/2012....................... 2,230,000 2,396,759
(Sinai Hospital of Baltimore):
7%, 7/1/2019 (Insured; AMBAC, Prerefunded 7/1/2000)(b)................ 5,250,000 5,822,408
Refunding 5.50%, 7/1/2007 (Insured; AMBAC)............................ 1,000,000 971,640
(Union Hospital of Cecil County) 6.70%, 7/1/2009........................ 2,320,000 2,314,734
(University of Maryland Medical Systems):
7%, 7/1/2022 (Insured; FGIC) ......................................... 4,500,000 5,087,565
Refunding:
5.40%, 7/1/2007 (Insured; FGIC)................................... 1,000,000 962,530
5.40%, 7/1/2008 (Insured; FGIC)................................... 2,625,000 2,509,579
5.375%, 7/1/2013 (Insured; FGIC).................................. 4,500,000 4,100,580
Maryland Industrial Development Financing Authority, EDR
(Medical Waste Association) 8.625%, 11/15/1999 (d)...................... 2,050,000 553,500
Maryland Local Government Insurance Trust, Capitalization Program, COP
7.125%, 8/1/2009........................................................ 3,250,000 3,504,930
Maryland Stadium Authority, Sports Facility LR 7.60%, 12/15/2019............ 5,250,000 5,781,825
Maryland State, COP (Saint Mary's Multi-Service Center Project)
7.875%, 6/1/2013........................................................ 250,000 274,298
Maryland Transportation Authority, Transportation Facilities Project
Revenue:
9%, 7/1/2015 (Prerefunded 7/1/1995)(b).................................. 1,790,000 1,931,321
Refunding 5.70%, 7/1/2005............................................... 3,700,000 3,763,899
Maryland Water Quality Financing Administration, Revolving Loan Fund
Revenue:
7.25%, 9/1/2011......................................................... 2,250,000 2,449,553
7.25%, 9/1/2012......................................................... 5,500,000 5,987,795
6.70%, 9/1/2013......................................................... 1,200,000 1,229,952
7.10%, 9/1/2013......................................................... 600,000 649,404
Montgomery County Housing Opportunities Commission, Revenue:
Multi-Family Housing (4 Corners Senior Project) 8.375%, 12/1/2015....... 150,000 159,113
Multi-Family Mortgage:
8.25%, 7/1/2019....................................................... 200,000 204,306
7%, 7/1/2023.......................................................... 1,190,000 1,222,047
7.05%, 7/1/2032....................................................... 2,485,000 2,555,450
7.375%, 7/1/2032...................................................... 4,630,000 4,742,231
Single Family Mortgage:
7.375%, 7/1/2017...................................................... 2,000,000 2,065,280
7.625%, 7/1/2017...................................................... 500,000 518,150
8.375%, 7/1/2018...................................................... 290,000 304,781
Montgomery County Revenue Authority, LR:
(Olney Indoor Swim Center Project) 6.30%, 7/15/2012..................... 2,110,000 2,268,967
(Western County Swim Facility Project) 7.375%, 10/1/2009 (Prerefunded
7/15/2000)(b)......................................................... 1,500,000 1,646,730
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------ ------------
MARYLAND (CONTINUED)
Northeast Waste Disposal Authority, RRR (Harford County Resource Recovery)
8.60%, 1/1/2008......................................................... $ 1,450,000 $ 1,524,617
Prince Georges County:
Consolidated Public Improvement, Refunding:
6.75%, 7/1/2001....................................................... 830,000 915,498
6.75%, 7/1/2010 (Prerefunded 7/1/2001)(b)............................. 1,170,000 1,216,028
5.25%, 10/1/2010...................................................... 1,000,000 906,760
EDR, Refunding (Capitol View II) 9%, 9/1/2002........................... 7,506,000 6,380,100
PCR, Refunding (Potomac Electric Project) 6%, 9/1/2022.................. 5,000,000 4,828,000
Solid Waste Management System Revenue 5.25%, 6/15/2013.................. 3,800,000 3,336,704
Stormwater Management 5.50%, 3/15/2013.................................. 2,780,000 2,547,675
Prince Georges County Housing Authority, Mortgage Revenue, Refunding:
(New Keystone Apartment Project) 6.80%, 7/1/2025 (Insured: FHA and MBIA) 4,300,000 4,387,935
(Stevenson Apartments Project) 6.35%, 7/20/2020 (Collateralized; GNMA).. 3,000,000 2,958,930
(Timber Ridge/Cypress Creek) 5.625%, 12/20/2013 (Collateralized; GNMA).. 5,355,000 4,902,235
Prince Georges County Industrial Development Authority, LR
(Upper Marlboro Justice Center) 7%, 6/30/2019 (Insured; MBIA,
Prerefunded 6/30/1999)(b)............................................ 2,500,000 2,754,150
University of Maryland, System Auxiliary Facility and Tuition Revenue:
6.50%, 10/1/2002........................................................ 1,420,000 1,547,275
5.375%, 4/1/2009........................................................ 3,500,000 3,295,985
6.50%, 4/1/2011 (Prerefunded 4/1/2000)(b)............................... 4,990,000 5,400,477
6.50%, 4/1/2012......................................................... 580,000 594,964
Refunding 5%, 10/1/2010................................................. 3,000,000 2,653,410
Washington County, Multi-Family Rental Housing Revenue, Refunding
(Youngstown Apartments) 7%, 2/1/2025 (Insured; FHA)..................... 3,990,000 4,134,957
Washington Suburban Sanitary District, General Construction:
6.90%, 6/1/2010 (Prerefunded 6/1/2001)(b)............................... 1,055,000 1,167,505
6.50%, 12/1/2011 (Prerefunded 12/1/1999)(b)............................. 4,820,000 5,217,023
6.50%, 11/1/2014 (Prerefunded 11/1/2001)(b)............................. 2,690,000 2,926,343
U. S. RELATED-6.6%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 4,000,000 4,047,040
Guam Power Authority, Revenue 6.30%, 10/1/2012.............................. 3,400,000 3,350,326
Puerto Rico Commonwealth:
5.85%, 7/1/2009......................................................... 5,000,000 4,836,950
Refunding 6.25%, 7/1/2010............................................... 3,000,000 2,995,050
Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue
7.378%, 7/1/2006 (a).................................................... 5,500,000 4,929,375
Puerto Rico Public Buildings Authority, Revenue, Refunding 5.70%, 7/1/2009.. 3,500,000 3,366,230
--------------
TOTAL MUNICIPAL BONDS (cost $339,804,072)................................... $345,112,703
--------------
--------------
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
SHORT-TERM MUNICIPAL INVESTMENTS-3.8% AMOUNT VALUE
------------ ------------
MARYLAND-.3%
Prince George County Housing Authority, Mortgage Revenue, VRDN
(Laurel Oxford) 3.325% (LOC; Bankers Trust Co.) (e,f)................... $ 1,000,000 $ 1,000,000
U. S. RELATED-3.5%
Puerto Rico Commonwealth, Government Development Bank, Refunding, VRDN
3% (LOC; Sumitomo Bank) (e,f)........................................... 12,700,000 12,700,000
--------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $13,700,000)................... $ 13,700,000
==============
TOTAL INVESTMENTS-100.0%
(cost $353,504,072)..................................................... $358,812,703
==============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
COP Certificate of Participation LR Lease Revenue
EDR Economic Development Revenue MBIA Municipal Bond Insurance Association
FGIC Financial Guaranty Insurance Corporation MFHR Multi-Family Housing Revenue
FHA Federal Housing Administration PCR Pollution Control Revenue
FNMA Federal National Mortgage Association RRR Resource Recovery Revenue
GNMA Government National Mortgage Association VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (G) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- ----------------------
<S> <C> <C> <C>
AAA Aaa AAA 30.7%
AA Aa AA 35.0
A A A 18.9
BBB Baa BBB 5.1
F1 MIG1, VMIG1 & A1 SP1 3.8
Not Rated Not Rated Not Rated 6.5
--------
100.0%
=======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Residual interest security - the interest rate is subject to change
periodically.
(b) 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 tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
(c) Security 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,
1994, this security amounted to $5,474,750 or 1.5% of net assets.
(d) Non-income producing security. Interest payment in default
subsequent to year end.
(e) Secured by letters of credit.
(f) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(g) Fitch currently provides creditworthiness information for a limited
amount of investments.
(h) At April 30, 1994, the Fund had $98,272,645 (26.8% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from housing projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $353,504,072)-see statement..................................... $358,812,703
Cash.................................................................... 1,373,528
Interest receivable..................................................... 6,246,094
Receivable for shares of Beneficial Interest subscribed................. 471,447
Prepaid expenses........................................................ 23,380
--------------
366,927,152
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $239,471
Payable for shares of Beneficial Interest redeemed...................... 608,129
Accrued expenses........................................................ 34,595 882,195
---------- -------------
NET ASSETS ................................................................ $366,044,957
==============
REPRESENTED BY:
Paid-in capital......................................................... $360,972,477
Accumulated net realized capital losses and distributions in
excess of net realized gain on investments-Note 1(c).................. (236,151)
Accumulated net unrealized appreciation on investments-Note 3........... 5,308,631
--------------
NET ASSETS at value......................................................... $366,044,957
==============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 26,924,705
==============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 2,449,915
==============
NET ASSET VALUE per share:
Class A Shares
($335,517,979 / 26,924,705 shares).................................... $12.46
Class B Shares ======
($30,526,978 / 2,449,915 shares)...................................... $12.46
======
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $23,843,647
EXPENSES:
Management fee-Note 2(a).............................................. $ 2,079,227
Shareholder servicing costs-Note 2(c)................................. 1,152,900
Distribution fees (Class B shares)-Note 2(b).......................... 108,878
Professional fees..................................................... 62,957
Custodian fees........................................................ 39,662
Prospectus and shareholders' reports.................................. 38,232
Registration fees..................................................... 12,584
Trustees' fees and expenses-Note 2(d)................................. 3,036
Miscellaneous......................................................... 29,772
-------------
3,527,248
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 375,233
-------------
TOTAL EXPENSES.................................................. 3,152,015
-------------
INVESTMENT INCOME-NET........................................... 20,691,632
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (231,661)
Net unrealized (depreciation) on investments............................ (16,463,923)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (16,695,584)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 3,996,048
==============
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
--------------------------------
1993 1994
-------------- --------------
OPERATIONS:
Investment income-net................................................... $ 17,614,994 $ 20,691,632
Net realized gain (loss) on investments................................. 2,109,663 (231,661)
Net unrealized appreciation (depreciation) on investments for the year.. 13,357,793 (16,463,923)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 33,082,450 3,996,048
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net:
Class A shares........................................................ (17,588,391) (19,640,636)
Class B shares........................................................ (26,603) (1,050,996)
Net realized gain on investments:
Class A shares........................................................ (2,078,022) (741,468)
Class B shares........................................................ --- (53,530)
Excess net realized gain on investments:
Class A shares........................................................ --- (4,187)
Class B shares........................................................ --- (302)
-------------- --------------
TOTAL DIVIDENDS................................................... (19,693,016) (21,491,119)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 82,755,870 44,119,678
Class B shares........................................................ 5,905,321 27,026,693
Dividends reinvested:
Class A shares........................................................ 12,337,374 12,863,992
Class B shares........................................................ 20,196 759,890
Cost of shares redeemed:
Class A shares........................................................ (25,410,504) (43,091,205)
Class B shares........................................................ (276) (1,376,544)
-------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 75,607,981 40,302,504
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................................... 88,997,415 22,807,433
NET ASSETS:
Beginning of year....................................................... 254,240,109 343,237,524
-------------- --------------
End of year............................................................. $343,237,524 $366,044,957
============ ===========
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------------------------------------
CLASS A CLASS B
---------------------------- ----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
---------------------------- ----------------------------
1993 1994 1993* 1994
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 6,492,977 3,339,080 454,082 2,042,409
Shares issued for dividends reinvested. 967,702 978,190 1,553 57,973
Shares redeemed........................ (1,996,243) (3,303,860) (21) (106,081)
-------------- ------------ ------------ ------------
NET INCREASE IN SHARES OUTSTANDING 5,464,436 1,013,410 455,614 1,994,301
============= ======== ======== ==========
- ----------------------
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
</TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 13 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Maryland Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investment for financial
statement purposes result primarily from losses from security transactions
during the year ended April 30, 1994 which are treated for Federal income tax
purposes as arising in fiscal 1995.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
The Fund has an unused capital loss carryover of $620 available for
Federal income tax purposes to be applied against future net securities
profits, if any realized subsequent to April 30, 1994. The carryover does not
include net realized securities losses from November 1, 1993 through April
30, 1994 which are treated, for Federal income tax purposes, as arising in
fiscal 1995. If not applied, the carryover expires in fiscal 2002.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 16, 1994 to waive receipt of
the management fee payable to it by the Series, to the extent that the
Series' aggregate expenses (excluding certain expenses as described above)
exceeded specified annual percentages of the Series' average daily net
assets. The Manager has currently undertaken from January 17, 1994 through
July 1, 1994, to waive receipt of the management fee payable to it by the
Series in excess of an annual rate of .50 of 1% of the Series' average daily
net assets. The reduction in management fee, pursuant to the undertakings,
amounted to $375,233 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $190,867 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $29,393 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B Shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $108,878 was charged to the Series pursuant to the
Class B Distribution Plan.
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$890,664 and $54,439 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3-SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $139,194,307 and
$104,483,400, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $5,308,631, consisting of $14,995,936 gross unrealized appreciation and
$9,687,305 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, MARYLAND SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Maryland Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Maryland Series at April 30,
1994, 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, SIGANATURE LOGO)
New York, New York
June 7, 1994
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
STATEMENT OF INVESTMENTS
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--100.0% AMOUNT VALUE
------------ ------------
<S> <C> <C>
MASSACHUSETTS--90.5%
Boston, Revenue, Refunding (Boston City Hospital) 5.75%, 2/15/2023 (Insured; FHA) $ 1,500,000 $ 1,354,185
Boston Industrial Development Financing Authority, Sewer Facility Revenue
(Harbor Electric Energy Co. Project) 7.375%, 5/15/2015.................. 2,500,000 2,607,950
Boston Water and Sewer Commission, Revenue:
7.875%, 11/1/1996....................................................... 295,000 324,432
7.875%, 11/1/2013....................................................... 605,000 660,370
7.10%, 11/1/2019 (Insured; MBIA, Prerefunded 11/1/1999)(a).............. 1,000,000 1,112,660
Leominster 7.50%, 4/1/2009 (Insured; MBIA).................................. 1,275,000 1,403,800
Lynn Water and Sewer Commission, General Revenue 7.25%, 12/1/2010 (Insured; MBIA) 1,000,000 1,127,920
Massachusetts Bay Transportation Authority:
7.625%, 3/1/2009 (Insured; FSA)......................................... 1,000,000 1,114,540
7.75%, 3/1/2011 (Insured; FSA).......................................... 1,000,000 1,118,880
7%, 3/1/2021............................................................ 1,000,000 1,122,310
8.173%, 3/1/2021 (b,c).................................................. 2,300,000 1,840,000
Massachusetts College Building Authority, Project Revenue
7.80%, 5/1/2016 (Insured; MBIA)......................................... 1,000,000 1,109,970
Massachusetts Commonwealth:
7.25%, 3/1/2000 (Insured; FGIC)......................................... 650,000 726,980
7.25%, 3/1/2009 (Insured; FGIC, Prerefunded 3/1/2000)(a)................ 350,000 391,073
7%, 8/1/2012............................................................ 1,850,000 1,962,831
Massachusetts Education Loan Authority, Education Loan Revenue
7.75%, 1/1/2008 (Insured; MBIA)......................................... 1,375,000 1,435,211
Massachusetts Health and Educational Facilities Authority, Revenue:
(Berkshire Health Systems):
7.50%, 10/1/2008 (Insured; MBIA)...................................... 1,000,000 1,100,280
6.75%, 10/1/2019 (Insured; MBIA)...................................... 1,750,000 1,779,855
(Brigham and Womens Hospital) 6.75%, 7/1/2024........................... 1,000,000 1,023,180
(Capital Asset Program) 7.30%, 10/1/2018 (Insured; MBIA)................ 3,750,000 4,129,387
(Harvard University) 6.50%, 12/1/2007................................... 750,000 787,807
(Lahey Clinic Medical Center) 7.625%, 7/1/2018
(Insured; MBIA, Prerefunded 7/1/1998)(a).............................. 1,000,000 1,117,940
(Medical Center of Central Massachusetts) 7.10%, 7/1/2021............... 1,000,000 1,045,050
(New England Deaconess Hospital) 6.875%, 4/1/2022....................... 6,000,000 6,144,600
(Refunding - Milton Hospital) 7%, 7/1/2016 (Insured; MBIA).............. 2,050,000 2,186,099
(Salem Hospital) 7.25%, 7/1/2009 (Insured; MBIA)........................ 370,000 393,658
(South Shore Hospital) 7.50%, 7/1/2020 (Insured; MBIA, Prerefunded 7/1/2000)(a) 2,000,000 2,270,280
(Tufts University) 8.25%, 8/15/2018 (Insured; FGIC) (b)................. 2,000,000 1,758,800
(University Hospital) 7.25%, 7/1/2019 (Insured; MBIA)................... 2,750,000 2,986,748
(Winchester Hospital) 8.125%, 7/1/2014 (Prerefunded 7/1/1995)(a)........ 1,040,000 1,122,878
Massachusetts Housing Finance Agency, Housing Revenue:
Multi-Family Residential 7.80%, 8/1/2022 (Insured; FHA)................. 1,500,000 1,517,880
Residential:
6.25%, 11/15/2012 (Collateralized; FNMA).............................. 1,600,000 1,582,640
8.50%, 8/1/2020....................................................... 1,225,000 1,282,759
8.40%, 8/1/2021....................................................... 500,000 516,270
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------ ------------
MASSACHUSETTS (CONTINUED)
Massachusetts Housing Finance Agency, Housing Revenue (continued):
Single Family:
7.80%, 12/1/2005...................................................... $ 1,000,000 $ 1,036,820
7.90%, 6/1/2014....................................................... 1,000,000 1,054,140
8.10%, 12/1/2021...................................................... 2,400,000 2,585,832
7.95%, 6/1/2023....................................................... 2,000,000 2,089,300
Massachusetts Industrial Finance Agency, Revenue:
(Brandeis University) 6.80%, 10/1/2019 (Insured; MBIA).................. 500,000 514,900
(Brooks School) 5.95%, 7/1/2023......................................... 1,000,000 932,060
(Leonard Morse Hospital) 8%, 10/15/2014 (Prerefunded 10/15/1999)(a)..... 1,000,000 1,154,470
(Provider Lease Program) 8.75%, 7/15/2009............................... 695,000 745,763
(Refunding - Harvard Community Health) 8.125%, 10/1/2017................ 750,000 820,650
Massachusetts Municipal Wheelhouse Electric Co., Power Supply Systems
Revenue:
8.75%, 7/1/2018......................................................... 3,430,000 3,866,639
6.125%, 7/1/2019........................................................ 1,200,000 1,150,188
Massachusetts Port Authority, Special Project Revenue
(Harborside Hyatt) 10%, 3/1/2026........................................ 3,000,000 3,279,990
Massachusetts Water Resources Authority 7.625%, 4/1/2014 (Prerefunded 4/1/2000)(a) 750,000 852,705
New England Education Loan Marketing Corp., Refunding
(Student Loan) 5.70%, 7/1/2005.......................................... 1,000,000 959,240
Somerville Housing Development Corp., Multi-Family Revenue, Refunding
7.50%, 1/1/2024 (Collateralized; FNMA).................................. 1,000,000 1,045,080
University of Lowell Building Authority 7.60%, 11/1/2010 (Insured; FSA)..... 750,000 828,435
U. S. RELATED--9.5%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 1,500,000 1,517,640
Puerto Rico Commonwealth:
6.80%, 7/1/2021 (Prerefunded 7/1/2002)(a)............................... 1,000,000 1,110,320
Refunding 6%, 7/1/2014.................................................. 2,000,000 1,921,200
Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue:
7.561%, 7/1/2009 (b).................................................... 1,000,000 862,500
7.661%, 7/1/2010 (b).................................................... 1,000,000 847,500
Puerto Rico Electric Power Authority, Power Revenue 8%, 7/1/2008............ 500,000 569,020
Virgin Islands Public Finance Authority, Revenue, Refunding 7.25%, 10/1/2018 1,000,000 1,063,790
-------------
TOTAL INVESTMENTS (cost $79,295,988)........................................ $82,967,405
===========
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
FGIC Financial Guaranty Insurance Corporation FSA Financial Security Assurance
FHA Federal Housing Administration MBIA Municipal Bond Insurance Association
FNMA Federal National Mortgage Association
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 43.2%
AA Aa AA 11.0
A A A 31.8
BBB Baa BBB 6.5
Not Rated Not Rated Not Rated 7.5
------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(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 tax-exempt issue and to retire the bonds full at the
earliest refunding date.
(b) Residual Interest security - the interest rate is subject to change
periodically.
(c) Security 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,
1994, this security amounted to $1,840,000 or 2.3% of net assets.
(d) Fitch currently provides creditworthiness information for a limited
number of investments.
(e) At April 30, 1994, the Fund had $27,584,209 (34.2%) of net assets
invested in securities whose payment of principal and interest is
dependent upon revenues generated from health care projects.
(f) At April 30, 1994, 30.4% of the Fund's net assets are insured by
MBIA.
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $79,295,988)-see statement...................................... $82,967,405
Interest receivable..................................................... 1,559,770
Receivable for shares of Beneficial Interest subscribed................. 69,192
Prepaid expenses........................................................ 7,164
-----------
84,603,531
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 51,555
Due to Custodian........................................................ 3,934,625
Payable for shares of Beneficial Interest redeemed...................... 27,087
Accrued expenses........................................................ 23,654 4,036,921
--------- ---------
NET ASSETS ................................................................ $80,566,610
===========
REPRESENTED BY:
Paid-in capital......................................................... $76,908,157
Accumulated distributions in excess of net realized gain on investments-Note 1(c) (12,964)
Accumulated net unrealized appreciation on investments-Note 3........... 3,671,417
-----------
NET ASSETS at value......................................................... $80,566,610
===========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 6,605,322
===========
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 318,297
===========
NET ASSET VALUE per share:
Class A Shares
($76,864,652 / 6,605,322 shares)...................................... $11.64
======
Class B Shares
($3,701,958 / 318,297 shares)......................................... $11.63
======
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $5,612,047
EXPENSES:
Management fee--Note 2(a)............................................. $ 466,331
Shareholder servicing costs-Note 2(c)................................. 265,697
Prospectus and shareholders' reports.................................. 21,198
Distribution fees (Class B shares)-Note 2(b).......................... 13,123
Professional fees..................................................... 11,089
Custodian fees........................................................ 9,068
Registration fees..................................................... 4,727
Trustees' fees and expenses-Note 2(d)................................. 703
Miscellaneous......................................................... 11,393
------------
803,329
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 95,389
------------
TOTAL EXPENSES.................................................. 707,940
----------
INVESTMENT INCOME--NET.......................................... 4,904,107
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 3................................ $ 38,609
Net unrealized (depreciation) on investments............................ (3,301,993)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (3,263,384)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $1,640,723
==========
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
---------------------------------
1993 1994
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 4,556,661 $ 4,904,107
Net realized gain on investments........................................ 537,446 38,609
Net unrealized appreciation (depreciation) on investments for the year.. 4,033,314 (3,301,993)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 9,127,421 1,640,723
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (4,549,010) (4,768,195)
Class B shares........................................................ (7,651) (135,912)
Net realized gain on investments:
Class A shares........................................................ (56,938) (303,176)
Class B shares........................................................ - (11,985)
Excess net realized gain on investments:
Class A shares........................................................ - (12,471)
Class B shares........................................................ - (493)
------------ ------------
TOTAL DIVIDENDS................................................... (4,613,599) (5,232,232)
------------ ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 12,873,702 6,515,438
Class B shares........................................................ 1,057,732 2,835,004
Dividends reinvested:
Class A shares........................................................ 2,354,860 2,622,716
Class B shares........................................................ 2,601 68,991
Cost of shares redeemed:
Class A shares........................................................ (6,908,497) (8,594,165)
Class B shares........................................................ (150) (56,768)
------------ ------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 9,380,248 3,391,216
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......................... 13,894,070 (200,293)
NET ASSETS:
Beginning of year....................................................... 66,872,833 80,766,903
------------ ------------
End of year............................................................. $80,766,903 $80,566,610
============ ===========
</TABLE>
<TABLE>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993 1994 1993(1) 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 1,094,206 531,050 87,675 229,412
Shares issued for dividends reinvested. 199,322 214,378 215 5,666
Shares redeemed........................ (586,172) (710,422) (12) (4,659)
-------- -------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING 707,356 35,006 87,878 230,419
========= ========== ========= =========
</TABLE>
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 14 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Massachusetts Series (the "Series").
Dreyfus Service Corporation ("Distributor") acts as the distributor of the
Fund's shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investment for financial
statement purposes result from current period wash sale loss deferrals and
other losses from security transactions during the year ended April 30, 1994
which are treated for Federal income tax purposes as arising in fiscal 1995.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 18, 1994 to reduce the
management fee paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from January 19, 1994 through July 1, 1994, to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .50 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$95,389 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $14,298 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $1,595 during the year ended April 30, 1994 from
contingent deferred sales charges imposed upon redemptions of the Series'
Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $13,123 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to Serv
ice Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$205,407 and $6,562 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $16,459,050 and
$10,140,340, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $3,671,417, consisting of $4,929,329 gross unrealized appreciation and
$1,257,912 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, MASSACHUSETTS SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Massachusetts series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Massachusetts Series at April
30, 1994, 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 and Young Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--98.1% AMOUNT VALUE
-------------- -------------
<S> <C> <C>
MICHIGAN--96.2%
Capital Region Airport Authority, Airport Revenue
6.70%, 7/1/2021 (Insured; MBIA)......................................... $ 2,500,000 $ 2,570,175
Chippewa Valley Schools 7%, 5/1/2010........................................ 1,275,000 1,416,869
Detroit:
(Development Area No. 1) 7.60%, 7/1/2010................................ 4,150,000 4,428,133
Sewer Disposal System Revenue:
7.125%, 7/1/2019 ..................................................... 2,735,000 3,016,814
Refunding:
7%, 7/1/2011...................................................... 1,325,000 1,384,214
8.33%, 7/1/2023 (Insured; FGIC) (a)............................... 5,000,000 4,250,000
(Unlimited Tax) 6.35%, 4/1/2014......................................... 3,500,000 3,311,000
Water Supply Systems Revenue, Refunding:
9.677%, 7/1/2002 (Insured; FGIC) (a).................................. 3,500,000 4,055,625
9.677%, 7/1/2022 (Insured; FGIC) (a).................................. 1,500,000 1,513,125
Detroit School District (School Building and Site)
(Wayne County) 6.25%, 5/1/2012.......................................... 4,250,000 4,231,810
Dickinson County Economic Development Corp., Solid Waste Disposal Refunding,
Revenue (Champion International Corp. Project) 6.55%, 3/1/2007.......... 4,000,000 3,972,560
East Lansing Building Authority, Refunding 6.90%, 10/1/2011................. 1,375,000 1,438,401
East Lansing School District
(Ingham and Clinton Counties School Building and Site) 6.625%, 5/1/2014. 1,000,000 1,033,160
Fitzgerald Public School District (School Building and Site) 6.375%, 5/1/2016 1,150,000 1,236,457
Flint Michigan Refunding Tax Increment Finance Authority 5.75%, 6/1/2002.... 3,000,000 3,039,240
Grand Rapids Housing Finance Authority, Multi-Family Revenue, Refunding
7.625%, 9/1/2023 (Collateralized; FNMA)................................. 1,000,000 1,071,870
Grand Rapids Sanitary Sewer Systems, Improvement Revenue, Refunding 7%, 1/1/2016 500,000 532,540
Grand Traverse County Hospital Finance Authority, HR (Munson Medical Center)
7.625%, 12/1/2015....................................................... 750,000 821,348
Greater Detroit Resource Recovery Authority, Revenue 9.25%, 12/13/2008...... 1,250,000 1,335,825
Holland School District (Unified School Building and Site) 7.375%, 5/1/2019. 2,000,000 2,195,980
Kent Hospital Finance Authority, Hospital Facility Revenue
(Butterworth Hospital) 7.25%, 1/15/2012................................. 1,000,000 1,113,930
Lapeer Economic Development Corp., Ltd. Obligation Revenue
(Lapeer Health Services Project) 8.625%, 2/1/2020....................... 2,000,000 2,366,460
Michigan Building Authority, Revenue:
6.75%, 10/1/2007 (Insured; AMBAC)....................................... 1,600,000 1,706,656
6.75%, 10/1/2011........................................................ 2,000,000 2,087,620
Michigan Higher Education Student Loan Authority, Student Loan Revenue:
6.875%, 10/1/2007 (Insured; AMBAC)...................................... 2,250,000 2,407,680
7.55%, 10/1/2008 (Insured; MBIA)........................................ 1,625,000 1,786,119
Refunding 6%, 9/1/2008.................................................. 2,000,000 1,962,160
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
MICHIGAN (CONTINUED)
Michigan Hospital Finance Authority, HR:
(Crittenton Hospital) 6.70%, 3/1/2007................................... $ 2,250,000 $ 2,370,780
(Daughters of Charity National Health Systems-Providence Hospital) 7%, 11/1/2021 2,700,000 2,875,311
(Henry Ford Continuing Care) 6.75%, 7/1/2011............................ 1,665,000 1,721,077
(McLaren Obligation Group) 7.50%, 9/15/2021............................. 1,250,000 1,435,487
(Mercy Mount Clemens Corp.) 6.25%, 5/15/2011............................ 2,000,000 1,942,840
Refunding:
(Detroit Medical Center):
8.125%, Series A, 8/15/1998....................................... 810,000 921,772
8.125%, Series B, 8/15/1998....................................... 980,000 1,113,192
8.125%, 8/15/2012................................................. 220,000 241,817
(Detroit Medical Center Obligation Group) 6.50%, 8/15/2018............ 5,000,000 4,886,050
(Middle Michigan Obligation Group) 6.625%, 6/1/2010................... 2,000,000 2,014,240
(Pontiac Osteopathic Hospital) 6%, 2/1/2014........................... 5,250,000 4,669,403
(Sisters of Mercy Health Corp.) 7.50%, 2/15/2018........................ 2,250,000 2,557,868
Michigan Housing Development Authority:
(Home Improvement Program) 7.65%, 12/1/2012............................. 2,150,000 2,174,360
Ltd. Obligation Revenue:
(Fraser Woods Project) 6.50%, 9/15/2007 (Insured; FSA)................ 1,810,000 1,842,851
(Green Hill Project) 5.45%, 7/15/2011................................. 1,835,000 1,657,262
(Walled Lake Villa Project) 6%, 4/15/2018 (Insured; FSA).............. 1,500,000 1,414,665
MFHR 8.375%, 7/1/2019 (Insured; FGIC)................................... 1,550,000 1,661,957
Rental Housing Revenue:
6.50%, 4/1/2006....................................................... 2,000,000 2,048,400
7.70%, 4/1/2023 (Insured; FSA)........................................ 4,185,000 4,368,805
SFMR:
7.55%, 12/1/2014...................................................... 575,000 590,439
7.50%, 6/1/2015....................................................... 2,355,000 2,438,885
8%, 6/1/2018.......................................................... 290,000 300,188
7.75%, 12/1/2019...................................................... 2,480,000 2,597,155
6.95%, 12/1/2020...................................................... 1,750,000 1,794,240
Michigan Job Development Authority, PCR:
(Chrysler Corp. Project) 5.70%, 11/1/1999............................... 5,000,000 5,042,550
(General Motors Corp.) 5.55%, 4/1/2009.................................. 4,000,000 3,708,080
Michigan Municipal Bond Authority,
Local Government Loan Program Revenue Refunding, 6.50%, 5/1/2016........ 4,000,000 4,107,120
Michigan State University Board of Trustees, General Revenue 6.125%, 8/15/2010 2,705,000 2,713,899
Michigan Strategic Fund:
Ltd. Obligation Revenue:
(Consumers Power Co. Project) 5.80%, 6/15/2010
(Insured; Capital Market Insurance Corp.)......................... 4,000,000 3,921,760
(Northeastern Community Mental Health Foundation) 8.25%, 1/1/2009..... 1,610,000 1,686,684
Refunding:
(Detroit Edison Co. Pollution Control Project)
6.95%, 9/1/2021 (Insured; FGIC)................................. 3,500,000 3,684,485
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
MICHIGAN (CONTINUED)
Michigan Strategic Fund (continued):
Ltd. Obligation Revenue (continued):
Refunding (continued):
(Ledyard Association Ltd. Partnership Project)
6.25%, 10/1/2011 (Insured; ITT Lyndon Property Insurance Co.)... $ 3,075,000 $ 3,037,731
(WMX Technologies Inc. Project) 6%, 11/1/2013......................... 6,000,000 5,552,520
Solid Waste Disposal Revenue, Refunding
(Genesee Power Station Project) 7.50%, 1/1/2021....................... 3,000,000 2,933,130
Michigan Trunk Line 7%, 8/15/2017........................................... 3,945,000 4,349,086
Monroe County:
PCR (Detroit Edison Project):
7.50%, 12/1/2019 (Insured; AMBAC)..................................... 4,650,000 5,154,432
7.875%, 12/1/2019..................................................... 2,720,000 2,976,034
7.65%, 9/1/2020 (Insured; FGIC)....................................... 2,250,000 2,496,690
Water Supply Systems (Frenchtown Charter Township Water Treatment
and Distribution Systems) 6.50%, 5/1/2013............................. 2,500,000 2,475,200
Monroe County Economic Development Corp., Ltd. Obligation Refunding, Revenue
(Detroit Edison Co. Project) 6.95%, 9/1/2022 (Insured; FGIC)............ 2,000,000 2,216,060
Northville, Special Assessment (Wayne County) 7.875%, 1/1/2006.............. 1,685,000 1,818,486
Northwestern Michigan College, Community College Improvement Revenue,
Refunding
7%, 7/1/2011............................................................ 1,800,000 1,873,818
Oakland County Economic Development Corp., Ltd. Obligation Revenue
(Pontiac Osteopathic Hospital Project) 9.625%, 1/1/2020................. 1,765,000 2,168,585
Okemos Public School District (Ingham County School Building and Site)
6.90%, 5/1/2011......................................................... 4,000,000 4,413,520
Regents of University of Michigan, HR 6.375%, 12/1/2024..................... 2,500,000 2,474,900
Rockford Public Schools, Refunding (Kent County School Building and Site)
7.375%, 5/1/2019........................................................ 2,000,000 2,237,400
Romulus Economic Development Corp., Ltd. Obligation EDR
Refunding (Romulus Hir Ltd. Partnership Project)
7%, 11/1/2015 (Insured; ITT Lyndon Property Insurance Co.).............. 3,700,000 3,801,676
Royal Oak Hospital Finance Authority, HR (William Beaumont Hospital)
7.375%, 1/1/2020........................................................ 2,650,000 2,952,789
Wayne Charter County, Airport Revenue (Detroit Metropolitan Wayne County
Airport)
6.75%, 12/1/2021 (Insured; MBIA)........................................ 1,600,000 1,648,784
U.S. RELATED--1.9%
Puerto Rico Housing Finance Corp., MFMR
7.50%, 4/1/2022 (LOC; Government Development Bank) (b).................. 2,990,000 3,120,812
Virgin Islands Port Authority, Airport Revenue (Cyril E. King Airport
Project)
8.10%, 10/1/2005........................................................ 500,000 551,735
--------------
TOTAL MUNICIPAL BONDS
(cost $185,763,790)..................................................... $193,042,781
==============
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
SHORT-TERM MUNICIPAL INVESTMENTS--1.9% AMOUNT VALUE
-------------- --------------
MICHIGAN:
Michigan Strategic Fund, PCR, VRDN (Consumers Power Project)
3.05% (LOC; Union Bank of Switzerland)(b,c)............................. $ 2,800,000 $ 2,800,000
Monroe County Economic Development Corp., Ltd. Obligation Refunding, Revenue,
VRDN (Detroit Edison Co. Project) 3% (LOC; Barclays Bank)(b,c).......... 1,000,000 1,000,000
--------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $3,800,000)....................................................... $ 3,800,000
==============
TOTAL INVESTMENTS--100.0%
(cost $189,563,790)..................................................... $196,842,781
==============
</TABLE>
<TABLE>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation MBIA Municipal Bond Insurance Association
EDR Economic Development Revenue MFHR Multi-Family Housing Revenue
FGIC Financial Guaranty Insurance Corporation MFMR Multi-Family Mortgage Revenue
FNMA Federal National Mortgage Association PCR Pollution Control Revenue
FSA Financial Security Assurance SFMR Single Family Mortgage Revenue
HR Hospital Revenue VRDN Variable Rate Demand Notes
LOC Letter of Credit
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 28.3%
AA Aa AA 27.6
A A A 18.3
BBB Baa BBB 14.1
F1 MIG1 SP1 1.9
Not Rated Not Rated Not Rated 9.8
--------
100.0%
=======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Residual interest security - the interest rate is subject to change
periodically.
(b) Secured by letters of credit.
(c) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(d) Fitch currently provides creditworthiness information for a limited
amount of investments.
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $189,563,790)-see statement..................................... $196,842,781
Cash.................................................................... 659,600
Interest receivable..................................................... 3,796,483
Receivable for shares of Beneficial Interest subscribed................. 269,595
Prepaid expenses........................................................ 25,886
--------------
201,594,345
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $129,455
Payable for shares of Beneficial Interest redeemed...................... 163,092
Accrued expenses........................................................ 35,746 328,293
---------- -------------
NET ASSETS ................................................................ $201,266,052
=============
REPRESENTED BY:
Paid-in capital......................................................... $192,095,631
Accumulated undistributed net realized gain on investments.............. 1,891,430
Accumulated net unrealized appreciation on investments-Note 3........... 7,278,991
--------------
NET ASSETS at value......................................................... $201,266,052
=============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 12,274,956
=============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 907,828
=============
NET ASSET VALUE per share:
Class A Shares
($187,404,902 / 12,274,956 shares).................................... $15.27
=======
Class B Shares
($13,861,150 / 907,828 shares)........................................ $15.27
=======
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $13,031,834
EXPENSES:
Management fee--Note 2(a)............................................. $1,124,896
Shareholder servicing costs-Note 2(c)................................. 646,807
Distribution fees (Class B shares)-Note 2(b).......................... 47,921
Professional fees..................................................... 34,779
Prospectus and shareholders' reports.................................. 33,417
Custodian fees........................................................ 21,617
Registration fees..................................................... 7,500
Trustees' fees and expenses-Note 2(d)................................. 1,763
Miscellaneous......................................................... 19,109
------------
1,937,809
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 219,841
------------
TOTAL EXPENSES.................................................. 1,717,968
-------------
INVESTMENT INCOME--NET.......................................... 11,313,866
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 3................................ $2,315,880
Net unrealized (depreciation) on investments............................ (6,895,275)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (4,579,395)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 6,734,471
============
</TABLE>
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
-----------------------------
1993 1994
-------------- ------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 9,949,247 $ 11,313,866
Net realized gain on investments........................................ 1,302,815 2,315,880
Net unrealized appreciation (depreciation) on investments for the year.. 9,138,903 (6,895,275)
-------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 20,390,965 6,734,471
-------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (9,928,078) (10,845,933)
Class B shares........................................................ (21,169) (467,933)
Net realized gain on investments:
Class A shares........................................................ (1,407,206) (956,415)
Class B shares........................................................ - (54,414)
-------------- ------------
TOTAL DIVIDENDS................................................... (11,356,453) (12,324,695)
-------------- ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 40,524,594 24,628,252
Class B shares........................................................ 3,563,317 11,297,694
Dividends reinvested:
Class A shares........................................................ 6,122,861 6,427,971
Class B shares........................................................ 13,575 347,542
Cost of shares redeemed:
Class A shares........................................................ (16,698,726) (22,803,586)
Class B shares........................................................ (84) (760,491)
-------------- ------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 33,525,537 19,137,382
-------------- ------------
TOTAL INCREASE IN NET ASSETS.................................... 42,560,049 13,547,158
NET ASSETS:
Beginning of year....................................................... 145,158,845 187,718,894
-------------- ------------
End of year............................................................. $187,718,894 $201,266,052
============ ============
</TABLE>
<TABLE>
SHARES
---------------------------------------------------------------
CLASS A CLASS B
-------------------------------- --------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
-------------------------------- ---------------------------
1993 1994 1993* 1994
-------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 2,650,957 1,535,330 228,063 706,062
Shares issued for dividends reinvested. 400,476 401,916 869 21,767
Shares redeemed........................ (1,093,531) (1,430,077) (5) (48,928)
-------------- -------------- ----------- -----------
NET INCREASE IN SHARES OUTSTANDING 1,957,902 507,169 228,927 678,901
============== ============= ========== ==========
</TABLE>
- -------------------------
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 15 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Michigan Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 17, 1994 to reduce the
management fee paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from January 18, 1994 through July 1, 1994, to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .50 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$219,841 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $53,120 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $18,455 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $47,921 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to Serv
ice Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$487,356 and $23,961 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $91,599,814 and
$72,582,136, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $7,278,991, consisting of $9,972,231 gross unrealized appreciation and
$2,693,240 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, MICHIGAN SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Michigan Series (one of the Series
constituting the Premier Municipal Bond Fund), including the statement of
investments, as of April 30, 1994, 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 highligh
ts 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, 1994 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 Premier State Municipal Bond Fund, Michigan Series at April 30,
1994, 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 Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF INVESTMENTS
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--95.0% AMOUNT VALUE
-------------- --------------
MINNESOTA--87.1%
Anoka County:
<S> <C> <C>
Resources Recovery Revenue (Northern States Power Co.) 7.15%, 12/1/2008. $ 1,150,000 $ 1,226,751
Solid Waste Disposal Revenue (United Power Association Project)
6.95%, 12/1/2008 (Guaranteed; National Rural Utilities Cooperative)... 3,825,000 4,027,075
Anoka-Hennipen, Independent School District Number 11, Refunding
4.875%, 2/1/2007 (Insured; FGIC)........................................ 3,310,000 3,058,870
Burnsville, Multi-Family Housing Revenue Refunding (Coventry Court
Apartments)
7.50%, 9/1/2027 (Insured; FHA).......................................... 2,250,000 2,349,450
Dakota County Housing and Redevelopment Authority, South-Saint Paul
Revenue Refunding (Single Family-GNMA Program) 8.10%, 9/1/2012.......... 260,000 271,856
City of Detroit Lakes, Health Care Facilities Revenue (Benedictine Health
Systems
Saint Mary's Regional Health Center) 6%, 2/15/2019 (Guaranteed; Connie Lee) 3,000,000 2,888,340
Duluth Economic Development Authority, Health Care Facilities Revenue
(Benedictine Health-Saint Mary's Project) 8.375%, 2/15/2020............. 2,500,000 2,935,050
Eagan, Multi-Family Housing Revenue Refunding (Forest Ridge Apartments)
7.50%, 9/1/2017 (Insured; FHA).......................................... 1,000,000 1,060,190
Eden Prairie, Multi-Family Housing Revenue Refunding:
(Eden Investments Project) 7.40%, 8/1/2025 (Insured; FHA)............... 500,000 527,445
(Welsh Parkway Apartments) 8%, 7/1/2026 (Insured; FHA).................. 2,955,000 3,103,637
Edina:
Hospital Systems Revenue (Fairview Hospital) 7.125%, 7/1/2006........... 1,000,000 1,048,660
Housing Development Revenue Refunding (Edina Park Plaza Project)
7.70%, 12/1/2028 (Insured; FHA)....................................... 2,500,000 2,599,950
Hubbard County, Solid Waste Disposal Revenue (Potlatch Corp. Project)
7.375%, 8/1/2013........................................................ 1,000,000 1,065,100
Lakeville, Independent School District Number 194 5.40%, 2/1/2013 (Insured; FGIC) 2,250,000 2,089,440
City of Mankato, Hospital Facilities First Mortgage Revenue
(Immanuel-Saint Joseph's Hospital of Mankato, Inc. Project) 6.30%, 8/1/2022 2,000,000 1,941,240
Minneapolis:
5.125%, 12/1/2015....................................................... 2,810,000 2,468,135
Home Ownership and Renovation Program 5.60%, 12/1/2014.................. 1,755,000 1,623,761
Home Ownership Program 7.10%, 6/1/2021.................................. 1,200,000 1,237,932
HR:
(Fairview Hospital and Healthcare Services) 6.50%, 1/1/2011 (Insured; MBIA) 2,500,000 2,588,600
(Lifespan Inc.-Abbot Hospital) 7%, 12/1/2014.......................... 1,500,000 1,658,850
(Lifespan Inc.-Minneapolis Children's Medical Center Project):
8.125%, 8/1/2017.................................................. 1,500,000 1,656,150
7%, 12/1/2020..................................................... 5,650,000 5,884,362
Multi-Family Housing Revenue Refunding (Churchill Apartments Project)
7.05%, 10/1/2022 (Insured; FHA)....................................... 4,000,000 4,144,640
MFMR (Seward Towers Project) 7.375%, 12/20/2030 (Collateralized; GNMA).. 2,350,000 2,476,454
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
MINNESOTA (CONTINUED)
Minneapolis Community Development Agency, Ltd. Tax Support Development
Revenue:
8.375%, 6/1/2007........................................................ $ 2,500,000 $ 2,715,450
8%, 12/1/2009........................................................... 300,000 314,619
7.75%, 12/1/2019........................................................ 2,930,000 3,107,060
7.40%, 12/1/2021........................................................ 2,000,000 2,067,840
Minneapolis-Saint Paul Housing Finance Board, SFMR:
8.875%, 11/1/2018 (Collateralized; GNMA)................................ 220,000 235,019
8.30%, 8/1/2021 (Collateralized; GNMA).................................. 490,000 512,653
7.30%, 8/1/2031 (Collateralized; GNMA).................................. 7,025,000 7,258,160
Minneapolis-Saint Paul Housing and Redevelopment Authority,
Health Care Systems Revenue:
8%, 8/15/2014 ........................................................ 3,000,000 3,490,860
(Group Health Plan Inc., Project) 6.75%, 12/1/2013.................... 2,750,000 2,812,370
Minneapolis-Saint Paul Metropolitan Apartments Community, 7.80%, 1/1/2014... 3,000,000 3,319,260
Minnesota Agricultural and Economic Development Board,
Minnesota Small Business Development Loan Revenue:
9%, Series B, 8/1/2008 ............................................... 75,000 79,398
9%, Series C, 8/1/2008 ............................................... 245,000 259,367
8.125%, Lot 1, 8/1/2009 .............................................. 765,000 806,562
8.125%, Lot 2, 8/1/2009 .............................................. 500,000 527,165
8.125%, Lot 3, 8/1/2009 .............................................. 815,000 859,279
8.20%, 8/1/2009 ...................................................... 655,000 694,385
8.375%, 8/1/2010 ..................................................... 1,385,000 1,477,587
Minnesota Higher Education Facilities Authority, Mortgage Revenue
(University Saint Thomas) 7.125%, 9/1/2014 ............................. 2,095,000 2,323,690
Minnesota Housing Finance Agency:
Housing Development 6.90%, 8/1/2012..................................... 3,000,000 3,078,750
Rental Housing 6.10%, 8/1/2009.......................................... 2,585,000 2,530,896
Residential Mortgage Revenue 10%, 7/1/2016.............................. 70,000 72,901
Single Family Mortgage:
7.35%, 7/1/2016....................................................... 1,930,000 2,013,627
7.30%, 1/1/2017....................................................... 1,140,000 1,169,822
7.90%, 7/1/2019....................................................... 1,745,000 1,815,550
7.45%, 7/1/2022....................................................... 2,880,000 3,016,541
7.95%, 7/1/2022....................................................... 2,080,000 2,150,158
6.15%, 1/1/2026....................................................... 1,730,000 1,621,494
8%, 7/1/2029.......................................................... 140,000 146,810
State Assisted Home Improvement 7.30%, 8/1/2006......................... 1,240,000 1,312,639
Minnesota Public Facilities Authority, Water Pollution Control Revenue:
7.10%, 3/1/2012 ........................................................ 2,350,000 2,517,085
6.95%, 3/1/2013 ........................................................ 3,000,000 3,184,770
Northern Municipal Power Agency, Electric System Revenue Refunding
7.25%, 1/1/2016......................................................... 3,500,000 3,749,375
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
MINNESOTA (CONTINUED)
City of Red Wing, Health Care Facilities Refunding Revenue
(River Region Obligation Group) 6.50%, 9/1/2022 ........................ $ 3,445,000 $ 3,167,609
City of Rochester, Health Care Facilities Revenue
(Mayo Foundation/Mayo Medical Center) 8.39%, 11/15/2014 (a)............. 3,000,000 3,019,110
Saint Cloud, Hospital Facilities Revenue (Saint Cloud Hospital)
7%, 7/1/2020 (Insured; AMBAC)........................................... 1,000,000 1,115,250
Saint Louis Park, Health Care Facilities Revenue (Health Systems Obligated
Group)
5.20%, 7/1/2023 (Insured; AMBAC)........................................ 2,500,000 2,140,625
Saint Paul Housing and Redevelopment Authority:
HR (Saint Paul Ramsey Medical Center Project) 5.50%, 5/15/2013 (Insured; AMBAC) 2,000,000 1,867,980
SFMR Refunding 6.90%, 12/1/2021......................................... 2,940,000 3,001,887
Saint Paul Port Authority:
First Lien Tax Increment Refunding (Energy Park Project) 5%, 2/1/2008 .. 5,495,000 5,012,154
IDR Refunding (Hampden Building Project) 9.25%, 6/1/2011................ 1,065,000 1,104,544
Sartell, PCR Refunding (Champion International Corp. Project) 6.95%, 10/1/2012 5,000,000 5,119,550
Seaway Port Authority of Duluth,
Industrial Development Dock and Wharf Revenues Refunding (Cargill Inc.
Project)
6.80%, 5/1/2012....................................................... 3,000,000 3,093,210
Southern Minnesota Municipal Power Agency, Power Supply System Revenue
7.897%, 1/1/2018 (a,b).................................................. 4,400,000 3,855,500
U.S. RELATED--7.9%
Commonwealth of Puerto Rico, Public Improvement Refunding 8.797%, 7/1/2018.. 2,000,000 1,885,000
Puerto Rico Electric Power Authority, Power Revenue 6.25%, 7/1/2017......... 2,250,000 2,217,105
Puerto Rico Highway and Transportation Authority, Highway Revenue
7.678%, 7/1/2010 (a).................................................... 3,450,000 2,923,875
Puerto Rico Public Buildings Authority:
Public Education and Health Facilities Refunding 5.70%, 7/1/2009........ 5,000,000 4,808,900
Revenue 6.60%, 7/1/2004 (Guaranteed; Commonwealth of Puerto Rico)...... 1,485,000 1,627,115
----------
TOTAL MUNICIPAL BONDS
(cost $158,564,121)..................................................... $161,132,494
============
SHORT-TERM MUNICIPAL INVESTMENTS--5.0%
MINNESOTA:
Cloquet, PCR, VRDN (Potlatch Corp. Project) 5.40% (LOC; Credit Suisse) (c,d) $ 5,900,000 $ 5,900,000
Golden Valley IDR Refunding, VRDN (Graco Inc. Project) 4.50% (LOC; Fuji Bank) (c,d) 2,500,000 2,500,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $8,400,000)....................................................... $ 8,400,000
----------
TOTAL INVESTMENTS--100.0%
(cost $166,964,121)..................................................... $169,532,494
============
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AGIC Asset Guaranty Insurance Company LOC Letter of Credit
AMBAC American Municipal Bond Assurance Corporation MBIA Municipal Bond Insurance Association
FGIC Financial Guaranty Insurance Corporation MFMR Multi-Family Mortgage Revenue
FHA Federal Housing Administration PCR Pollution Control Revenue
GNMA Government National Mortgage Association SFMR Single Family Mortgage Revenue
HR Hospital Revenue VRDN Variable Rate Demand Notes
IDR Industrial Development Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (E) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- ----------------------
<S> <C> <C> <C>
AAA Aaa AAA 38.7%
AA Aa AA 23.1
A A A 22.2
BBB Bbb BBB 9.7
F1 MIG1 SP1 1.5
Not Rated Not Rated Not Rated 4.8%
------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Residual interest security - the interest rate is subject to change
periodically.
(b) Security 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,
1994, these securities amounted to $5,740,500 or 3.2% of net assets.
(c) Secured by letters of credit.
(d) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(e) Fitch currently provides creditworthiness information for a limited
amount of investments.
(f) At April 30, 1994, the Series had $46,470,528 (25.7% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from housing projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $166,964,121)-see statement..................................... $169,532,494
Cash.................................................................... 3,671,476
Interest receivable..................................................... 3,484,864
Receivable for shares of Beneficial Interest subscribed................. 249,695
Prepaid expenses........................................................ 18,471
--------------
176,957,000
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 116,834
Payable for shares of Beneficial Interest redeemed...................... 155,416
Accrued expenses........................................................ 23,979 296,229
----------- -----------
NET ASSETS ................................................................ $176,660,771
============
REPRESENTED BY:
Paid-in capital......................................................... $174,046,767
Accumulated undistributed net realized gain on investments.............. 45,631
Accumulated net unrealized appreciation on investments-Note 3........... 2,568,373
--------------
NET ASSETS at value......................................................... $176,660,771
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 10,577,091
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 1,424,673
============
NET ASSET VALUE per share:
Class A Shares
($155,656,951 / 10,577,091 shares).................................... $14.72
======
Class B Shares
($21,003,820 / 1,424,673 shares)...................................... $14.74
======
See notes to financial statements
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 11,081,024
EXPENSES:
Management fee-Note 2(a).............................................. $ 952,683
Shareholder servicing costs-Note 2(c)................................. 539,950
Distribution fees (Class B shares)-Note 2(b).......................... 70,013
Professional fees..................................................... 30,919
Prospectus and shareholders' reports.................................. 29,764
Custodian fees........................................................ 18,446
Registration fees..................................................... 9,244
Trustees' fees and expenses-Note 2(d)................................. 1,474
--------------
1,652,493
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 184,360
--------------
TOTAL EXPENSES.................................................. 1,468,133
--------------
INVESTMENT INCOME--NET.......................................... 9,612,891
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments-Note 3................................. $ 328,294
Net unrealized (depreciation) on investments............................ (7,418,754)
--------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (7,090,460)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 2,522,431
============
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
--------------------------------
1993 1994
-------------- --------------
OPERATIONS:
Investment income-net................................................... $ 8,296,205 $ 9,612,891
Net realized gain on investments........................................ 1,075,585 328,294
Net unrealized appreciation (depreciation) on investments............... 5,892,386 (7,418,754)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 15,264,176 2,522,431
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net:
Class A shares........................................................ (8,268,796) (8,924,857)
Class B shares........................................................ (27,409) (688,034)
Net realized gain on investments:
Class A shares........................................................ (852,977) (612,621)
Class B shares........................................................ - (63,215)
-------------- --------------
TOTAL DIVIDENDS................................................... (9,149,182) (10,288,727)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 25,401,147 21,498,686
Class B shares........................................................ 4,621,831 17,944,220
Dividends reinvested:
Class A shares........................................................ 6,085,409 6,412,443
Class B shares........................................................ 16,522 538,255
Cost of shares redeemed:
Class A shares........................................................ (11,616,007) (14,422,611)
Class B shares........................................................ (8,019) (941,707)
-------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 24,500,883 31,029,286
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................................... 30,615,877 23,262,990
NET ASSETS:
Beginning of year....................................................... 122,781,904 153,397,781
-------------- --------------
End of year............................................................. $153,397,781 $176,660,771
=========== =============
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993 1994 1993* 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 1,693,647 1,381,812 301,781 1,148,723
Shares issued for dividends reinvested. 406,070 413,858 1,081 34,815
Shares redeemed........................ (774,416) (937,234) (523) (61,204)
-------- -------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING 1,325,301 858,436 302,339 1,122,334
========= ========== ========= =========
- ---------------------
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
</TABLE>
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 16 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company offering
fifteen series including the Minnesota Series (the "Series"). Dreyfus Service
Corporation ("Distributor") acts as the distributor of the Fund's shares. The
Distributor is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 17, 1994 to reduce the
management fee paid by, or reimburse such excess expenses of the Series, to
the extent that the Series' aggregate expenses (excluding certain expenses as
described above) exceeded specified annual percentages of the Series' average
daily net assets. The Manager has currently undertaken from January 18, 1994
through July 1, 1994, to waive receipt of the management fee payable to it by
the Series in excess of an annual rate of .50 of 1% of the Series' average
daily net assets. The reduction in management fee, pursuant to the
undertakings, amounted to $184,360 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $50,538 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $25,891 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B Shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $70,013 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$398,031 and $35,007 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $76,056,221 and
$48,112,116, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $2,568,373, consisting of $6,306,498 gross unrealized appreciation and
$3,738,125 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, MINNESOTA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Minnesota Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Minnesota Series at April 30,
1994, 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 and Young Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
STATEMENT OF INVESTMENTS APRIL 30,1994
PRINCIPAL
MUNICIPAL BONDS-100.0% AMOUNT VALUE
-------------- -------------
<S> <C> <C>
NORTH CAROLINA-75.9%
Anson County 6.20%, 4/1/2010 (Insured; MBIA)................................ $ 300,000 $ 307,320
Asheville, COP, Refunding 6.50%, 2/1/2008................................... 500,000 526,880
Board of Governors of the University of North Carolina, Revenue
(University of North Carolina Hospitals - Chapel Hill) 6%, 2/15/2024.... 3,000,000 2,844,660
Buncombe County Metropolitan Sewage District, Sewage System Revenue:
6.75%, 7/1/2022......................................................... 500,000 547,810
Refunding 5.50%, 7/1/2022 (Insured; FGIC)............................... 1,125,000 1,024,774
Charlotte, COP (Convention Facility Project):
6.75%, 12/1/2021 (Insured; AMBAC)....................................... 1,000,000 1,104,340
Refunding 5.25%, 12/1/2020 (Insured; AMBAC)............................. 4,000,000 3,475,040
Charlotte-Mecklenberg Hospital Authority, Health Care System Revenue:
5.75%, 1/1/2012......................................................... 1,285,000 1,227,278
6.25%, 1/1/2020......................................................... 500,000 491,785
6%, 1/1/2022............................................................ 500,000 474,160
Clemmons County, Sanitary Sewer 6.60%, 2/1/2008............................. 175,000 185,698
Cleveland County, Sanitary District, Water 6.75%, 3/1/2015 (Insured; FGIC).. 290,000 305,225
Coastal Regional Solid Waste Management Authority, Solid Waste Disposal
System Revenue
6.50%, 6/1/2008......................................................... 1,000,000 1,018,420
Craven County Industrial Facilities and Pollution Control Financing
Authority, PCR,
Refunding (Weyerhaeuser Co. Project) 6.35%, 1/1/2010.................... 2,000,000 2,007,360
Craven Regional Medical Authority, Health Care Facilities Revenue, Refunding
5.625%, 10/1/2017 (Insured; MBIA)....................................... 1,000,000 925,910
Cumberland County, Hospital Facilities Revenue (Cumberland County Hospital System)
6%, 10/1/2021 (Insured; MBIA)........................................... 450,000 435,875
Dare County, COP 6.60%, 5/1/2006 (Insured; MBIA)............................ 400,000 426,220
Durham County, COP (Jail Facilities and Computer Equipment Project) 6.625%, 5/1/2014 850,000 868,759
Fayetteville Public Works Commission, Revenue, Refunding
6.50%, 3/1/2014 (Insured; FGIC)......................................... 350,000 378,553
Forsyth County, COP (1991 Allied Health Technologies Building Project) 6.50%, 6/1/2012 300,000 304,494
Greensboro, COP (1991 Greensboro Coliseum Arena Expansion Project) 6.25%, 12/1/2011 500,000 501,035
Haywood County, Industrial Facilities and PCR, Refunding
(Champion International Corp. Project) 6.85%, 5/1/2014.................. 500,000 505,405
Martin County Industrial Facilities and Pollution Control Financing
Authority, Revenue
(Solid Waste Disposal - Weyerhaeuser Project) 7.25%, 9/1/2014........... 400,000 426,624
North Carolina Eastern Municipal Power Agency, Power System Revenue:
5.75%, 12/1/2016........................................................ 1,865,000 1,682,099
Refunding:
5.875%, 1/1/2013...................................................... 7,000,000 6,530,020
6.00%, 1/1/2013....................................................... 2,500,000 2,345,125
6.50%, 1/1/2017....................................................... 1,000,000 991,680
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
NORTH CAROLINA (CONTINUED)
North Carolina Educational Facilities Finance Agency, Revenue:
(Duke University Project) 6.75%, 10/1/2021.............................. $ 500,000 $ 522,995
Refunding (Elon College Project) 6.375%, 1/1/2007 (Insured; Connie Lee). 830,000 862,378
North Carolina Housing Finance Agency:
Multi-Family Revenue:
5.35%, 9/1/2014 (Insured; FHA)........................................ 1,100,000 967,263
5.45%, 9/1/2024 (Insured; FHA)........................................ 2,000,000 1,732,540
5.90%, 7/1/2026....................................................... 1,250,000 1,147,650
Refunding 6.90%, 7/1/2024 (Insured: FHA).............................. 500,000 511,295
Single Family Revenue 7.05%, 9/1/2020................................... 1,465,000 1,506,635
North Carolina Medical Care Commission, HR:
(Annie Penn Memorial Hospital Project) 7.50%, 8/15/2021................. 4,500,000 4,701,690
(Carolina Medicorp Project) 6%, 5/1/2021................................ 2,250,000 2,124,000
(Duke University Hospital Project) 7%, 6/1/2021......................... 3,000,000 3,339,330
(Presbyterian Hospital Project) 7.375%, 10/1/2020....................... 250,000 283,093
Refunding:
(Carolina Medicorp Project) 5.50%, 5/1/2015........................... 500,000 452,140
(Memorial Mission Hospital Project) 5.50%, 10/1/2011 (Insured; MBIA).. 1,000,000 940,190
(Mercy Hospital Project) 6.50%, 8/1/2015.............................. 1,000,000 1,002,110
(North Carolina Baptist Hospitals Project) 6%, 6/1/2022............... 1,000,000 943,120
(Presbyterian Health Services Project) 5.50%, 10/1/2020............... 2,400,000 2,115,168
(Rex Hospital Project) 6.25%, 6/1/2017................................ 2,000,000 1,935,840
(Southeastern General Hospital Project) Zero Coupon, 6/1/2006 (Insured; FSA) 1,000,000 484,210
(Wesley Long Community Hospital) 5.25%, 10/1/2013 (Insured; AMBAC).... 3,000,000 2,715,090
(Wilson Memorial Hospital Project) 6.50%, 11/1/2020 (Insured; AMBAC).. 500,000 507,485
North Carolina Municipal Power Agency, Number 1 Catawba Electric Revenue:
7%, 1/1/1996............................................................ 200,000 210,170
5.00%, 1/1/2015......................................................... 1,000,000 842,660
5.75%, 1/1/2015......................................................... 6,250,000 5,773,687
5.75%, 1/1/2020 (Insured; MBIA)......................................... 2,500,000 2,340,925
Piedmont Triad Airport Authority, Airport Revenue, Refunding
6.75%, 7/1/2010 (Insured; MBIA)......................................... 350,000 366,723
Pitt County, Revenue (Pitt County Memorial Hospital) 6.90%, 12/1/2021....... 540,000 568,971
Randolph County 6.50%, 4/1/2007............................................. 350,000 372,001
Surry County Northern Hospital District, Health Care Facilities Revenue, Refunding
7.875%, 10/1/2021....................................................... 1,000,000 1,070,850
Union County, Water and Sewer 6.50%, 4/1/2010............................... 100,000 104,642
Vance County 6.70%, 2/1/2010 (Insured; AMBAC)............................... 50,000 52,814
Wake County, Hospital System Revenue, Refunding:
Zero Coupon, 10/1/2010 (Insured; MBIA).................................. 2,200,000 784,938
5.125%, 10/1/2026 (Insured; MBIA)....................................... 3,250,000 2,744,365
Wake County Industrial Facilities and Pollution Control Financing Authority,
Revenue
(Carolina Power and Light) 6.90%, 4/1/2009.............................. 2,000,000 2,100,300
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
U.S. RELATED-24.1% AMOUNT VALUE
-------------- --------------
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ $ 2,000,000 $ 2,023,520
Guam Government 5.40%, 11/15/2018........................................... 2,000,000 1,721,800
Commonwealth of Puerto Rico:
Public Improvement:
7.70%, 7/1/2020....................................................... 1,000,000 1,152,820
6.80%, 7/1/2021....................................................... 600,000 666,192
Refunding 5.50%, 7/1/2013............................................... 5,000,000 4,544,450
Commonwealth of Puerto Rico Highway and Transportation Authority, Highway Revenue
6.625%, 7/1/2018........................................................ 3,600,000 3,955,788
Puerto Rico Electric Power Authority, Power Revenue 7%, 7/1/2021............ 450,000 484,551
Puerto Rico Ports Authority, Special Facilities Revenue
(American Airlines, Inc. Project) 6.30%, 6/1/2023....................... 1,500,000 1,371,945
Puerto Rico Public Buildings Authority, Guaranteed Public Education and Health
Facilities, Refunding:
6%, 7/1/2012.......................................................... 850,000 817,547
5.75%, 7/1/2015....................................................... 7,000,000 6,431,950
Virgin Islands Public Finance Authority, Revenue, Refunding, Matching Fund Loan Notes
7.25%, 10/1/2018........................................................ 1,500,000 1,595,685
--------------
TOTAL INVESTMENTS
(cost $105,951,321)..................................................... $102,756,065
--------------
--------------
</TABLE>
<TABLE>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation FSA Financial Security Assurance
COP Certificate of Participation HR Hospital Revenue
FGIC Financial Guaranty Insurance Corporation MBIA Municipal Bond Insurance Association
FHA Federal Housing Administration PCR Pollution Control Revenue
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (A) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 29.0%
AA Aa AA 18.2
A A A 39.6
BBB Baa BBB 11.1
Not Rated Not Rated Not Rated 2.1
--------
100.0%
--------
--------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Fitch currently provides creditworthiness information for a limited amount
of investments.
(b) At April 30,1994, the Fund had $34,259,906 (32.0%) of net assets invested
in securities whose payment of principal and interest is dependent upon
revenues generated from health care projects.
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $105,951,321)-see statement..................................... $102,756,065
Cash.................................................................... 2,293,488
Interest receivable..................................................... 1,894,512
Receivable for shares of Beneficial Interest subscribed................. 193,705
Prepaid expenses........................................................ 18,197
--------------
107,155,967
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $55,215
Payable for shares of Beneficial Interest redeemed...................... 28,960
Accrued expenses........................................................ 29,140 113,315
-------- --------------
NET ASSETS ................................................................ $107,042,652
--------------
--------------
REPRESENTED BY:
Paid-in capital......................................................... $110,499,256
Accumulated net realized (loss) on investments.......................... (261,348)
Accumulated net unrealized (depreciation) on investments-Note 3......... (3,195,256)
--------------
NET ASSETS at value......................................................... $107,042,652
--------------
--------------
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 5,347,614
--------------
--------------
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 3,063,648
--------------
--------------
NET ASSET VALUE per share:
Class A Shares
($68,074,234 / 5,347,614 shares)...................................... $12.73
-------
-------
Class B Shares
($38,968,418 / 3,063,648 shares)...................................... $12.72
-------
-------
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 5,631,982
EXPENSES:
Management fee-Note 2(a).............................................. $ 533,032
Shareholder servicing costs-Note 2(c)................................. 311,170
Distribution fees (Class B shares)-Note 2(b).......................... 158,695
Prospectus and shareholders' reports.................................. 17,347
Professional fees..................................................... 16,793
Registration fees..................................................... 15,267
Custodian fees........................................................ 11,185
Trustees' fees and expenses-Note 2(d)................................. 840
Miscellaneous......................................................... 19,755
------------
1,084,084
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 475,442
------------
TOTAL EXPENSES.................................................. 608,642
------------
INVESTMENT INCOME-NET........................................... 5,023,340
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (259,519)
Net unrealized (depreciation) on investments............................ (6,321,383)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (6,580,902)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $(1,557,562)
------------
------------
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
-------------------------------
1993 1994
-------------- --------------
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 2,443,117 $ 5,023,340
Net realized gain (loss) on investments................................. 10,197 (259,519)
Net unrealized appreciation (depreciation) on investments for the year.. 3,030,017 (6,321,383)
------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... 5,483,331 (1,557,562)
------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net:
Class A shares........................................................ (2,372,476) (3,507,400)
Class B shares........................................................ (70,641) (1,515,940)
Net realized gain on investments:
Class A shares........................................................ (37,739) ---
Class B shares........................................................ --- ---
------------- --------------
TOTAL DIVIDENDS................................................... (2,480,856) (5,023,340)
------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 32,335,443 23,248,700
Class B shares........................................................ 13,061,498 28,953,805
Dividends reinvested:
Class A shares........................................................ 1,256,832 1,920,032
Class B shares........................................................ 42,120 941,663
Cost of shares redeemed:
Class A shares........................................................ (6,651,984) (9,403,883)
Class B shares........................................................ (5,217) (1,465,324)
------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 40,038,692 44,194,993
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................................... 43,041,167 37,614,091
NET ASSETS:
Beginning of year....................................................... 26,387,394 69,428,561
------------- --------------
End of year............................................................. $ 69,428,561 $107,042,652
------------- --------------
------------- --------------
</TABLE>
<TABLE>
SHARES
--------------------------------------------------------------
CLASS A CLASS B
------------------------------ ----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
----------------------------- ----------------------------
1993 1994 1993* 1994
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 2,489,831 1,697,042 979,159 2,120,383
Shares issued for dividends reinvested. 96,623 141,385 3,152 69,404
Shares redeemed........................ (515,382) (691,793) (388) (108,062)
----------- ---------- --------- -----------
NET INCREASE IN SHARES OUTSTANDING 2,071,072 1,146,634 981,923 2,081,725
----------- ---------- --------- -----------
----------- ---------- --------- -----------
- ----------------------
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
</TABLE>
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 17 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the North Carolina series (the "Series").
Dreyfus Service Corporation ("Distributor") acts as the distributor of the
Fund's shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
The Fund has an unused capital loss carryover of approximately $225,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to April 30, 1994. The
carryover does not include net realized securities losses from November 1,
1993 through April 30, 1994 which are treated, for Federal income tax
purposes, as arising in fiscal 1995. If not applied, the carryover expires in
fiscal 2002.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993, through February 7, 1994 to reduce the
management fee paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from February 8, 1994 through July 1, 1994 to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .20 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$475,442 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $30,378 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $38,341 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $158,695 was charged to the Series pursuant to the
Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
services related to the maintenance of shareholder accounts. The Distributor
may make payments to Service Agents in respect of these services. The
Distributor determines the amounts to be paid to Service Agents. For the year
ended April 30, 1994, $162,940 and $79,347 were charged to the Class A and
Class B shares, respectively, pursuant to the Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3-SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $57,438,026 and
$14,038,994, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized depreciation on investments
was $3,195,256, consisting of $1,763,679 gross unrealized appreciation and
$4,958,935 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, NORTH CAROLINA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, North Carolina Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, North Carolina Series at April
30, 1994, 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 and Young Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--98.4% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
OHIO--91.3%
Akron Bath Copley Joint Township Hospital District, Revenue:
(Akron Children's Hospital Medical Center) 7.70%, 11/15/2005............ $ 500,000 $ 547,595
(Akron City Hospital Project) 8.875%, 11/15/2007........................ 500,000 575,890
(Summa Health Systems) 5.75%, 11/15/2008................................ 5,000,000 4,777,000
Akron-Wilbeth Housing Development Corp., First Mortgage Revenue
7.90%, 8/1/2003 (Insured; FHA).......................................... 1,805,000 2,176,686
Allen County, Industrial First Mortgage Revenue, Refunding
6.75%, 11/15/2008 (Guaranteed; Kmart Corp.)............................. 1,280,000 1,302,528
City of Barberton, Hospital Facilities Revenue
(The Barberton Citizens Hospital Co. Project) 7.25%, 1/1/2012........... 2,400,000 2,579,160
Berea:
7.50%, 12/1/2005 ....................................................... 425,000 480,416
7.55%, 12/1/2006 ....................................................... 455,000 515,424
7.55%, 12/1/2007 ....................................................... 320,000 362,496
Butler County, Hospital Facilities Revenue, Refunding and Improvement
(Fort Hamilton Hughes Hospital) 7.25%, 1/1/2001......................... 4,000,000 4,134,560
City of Cambridge, HR Refunding (Guernsey Memorial Hospital Project)
8%, 12/1/2006........................................................... 2,000,000 2,136,460
Canton 7.875%, 12/1/2008. .................................................. 1,000,000 1,145,490
Clermont County, Hospital Facilities Revenue, Refunding (Mercy Health
Systems)
7.50%, 9/1/2019 (Insured; AMBAC)........................................ 1,000,000 1,117,650
City of Cleveland:
6.75%, 7/1/2004 (Insured; MBIA)......................................... 1,500,000 1,637,115
COP (Motor Vehicle, Motorized and Communication Equipment) 7.10%, 7/1/2002 2,000,000 2,047,620
Parking Facility Improvement Revenue 8%, 9/15/2012...................... 5,000,000 5,340,950
Public Power System Revenue (First Mortgage Improvement):
7%, Series A, 11/15/2017.............................................. 1,125,000 1,157,164
7%, Series B, 11/15/2017.............................................. 8,675,000 8,923,018
Waterworks Improvement First Mortgage Revenue:
6.50%, 1/1/2011 (Insured; AMBAC)...................................... 2,000,000 2,062,000
6.25%, 1/1/2015 (Insured; AMBAC)...................................... 3,000,000 3,030,000
7.875%, 1/1/2016...................................................... 650,000 713,018
Cleveland City School District:
8%, 12/1/2001........................................................... 1,675,000 1,916,183
5.875%, 12/1/2011 (Insured; FGIC)....................................... 1,000,000 984,330
Cleveland State University, General Receipts 5.375%, 6/1/2008 (Insured; AMBAC) 2,000,000 1,935,620
City of Columbus, Sewer Systems Revenue, Refunding 6.25%, 6/1/2008.......... 1,750,000 1,787,940
Columbus City School District, School Building Renovation and Improvement
6.65%, 12/1/2012 (Insured; FGIC)........................................ 2,250,000 2,482,695
Cuyahoga County:
Health Care Facilities Revenue (Judson Retirement Community) 8.875%, 11/15/2019 3,500,000 3,976,350
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- ------------
OHIO (CONTINUED)
Cuyahoga County (continued):
HR:
(Fairview General Hospital) 7.375%, 8/1/2019.......................... $ 4,000,000 $ 4,475,920
(Meridia Health Systems) 7%, 8/15/2023................................ 1,750,000 1,823,710
Refunding:
(Deaconess Hospital) 7.45%, 10/1/2018............................. 5,000,000 5,416,850
(Meridia Health Systems) 7.25%, 8/15/2019......................... 4,715,000 4,972,298
Jail Facilities 7%, 10/1/2013........................................... 6,125,000 6,857,060
Refunding:
(Cleveland Clinic Foundation) 8%, 12/1/2015........................... 1,000,000 1,092,350
(Mount Sinai Medical Center) 8.125%, 11/15/2014....................... 1,000,000 1,101,310
Eaton, IDR Refunding (Baxter International Inc. Project) 6.50%, 12/1/2012... 1,500,000 1,493,475
Erie County, Hospital Improvement Revenue, Refunding
(Firelands Community Hospital) 8.875%, 1/1/2015......................... 700,000 780,094
Euclid City School District 7.10%, 12/1/2011................................ 1,000,000 1,084,710
Village of Evendale, IDR Refunding (Ashland Oil, Inc. Project) 6.90%, 11/1/2010 2,000,000 2,046,700
Fairlawn, Health Care Facilities Revenue (Village at Saint Edward Project)
8.75%, 10/1/2019........................................................ 2,420,000 2,626,837
Franklin County:
6.375%, 12/1/2012....................................................... 1,635,000 1,775,479
Hospital Facilities Revenue, Refunding Improvement (Doctors Hospital
Project)
5.875%, 12/1/2013..................................................... 2,750,000 2,529,560
Hospital Improvement Revenue (The Children's Hospital Project) 6.60%, 11/1/2011 1,500,000 1,550,760
HR:
(Holy Cross Health Systems Corp.-Mount Carmel Health) 6.75%, 6/1/2019 2,500,000 2,551,075
Refunding 5.375%, 12/1/2020........................................... 2,000,000 1,824,940
Refunding Improvement:
(The Children's Hospital Project) 6.60%, 5/1/2013................. 4,000,000 4,063,520
(Riverside United Hospital) 7.60%, 5/15/2020...................... 5,300,000 6,032,036
(Worthington Christian Village Congregate Care Project):
10.25%, 8/1/2015................................................ 875,000 940,205
7.80%, 2/1/2017 (Insured; FHA).................................. 5,690,000 6,219,739
Gallia County, Local School District 7.375%, 12/1/2004...................... 570,000 647,389
Greater Cleveland Gateway Economic Development Corp.:
Senior Lien Excise Tax Revenue 6.875%, 9/1/2005 (Insured; FSA).......... 1,500,000 1,633,650
Stadium Revenue 7.50%, 9/1/2005......................................... 5,675,000 6,247,210
Hamilton County:
Electric Systems Mortgage Revenue, Refunding 8%, 10/15/2022 (Insured; FGIC) 750,000 854,865
Hospital Facilities Improvement Revenue, Refunding (Deaconess Hospital)
7%, 1/1/2012.......................................................... 2,570,000 2,724,354
Hospital Facilities Refunding Revenue (Episcopal Retirement Homes, Inc.)
6.80%, 1/1/2008 (LOC; The Fifth Third Bank) (a)....................... 2,450,000 2,532,247
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- -----------
OHIO (CONTINUED)
Hamilton County (continued):
IDR (Provident Association Partnership) 9%, 12/1/2008 (b)............... $ 1,405,000 $ 599,935
Mortgage Revenue (Judson Care Center) 7.80%, 8/1/2019 (Insured; FHA).... 3,970,000 4,317,296
Sewer Systems Improvement Revenue, Refunding 6.70%, 12/1/2013........... 2,000,000 2,199,140
Hilliard School District 6.30%, 12/1/2014................................... 2,000,000 2,022,780
Kirtland Local School District 7.50%, 12/1/2009............................. 760,000 834,966
Knox County, IDR (Weyerhaeuser Co. Project) 9%, 10/1/2007................... 1,000,000 1,238,380
Lowellville, Sanitary Sewer Systems Revenue (Browning-Ferris Industries Inc.)
7.25%, 6/1/2006......................................................... 1,400,000 1,457,624
Mahoning County, Health Care Facilities Revenue
(Youngstown Osteopathic Hospital Project)
7.60%, 8/1/2010 (LOC; Marine Midland Bank) (a).......................... 3,775,000 4,127,434
Marion County, Health Care Facilities Revenue (United Church Homes Inc.):
8.875%, 12/1/2012....................................................... 2,305,000 2,776,787
Refunding and Improvement 6.375%, 11/15/2010............................ 3,000,000 2,830,650
Miami County, Hospital Facilities Revenue, Refunding
(Upper Valley Medical Center) 8.375%, 5/1/2013.......................... 525,000 584,493
Montgomery County, Refunding:
5.45%, 9/1/2010......................................................... 1,000,000 952,130
Water Revenue (Greater Moraine-Beaver Creek Sewer District)
5.30%, 11/15/2007 (Insured; AMBAC).................................... 1,890,000 1,820,977
Muskingum County, Revenue, Refunding (Franciscan Health Advisory Services)
7.50%, 3/1/2012......................................................... 3,185,000 3,427,633
Newark 6%, 12/1/2018 (Insured; AMBAC)....................................... 1,000,000 984,150
Northeast Regional Sewer District, Wastewater Improvement Revenue
6.50%, 11/15/2016 (Insured; AMBAC)...................................... 2,000,000 2,053,520
State of Ohio:
Economic Development Revenue:
Ohio Enterprise Bond Fund (VSM Corp. Project) 7.375%, 12/1/2011....... 885,000 925,453
(Sponge Inc. Project) 8.375%, 6/1/2014................................ 1,705,000 1,902,388
Mortgage Revenue (Odd Fellows Home Ohio Inc. Project)
8.15%, 8/1/2017 (Insured; FHA)........................................ 350,000 384,153
Ohio Building Authority, Workers' Compensation Facilities
(William Green Building) 4.90%, 4/1/2007.............................. 4,375,000 3,946,338
PCR (Standard Oil Co. Project)
6.75%, 12/1/2015 (Guaranteed; British Petroleum Co. p.l.c.)........... 1,350,000 1,432,606
Ohio Air Quality Development Authority, Revenue:
Pollution Control:
(Cincinnati Gas and Electric) 10.125%, 12/1/2015...................... 900,000 991,656
(Pennsylvania Power Co. Project) 8.10%, 9/1/2018 ..................... 1,000,000 1,062,970
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- -----------
OHIO (CONTINUED)
Ohio Air Quality Development Authority, Revenue (continued):
Pollution Control (continued):
Refunding:
(Cleveland Electric Illuminating Co. Project) 6.85%, 7/1/2023..... $ 5,250,000 $ 5,020,365
(Ohio Edison) 7.45%, 3/1/2016 (Insured; FGIC)..................... 3,500,000 3,859,800
Refunding (Ohio Power Co. Project) 7.40%, 8/1/2009...................... 1,500,000 1,567,200
Ohio Building Authority:
State Correctional Facilities 8%, 8/1/2006.............................. 400,000 450,452
State Facilities (Columbus State Building Project):
7.35%, 10/1/2005...................................................... 1,795,000 2,025,047
7.75%, 10/1/2008...................................................... 500,000 562,705
Ohio Capital Corp. for Housing, MFHR Refunding
7.60%, 11/1/2023 (Collateralized; FNMA)................................. 1,250,000 1,336,425
Ohio Higher Educational Facility Community, Revenue:
(Case Western Reserve Project) 7.70%, 10/1/2018......................... 500,000 550,395
(Oberlin College) 7.375%, 10/1/2014..................................... 400,000 448,688
Ohio Housing Finance Agency:
Mortgage Revenue (Saint Francis Court Apartment Project)
8%, 10/1/2026 (Insured; FHA).......................................... 695,000 718,769
SFMR (GNMA Mortgage Backed Securities Program):
8.25%, 12/15/2019 .................................................... 220,000 228,459
8.125%, 3/1/2020 ..................................................... 510,000 529,620
Zero Coupon, 9/1/2021................................................. 20,875,000 2,562,615
7.85%, 9/1/2021 ...................................................... 2,220,000 2,287,799
7.65%, 3/1/2029 ...................................................... 5,880,000 6,073,864
7.80%, 3/1/2030 ...................................................... 4,065,000 4,199,917
Ohio Public Facilities Community, Higher Education Facilities 7.25%, 5/1/2004 1,300,000 1,439,269
Ohio Water Development Authority:
Pollution Control Facilities Revenue:
(Cleveland Electric Illuminating Project) 8%, 10/1/2023............... 5,800,000 6,017,790
(Ohio Edison) 8.10%, 10/1/2023........................................ 3,700,000 3,906,645
(Pennsylvania Power Co. Project) 8.10%, 9/1/2018...................... 2,000,000 2,129,340
Refunding:
(Ohio Edison) 7.625%, 7/1/2023.................................... 9,390,000 9,641,840
(Toledo Edison Co.):
7.55%, 6/1/2023 ................................................ 2,000,000 2,038,080
8%, 10/1/2023 .................................................. 3,635,000 3,784,907
Pure Water Revenue 7.75%, 6/1/2014...................................... 500,000 551,545
Ottawa County, Sanitary Sewer Systems Special Assessment
(Portage-Catawba Island Sewer Project) 7%, 9/1/2011 (Insured; AMBAC).... 1,000,000 1,088,320
Reynoldsburg City School District, School Building Construction and
Improvement
6.55%, 12/1/2017 (Insured; FGIC)........................................ 2,000,000 2,061,440
Ross County, HR (Medical Center Hospital Project) 7.50%, 12/1/2014.......... 2,000,000 2,233,100
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- ------------
OHIO (CONTINUED)
Shelby County, Hospital Facilities Revenue, Refunding and Improvement
(The Shelby County Memorial Hospital Association) 7.70%, 9/1/2018....... $ 2,500,000 $ 2,676,175
South Euclid, Recreation Facilities 7%, 12/1/2011........................... 2,285,000 2,491,176
Springdale, Hospital Facilities First Mortgage Revenue,
(Southwestern Seniors Services, Inc.):
5.875%, 11/1/2012..................................................... 3,000,000 2,735,280
6%, 11/1/2018......................................................... 1,250,000 1,089,975
Student Loan Funding Corp.:
Student Loan Revenue, Refunding 7.20%, 8/1/2003......................... 3,150,000 3,350,277
Student Loan Senior Subordinated Revenue 6.15%, 8/1/2010................ 6,775,000 6,664,974
University of Cincinnati, COP 6.75%, 12/1/2009 (Insured; MBIA).............. 750,000 794,430
University of Ohio:
General Receipts:
5%, 12/1/2008 (Insured; FGIC)......................................... 2,000,000 1,862,460
5.875%, 12/1/2012..................................................... 3,000,000 2,886,690
Revenue 7.15%, 12/1/2009................................................ 6,000,000 6,639,300
University of Toledo, General Receipts 5.75%, 12/1/2012 (Insured; FGIC)..... 2,000,000 1,950,860
Warren 7.75%, 11/1/2010..................................................... 2,785,000 3,215,115
City of Westerville, Water Systems Refunding and Improvement 6.45%, 12/1/2011 2,590,000 2,649,622
City of Westerville School District 6.25%, 12/1/2009........................ 1,610,000 1,658,509
U.S. RELATED--7.1%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 3,000,000 3,035,280
Puerto Rico Highway and Transportation Authority, Highway Revenue, Refunding
7.461%, 7/1/2007 (c).................................................... 7,750,000 6,839,375
Puerto Rico Public Buildings Authority, Public Education and Health
Facilities Refunding
(Guaranteed; Commonwealth of Puerto Rico) 5.70%, 7/1/2009............... 3,430,000 3,298,905
Virgin Islands Public Finance Authority, Revenue, Refunding
Matching Fund Loan Notes 7.25%, 10/1/2018............................... 5,200,000 5,531,708
Virgin Islands Water and Power Authority, Electric Systems Revenue 7.40%, 7/1/2011 3,450,000 3,711,062
----------
TOTAL MUNICIPAL BONDS
(cost $295,167,907)..................................................... $309,012,729
============
SHORT-TERM MUNICIPAL INVESTMENT--1.6%
OHIO;
Ohio Air Quality Development Authority Revenue (JMG Funding Limited
Partnership)
VRDN 3.15% (LOC; Societe Generale) (a,d)
(cost $5,000,000)....................................................... $ 5,000,000 $ 5,000,000
============
TOTAL INVESTMENTS--100.0%
(cost $300,167,907)..................................................... $314,012,729
============
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation HR Hospital Revenue
COP Certificate of Participation IDR Industrial Development Revenue
FGIC Financial Guaranty Insurance Corporation LOC Letter of Credit
FHA Federal Housing Administration MBIA Municipal Bond Insurance Association
FNMA Federal National Mortgage Association MFHR Multi-Family Housing Revenue
FSA Financial Security Assurance PCR Pollution Control Revenue
GNMA Government National Mortgage Association SFMR Single Family Mortgage Revenue
VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (E) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 23.6%
AA Aa AA 7.8
A A A 30.9
BBB Baa BBB 27.2
B B B 1.9
F1 MIG1 SP1 1.6
Not Rated Not Rated Not Rated 7.0
--------
100.0%
========
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Secured by letters of credit.
(b) Non-income accruing security; interest payment in default. The
valuation of this security has been determined in good faith under the
direction of the Board of Trustees.
(c) Residual interest security - the interest rate is subject to change
periodically.
(d) Securities payable on demand. The interest rate, which is subject
to change, is based upon bank prime rates or an index of market interest
rates.
(e) Fitch currently provides creditworthiness information for a limited
amount of investments.
(f) At April 30, 1994, the Fund had $98,460,505 (30.6% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from health care projects.
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $300,167,907)-see statement..................................... $314,012,729
Cash.................................................................... 842,368
Interest receivable..................................................... 6,199,940
Receivable for shares of Beneficial Interest subscribed................. 747,275
Prepaid expenses........................................................ 35,223
--------------
321,837,535
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $209,711
Payable for shares of Beneficial Interest redeemed...................... 212,572
Accrued expenses........................................................ 52,753 475,036
---------- ------------
NET ASSETS ................................................................ $321,362,499
============
REPRESENTED BY:
Paid-in capital......................................................... $306,702,732
Accumulated undistributed net realized gain on investments.............. 814,945
Accumulated net unrealized appreciation on investments-Note 3........... 13,844,822
--------------
NET ASSETS at value......................................................... $321,362,499
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 23,118,630
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 2,175,703
============
NET ASSET VALUE per share:
Class A Shares
($293,705,643 / 23,118,630 shares).................................... $12.70
=======
Class B Shares
($27,656,856 / 2,175,703 shares)...................................... $12.71
=======
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $20,986,650
EXPENSES:
Management fee--Note 2(a)............................................. $ 1,811,687
Shareholder servicing costs-Note 2(c)................................. 1,018,307
Professional fees..................................................... 124,980
Distribution fees (Class B shares)-Note 2(b).......................... 102,349
Prospectus and shareholders' reports.................................. 44,522
Custodian fees........................................................ 34,187
Registration fees..................................................... 7,893
Trustees' fees and expenses-Note 2(d)................................. 2,832
Miscellaneous......................................................... 21,226
-------------
3,167,983
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 386,259
-------------
TOTAL EXPENSES.................................................. 2,781,724
-----------
INVESTMENT INCOME--NET.......................................... 18,204,926
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 3................................ $ 1,272,432
Net unrealized (depreciation) on investments............................ (10,949,018)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (9,676,586)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 8,528,340
============
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
---------------------------------
1993 1994
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 16,323,252 $ 18,204,926
Net realized gain on investments........................................ 932,730 1,272,432
Net unrealized appreciation (depreciation) on investments for the year.. 16,202,120 (10,949,018)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 33,458,102 8,528,340
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (16,274,444) (17,203,535)
Class B shares........................................................ (48,808) (1,001,391)
Net realized gain on investments:
Class A shares........................................................ (1,587,530) (616,962)
Class B shares........................................................ --- (46,746)
------------ ------------
TOTAL DIVIDENDS................................................... (17,910,782) (18,868,634)
------------ ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 44,655,966 29,869,777
Class B shares........................................................ 8,694,588 21,032,260
Dividends reinvested:
Class A shares........................................................ 11,923,897 11,652,834
Class B shares........................................................ 36,975 757,951
Cost of shares redeemed:
Class A shares........................................................ (19,590,383) (34,259,537)
Class B shares........................................................ (297,015) (1,396,011)
------------ ------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 45,424,028 27,657,274
------------ ------------
TOTAL INCREASE IN NET ASSETS.................................... 60,971,348 17,316,980
NET ASSETS:
Beginning of year....................................................... 243,074,171 304,045,519
------------ ------------
End of year............................................................. $304,045,519 $321,362,499
============ ============
</TABLE>
<TABLE>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993 1994 1993* 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 3,501,210 2,243,350 667,842 1,576,802
Shares issued for dividends reinvested. 933,913 877,259 2,832 57,130
Shares redeemed........................ (1,536,483) (2,588,901) (22,776) (106,127)
-------- -------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING 2,898,640 531,708 647,898 1,527,805
========= ========== ========= =========
</TABLE>
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 18 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Ohio Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market are valued at the mean between the quoted bid prices (as obtained
by the Service from dealers in such securities) and asked prices (as calculate
d 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 19, 1994, to reduce the
management fee paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from January 20, 1994 through July 1, 1994, to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .50 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$386,259 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $72,122 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $14,812 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $102,349 was charged to the Series pursuant to the
Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$772,320 and $51,174 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $112,282,940 and
$86,829,848, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $13,844,822, consisting of $17,717,390 gross unrealized appreciation and
$3,872,568 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, OHIO SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Ohio Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Ohio Series at April 30, 1994,
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 And Young Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
Premier State Municipal Bond Fund, Oregon Series
Statement of Investments June 30, 1994 (Unaudited)
Principal
Municipal Bonds-100.0% Amount Value
--------- -------
<S> <C> <C>
Oregon:
Oregon Elderly and Disabled Housing 6.10%, 8/1/2015.................................. $200,000 $200,834
Oregon Housing and Community Services Department, SFMR 6.875%, 7/1/2028.............. 200,000 202,956
Salem-Keitzer School District 6%, 6/1/2014........................................... 200,000 198,154
Umatilla County School District 6%, 7/1/2014......................................... 200,000 197,138
--------
TOTAL INVESTMENTS (cost $802,235).................................................... $799,082
========
</TABLE>
<TABLE>
Summary of Abbreviations
SFMR Single Family Mortgage Revenue
Summary of Combined Ratings
Fitch (a) or Moody's or Standard & Poor's Percentage of Value
- --------- ------- ----------------- -------------------
<S> <C> <C> <C>
AAA Aaa AAA 49.5%
AA Aa AA 50.5
------
100.0%
======
</TABLE>
Note to Statement of Investments;
(a) Fitch currently provides creditworthiness information for a limited number
of investments.
See notes to financial statements.
<TABLE>
Premier State Municipal Bond Fund, Oregon Series
Statement of Assets and Liabilities June 30, 1994 (Unaudited)
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $802,235)-see statement........................................... $ 799,082
Receivable for shares of Beneficial Interest subscribed................... 27,206
Interest receivable....................................................... 11,092
Prepaid expenses-Note 1(e)................................................ 27,118
Due from The Dreyfus Corporation.......................................... 6,502
-----------
871,000
LIABILITIES:
Payable for investment securities purchased............................... $200,767
Accrued expenses and other liabilities.................................... 33,036 233,803
-------- -----------
NET ASSETS................................................................... $ 637,197
===========
REPRESENTED BY:
Paid-in capital........................................................... $ 640,350
Accumulated net unrealized (depreciation) on investments-Note 3.......... (3,153)
-----------
NET ASSETS at value.......................................................... $ 637,197
===========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)................. 29,757
===========
Class B Shares
(unlimited number of $.001 par value shares authorized)................. 20,767
===========
NET ASSET VALUE per share:
Class A Shares
($375,282 / 29,757 shares)........................................... $12.61
======
Class B Shares
($261,915 / 20,767 shares).............................................. $12.61
======
See notes to financial statements.
</TABLE>
<TABLE>
Premier State Municipal Bond Fund, Oregon Series
Statement of Operations
from May 6, 1994 (commencement of operations) to June 30, 1994 (Unaudited)
<S> <C> <C>
INVESTMENT INCOME:
Interest Income.................................................. $ 4,137
Expenses:
Management fee-Note 2(a)....................................... $ 373
Shareholder servicing costs-Note 2(c).......................... 4,403
Organization expenses-Note 1(e)................................ 907
Shareholders' reports.......................................... 804
Registration fees.............................................. 222
Distribution fees (Class B shares)-Note 2(b)................... 143
Custodian fees................................................. 49
Professional fees.............................................. 5
Miscellaneous.................................................. 281
--------
7,187
Less_expense reimbursement from Manager due to
undertaking-Note 2(a)....................................... 7,044
------
Total Expenses............................................ 143
-------
INVESTMENT INCOME-NET.............................................. 3,994
NET UNREALIZED (DEPRECIATION) ON INVESTMENTS........................ (3,153)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $ 841
=======
</TABLE>
See notes to financial statements.
<TABLE>
Premier State Municipal Bond Fund, Oregon Series
Statement of Changes in Net Assets
from May 6, 1994 (commencement of operations) to June 30, 1994 (Unaudited)
<S> <C>
OPERATIONS:
Investment income-net............................................................................. $ 3,994
Net unrealized (depreciation) on investments for the period....................................... (3,153)
-----------
Net Increase In Net Assets Resulting From Operations.......................................... 841
-----------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares.................................................................................. (2,366)
Class B shares.................................................................................. (1,628)
-----------
Total Dividends............................................................................... (3,994)
-----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares.................................................................................. 375,748
Class B shares.................................................................................. 260,729
Dividends reinvested:
Class A shares.................................................................................. 2,330
Class B shares.................................................................................. 1,543
Cost of shares redeemed:
Class A shares.................................................................................. ---
Class B shares.................................................................................. ---
-----------
Increase In Net Assets From Beneficial Interest Transactions.................................. 640,350
-----------
Total Increase In Net Assets................................................................ 637,197
NET ASSETS:
Beginning of period............................................................................... ---
-----------
End of period..................................................................................... $ 637,197
===========
</TABLE>
<TABLE>
Shares
---------------------------
Class A Class B
------- -------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold..................................................................... 29,573 20,645
Shares issued for dividends reinvested.......................................... 184 122
Shares redeemed................................................................. -- --
------- --------
Net Increase In Shares Outstanding......................................... 29,757 20,767
======== ========
</TABLE>
See notes to financial statements.
Premier State Municipal Bond Fund, Oregon Series
Financial Highlights (Unaudited)
Reference is made to page 19 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
Premier State Municipal Bond Fund, Oregon Series
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1-Significant Accounting Policies:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series
company currently offering fifteen series of shares of beneficial interest
including the Oregon Series (the "Series") which commenced operations on May
6, 1994. Dreyfus Service Corporation ("Distributor")
acts as the distributor of the Fund's shares. The Distributor is a wholly-
owned subsidiary of The Dreyfus Corporation ("Manager"). As of June 30, 1994,
the Manager held 16,327 shares of Class A and
16,317 shares of Class B respectively. The Series' fiscal year ends on
April 30.
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge
imposed at the time of redemption on redemptions made within five years
of purchase. Other differences between the two Classes include the services
offered to and the expenses borne by each Class and certain
voting rights.
(a) Portfolio valuation: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service
("Service") approved by the Board of Trustees. Investments for which
quoted bid prices are readily available and are representative of the bid side
of the market in the judgment of the Service are valued
at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation of
the market for such securities). Other investments (which constitute a majority
of the portfolio securities) are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or
prices of municipal securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Options and financial futures on municipal and U.S.
treasury securities are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market on each
business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked
prices. Bid price is used when no asked price is available.
(b) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is earned from settlement date and
recognized on the accrual basis. Securities purchased
or sold on a when-issued or delayed-delivery basis may be settled a month
or more after the trade date.
The Series 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 Series.
(c) Dividends to shareholders: It is the policy of the Series to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain ,if
any, are normally declared and paid annually, but the Series may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net
realized capital gain can be offset by capital loss carryovers, if any, it is
the policy of the Series not to distribute such gain.
(d) Federal income taxes: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of
income and net realized capital gain sufficient to relieve it from substantially
all Federal income taxes.
(e) Organization expenses paid by the Fund are included in prepaid
expenses and are being amortized to operations from May 5, 1994, the date
operations commenced, over the period during which it is
expected that a benefit will be realized, not to exceed five years. At June
30, 1994, the unamortized balance of such expenses amounted to $26,293. In the
event that any of the Initial Shares are redeemed
during the amortization period, the redemption proceeds will be reduced
by any unamortized organization expenses in the same proportion as the number of
such shares being redeemed bears to the number of such
shares outstanding at the time of such redemption.
NOTE 2-Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement ("Agreement") with the
Manager, the management fee is computed at the annual rate of .55 of 1% of the
average daily value of the Series' net assets and is
payable monthly. The Agreement provides for an expense reimbursement
from the Manager should the Series' aggregate expenses, exclusive of taxes,
brokerage, interest on borrowings and extraordinary
expenses, exceed the expense limitation of any state having jurisdiction
over the Series for any full fiscal year. However, the Manager has undertaken
from May 6, 1994 through October 1, 1994 or until such
time as the net assets of the Series exceed $25 million, regardless of
whether they remain at that level, to reimburse all fees and expenses of the
Series (excluding 12b-1 distribution plan fees and
certain expenses as described above). The expense reimbursement,
pursuant to the undertaking, amounted to $7,044 for the period ended June 30,
1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $446 during the period ended June 30, 1994
from commissions earned on sales of the Series' Class A shares.
No amounts were retained by the Distributor during the period ended
June 30, 1994 from contingent deferred sales charges imposed upon redemptions of
the Series' Class B shares.
(b) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series'
Class B shares average daily net assets, for the costs and expenses in
connection with advertising, marketing and distributing the Series' Class B
shares. The Distributor may make payments to one or more
Service Agents (a securities dealer, financial institution, or other
industry professional) based on the value of the Series' Class B shares owned by
clients of the Service Agent. During the period ended June
30, 1994, $143 was charged to the Series pursuant to the Class B
Distribution Plan.
(c) Under the Shareholder Services Plan, the Series pays the
Distributor, at an annual rate of .25 of 1% of the value of the average daily
net assets of Class A and Class B shares for servicing
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Series and providing reports and other
information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents in respect of
these services. The Distributor determines the amounts to be
paid to Service Agents. For the period ended June 30, 1994, $98 and $71
were charged to the Class A and Class B shares, respectively, pursuant to the
Shareholder Services Plan.
(d) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee who
is not an "affiliated person" receives from the
Fund an annual fee of $2,500 and an attendance fee of $250 per meeting.
(e) On December 5, 1993, the Manager entered into an Agreement and
Plan of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in August 1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's shareholders
before completion of the merger. Proxy materials, approved by the Fund's Board,
recently have been mailed to Fund shareholders.
NOTE 3-Securities Transactions:
Purchases and sales of securities amounted to $1,002,246 and
$200,000, respectively, for the period ended June 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At June 30, 1994, accumulated net unrealized depreciation on
investments was $3,153, consisting of $1,834 gross unrealized appreciation and
$4,987 gross unrealized depreciation.
At June 30, 1994, 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).
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--94.4% AMOUNT VALUE
-------------- --------------
<S> <C> <C>
PENNSYLVANIA--88.5%
Allegheny County, Airport Revenue, Refunding
(Pittsburgh International Airport):
5.60%, 1/1/2007 (Insured; MBIA)....................................... $ 2,430,000 $ 2,399,431
5.75%, 1/1/2008 (Insured; FSA)........................................ 2,005,000 1,991,687
Allegheny County Hospital Development Authority, Revenue, Refunding
(Health Center Presbyterian Hospital) 6%, 11/1/2023 (Insured; MBIA)..... 1,000,000 962,600
7.60%, 10/1/2020 (a,b).................................................. 3,000,000 2,445,000
Allegheny County Industrial Development Authority, Revenue:
Commercial Development, Refunding
(Kaufmann Medical Office Building) 6.80%, 3/1/2015 (Insured; FHA)..... 3,500,000 3,689,455
Specialized Enterprise
(Baldwin Health Center) 8.35%, 2/1/2016 (Insured; FHA)................ 4,720,000 5,148,434
Allegheny County Residential Finance Authority, SFMR:
8.25%, 12/1/2019........................................................ 175,000 183,362
7.40%, 12/1/2022........................................................ 1,945,000 2,020,310
7.95%, 6/1/2023......................................................... 1,375,000 1,434,702
Allentown, Refunding 5.65%, 7/15/2010 (Insured; AMBAC)...................... 1,525,000 1,474,599
Beaver County Industrial Development Authority, PCR, Refunding
(Ohio Edison Project) 7.75%, 9/1/2024................................... 3,150,000 3,270,613
(Pennsylvania Power Company Mansfield Project) 7.15%, 9/1/2021.......... 3,000,000 3,054,210
Berks County Municipal Authority:
Revenue (Phoebe Berks Village Inc. Project) 8.25%, 5/15/2022............ 2,445,000 2,503,680
HR (Reading Hospital Medical Center Project) 5.50%, 10/1/2008 (Insured; MBIA) 3,500,000 3,398,150
Blair County Hospital Authority, Revenue (Altoona Hospital)
8.46%, 7/1/2013 (Insured; AMBAC) (a).................................... 5,000,000 5,124,850
Butler County Hospital Authority, Revenue, Refunding;
Health Center (Saint Francis Health Care Project) 6%, 5/1/2008.......... 1,860,000 1,781,899
Hospital (Butler Memorial Hospital) 8%, 7/1/2016........................ 2,000,000 2,156,580
Cambria County Hospital Development Authority, HR, Refunding
(Conemaugh Valley Hospital) 6.375% 7/1/2018............................. 3,100,000 3,045,068
Cambria County Industrial Development Authority, RRR
(Cambria Cogen Project):
7.75%, 9/1/2019, Series F-1 (LOC; Fuji Bank) (c)...................... 1,750,000 1,843,590
7.75%, 9/1/2019, Series F-2 (LOC; Fuji Bank) (c)...................... 2,750,000 2,897,070
Chester County 5.65%, 12/15/2011............................................ 3,500,000 3,338,300
Delaware County, Refunding 6%, 11/15/2022................................... 1,770,000 1,720,511
Delaware County Authority, Revenue (Elwyn Inc. Project) 8.35%, 6/1/2015..... 4,300,000 4,744,878
Delaware County Industrial Development Authority, PCR
(Philadelphia Electricity Co. Project) 7.375%, 4/1/2021................. 2,000,000 2,086,880
Doylestown Hospital Authority, HR, Refunding
5.20%, 7/1/2008 (Insured; AMBAC)........................................ 2,255,000 2,112,845
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
PENNSYLVANIA (CONTINUED)
Erie Higher Educational Building Authority, College Revenue
(Mercyhurst College Project) 7.85%, 9/15/2019........................... $ 1,000,000 $ 1,127,820
Greene County General Facilities Authority, LR 7%, 7/1/2011................. 3,000,000 3,289,080
Huntingdon 7.50%, 12/1/2017................................................. 750,000 816,555
Lancaster County Hospital Authority, Revenue
(Health Center - United Church Homes Project) 9.125%, 10/1/2014......... 1,500,000 1,657,395
Lancaster County Solid Waste Management Authority,
Resource Recovery System Revenue 8.50%, 12/15/2010...................... 1,145,000 1,266,107
Langhorne Manor Borough Higher Educational and Health Authority, HR:
(Lower Bucks Hospital) 7%, 7/1/2005..................................... 2,375,000 2,412,240
(Woods Schools) 8.75%, 11/15/2014....................................... 1,000,000 1,191,580
Lehigh County General Purpose Authority, Revenue (Wiley House):
8.75%, 11/1/2014 (LOC; Northeastern Bank of Pennsylvania) (c)........... 3,785,000 3,785,000
9.50%, 11/1/2016........................................................ 2,000,000 2,056,980
Luzerne County Industrial Development Authority, Exempt Facilities Revenue,
Refunding
(Pennsylvania Gas and Water Company Project);
7.20%, 10/1/2017...................................................... 4,500,000 4,548,060
7.125%, 12/1/2022..................................................... 4,000,000 3,991,800
Lycoming County Authority, Hospital Lease Revenue (Divine Providence Sisters)
7.75%, 7/1/2016......................................................... 2,000,000 2,162,540
Montgomery County Higher Educational and Health Authority, Revenue:
First Mortgage (Montgomery Income Project) 10.50%, 9/1/2020............. 3,000,000 3,220,800
(Northwestern Corporation) 8.375%, 6/1/2009............................. 2,685,000 2,840,891
Montgomery County Industrial Development Authority,
PCR, Refunding (Philadelphia Electricity Company) 7.60%, 4/1/2021....... 3,250,000 3,380,130
RRR 7.50%, 1/1/2012 (LOC; Banque Paribas) (c)........................... 5,000,000 5,266,700
Northampton County Industrial Development Authority, Revenue, Refunding
(Moravian Hall Square Project) 7.45%, 6/1/2014 (LOC; Meridian Bank) (c). 1,800,000 1,894,698
Northeastern Hospital Authority, HR:
(Nesbitt Memorial Hospital) 7.50%, 7/1/2007............................. 1,250,000 1,334,637
(Wilkes - Barre General Hospital) 7.65%, 7/1/2010....................... 965,000 1,039,614
Pennsylvania 5.25%, 6/15/2012............................................... 5,000,000 4,532,200
Pennsylvania Convention Center Authority, Revenue 6.70%, 9/1/2016 (Insured; FGIC) 4,000,000 4,285,120
Pennsylvania Economic Development Financing Authority, RRR
(Northampton Generating Project):
6.40%, 1/1/2009....................................................... 2,500,000 2,371,600
6.50%, 1/1/2013....................................................... 3,500,000 3,280,795
Pennsylvania Finance Authority, Revenue, Refunding
(Municipal Capital Improvements Program) 6.60%, 11/1/2009............... 5,000,000 5,011,400
Pennsylvania Higher Education Assistance Agency, Student Loan Revenue:
7.05%, 10/1/2016 (Insured; AMBAC)....................................... 2,500,000 2,599,125
7.15%, 9/1/2021......................................................... 3,030,000 3,187,530
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
PENNSYLVANIA (CONTINUED)
Pennsylvania Higher Educational Facilities Authority, Revenue:
Refunding (Drexel University) 6.375%, 5/1/2017.......................... $ 2,300,000 $ 2,221,570
(Thomas Jefferson University):
7.30%, 7/1/2015....................................................... 1,500,000 1,670,610
6%, 7/1/2019.......................................................... 3,555,000 3,442,626
Pennsylvania Housing Finance Agency:
8.769%, 4/1/2025 (a).................................................. 3,000,000 2,643,750
Multi-Family Development
8.25%, 12/15/2019..................................................... 997,000 1,016,761
Single Family Mortgage:
6.90%, 4/1/2017....................................................... 2,250,000 2,311,582
8.125%, 10/1/2019..................................................... 450,000 479,165
7.875%, 10/1/2020..................................................... 1,435,000 1,535,636
8.15%, 10/1/2021...................................................... 1,475,000 1,593,103
7.65%, 10/1/2023...................................................... 4,780,000 4,993,284
7%, 4/1/2024.......................................................... 2,000,000 2,060,340
8.15%, 4/1/2024....................................................... 1,470,000 1,563,933
Pennsylvania Industrial Development Authority, Economic Development Revenue:
5.80%, 7/1/2009 (Insured; AMBAC)........................................ 4,750,000 4,651,105
7%, 1/1/2011............................................................ 4,000,000 4,453,360
Pennsylvania Infrastructure Investment Authority, Revenue
(Pennvest Pool Loan Program) 6.80%, 9/1/2010............................ 2,500,000 2,620,575
Pennsylvania University, Refunding:
5.60%, 8/15/2008........................................................ 5,000,000 4,832,550
7%, 7/1/2016............................................................ 3,000,000 3,350,220
5.50%, 8/15/2016........................................................ 2,000,000 1,813,960
Philadelphia, Revenue:
Gas Works:
6.375%, 7/1/2014...................................................... 4,345,000 4,294,294
7.70%, 6/15/2021...................................................... 2,000,000 2,309,220
Water and Sewer:
7.10%, 4/1/2000....................................................... 2,000,000 2,081,500
7.35%, 9/1/2004....................................................... 2,615,000 2,921,870
Water and Wastewater:
5.625%, 6/15/2008..................................................... 5,000,000 4,704,300
5.25%, 6/15/2023 (Insured; MBIA)...................................... 7,405,000 6,372,891
Philadelphia Hospital and Higher Education Facilities Authority:
HR:
(Albert Einstein Medical Center) 7%, 10/1/2021........................ 1,500,000 1,548,915
Refunding (Children's Hospital Philadelphia), 5%, 2/15/2021........... 3,805,000 3,159,938
(Children's Seashore House) 7%, 8/15/2022............................. 2,355,000 2,352,410
(Graduate Health System Obligation) 7.25%, 7/1/2018................... 3,250,000 3,288,773
Revenue:
(Northwestern Corporation) 8.375%, 6/1/2009........................... 1,885,000 1,990,937
Refunding (Philadelphia MR Project) 5.875%, 8/1/2007.................. 4,620,000 4,372,368
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- --------------
PENNSYLVANIA (CONTINUED)
Philadelphia Industrial Development Authority, IDR, Refunding
(Ashland Oil Inc. Project) 5.70%, 6/1/2005.............................. $ 2,500,000 $ 2,452,400
Philadelphia Municipal Authority, Revenue:
Justice Lease 7.10%, 11/15/2011 (Insured; FGIC)......................... 1,500,000 1,688,265
Lease, Refunding 5.60%, 11/15/2009 (Insured; FGIC)...................... 2,100,000 2,032,233
Refunding 6%, 7/15/2003................................................. 2,000,000 1,937,980
Pittsburgh School District, Refunding 5.50%, 9/1/2013 (Insured; FGIC)....... 3,000,000 2,780,910
Pittsburgh Urban Redevelopment Authority:
Mortgage Revenue 7.05%, 4/1/2023........................................ 2,750,000 2,823,947
Single Family Mortgage:
7.625%, 12/1/2021..................................................... 610,000 633,369
7.40%, 4/1/2024....................................................... 1,200,000 1,227,360
Ridley Park Hospital Authority, Revenue (Taylor Hospital) 8.625%, 12/1/2020. 3,185,000 3,832,160
Schuylkill County Industrial Development Authority, Refunding
RRR (Schuylkill Energy Resources Inc.) 6.50%, 1/1/2010.................. 4,000,000 3,820,600
First Mortgage Revenue (Valley Health Concerns) 8.75%, 3/1/2012......... 1,000,000 1,061,790
Scranton - Lackawanna Health and Welfare Authority, Revenue
(University of Scranton Project):
7.25%, 6/15/2005...................................................... 1,310,000 1,467,423
7.50%, 6/15/2006...................................................... 3,400,000 3,856,484
Sewickley Valley Hospital Authority, Revenue
(Allegheny County-Sewickley Valley Hospital Project):
7.50%, 10/1/2014...................................................... 850,000 938,434
7.375%, 10/1/2016..................................................... 1,500,000 1,647,390
Washington County Industrial Development Authority, Revenue, Refunding
(Presbyterian Medical Center) 6.75%, 1/15/2023 (Insured; FHA)........... 2,000,000 2,044,080
West Donegal Township Authority, Sewer Revenue 8.15%, 11/15/2017............ 450,000 500,440
York County Hospital Authority, Revenue
(Health Center - Village at Sprenkle Drive) 7.75%, 4/1/2022............. 1,205,000 1,287,447
U.S. RELATED--5.9%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 4,500,000 4,552,920
Guam Government 5.375%, 11/15/2013.......................................... 4,000,000 3,499,800
Puerto Rico Highway and Transportation Authority,
Highway Revenue 7.379%, 7/1/2006 (a).................................... 5,000,000 4,481,250
Puerto Rico Public Buildings Authority, Guaranteed Public Education and
Health
Facilities, Refunding 5.70%, 7/1/2009................................... 5,000,000 4,808,900
------------
TOTAL MUNICIPAL BONDS (cost $272,286,582)................................... $277,406,229
============
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
SHORT-TERM MUNICIPAL INVESTMENTS--5.6% AMOUNT VALUE
-------------- --------------
PENNSYLVANIA:
Allegheny County, VRDN 3.20% (d)............................................ $ 1,300,000 $ 1,300,000
Allegheny County Higher Education Building Authority, VRDN
(University of Pittsburgh Project) 3.25% (LOC; Fuji Bank) (c,d)......... 3,020,000 3,020,000
Allegheny County Hospital Development Authority, Revenue, VRDN (Health Center
Presbyterian):
3.20%, Series B (d)..................................................... 1,000,000 1,000,000
3.20%, Series C (d)..................................................... 500,000 500,000
3.20%, Series D (d)..................................................... 300,000 300,000
Bucks County Industrial Development Authority, VRDN
(Oxford Falls Plaza Project)
3.70% (d)............................................................... 600,000 600,000
Pennsylvania Higher Educational Assistance Agency, Student Loan Revenue, VRDN
3.30% (LOC: Union Bank of Switzerland) (c,d)............................ 1,500,000 1,500,000
Quakertown Hospital Authority, HR, VRDN (HPS Group Pooled Financing)
3.45% (LOC; First National Bank of Chicago) (c,d)....................... 2,000,000 2,000,000
Schuylkill Industrial Development Authority, RRR, VRDN
(Northeastern Power Co. Project):
2.70% (LOC; Sumitomo Bank) (c,d)...................................... 4,000,000 4,000,000
3% (LOC; Sumitomo Bank) (c,d)......................................... 2,100,000 2,100,000
--------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $16,320,000)................... $ 16,320,000
=============
TOTAL INVESTMENTS--100% (cost $288,606,582)................................. $293,726,229
=============
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
FGIC Financial Guaranty Insurance Corporation MBIA Municipal Bond Insurance Association
FHA Federal Housing Administration PCR Pollution Control Revenue
FSA Financial Security Assurance RRR Resources Recovery Revenue
HR Hospital Revenue SFMR Single Family Mortgage Revenue
IDR Industrial Development Revenue VRDN Variable Rate Demand Notes
LR Lease Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (E) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 22.4%
AA Aa AA 16.8
A A A 18.4
BBB Baa BBB 23.5
BB Ba BB .7
F1 MIG1/P1 SP1/A1 5.5
Not Rated Not Rated Not Rated 12.7
-----
100.0%
=======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Residual interest security - the interest rate is subject to change
periodically.
(b) Security exempt from registration under rule 144A of the Securities
Act of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30,
1994 this security amounted to $2,445,000 or .83% of net assets.
(c) Secured by letters of credit.
(d) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(e) Fitch currently provides creditworthiness information for a limited
amount of investments.
(f) At April 30, 1994, the Series had $78,512,996 (26.64% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenue generated from health care projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $288,606,582)-see statement..................................... $293,726,229
Cash.................................................................... 30,528
Interest receivable..................................................... 5,398,650
Receivable for shares of Beneficial Interest subscribed................. 966,056
Prepaid expenses........................................................ 35,356
--------------
300,156,819
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 202,578
Payable for investment securities purchased............................. 4,741,223
Payable for shares of Beneficial Interest redeemed...................... 499,106
Accrued expenses and other liabilities.................................. 37,524 5,480,431
------------ --------------
NET ASSETS ................................................................ $294,676,388
============
REPRESENTED BY:
Paid-in capital......................................................... $290,283,897
Accumulated net realized capital losses and distributions in excess of
net realized
gain on investments-Note 1(c)......................................... (727,156)
Accumulated net unrealized appreciation on investments-Note 3........... 5,119,647
--------------
NET ASSETS at value......................................................... $294,676,388
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 14,713,865
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 3,689,051
============
NET ASSET VALUE per share:
Class A Shares
($235,619,222 / 14,713,865 shares).................................... $16.01
=======
Class B Shares
($59,057,166 / 3,689,051 shares)...................................... $16.01
=======
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $17,988,165
EXPENSES:
Management fee--Note 2(a)............................................. $ 1,544,000
Shareholder servicing costs-Note 2(c)................................. 900,438
Distribution fees (Class B shares)-Note 2(b).......................... 202,835
Professional fees..................................................... 51,430
Prospectus and shareholders' reports.................................. 37,985
Custodian fees........................................................ 29,632
Registration fees..................................................... 23,632
Trustees' fees and expenses-Note 2(d)................................. 2,256
Miscellaneous......................................................... 22,444
-------------
2,814,652
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 317,330
-------------
TOTAL EXPENSES.................................................. 2,497,322
-------------
INVESTMENT INCOME--NET.......................................... 15,490,843
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments--Note 3.............................. $ (638,867)
Net unrealized (depreciation) on investments............................ (11,269,771)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (11,908,638)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 3,582,205
============
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
--------------------------------
1993 1994
-------------- --------------
OPERATIONS:
Investment income--net.................................................. $ 11,847,846 $ 15,490,843
Net realized gain (loss) on investments................................. 595,471 (638,867)
Net unrealized appreciation (depreciation) on investments for the year.. 10,916,698 (11,269,771)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 23,360,015 3,582,205
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (11,767,382) (13,483,408)
Class B shares........................................................ (80,464) (2,007,435)
Net realized gain on investments:
Class A shares........................................................ (1,308,117) (420,030)
Class B shares........................................................ -- (79,933)
Excess net realized gain on investments:
Class A shares........................................................ -- (74,174)
Class B shares........................................................ -- (14,115)
-------------- --------------
TOTAL DIVIDENDS................................................... (13,155,963) (16,079,095)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 61,710,489 41,975,312
Class B shares........................................................ 14,569,844 47,612,555
Dividends reinvested:
Class A shares........................................................ 6,496,038 7,051,281
Class B shares........................................................ 47,658 1,277,978
Cost of shares redeemed:
Class A shares........................................................ (15,870,806) (24,912,768)
Class B shares........................................................ (42,861) (1,382,027)
-------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 66,910,362 71,622,331
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................................... 77,114,414 59,125,441
NET ASSETS:
Beginning of year....................................................... 158,436,533 235,550,947
-------------- --------------
End of year............................................................. $235,550,947 $294,676,388
=========== =============
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------------- -----------------------------
1993 1994 1993* 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 3,810,707 2,482,244 880,939 2,815,030
Shares issued for dividends reinvested. 401,112 418,362 2,877 76,056
Shares redeemed........................ (980,220) (1,489,929) (2,609) (83,242)
-------- -------- -------- ---------
NET INCREASE IN SHARES OUTSTANDING... 3,231,599 1,410,677 881,207 2,807,844
========= ========== ========= =========
- ---------------
* From January 15, 1993 (commencement of initial offering) through April 30,
1993.
See notes to financial statements.
</TABLE>
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 20 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
NOTES TO FINANCAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Pennsylvania Series (the "Series").
Dreyfus Service Corporation ("Distributor") acts as the distributor of the
Fund's shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
NOTES TO FINANCAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investment for financial
statement purposes result primarily from losses from security transactions
during the year ended April 30, 1994 which are treated for Federal income tax
purposes as arising in Fiscal 1995.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
had undertaken from May 1, 1993 through January 18, 1994 to reduce the
management fee paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The Manager has
currently undertaken from January 19, 1994 through July 1, 1994, to waive
receipt of the management fee payable to it by the Series in excess of an
annual rate of .50 of 1% of the Series' average daily net assets. The
reduction in management fee, pursuant to the undertakings, amounted to
$317,330 for the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $97,917 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $26,878 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $202,835 was charged to the Series pursuant to the
Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
NOTES TO FINANCAL STATEMENTS (CONTINUED)
services related to the maintenance of shareholder accounts. The Distributor
may make payments to Service Agents in respect of these services. The
Distributor determines the amounts to be paid to Service Agents. For the year
ended April 30, 1994, $600,400 and $101,418 were charged to the Class A and
Class B shares, respectively, pursuant to the Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $151,124,900 and
$79,857,866, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $5,119,647, consisting of $10,855,716 gross unrealized appreciation and
$5,736,069 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, PENNSYLVANIA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Pennsylvania Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Pennsylvania Series at April
30, 1994, 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 And Young Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--92.2% AMOUNT VALUE
-------------- ------------
<S> <C> <C>
TEXAS--87.6%
Alliance Airport Authority Inc., Special Facilities Revenue
(American Airlines Inc., Project):
7%, 12/1/2011......................................................... $ 1,550,000 $ 1,530,687
7.50%, 12/1/2029...................................................... 1,000,000 1,009,670
Amarillo Health Facilities Corp., HR (High Plains Baptist Hospital)
9.672%, 1/3/2022 (Insured; FSA) (a)..................................... 2,250,000 2,314,688
Austin:
Convention Center Revenue:
8.25%, 11/15/2014..................................................... 500,000 575,140
Refunding 6%, 11/15/2005.............................................. 3,000,000 2,967,540
(Public Improvement) 6.75%, 9/1/2010.................................... 500,000 542,100
Bexar County, Refunding, Limited Tax 5%, 6/15/2010.......................... 8,000,000 7,074,080
Brazos County Health Facility Development Corp., Franciscan Services
Corporate Revenue
(Saint Joseph's Hospital and Health Center):
7.75%, 1/1/2019....................................................... 300,000 339,174
Refunding 8.875%, 1/1/2015............................................ 50,000 57,693
Brazos Higher Education Authority Inc., Student Loan Revenue, Refunding:
5.70%, 6/1/2004......................................................... 3,500,000 3,453,660
6.80%, 12/1/2004........................................................ 850,000 848,657
Brazos River Authority:
PCR (Texas Utilities Electric Company):
9.25%, 3/1/2018 (Insured; FGIC)....................................... 100,000 111,809
7.875%, 3/1/2021...................................................... 500,000 539,285
Water Revenue (Upper Navasota Project) 7%, 7/15/2004.................... 90,000 90,814
Brazos River Harbor Navigation District, Brazoria County, PCR
(BASF Corp. Project) 6.75%, 2/1/2010.................................... 1,800,000 1,872,612
Chimney Hill Municipal Utility District, Waterworks and Sewer System Revenue,
Refunding 7.75%, 10/1/2011.............................................. 1,000,000 1,047,540
Clint Independent School District, Refunding
7%, 3/1/2015............................................................ 750,000 795,848
Colorado River Municipal Water District, Water Revenue
(Water Transmission Facilities Project) 6.625%, 1/1/2021 (Insured; AMBAC) 1,000,000 1,071,810
Dallas-Fort Worth Regional Airport, Joint Revenue
6.625%, 11/1/2021 (Insured; FGIC)....................................... 1,250,000 1,269,850
Dallas Housing Finance Corp., SFMR
(GNMA Mortgage Securities Program) 7.95%, 12/1/2023..................... 165,000 171,265
El Paso Housing Authority, Multi-Family Revenue
(Section 8 Projects) 6.25%, 12/1/2009................................... 2,510,000 2,460,904
Fort Bend County Municipal Utility District No. 42, Refunding
8.30%, 4/1/2009......................................................... 300,000 320,559
Fort Worth Housing Finance Corp., SFMR
(GNMA Mortgage Securities Program) 8.25%, 12/1/2011 (Insured; GNMA)..... 60,000 62,300
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- ------------
TEXAS (CONTINUED)
Gulf Coast Waste Disposal Authority, SWDR
(Champion International Corp. Project) 7.25%, 4/1/2017.................. $ 1,000,000 $ 1,020,170
Harris County, Toll Road Multi-Mode, Senior Lien Revenue:
6.75%, 8/1/2014......................................................... 750,000 780,232
8.125%, 8/15/2017....................................................... 250,000 285,230
Harris County Health Facilities Development Corp., Health Care System Revenue
(Sisters of Charity) 7.10%, 7/1/2021.................................... 1,000,000 1,062,840
Harris County Industrial Development Corp., Marine Terminal Revenue,
Refunding
(GATX Terminal Corp. Project) 6.95%, 2/1/2022........................... 750,000 765,788
City of Houston, Airport System Revenue:
6.75%, 7/1/2021 (Insured; FGIC)......................................... 1,000,000 1,024,570
6.625%, 7/1/2022 (Insured; FGIC)........................................ 1,000,000 1,021,560
Houston Housing Finance Corp., SFMR 10%, 9/15/2014.......................... 80,000 82,426
Leon County, PCR, Refunding (Nucor Corp. Project) 7.375%, 8/1/2009.......... 750,000 811,972
Lewisville Independent School District 5.35%, 8/15/2014..................... 2,750,000 2,473,103
Lower Colorado River Authority, Revenue:
6.875%, 1/1/2010 (Insured; BIGI)........................................ 80,000 85,811
6.875%, 1/1/2010 (Insured; BIGI)........................................ 70,000 73,032
8.375%, 1/1/2015........................................................ 50,000 54,171
Matagorda County Navigation District No. 1, PCR
(Collateralized Houston Lighting and Power) 7.875%, 2/1/2019............ 500,000 541,150
Montgomery County Health Facilities Development Corp., Hospital Mortgage
Revenue
(Woodlands Medical Center Project) 8.85%, 8/15/2014..................... 600,000 663,708
North Central Health Facility Development Corp., Revenue (Presbyterian Health
Care):
6%, 6/1/2013............................................................ 1,000,000 950,920
5.90%, 6/1/2021......................................................... 2,300,000 2,084,513
North Texas Higher Education Authority, Inc., Student Loan Revenue
7.25%, 4/1/2003 (Insured; AMBAC)........................................ 1,000,000 1,059,100
Port Corpus Christi Authority, PCR, Refunding
(Hoechst Celanese Co. Project) 7.50%, 8/1/2012.......................... 395,000 429,756
Red River Authority, PCR:
(Hoechst Celanese Corp. Project) 6.875%, 4/1/2017....................... 2,000,000 2,055,540
(West Texas Public Service Company, Oklahoma Power and Lighting Co.
Project)
7.875%, 9/15/2014..................................................... 100,000 108,040
Rio Grande Valley Health Facilities Development Corp., Retirement Facility
Revenue
(Golden Palms) 8.455%, 8/1/2015 (Insured; MBIA) (a)..................... 2,000,000 1,992,300
Sabine River Authority, PCR
(Texas Utility Co. Project) 7.75%, 4/1/2016............................. 500,000 527,045
San Antonio:
Electric and Gas Revenue:
5.75%, 2/1/2011....................................................... 2,000,000 1,931,020
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
-------------- -------------
TEXAS (CONTINUED)
San Antonio(continued):
General Improvement (Bexar County- Limited Tax) 7.875%, 8/1/2012........ $ 100,000 $ 109,375
Refunding 5.75%, 8/1/2013............................................... 3,000,000 2,842,650
Water Revenue (Prior Lien) 7.125%, 5/1/2016............................. 750,000 825,788
San Saba County, Certificates of Obligation 8.625%, 2/15/2019............... 990,000 1,068,774
Southeast Housing Finance Corp., SFMR
8.375%, 6/1/2008 (Collateralized; GNMA Pass-Through Certificates)....... 30,000 31,291
Texas, Refunding:
6%, 10/1/2009........................................................... 2,000,000 2,038,240
(Superconducting Super Collider Project) 6%, 4/1/2012................... 1,500,000 1,483,695
Texas City Independent School District:
5%, 8/15/2011........................................................... 1,030,000 893,000
5%, 8/15/2012........................................................... 940,000 809,218
Texas Health Facilities Development Corp., HR, Refunding
(All Saints Episcopal Hospitals) 6.25%, 8/15/2022 (Insured; MBIA)....... 2,000,000 1,973,620
Texas Higher Education Coordinating Board, College Student Loan Revenue
7.30%, 10/1/2003........................................................ 875,000 885,001
Texas Housing Agency, Revenue:
Mortgage Refunding 7.15%, 9/1/2012...................................... 720,000 743,141
Single Family Mortgage:
9.375%, 9/1/2016 (Insured; FHA)....................................... 610,000 631,075
8.25%, 3/1/2017....................................................... 95,000 100,004
7.50%, 9/1/2017....................................................... 190,000 193,901
Texas Municipal Power Agency, Refunding 5.75%, 9/1/2012 (Insured; MBIA)..... 775,000 803,481
Texas National Research Laboratory Commission, Financing Corp., LR
(Superconducting Super Collider) 7.10%, 12/1/2021....................... 1,000,000 1,025,000
Texas Public Property Finance Corp., Revenue
(Mental Health and Retardation) 8.875%, 9/1/2011........................ 560,000 684,135
Texas Veterans Housing Assistance 6.80%, 12/1/2023.......................... 1,500,000 1,514,235
Texas Water Resources Finance Authority, Revenue 7.625%, 8/15/2008.......... 400,000 430,744
Tomball Hospital Authority, Revenue, Refunding 6%, 7/1/2013................. 5,000,000 4,479,050
Trinity River Authority, Texas Project Revenue
(Regional Wastewater System) 7.70%, 8/1/2006 (Insured; FGIC)............ 100,000 106,935
Tyler Texas Health Facility Development Corp., HR
(East Texas Medical Center Regional Health) 6.625%, 11/1/2011........... 1,945,000 1,871,285
West Side Calhoun County Navigation District, SWDR
(Union Carbide Chemical and Plastics) 8.20%, 3/15/2021.................. 500,000 545,375
U.S. RELATED--4.6%
Puerto Rico, Refunding 5.50%, 7/1/2013...................................... 2,750,000 2,499,447
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
U.S. RELATED (CONTINUED) AMOUNT VALUE
-------------- ------------
Puerto Rico Public Buildings Authority, Guaranteed
Public Education and Health Facilities:
6.875%, 7/1/2012...................................................... $ 1,000,000 $ 1,115,170
7.25%, 7/1/2017....................................................... 500,000 550,430
-------------
TOTAL MUNICIPAL BONDS (cost $82,133,181).................................... $82,665,742
=============
SHORT-TERM MUNICIPAL INVESTMENTS--7.8%
TEXAS;
Harris County Industrial Development Corp., SWDR, VRDN
(Deer Park Ltd. Partnership) 3.30% (b).................................. $ 5,000,000 $ 5,000,000
Port Development Corp. of Texas, Marine Terminal Revenue,
Refunding, VRDN (Pasadena Terminal Co. Inc.)
3.45% (LOC; Alegemene Bank Nederland) (b,c)............................. 1,000,000 1,000,000
Trinity River Industrial Development Authority, IDR, VRDN
(Toys 'R' Us-Nynex Inc. Project) 3.25% (LOC; Bankers Trust) (b,c)....... 1,000,000 1,000,000
-------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $7,000,000).................... $ 7,000,000
-------------
-------------
TOTAL INVESTMENTS--100.0% (cost 89,133,181)................................. $89,665,742
=============
</TABLE>
<TABLE>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation LR Lease Revenue
BIGI Bond Investors Guaranty Insurance LOC Letter of Credit
FGIC Financial Guaranty Insurance Corporation MBIA Municipal Bond Insurance Association
FHA Federal Housing Administration PCR Pollution Control Revenue
FSA Financial Security Assurance SWDR Solid Waste Disposal Revenue
GNMA Government National Mortgage Association SFMR Single Family Mortgage Revenue
HR Hospital Revenue VRDN Variable Rate Demand Notes
IDR Industrial Development Revenue
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 26.4%
AA Aa AA 35.5
A A A 10.7
BBB Baa BBB 13.2
Not Rated Not Rated Not Rated 14.2
------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Residual interest security - the interest rate is subject to change
periodically.
(b) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(c) Secured by letters of credit.
(d) Fitch currently provides creditworthiness information for a limited
amount of investments.
See notes to financial statements.
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $89,133,181)-see statement...................................... $89,665,742
Cash.................................................................... 899,295
Interest receivable..................................................... 1,540,761
Receivable for shares of Beneficial Interest subscribed................. 106,987
Prepaid expenses........................................................ 16,465
-------------
92,229,250
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $25,270
Payable for shares of Beneficial Interest redeemed...................... 34,462
Accrued expenses........................................................ 14,287 74,019
-------- -------------
NET ASSETS ................................................................ $92,155,231
=============
REPRESENTED BY:
Paid-in capital......................................................... $91,769,410
Accumulated net realized capital losses and distributions in excess of
net realized gain on investments-Note 1(c)............................ (146,740)
Accumulated net unrealized appreciation on investments-Note 3........... 532,561
-------------
NET ASSETS at value......................................................... $92,155,231
=============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 3,737,818
=============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 778,126
=============
NET ASSET VALUE per share:
Class A Shares
($76,276,977 / 3,737,818 shares)...................................... $20.41
=======
Class B Shares
($15,878,254 / 778,126 shares)........................................ $20.41
=======
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 5,640,349
EXPENSES:
Management fee--Note 2(a)............................................. $ 503,485
Shareholder servicing costs-Note 2(c)................................. 270,918
Distribution fees (Class B shares)-Note 2(b).......................... 60,667
Registration fees..................................................... 26,687
Professional fees..................................................... 22,334
Prospectus and shareholders' reports.................................. 18,421
Custodian fees........................................................ 10,145
Trustees' fees and expenses-Note 2(d)................................. 742
Miscellaneous......................................................... 17,149
------------
930,548
Less-Management fee waived due to
undertaking-Note 2(a)............................................. 503,485
------------
TOTAL EXPENSES.................................................. 427,063
------------
INVESTMENT INCOME--NET.......................................... 5,213,286
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments--Note 3.............................. $ (9,624)
Net unrealized (depreciation) on investments............................ (3,426,202)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (3,435,826)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 1,777,460
============
See notes to financial statements.
</TABLE>
<TABLE>
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
-------------------------------
1993 1994
------------- -------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 3,376,089 $ 5,213,286
Net realized gain (loss) on investments................................. 632,845 (9,624)
Net unrealized appreciation (depreciation) on investments for the year.. 2,824,040 (3,426,202)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 6,832,974 1,777,460
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (3,330,129) (4,588,600)
Class B shares........................................................ (45,960) (624,686)
Net realized gain on investments:
Class A shares........................................................ (80,058) (484,938)
Class B shares........................................................ - (80,902)
Excess net realized gain on investments:
Class A shares........................................................ - (117,512)
Class B shares........................................................ - (19,605)
------------- -------------
TOTAL DIVIDENDS................................................... (3,456,147) (5,916,243)
------------- -------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 34,547,838 15,134,395
Class B shares........................................................ 6,338,141 10,828,176
Dividends reinvested:
Class A shares........................................................ 1,766,600 2,405,249
Class B shares........................................................ 27,102 427,887
Cost of shares redeemed:
Class A shares........................................................ (4,843,723) (10,038,595)
Class B shares........................................................ (10,314) (873,440)
------------- -------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 37,825,644 17,883,672
------------- -------------
TOTAL INCREASE IN NET ASSETS.................................... 41,202,471 13,744,889
NET ASSETS:
Beginning of year....................................................... 37,207,871 78,410,342
------------- -------------
End of year............................................................. $78,410,342 $92,155,231
============= =============
</TABLE>
<TABLE>
SHARES
--------------------------------------------------------------------
CLASS A CLASS B
------------------------------- -------------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------- -------------------------------
1993 1994 1993* 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 1,670,668 699,480 299,440 498,740
Shares issued for dividends reinvested. 85,533 111,346 1,281 19,835
Shares redeemed........................ (233,702) (466,348) (483) (40,687)
------------- ------------- ------------- -------------
NET INCREASE IN SHARES OUTSTANDING 1,522,499 344,478 300,238 477,888
============= ============= ============= =============
</TABLE>
- ------------------------
* From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 21 of the Fund's Propsectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Texas Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market are valued at the mean between the quoted bid prices (as obtained
by the Service from dealers in such securities) and asked prices (as calculate
d 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investment for financial
statement purposes result primarily from losses from securities transactions
during the year ended April 30, 1994 which are treated for Federal income tax
purposes as arising in Fiscal 1995.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
has undertaken from May 1, 1993 to waive receipt of the management fee
payable to it by the Series until such time as the net assets of the Series
exceed $100 million, regardless of whether they remain at that level. The
management fee waived, pursuant to the undertaking, amounted to $503,485 for
the year ended April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $28,029 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $17,616 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $60,667 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$198,523 and $30,334 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $38,090,395 and
$24,536,531, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds and short-term municipal investments.
At April 30, 1994, accumulated net unrealized appreciation on investments
was $532,561, consisting of $2,257,185 gross unrealized appreciation and
$1,724,624 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, TEXAS SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Texas Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Texas Series at April 30,
1994, 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 Signature Logo)
New York, New York
June 7, 1994
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
STATEMENT OF INVESTMENTS APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS--100.0% AMOUNT VALUE
-------------- ------------
<S> <C> <C>
VIRGINIA--87.6%
Arlington County Industrial Development Authority,
Hospital Facility Revenue (Arlington Hospital):
7.125%, 9/1/2021...................................................... $ 200,000 $ 224,918
Refunding 5%, 9/1/2021................................................ 2,750,000 2,210,725
Augusta County Industrial Development Authority, HR
(Augusta Hospital Corp. Project) 7%, 9/1/2021........................... 2,750,000 3,057,697
Chesapeake, Water and Sewer System Revenue, Refunding 6.50%, 7/1/2012....... 1,000,000 1,018,490
Chesapeake Bay Bridge and Tunnel Commission District, Revenue,
Refunding-General Resolution 6.375%, 7/1/2022 (Insured; MBIA)........... 1,500,000 1,512,765
Chesapeake Hospital Authority, Hospital Facility Revenue, Refunding
(Chesapeake General Hospital) 5.25%, 7/1/2018 (Insured; MBIA)........... 1,000,000 868,220
Commonwealth Transportation Board, Transportation Revenue
(Northern Virginia Transportation District Program) 5.50%, 5/15/2015.... 2,500,000 2,301,250
Community Housing Finance Corp. Arlington County,
Collateralized Mortgage Revenue, Refunding (Colonial Village Project):
6.125%, 12/1/2016 (Insured; FHA)...................................... 900,000 859,554
6.25%, 6/1/2022 (Insured; FHA)........................................ 1,000,000 959,410
Covington-Alleghany County Industrial Development Authority,
Hospital Facility Revenue (Alleghany Regional Hospital) 6.875%, 4/1/2022 1,000,000 1,031,480
Fairfax County Water Authority, Water Revenue:
5%, 4/1/2016............................................................ 2,000,000 1,705,800
6.125%, 1/1/2029........................................................ 2,000,000 2,098,700
8.68%, 4/1/2029 (a,b)................................................... 2,000,000 1,680,000
Franklin 6.40%, 1/15/2012................................................... 1,000,000 1,021,640
Fredericksburg Industrial Development Authority, Hospital Facility Revenue,
Refunding
(MWH Medicorp Obligation Group) 6.70%, 8/15/2009 (Insured; FGIC)........ 195,000 206,016
Giles County Industrial Development Authority,
Solid Waste Disposal Facility Revenue (Hoechst Celanese Corp. Project)
6.625%, 12/1/2022....................................................... 1,500,000 1,515,210
Hampton Roads Medical College, General Revenue, Refunding 6.875%, 11/15/2016 500,000 523,305
Harrisonburg Redevelopment and Housing Authority,
Multi-Family Housing Revenue, Refunding:
(Battery Heights Project) 7.375%, 11/20/2028.......................... 500,000 527,690
(Hanover Crossing Apartments Project) 6.35%, 3/1/2023................. 2,000,000 1,923,740
Henrico County 6.90%, 10/1/2009............................................. 300,000 328,746
Industrial Development Authority of Albermarle County, Revenue:
Health Services (The University of Virginia Health Services Foundation)
6.50%, 10/1/2022...................................................... 1,125,000 1,128,296
Hospital Refunding (Martha Jefferson Hospital) 5.50%, 10/1/2020......... 1,500,000 1,321,980
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------- -------------
VIRGINIA (CONTINUED)
Industrial Development Authority of the City of Lynchburg,
Educational Facilities Revenue (Randolph-Macon Woman's College)
5.875%, 9/1/2013........................................................ $ 500,000 $ 473,930
Industrial Development Authority of the City of Williamsburg,
Hospital Facility Revenue (Williamsburg Community Hospital) 5.75%, 10/1/2022 2,000,000 1,778,960
Industrial Development Authority of the County of Prince William,
HR Refunding (Prince William Hospital):
5.625%, 4/1/2012...................................................... 1,000,000 931,090
5.25%, 4/1/2019....................................................... 1,000,000 847,770
Industrial Development Authority of the Town of West Point,
SWDR (Chesapeake Corp. Project) 6.375%, 3/1/2019........................ 3,500,000 3,338,615
Mecklenburg County Industrial Development Authority, Revenue
(Exempt Facility-Mecklenburg Cogeneration) 7.35%, 5/1/2008 (LOC; Fuji Bank) (c) 500,000 523,425
Nelson County Service Authority, Water and Sewer Revenue, Refunding
5.50%, 7/1/2018 (Insured; FGIC)......................................... 1,750,000 1,587,268
Newport News Redevelopment and Housing Authority, Mortgage Revenue, Refunding
(FHA-West Apartments-Section 8) 6.55%, 7/1/2024......................... 1,500,000 1,502,760
Norfolk Industrial Development Authority, HR
(Sentara Hospital-Norfolk Project) 7%, 11/1/2020........................ 150,000 166,888
Peninsula Ports Authority, Health System Revenue, Refunding
(Riverside Health System Project) 6.625%, 7/1/2018...................... 500,000 508,630
Prince William County Service Authority, Water and Sewer System Revenue
6%, 7/1/2029 (Insured; FGIC)............................................ 2,000,000 1,928,960
Rector and Visitors of the University of Virginia, General Revenue Pledge
5.375%, 6/1/2020........................................................ 4,370,000 3,880,735
Richmond, Refunding 6.25%, 1/15/2018........................................ 500,000 501,935
Richmond Industrial Development Authority, HR (Retreat Hospital)
7.35%, 7/1/2021......................................................... 1,900,000 1,953,390
Richmond Metropolitan Authority, Expressway Revenue, Refunding
6.375%, 7/15/2016 (Insured; FGIC)....................................... 1,500,000 1,512,690
South Boston Industrial Development Authority, HR
(Halifax Community Hospital Inc. Project) 7.375%, 9/1/2011.............. 500,000 543,610
Southeastern Public Service Authority, Revenue:
5.125%, 7/1/2013 (Insured; MBIA)........................................ 3,850,000 3,412,833
(Regional Solid Waste System):
10.50%, 7/1/1995...................................................... 250,000 273,965
6%, 7/1/2013.......................................................... 1,250,000 1,197,737
6%, 7/1/2017.......................................................... 1,750,000 1,661,800
Upper Occoquan Sewer Authority, Regional Sewer Revenue
6.50%, 7/1/2017 (Insured; MBIA)......................................... 1,000,000 1,086,350
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
PRINCIPAL
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------- -------------
VIRGINIA (CONTINUED)
Virginia, Higher Educational Institution 6.60%, 6/1/2009.................... $ 300,000 $ 323,826
Virginia Beach Development Authority:
Hospital Facility Revenue (Sentara Bayside Hospital) 6.30%, 11/1/2021... 2,000,000 1,987,060
Nursing Home Revenue (Sentara Life Care Corp.) 7.75%, 11/1/2021......... 1,000,000 1,097,820
Virginia College Building Authority Educational Facilities Revenue:
(Hampton University Project) 6.50%, 4/1/2008............................ 350,000 367,175
(Randolph - Macon College Project) 6.625%, 5/1/2013..................... 1,000,000 1,019,410
(Refunding - Washington and Lee University Project) 6.40%, 1/1/2012..... 500,000 507,860
Virginia Housing Development Authority:
Commonwealth Mortgage:
6.95%, 1/1/2010....................................................... 2,500,000 2,565,275
6.85%, 1/1/2027....................................................... 2,000,000 2,025,100
Multi-Family:
7.10%, 5/1/2013....................................................... 500,000 514,375
Refunding 5.90%, 11/1/2017............................................ 2,000,000 1,842,900
Virginia Public Building Authority, Building Revenue 5.75%, 8/1/2012........ 1,000,000 959,010
Virginia Resources Authority, Water and Sewer System Revenue:
(Lot 7-Rapidan Service Authority) 7.125%, 10/1/2016..................... 250,000 269,955
(Lot 9-Frederick County) 6%, 10/1/2012.................................. 500,000 488,750
(Lot 11-Rapidan Service Authority) 5.50%, 10/1/2019..................... 1,250,000 1,127,312
Virginia Transportation Board, Transportation Contract Revenue, Refunding
(United States Route 58 Corridor Program) 5.25%, 5/15/2012.............. 250,000 225,165
Washington County Industrial Development Authority,
Hospital Facility Revenue (First Mortgage - Johnston Memorial Hospital)
7%, 7/1/2022................................................................ 750,000 783,742
Winchester Industrial Development Authority, HR
6.718%, 1/1/1998 (Insured; AMBAC) (a)................................... 3,400,000 3,141,430
York County, COP 6.625%, 3/1/2012........................................... 500,000 518,775
U. S. RELATED--12.4%
Guam Airport Authority, Revenue 6.70%, 10/1/2023............................ 2,000,000 2,023,520
Puerto Rico, (Public Improvement):
7.70%, 7/1/2020......................................................... 1,000,000 1,152,820
6.80%, 7/1/2021......................................................... 1,000,000 1,110,320
Puerto Rico Electric Power Authority, Power Revenue 7%, 7/1/2021............ 325,000 349,954
Puerto Rico Highway and Transportation Authority, Highway Revenue :
7.562%, 7/1/2009(a)..................................................... 2,950,000 2,544,375
6.625%, 7/1/2018........................................................ 2,000,000 2,197,660
Virgin Islands Public Finance Authority, Revenue, Refunding,
Matching Fund Loan Notes 7.25%, 10/1/2018............................... 1,500,000 1,595,685
-------------
TOTAL INVESTMENTS (cost $90,055,917)........................................ $88,378,247
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation HR Hospital Revenue
COP Certificate of Participation LOC Letter of Credit
FGIC Financial Guaranty Insurance Corporation MBIA Municipal Bond Insurance Association
FHA Federal Housing Administration SWDR Solid Waste Disposal Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (D) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
AAA Aaa AAA 30.3%
AA Aa AA 31.5
A A A 28.1
BBB Baa BBB 8.3
Not Rated Not Rated Not Rated 1.8
--------
100.0%
=======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Residual interest security - the interest rate is subject to change
periodically.
(b) Security 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,
1994, this security amounted to $1,680,000 or 1.9% of net assets.
(c) Secured by letters of credit.
(d) Fitch currently provides creditworthiness information for a limited
amount of investments.
(e) At April 30, 1994, the Fund had $26,241,988 (29.0%) of net assets
invested in securities whose payment of principal and interest is
dependent upon revenues generated from health care projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $90,055,917)-see statement...................................... $88,378,247
Cash.................................................................... 320,681
Interest receivable..................................................... 1,701,734
Receivable for shares of Beneficial Interest subscribed................. 278,682
Prepaid expenses........................................................ 17,628
-------------
90,696,972
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $28,692
Payable for shares of Beneficial Interest redeemed...................... 89,681
Accrued expenses and other Liabilities.................................. 46,084 164,457
-------- -------------
NET ASSETS ................................................................ $90,532,515
============
REPRESENTED BY:
Paid-in capital......................................................... $92,412,906
Accumulated net realized capital losses and distributions
in excess of net realized gain on investments-Note 1(c)............... (202,721)
Accumulated net unrealized (depreciation) on investments-Note 3......... (1,677,670)
-------------
NET ASSETS at value......................................................... $90,532,515
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 4,073,851
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 1,576,165
============
NET ASSET VALUE per share:
Class A Shares
($65,278,833 / 4,073,851 shares)...................................... $16.02
=======
Class B Shares
($25,253,682 / 1,576,165 shares)...................................... $16.02
=======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $5,136,144
EXPENSES:
Management fee--Note 2(a)............................................. $ 464,237
Shareholder servicing costs-Note 2(c)................................. 273,926
Distribution fees (Class B shares)-Note 2(b).......................... 99,567
Prospectus and shareholders' reports.................................. 19,083
Professional fees..................................................... 12,251
Registration fees..................................................... 11,238
Custodian fees........................................................ 9,284
Trustees' fees and expenses-Note 2(d)................................. 688
Miscellaneous......................................................... 68,088
------------
958,362
Less-management fee waived due to
undertaking-Note 2(a)............................................. 464,237
-----------
TOTAL EXPENSES.................................................. 494,125
------------
INVESTMENT INCOME--NET.......................................... 4,642,019
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments--Note 3.............................. $ (105,697)
Net unrealized (depreciation) on investments............................ (4,819,942)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (4,925,639)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (283,620)
===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
-------------------------------
1993 1994
------------- -------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 2,476,674 $ 4,642,019
Net realized gain (loss) on investments................................. 96,550 (105,697)
Net unrealized appreciation (depreciation) on investments for the year.. 3,042,530 (4,819,942)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... 5,615,754 (283,620)
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares........................................................ (2,421,216) (3,641,582)
Class B shares........................................................ (55,458) (1,000,437)
Net realized gain on investments:
Class A shares........................................................ (35,470) (48,263)
Class B shares........................................................ --- (16,560)
Excess net realized gain on investments:
Class A shares........................................................ --- (72,239)
Class B shares........................................................ --- (24,785)
------------- -------------
TOTAL DIVIDENDS................................................... (2,512,144) (4,803,866)
------------- -------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 33,039,306 17,318,650
Class B shares........................................................ 8,333,034 18,814,589
Dividends reinvested:
Class A shares........................................................ 1,389,831 2,089,707
Class B shares........................................................ 34,621 582,077
Cost of shares redeemed:
Class A shares........................................................ (4,961,334) (6,302,664)
Class B shares........................................................ (5,211) (911,833)
------------- -------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 37,830,247 31,590,526
------------- -------------
TOTAL INCREASE IN NET ASSETS.................................... 40,933,857 26,503,040
NET ASSETS:
Beginning of year....................................................... 23,095,618 64,029,475
------------- -------------
End of year............................................................. $64,029,475 $90,532,515
============= =============
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------------------------------------------------------------
CLASS A CLASS B
------------------------------- -----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
----------------------------- -----------------------------
1993 1994 1993(1) 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 2,040,550 1,010,771 498,506 1,095,592
Shares issued for dividends reinvested. 85,167 122,266 2,067 34,099
Shares redeemed........................ (304,511) (370,731) (309) (53,790)
------------- ------------- ------------- -------------
NET INCREASE IN SHARES OUTSTANDING 1,821,206 762,306 500,264 1,075,901
============= ============= ============ =============
- -------------------------------
(1) From January 15, 1993 (commencement of initial offering) to April 30, 1993.
See notes to financial statements.
</TABLE>
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
FINANCIAL HIGHLIGHTS
Reference is made to page 22 of the Fund's Prospectus dated September 1, 1994.
See notes to financial statements.
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Premier State Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering fifteen series including the Virginia Series (the "Series"). Dreyfus
Service Corporation ("Distributor") acts as the distributor of the Fund's
shares. The Distributor is a wholly-owned subsidiary of The Dreyfus
Corporation ("Manager").
The Fund 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.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of
the market 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, when appropriate,
discounts on investments, is earned from settlement date and recognized on
the accrual basis. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
The Series 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 Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series 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 Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends in excess of net realized gains on investment for financial
statement purposes result primarily from wash sale losses in certain security
transactions during the year ended April 30, 1994 which have been currently
deferred for Federal income tax purposes.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code,
and to make distributions of income and net realized capital gain sufficient
to relieve it from all, or substantially all, Federal income taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. However, the Manager
has currently undertaken until such time as the net assets of the
Series exceeds $100 million, to waive receipt of the management fee
payable to it by the Series. The management fee waived, pursuant
to the undertaking, amounted to $464,237 for the year ended
April 30, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
The Distributor retained $39,793 during the year ended April 30, 1994
from commissions earned on sales of the Series' Class A shares.
The Distributor retained $17,793 during the year ended April 30, 1994
from contingent deferred sales charges imposed upon redemptions of the
Series' Class B shares.
(B) Under the Distribution Plan ("Class B Distribution Plan") adopted
pursuant to Rule 12b-1 under the Act, the Series pays the Distributor at an
annual rate of .50 of 1% of the value of the Series' Class B shares average
daily net assets, for the costs and expenses in connection with advertising,
marketing and distributing the Series' Class B shares. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the
Series' Class B shares owned by clients of the Service Agent. During the year
ended April 30, 1994, $99,567 was charged to the Series pursuant to the Class
B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. For the year ended April 30, 1994,
$161,234 and $49,783 were charged to the Class A and Class B shares,
respectively, pursuant to the Shareholder Services Plan.
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each trustee
who is not an "affiliated person" receives from the Fund an annual fee of
$2,500 and an attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Manager
with a subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of the stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
As a result of regulatory requirements and the terms of the Merger
Agreement, the Manager will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will be
solicited by a proxy statement.
NOTE 3--SECURITIES TRANSACTIONS:
Purchases and sales of securities amounted to $54,488,128 and
$26,031,353, respectively, for the year ended April 30, 1994, and consisted
entirely of municipal bonds.
At April 30, 1994, accumulated net unrealized depreciation on investments
was $1,677,670, consisting of $2,045,864 gross unrealized appreciation and
$3,723,534 gross unrealized depreciation.
At April 30, 1994, 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).
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER STATE MUNICIPAL BOND FUND, VIRGINIA SERIES
We have audited the accompanying statement of assets and liabilities of
Premier State Municipal Bond Fund, Virginia Series (one of the Series
constituting the Premier State Municipal Bond Fund), including the statement
of investments, as of April 30, 1994, 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, 1994 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 Premier State Municipal Bond Fund, Virginia Series at April 30,
1994, 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 Signature Logo)
New York, New York
June 7, 1994
